Exhibit 99.1
October 22, 2001
FOR IMMEDIATE RELEASE
MONTEREY BAY BANCORP, INC. ANNOUNCES:
THIRD QUARTER AND YEAR TO DATE 2001 RESULTS;
CONTINUING ARBITRATION OF CLAIMS BY A FORMER EXECUTIVE
Common Stock Symbol: MBBC
NASDAQ National Market
Watsonville, CA. October 22, 2001. Monterey Bay Bancorp, Inc.
("Company"), the holding company for Monterey Bay Bank ("Bank"), today reported
net income of $1.1 million, equivalent to $0.31 diluted earnings per share, for
the quarter ended September 30, 2001, compared to net income of $461 thousand,
or $0.15 diluted earnings per share, for the same period in 2000. Net income
during the quarter ended June 30, 2001 (the immediately preceding quarter) was
$949 thousand, equivalent to $0.29 diluted earnings per share.
For the nine months ended September 30, 2001, net income was $2.6
million, equivalent to $0.79 diluted earnings per share. This compares to net
income of $1.8 million, or $0.58 diluted earnings per share, for the first nine
months of 2000. Net income during 2001 was impacted by (pre-tax) operating costs
for the conversion of the Company's core data processing system ($447 thousand)
and legal expenses associated with the arbitration of claims by a former
executive ($284 thousand).
During the third quarter of 2001, the Company continued the
implementation of its strategic plan of transforming the Bank into a community
focused commercial bank serving the financial needs of consumers and businesses
throughout the Greater Monterey Bay Area. Key accomplishments during the third
quarter of 2001 included the hiring of two experienced commercial banking
relationship managers, continuing to implement technology complementary to the
new core processing system installed in March 2001, and the attainment of record
levels of total assets, loans, deposits, and stockholder's equity at September
30, 2001. In addition, the $1.1 million in earnings during the third quarter of
2001 was the highest of any quarter in the Company's history.
The Company experienced only limited and indirect impact from the
events of September 11, 2001. Sales of non-FDIC insured investment products were
suspended for a week following the actions, and then remained slow through the
end of the third quarter. A significant market maker in the Company's
NASDAQ-traded common stock that also provided equity analyst coverage was
headquartered in the World Trade Center and was more directly impacted. To help
maintain the liquidity in its stock, the Company is seeking other market makers
and intends to work with the impacted market maker as that firm rebuilds.
Net interest income increased from $4.4 million and $13.4 million
during the third quarter and first nine months of 2000, respectively, to $5.0
million and $14.5 million during the same periods in 2001 primarily due to
greater average balances of interest earning assets and liabilities. The
Company's ratio of net interest income to average total assets was 3.79% and
3.80% for the three and nine months ended September 30, 2001, compared to 3.67%
and 3.80% during the same periods in 2000.
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Monterey Bay Bancorp, Inc. Page 2
Press Release
October 22, 2001
The Company's margins have been impacted in 2001 by a shift in loan mix
toward residential mortgages and by the Company's difficulty in decreasing NOW
and Savings deposit rates at the same pace as the declines in indices utilized
for adjustable rate loans. The NOW and Savings deposit rates were already at low
nominal levels before the significant interest rate cuts implemented by the
Federal Reserve in 2001. The Company has moderated the impact of these factors
in 2001 through its asset / liability management program.
The Company recorded a $275 thousand provision for loan losses during
the third quarter of 2001, down from $650 thousand during the third quarter of
2000. For the first nine months of 2001, the Company recorded $1.1 million in
provisions for loan losses, compared to $1.7 million during the same period in
2000. Loan loss provisions during 2001 were lower than those for the prior year
due to the Company's favorable credit experience thus far in 2001 and because of
the aforementioned shift in loan mix toward relatively lower risk residential
mortgages.
The Company's ratio of loan loss reserves to loans outstanding
increased slightly from 1.35% at December 31, 2000 to 1.38% at September 30,
2001. No recoveries were realized during the first nine months of 2001, and
charge-offs during the period totaled $52 thousand, half of which occurred
during the third quarter.
