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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METROPOLITAN FINANCIAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
OHIO 34-1109469
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22901 MILL CREEK BOULEVARD
HIGHLAND HILLS, OHIO 44122
(216) 206-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MR. KENNETH T. KOEHLER
PRESIDENT, CHIEF OPERATING OFFICER, ASSISTANT SECRETARY AND ASSISTANT TREASURER
METROPOLITAN FINANCIAL CORP.
22901 MILL CREEK BOULEVARD
HIGHLAND HILLS, OHIO 44122
(216) 206-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
PAUL N. HARRIS, ESQ.
THOMPSON HINE LLP
127 PUBLIC SQUARE
3900 KEY CENTER
CLEVELAND, OHIO 44114
(216) 566-5500
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Aggregate Amount of
Title of Shares Amount to be Offering Registration
To Be Registered Registered Price(3) Fee
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Shares of Common Stock, no par value (1) 1,587,302 $5,000,000 $1,250
Shares of Common Stock, no par value (2) 4,761,905 $15,000,000 $3,750
Rights to Purchase Shares of Common Stock (4)
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(1) Reflects an estimated 1,587,302 shares of common stock to be offered
directly to standby purchasers.
(2) Reflects an estimated 4,761,905 shares of common stock issuable upon
the exercise of the subscription rights being offered pursuant to this
Registration Statement.
(3) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the registration fee.
(4) Pursuant to Rule 457(g), no separate registration fee is required for
the rights.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 2001
PROSPECTUS
METROPOLITAN FINANCIAL CORP.
[METROPOLITAN LOGO]
SHARES OF COMMON STOCK
We are offering non-transferable subscription rights to purchase
shares of our common stock to persons who owned shares of our
common stock as of the close of business on , 2001, the record date
of the rights offering. We are also offering shares of our common
stock to certain institutional and high net worth investors in a concurrent
offering at the same price.
In the rights offering:
- You will receive, at no cost, a subscription right to purchase
of a share of our common stock, at the subscription price
of $ per share, for each share of our common stock that you own
on the record date.
- The subscription rights are exercisable beginning on the date of this
prospectus and continuing until , Eastern Time, on
, 2001, the expiration date, unless we extend such date.
- Your rights are not transferable.
- We reserve the right to cancel the rights offering at any time.
Our common stock is quoted for trading on The Nasdaq Stock Market's
National Market under the trading symbol "METF." The closing price of our shares
of common stock on , 2001 was $ per share.
<Table>
<Caption>
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SUBSCRIPTION PROCEEDS TO METROPOLITAN
PRICE FEES (1) FINANCIAL CORP. (2)
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Per Share............ $ $ $
Total................ $20,000,000 $875,000 $19,125,000
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</Table>
(1) In connection with the offerings, we have retained Ryan, Beck & Co., LLC to
serve as our financial advisor and marketing agent. We have agreed to pay
Ryan, Beck 5% of funds raised from our shareholders, other than from Robert
M. Kaye, our Chief Executive Officer and Chairman, 5% of funds raised from
standby purchasers, and an advisory fee of $200,000 and to reimburse Ryan,
Beck for its expenses.
(2) Before deducting expenses payable by us, estimated to be $145,250.
We have entered into agreements with certain institutional and high net
worth investors that provide that these investors will purchase, at the same
price per share, all of the shares of our common stock that are not subscribed
for in the rights offering. We are also offering shares of our
common stock to these investors in a concurrent offering at the same price.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF SOME OF THE
FACTORS THAT YOU SHOULD CONSIDER BEFORE PURCHASING OUR SHARES OF COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Ryan, Beck & Co.
The date of this prospectus is September , 2001.
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TABLE OF CONTENTS
PAGE
SUMMARY.......................................................................1
Background.................................................................1
Questions and Answers About the Offerings..................................3
RISK FACTORS..................................................................7
Risks Related to Metropolitan Bank's Business.............................7
Risks Related to Our Shares Of Common Stock................................9
FORWARD-LOOKING STATEMENTS...................................................10
USE OF PROCEEDS..............................................................11
CAPITALIZATION...............................................................12
SELECTED FINANCIAL DATA......................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................15
BUSINESS.....................................................................24
REGULATION AND SUPERVISION...................................................43
THE OFFERINGS................................................................47
PLAN OF DISTRIBUTION.........................................................52
DESCRIPTION OF COMMON STOCK..................................................52
EXPERTS......................................................................53
LEGAL MATTERS................................................................53
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................53
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You should rely only on the information contained in this prospectus or
to which we have referred you. We have not authorized anyone to provide you with
different information. This document may be used only where it is legal to sell
these securities. The information in this prospectus is only accurate on the
date of this prospectus.