Various factors including the opening of new power plants, moderate
weather, the national economic slowdown, and conservation contributed to the
State of California's being able to meet electricity demand during the summer of
2001 with only minimal disruption. While the peak summer demand season is now
over, longer term aspects of the California energy crisis remain, including
uncertainty regarding the settlement of the various financial components of the
crisis. The Company includes an analysis of borrowers' exposure to energy
availability and prices as part of its underwriting process for new loans.
The Company recently completed the installation of a new and larger
natural gas powered electricity generator at its administrative headquarters
building. The new generator produces sufficient electricity to power the entire
building and all associated equipment, including the Company's primary data
processing servers. This new generator replaces a smaller unit that the Company
plans to relocate to its backup data processing "hot site", thereby providing
additional disaster recovery capability.
Non-accrual loans at September 30, 2001 totaled $957 thousand, down
from $4.7 million at December 31, 2000. The payoff in full on two large
non-accrual loans in April 2001 accounted for most of the decline. Non-accrual
loans at September 30, 2001 were primarily comprised of delinquent residential
mortgages. The Company had no foreclosed real estate at September 30, 2001.
In reviewing the adequacy of the level of loan loss reserves during the
third quarter of 2001, the Company included an evaluation of the impact of the
national economic slowdown upon the amount of loss inherent in the portfolio. To
date, real estate values in the Company's primary market areas have generally
not experienced significant declines. However, the need for additions to the
loan loss reserve through provisions charged against income could increase in
future periods depending upon the depth and duration of the national economic
slowdown in general and the status of the local economy in Central California in
particular.
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Monterey Bay Bancorp, Inc. Page 3
Press Release
October 22, 2001
The special residential loan pool that the Company purchased in 1998
has paid down significantly in 2001. 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, at purchase, a
scheduled principal / scheduled interest loan servicing agreement from the
seller. This agreement also contains 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 20, 2001, the Company has
allocated certain reserves to this pool due to concerns regarding the potential
losses by the seller in honoring the guaranty, the present delinquency profile
of the pool, and the differential between loan principal balances and current
appraisals for foreclosed loans and loans in the process of foreclosure. The
original balance of the special residential loan pool in 1998 was $40.0 million,
which was paid down to $6.8 million at September 30, 2001. In October, the
Company received approximately $554 thousand in additional principal repayments
associated with September activity.
Non-interest income totaled $690 thousand and $2.0 million during the
three and nine months ended September 30, 2001, comparing favorably to $630
thousand and $1.7 million during the same periods in 2000.
Service charge income rose from $356 thousand and $949 thousand during
the three and nine months ended September 30, 2000 to $401 thousand and $1.3
million during the same periods in 2001. This increase primarily resulted from
the revised fee and service charge schedule implemented with the new core
processing system in March, 2001.
The Company sold two non-Agency collateralized mortgage obligations
during the third quarter of 2001 for a pre-tax gain of $156 thousand. The sale
was made in conjunction with its asset / liability management program and to
provide additional liquidity for lending. No securities were sold during the
third quarter of 2000. For the first nine months of 2001, gains on the sale of
securities totaled $190 thousand, compared to a loss of $77 thousand during the
same period in 2000.
Loan servicing income totaled $33 thousand and $77 thousand during the
three and nine months ended September 30, 2001, compared to $30 thousand and $90
thousand during the same periods in 2000. The Company continues to sell the vast
majority of its long term, fixed rate residential loan production into the
secondary market on a servicing released basis. As a result, the portfolio of
loans serviced for others is declining as loans pay off. At September 30, 2001,
the Company serviced $47.0 million in various types of loans for other
investors, compared to $62.0 million at December 31, 2000.
Commissions from sale of non-FDIC insured investments totaled $35
thousand and $223 thousand during the three and nine months ended September 30,
2001, compared to $145 thousand and $534 thousand during the same periods in
2000. Less favorable general capital market conditions, the events of September
11, 2001, and investment staff turnover contributed to the lower revenues in
2001 versus 2000.
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Monterey Bay Bancorp, Inc. Page 4
Press Release
October 22, 2001
Gains on the sale of loans increased from $4 thousand and $15 thousand
during the three and nine months ended September 30, 2000 to $18 thousand and
$47 thousand during the same periods in 2001. The lower interest rate
environment in 2001 resulting from the nine rate cuts implemented by the Federal
Reserve has led to a strong residential loan refinance market, which in turn has
bolstered the Company's mortgage banking activity. Faster mortgage prepayments
during the fourth quarter of 2001 may affect the Company's ability to maintain
the size of its portfolio of loans held for investment.
Non-interest expense totaled $3.6 million and $10.9 million for the
three and nine months ended September 30, 2001, compared to $3.6 million and
$10.3 million for the same periods in 2000. Total non-interest expense in 2001
has been increased by costs for the data processing conversion ($447 thousand)
and legal expenses associated with the arbitration of claims by a former
executive ($284 thousand).
The Company continued participating in binding arbitration during the
third quarter of 2001 to address claims by the former President and Chief
Operating Officer regarding payments due under his employment contracts. The
arbitration process is expected to conclude during the fourth quarter of 2001.
In the third quarter of 2000, the Company established a $250 thousand reserve
for the settlement of these claims, exclusive of legal costs that are being
recognized as incurred. At this time, the Company, following consultation with
counsel, believes this reserve to be adequate to cover its liabilities in this
regard. Legal costs associated with the arbitration totaled $123 thousand during
the third quarter of 2001.
Throughout 2001, the Company has adjusted its staffing to advance the
strategic plan, primarily through the hiring of commercial loan officers and
professional bankers. Staffing has also increased in the data processing
function, coincident with the Company's shifting from an external service bureau
to in-house data processing. The change in the Company's systems environment
also impacted various other operating expenses. Data processing fees were much
lower in the third quarter of 2001 than the same period in 2000, while equipment
expense was higher due to the added depreciation from the new hardware and
software installed in 2001.
Costs for the data processing conversion included deconversion fees to
the prior service bureau, printing and postage costs for additional customer
communications, employee training and travel costs, and consulting fees for
technology professionals retained to assist with and speed the implementation of
the new system.
Advertising and promotion costs were identical in the third quarter of
2001 and 2000, but lower in the first nine months of 2001 versus the same period
in 2000 due to the Company's postponing certain marketing efforts early in 2001
while the core processing conversion was being completed. Advertising during the
third quarter of 2001 included local radio ads that focused on attracting
business customers to the Bank's flavor of high service "relationship banking".
The Bank also continues to promote its 2001 theme of "Monterey Bay Bank.
Expect More. Get The Best."
Total assets increased from $486.2 million at December 31, 2000 to a
record $527.1 million at September 30, 2001.
Cash & cash equivalents decreased from $25.2 million at December 31,
2000 to $13.4 million at September 30, 2001 due to the Company's using cash to
fund an expansion in the loan portfolio.
8
Monterey Bay Bancorp, Inc. Page 5
Press Release
October 22, 2001
Investment and mortgage backed securities decreased from $50.3 million
at December 31, 2000 to $38.2 million at September 30, 2001. During 2001, the
Company has utilized cash flows from sales and prepayments on mortgage related
securities to fund an increase in the loan portfolio.
Loans held for sale totaled $407 thousand at September 30, 2001. The
Company sells most of its long term, fixed rate residential mortgage production
into the secondary market on a servicing released basis, and purchases more
interest rate sensitive loans as part of its interest rate risk management
program.
Loans held for investment, net, increased from $391.8 million at
December 31, 2000 to a record $454.5 million at September 30, 2001. The increase
resulted from a combination of strong internal loan originations and from pool
purchases of various types of California real estate loans. Net loans as a
percentage of total assets increased from 80.6% at December 31, 2000 to 86.3% at
September 30, 2001, in conjunction with the Company's strategy supporting its
interest margin, fostering economic activity in its local communities, and
effectively utilizing the Bank's capital.