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SUMMARY
This section answers in summary form some questions you may have about
Metropolitan Financial Corp., the rights offering and the concurrent offering to
standby purchasers. The information in this section is not complete and does not
contain all of the information that you should consider before exercising your
rights and purchasing our common stock. We strongly urge you to read carefully
the entire prospectus, including the "Risk Factors" section, and the documents
listed under "Where You Can Find Additional Information." In this prospectus,
all references to "Metropolitan Financial Corp.," "we," "us," "Company," "our,"
and "registrant" refer to Metropolitan Financial Corp.
BACKGROUND
GENERAL
Metropolitan Financial Corp. is a savings and loan holding company that
was incorporated in 1972. Our primary operating subsidiary is Metropolitan Bank
and Trust Company, a wholly-owned subsidiary. Metropolitan Bank operates 24 full
service retail sales offices that primarily serve Northeastern Ohio and 10 loan
origination offices throughout Ohio and in Western Pennsylvania. Our principal
executive office is located at 22901 Mill Creek Blvd., Highland Hills, Ohio
44122. Our telephone number is (216) 206-6000.
In 1996, we made our initial public offering of common stock. At the
time we went public, we had $720 million of assets and 14 full service retail
sales offices. As of June 30, 2001, we have grown to $1.7 billion in assets and
24 full service retail sales offices. Recently, we have encountered problems
primarily due to our rapid growth.
Our net income decreased from $4.5 million for the year ended December
31, 1999 to $1.5 million for the year ended December 31, 2000 to a net loss of
$2.1 million for the six months ended June 30, 2001. This deterioration was
caused primarily by:
- An increase in nonperforming assets and resulting increases
in the provisions for losses on loans and real estate owned;
- Compression of the interest rate spread between our
interest-earning assets and our interest-bearing liabilities;
- Compensation and occupancy costs related to our expansion of
existing lines of business;
- Compensation and occupancy expenses related to our new
headquarters and the addition of 10 new full service retail
sales offices and 5 loan origination offices since 1996; and
- One-time and ongoing costs associated with a data processing
conversion.
RECENT DEVELOPMENTS
As a result of the performance of the Company, on July 26, 2001, the
Company entered into a supervisory agreement with the Office of Thrift
Supervision ("OTS"), which requires us to prepare and adopt a plan for raising
capital that uses sources other than increased debt or which requires additional
dividends from Metropolitan Bank. We intend to use the net proceeds of the
rights offering and the offering to standby purchasers to raise the capital
required by this supervisory agreement.
Additionally, Metropolitan Bank entered into a separate supervisory
agreement with the OTS and the Ohio Department of Financial Institutions (the
"ODFI") on July 26, 2001, which requires Metropolitan Bank to do the following:
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- Develop a capital improvement and risk reduction plan by
September 28, 2001;
- Achieve or maintain compliance with core and risk-based capital
standards at the well-capitalized level, including a risk-based
capital ratio of 10% by December 31, 2001;
- Reduce investments in fixed assets;
- Attain compliance with board approved interest rate risk policy
requirements;
- Reduce volatile funding sources, such as brokered and
out-of-state deposits;
- Improve controls related to credit risk; and
- Restrict total assets to not more than $1.7 billion.
Both supervisory agreements also contain restrictions on adding,
entering into employment contracts with, or making golden parachute payments to
directors and senior executive officers and in changing responsibilities of
senior officers.
We, as well as Metropolitan Bank, are working to comply with all of the
provisions of the supervisory agreements.
OPERATING STRATEGY
Our operating strategy is to comply with the supervisory agreements by
increasing capital, reducing fixed assets, improving policies and procedures
relating to interest rate and credit risks and increasing core deposits. We
intend to continue our emphasis on our current lending activities that consist
of:
- residential mortgage banking;
- multifamily loans;
- construction and land loans;
- commercial real estate loans;
- consumer loans; and
- commercial business loans.
See "Business" (page 24) and "Where You Can Find Additional Information" (page
54 ).
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QUESTIONS AND ANSWERS ABOUT THE OFFERINGS
GENERAL
Q: WHY IS METROPOLITAN FINANCIAL CORP. ENGAGING IN THE OFFERINGS?
A: We are engaging in the offerings of our shares of common stock in order to
raise equity capital to improve Metropolitan Bank's capital position, as
required under the supervisory agreements with the OTS and the ODFI, and to make
a $1 million required principal payment on our commercial bank loan. Our Board
of Directors has chosen to raise capital in part through a rights offering to
give our shareholders the opportunity to limit ownership dilution by buying
additional shares of common stock. Of course, we cannot assure you that we will
not need to seek additional financing in the future.