The Company delayed its strategy to evolve its long term loan portfolio
diversification away from residential mortgages during the third quarter of
2001, in part due to management's concerns about the near term status of the
California economy. Residential mortgages comprised 43.6% of gross loans at
September 30, 2001, compared to 43.4% at June 30, 2001 and 37.8% at December 31,
2000. In contrast, construction loans declined from 13.9% of gross loans at
December 31, 2000 to 10.0% at June 30, 2001 and 9.1% at September 30, 2001.
Commercial business loans increased from $3.1 million at December 31, 2000 to
$6.9 million at September 30, 2001, consistent with the Company's objective of
more thoroughly meeting the financial needs of businesses in the Monterey Bay
Area.
Premises and equipment, net, increased from $7.4 million at December
31, 2000 to $7.7 million at September 30, 2001 primarily due to hardware and
software purchases in support of the new core processing system.
Deposits increased from $407.8 million at December 31, 2000 to $428.6
million at September 30, 2001. The Company experienced strong growth in money
market deposits during the third quarter of 2001, when the Company advertised
its tiered "Money Market Plus" product and conducted an internal sales campaign.
The Company continues to focus on attracting new transaction deposit accounts,
including those from business customers, in conjunction with its strategic plan.
Borrowings increased from $32.6 million at December 31, 2000 to $47.9
million at September 30, 2001. During 2001, the Company has utilized FHLB
advances to fund some of the expansion in the loan portfolio. All of the
Company's FHLB advances at September 30, 2001 were fixed rate, fixed term
borrowings without call or put option features.
9
Monterey Bay Bancorp, Inc. Page 6
Press Release
October 22, 2001
Monterey Bay Bank continues to be in the highest regulatory capital
classification of "Well Capitalized". The Bank remains well in excess of the
institution specific regulatory capital requirements imposed by the Office of
Thrift Supervision during the first quarter of 2000 in conjunction with the
special residential mortgage pool. The Bank's regulatory capital ratios all
increased during the third quarter of 2001.
Consolidated stockholders' equity increased from $43.8 million at
December 31, 2000 to $48.7 million at September 30, 2001 due to a combination of
net income, continued amortization of deferred stock compensation, Directors
receiving their fees in Company stock, appreciation in the portfolio of
securities classified as available for sale, and the exercise of vested stock
options. The Company has not conducted any share repurchases during 2001. The
Company's tangible book value per share increased from $12.54 at December 31,
2000 to $13.63 at September 30, 2001.
Commenting on the September 11, 2001 terrorist attacks, C. Edward
Holden, Chief Executive Officer & President, stated "We were greatly saddened by
the terrible events of September 11, 2001. The Company was fortunate in that no
employees or their family members were lost. However, like many community banks,
we have business relationships with Keefe, Bruyette, & Woods and Sandler O'Neill
& Partners. The significant loss of employees at both of these investment
banking firms specializing in financial services companies has impacted the
entire industry, including the Company. We look forward to working with both
firms as they rebuild."
In reviewing the most recent quarter, Mr. Holden commented, "The
Company realized five key accomplishments this quarter. First, we continued
implementing our strategy of transforming the bank into a community based
financial services firm. Two new commercial relationship managers were recently
hired, and our pipeline of business lending has expanded. Second, the Company
recorded improved profitability versus prior periods despite the significant
legal costs associated with the arbitration. Third, we advanced the arbitration
process such that we anticipate a conclusion before the end of the year. Fourth,
the Company maintained a favorable credit profile, which we view as particularly
important at this point in the economic cycle. Fifth, and finally, we achieved
record levels of loans, assets, deposits, and stockholder's equity; fueled by
our focused efforts to meet the financial needs of individuals, families, and
businesses throughout the Greater Monterey Bay Area."
Mr. Holden continued, "Our objectives for the fourth quarter include
continuing to better utilize the significant new technology implemented at the
Company this year, gradually expanding commercial lending, increasing the scope
of electronic financial services offered, and evaluating potential new branch
sites. We want to expand with our local communities and encourage growth within
those communities by assisting our customers in achieving their financial
objectives. I am, however, concerned about the potential impact of the slowing
economy upon the demand for loans and upon the financial condition of current
and prospective customers. We feel that the best approach in this type of
economic environment is the one core to our business strategy: fostering
quality, longstanding relationships with customers in our market areas."
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Monterey Bay Bancorp, Inc. Page 7
Press Release
October 22, 2001
McKenzie Moss, Chairman of the Board of Directors, commented "The Board
of Directors, while pleased with the Company's improved earnings in 2001 versus
2000, acknowledges the importance of bringing the Company's return on equity and
efficiency ratios towards levels produced by high performing peer institutions.
We remain firmly focused on stockholder value, a focus emphasized by both the
Directors' continuing to receive retainer fees exclusively in Company stock and
by the numerous share purchases by Directors throughout 2001. In addition, we
have continued to utilize stock based compensation as a significant component of
management's remuneration."
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, business, and real estate market conditions in the Company's market
areas, competition, regulatory actions, the possibility that the Company will
not be successful in achieving its strategic objectives, the performance and
contributions of new employees, expected loan payments, the successful future
utilization and efficacy of new technology, the impact of the terrorist actions
upon consumer confidence, income, and spending, 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
ed.holden@montereybaybank.com mark.andino@montereybaybank.com
General communication:
INFO@MONTEREYBAYBANK.COM
www.montereybaybank.com
Phone: (831) 768 - 4800
Fax: (831) 722 - 6794
--- financial data follows ---
11
MONTEREY BAY BANCORP, INC.
Consolidated Financial Highlights
Unaudited
(Dollars In Thousands)
September 30, December 31,
------------- ------------
Financial Condition Data 2001 2000
------------------------------------------------------------ ---- ----
Cash and cash equivalents $ 13,380 $ 25,159
Investment and mortgage backed securities available for sale 38,175 50,310
Loans held for sale 407 --
Loans receivable held for investment:
Residential one to four unit real estate loans 212,309 160,155
Multifamily five or more units real estate loans 85,960 76,727
Commercial and industrial real estate loans 110,735 102,322
Construction loans 43,199 59,052
Land loans 11,039 16,310
Other loans 13,467 9,379
--------- ---------
Sub-total gross loans held for investment 476,709 423,945
(Less) / Plus:
Undisbursed construction loan funds (15,955) (26,580)
Unamortized purchase premiums, net of purchase discounts 230 21
Deferred loan fees and costs, net (105) (202)
Allowance for loan losses (6,387) (5,364)
--------- ---------
Loans receivable held for investment, net 454,492 391,820
Investment in capital stock of the Federal Home Loan Bank 3,323 2,884
Accrued interest receivable 3,151 2,901
Premises and equipment, net 7,732 7,375
Core deposit intangibles, net 1,684 2,195
Real estate acquired via foreclosure, net -- --
Other assets 4,754 3,546
--------- ---------
Total assets $ 527,098 $ 486,190
========= =========
Non-interest bearing demand deposits $ 20,016 $ 17,065
Interest bearing NOW checking accounts 41,073 41,859
Savings accounts 19,472 16,503
Money market accounts 97,114 87,651
Certificates of deposit 250,942 244,710
--------- ---------
Total deposits 428,617 407,788
Borrowings 47,943 32,582
Other liabilities 1,826 1,983
--------- ---------
Total liabilities 478,386 442,353
--------- ---------
Stockholders' equity 48,712 43,837
--------- ---------
Total liabilities and stockholders' equity $ 527,098 $ 486,190
========= =========
12
MONTEREY BAY BANCORP, INC.