Q: HOW MUCH MONEY WILL METROPOLITAN FINANCIAL CORP. RECEIVE FROM THE
OFFERINGS?
A: Our gross proceeds from the offerings will be $20 million, before deducting
commissions and expenses payable by us, estimated to be $__________.
Q: HOW DID WE ARRIVE AT THE $___________ PER SHARE PRICE?
A: The price of the common stock to be purchased in the offerings was
determined by our Board of Directors based upon relevant factors including
market conditions. The price is not necessarily related to the assets, book
value, or shareholders' equity of our Company or any other established criteria
of value and may not be indicative of the fair market value of the securities
offered. The price may be different than the market price of our common stock on
The Nasdaq Stock Market's National Market at the close of the offerings.
Q: WHEN WILL I RECEIVE MY NEW SHARES?
A: If you purchase shares of common stock through the offerings, and your
present shares are registered in your name, you will receive certificates
representing the new shares of common stock you are purchasing as soon as
practicable after the expiration date, ___________, 2001. If your shares of our
common stock are currently held by a broker or bank, however, you will not
receive stock certificates for your new shares. Instead, your account with the
bank or broker will be credited with the shares that you purchase.
Q: CAN WE CANCEL THE OFFERINGS?
A: Yes. Our Board of Directors may cancel the offerings at any time on or
before __________, 2001, for any reason. If we cancel the offerings, any money
received by us in connection with the offerings will be refunded promptly,
without interest.
Q: HOW MANY SHARES OF COMMON STOCK WILL BE OUTSTANDING AFTER THE OFFERINGS?
A: We will issue _______ new shares of common stock in the rights offering and
___ new shares of common stock in the offering to the standby purchasers. We had
______ shares outstanding as of ________, 2001, the record date of the rights
offering, and will have approximately _________ shares of common stock
outstanding after the completion of these offerings.
Q: WILL THE SHARES OF COMMON STOCK SOLD IN THE OFFERINGS BE LISTED FOR
TRADING?
A: Yes. The shares will be listed for trading on The Nasdaq National Market
under the symbol "METF."
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THE RIGHTS OFFERING
Q: WHAT IS A RIGHTS OFFERING?
A: A rights offering is an opportunity for you to purchase additional shares
of our common stock at a price of $________ per share. You have the right to
purchase shares in an amount that is proportional to your existing ownership
interest, which enables you to limit your ownership dilution in connection with
the offerings. A rights offering also allows you to buy shares of common stock
without the payment of commissions or other expenses.
Q: WHAT IS A SUBSCRIPTION RIGHT?
A: We are distributing to you, at no charge, a subscription right to purchase
__ of a share of common stock for each share of common stock that you owned on
________, 2001. Each subscription right entitles you to purchase __ of a share
of common stock for $________ , subject to the terms of this rights offering.
When you exercise a subscription right, that means that you choose to purchase
the amount of common stock that the subscription right entitles you to purchase.
For example, if you own 100 shares of our common stock, you are entitled to
purchase _____ additional shares for $__________. You may exercise any number of
your subscription rights, or you may choose not to exercise any subscription
rights. Subscription rights are not transferable. The number of shares you are
entitled to purchase through the exercise of subscription rights is indicated on
your subscription certificate.
Q: WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
A: The over-subscription privilege entitles you, if you fully exercise your
basic subscription rights, to subscribe for additional shares of our common
stock. Additional shares will be available to the extent that other shareholders
do not fully exercise their basic subscription rights. We do not expect that all
of our shareholders will exercise all of their basic subscription rights.
Q: WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
A: The number of shares available for over-subscription privileges will be the
total shares offered in the rights offering, __________, less the number of
shares purchased upon exercise of all basic subscription rights.
There is no limit on the amount of common stock a shareholder may
subscribe for pursuant to the over-subscription privilege. If sufficient shares
of common stock are available, we will seek to honor the over-subscription
requests in full. If over-subscription requests exceed the number of shares of
common stock available, we will allocate the available shares of common stock
among shareholders who over-subscribed in proportion to the number of shares of
common stock purchased by those over-subscribing shareholders through the basic
subscription rights. However, if your pro rata allocation exceeds the number of
shares of common stock you requested, you will receive only the number of shares
of common stock that you requested. The remaining shares of common stock from
your pro rata allocation will be divided among other shareholders exercising
their over-subscription privileges who have subscribed for additional shares of
common stock in proportion to the number of shares of common stock purchased by
that group of over-subscribing shareholders through the basic subscription
rights.