Consolidated Financial Highlights, Continued
Unaudited
(Dollars In Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -----------------------------
Operating Data 2001 2000 2001 2000
------------------------------------------------------ ---- ---- ---- ----
Interest income $ 9,758 $ 9,514 $ 29,464 $ 27,976
Interest expense 4,743 5,115 14,924 14,530
---------- ---------- ---------- ----------
Net interest income before provision for loan losses 5,015 4,399 14,540 13,446
Provision for loan losses 275 650 1,075 1,675
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 4,740 3,749 13,465 11,771
---------- ---------- ---------- ----------
Non-interest income:
Gain (loss) on sale of securities, net 156 -- 190 (77)
Commissions from sales of non-insured products 35 145 223 534
Customer service charges 401 356 1,282 949
Income from loan servicing 33 30 77 90
Gain on sale of loans 18 4 47 15
Other income 47 95 209 203
---------- ---------- ---------- ----------
Total non-interest income 690 630 2,028 1,714
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and employee benefits 1,739 1,904 5,052 4,991
Occupancy and equipment 440 329 1,222 960
Deposit insurance premiums 50 48 148 140
Data processing fees 133 271 746 837
Legal and accounting expenses 274 148 724 489
Supplies, postage, telephone, and office
expenses 158 163 510 522
Advertising and promotion 84 84 141 283
Amortization of intangible assets 170 175 511 524
Consulting 31 15 336 118
Other expense 507 415 1,558 1,396
---------- ---------- ---------- ----------
Total non-interest expense 3,586 3,552 10,948 10,260
---------- ---------- ---------- ----------
Income before income taxes 1,844 827 4,545 3,225
Provision for income taxes 787 366 1,937 1,411
---------- ---------- ---------- ----------
Net income $ 1,057 $ 461 $ 2,608 $ 1,814
========== ========== ========== ==========
Shares applicable to basic earnings per share 3,293,853 3,100,164 3,261,032 3,104,580
Basic earnings per share $ 0.32 $ 0.15 $ 0.80 $ 0.58
========== ========== ========== ==========
Shares applicable to diluted earnings per share 3,385,556 3,103,799 3,320,237 3,110,342
Diluted earnings per share $ 0.31 $ 0.15 $ 0.79 $ 0.58
========== ========== ========== ==========
13
MONTEREY BAY BANCORP, INC.
Selected Ratios And Other Data
Unaudited
(Dollars In Thousands)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Profitability Ratios
------------------------------------------
Return on average assets 0.80% 0.38% 0.68% 0.51%
Return on average equity 8.76% 4.55% 7.51% 6.05%
Interest rate spread during the period 3.64% 3.44% 3.64% 3.55%
Net interest income / average total assets 3.79% 3.67% 3.80% 3.80%
Net interest margin 3.99% 3.83% 4.01% 3.97%
Efficiency ratio 62.86% 70.63% 66.08% 67.68%
Other Information
------------------------------------------
Average total assets $ 529,964 $ 479,427 $ 510,046 $ 471,860
Average interest earning assets $ 502,611 $ 459,083 $ 483,298 $ 451,369
At At
September 30, December 31,
2001 2000
---- ----
Asset Quality Information
------------------------------------------
Non-accrual loans $ 957 $ 4,666
Non-performing loans $ 957 $ 4,741
Real estate acquired via foreclosure -- --
Allowance for loan losses $ 6,387 $ 5,364
Allowance for loan losses /
loans outstanding 1.38% 1.35%
Allowance for loan losses /
non-accrual loans 667.40% 114.96%
Bank Regulatory Capital Ratios
------------------------------------------
Tangible capital ratio 8.12% 8.03%
Core capital ratio 8.12% 8.03%
Tier one risk based capital ratio 11.44% 11.03%
Total risk based capital ratio 12.70% 12.28%
Other Information
------------------------------------------
Full-service customer facilities 8 8
Number of ATM's 11 11
Loan to deposit ratio 106.13% 96.08%
Tangible book value per share $13.63 $12.54
Shares outstanding 3,449,379 3,321,210