Q: ARE THERE ANY PURCHASE COMMITMENTS IN THE RIGHTS OFFERING?
A: As of the date of this prospectus, certain directors and officers,
excluding Robert M. Kaye, have committed to purchase up to an aggregate of
_______ shares of common stock in the rights offering if the shares of common
stock are not otherwise subscribed for by other shareholders. To effect this
commitment, each of these purchasers has individually agreed to exercise his or
her basic subscription rights in full in the aggregate amount of $__________ and
to subscribe for additional shares of common stock pursuant to the
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over-subscription privilege. In addition, Robert M. Kaye, our Chief Executive
Officer and Chairman, has advised the Company that he will exercise his basic
subscription rights in part in the amount of $8 million, or approximately 71.1%
of Mr. Kaye's basic subscription rights.
We have entered into agreements with certain institutional and high net
worth investors, who we refer to as standby purchasers. These agreements provide
that the standby purchasers will purchase, at the same price per share, all of
the shares of our common stock that are not subscribed for by our shareholders
in the rights offering.
Q: HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS?
A: If you hold stock certificates for shares of our common stock, you will
receive a subscription certificate that you must properly complete and deliver
to the subscription agent before ____, Eastern Time, on _____________, 2001.
Your subscription certificate must be accompanied by proper payment for each
share of common stock that you wish to purchase. If you hold your shares of our
common stock through a bank, broker, dealer or other nominee, then your bank,
broker, dealer or other nominee is the record holder of the shares you own. This
record holder must exercise the rights on your behalf for shares you wish to
purchase. You will not receive a subscription certificate. Please follow the
instructions that you receive by mail from your bank, broker, dealer or other
nominee.
Q: HOW LONG WILL THE RIGHTS OFFERING LAST?
A: You will be able to exercise your subscription rights only for a limited
period. IF THE SUBSCRIPTION AGENT DOES NOT RECEIVE YOUR PAYMENT BEFORE
__________, EASTERN TIME, ON _______________, 2001, YOUR SUBSCRIPTION RIGHTS
WILL EXPIRE. If you currently hold your shares of our common stock through a
bank, broker, dealer or other nominee, you will be required to submit your order
through the bank, broker, dealer or other nominee within the time frame
designated by it. We may, in our discretion, decide to extend the rights
offering.
Q: IF I HAVE A QUESTION ABOUT THE COMPANY OR THE RIGHTS OFFERING, WHAT SHOULD
I DO?
A: Call our information agent, Ryan, Beck, at (800) ____________, Monday
through Friday, 9:00 a.m. to 1:00 p.m. Eastern Time.
Q: IF I HAVE A QUESTION ABOUT COMPLETING MY SUBSCRIPTION CERTIFICATE AND
SUBMITTING A PAYMENT, WHAT SHOULD I DO?
A: Call our subscription agent, Georgeson Shareholder Communications, Inc., at
___-___-____, Monday through Friday, _____ a.m. to _____ p.m. Eastern Time.
Q: AFTER I EXERCISE MY SUBSCRIPTION RIGHTS, CAN I CHANGE MY MIND?
A: No. Once you send in your subscription certificate and payment, you cannot
revoke the exercise of your subscription rights. You should not exercise your
subscription rights unless you are certain that you wish to purchase additional
shares of common stock at a price of $_______ per share.
Q: MUST I PURCHASE STOCK IN THE RIGHTS OFFERING?
A: No.
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Q: WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?
A: You will retain your current number of shares of our common stock even if
you do not exercise your subscription rights. However, the percentage of
our Company that you own will diminish.
Q: CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS?
A: No.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS?
A: The receipt and exercise of your subscription rights are intended to be
nontaxable. You should seek specific tax advice from your personal tax advisor.
Q: IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
A: The exercise of your subscription rights involves certain risks. Exercising
your subscription rights means buying additional shares of our common stock, and
you should carefully consider this investment as you would other investments.
Among other things, you should carefully consider the risks described under the
heading "Risk Factors," beginning on page 7.
THE OFFERING TO THE STANDBY PURCHASERS
Q: WHO ARE THE STANDBY PURCHASERS?
A: [________________________]
Q: WHY ARE WE ENGAGING IN A SEPARATE OFFERING TO THE STANDBY PURCHASERS?
We have agreed to offer _________ shares of common stock to the standby
purchasers at the $_____ per share price in consideration for their commitment
to purchase all of the shares of our common stock that are not subscribed for in
the rights offering.
Q: WHAT EFFECT DOES THE OFFERING TO THE STANDBY PURCHASERS HAVE ON ME?
The offering to the standby purchasers will result in the dilution of
your ownership interest in Metropolitan Financial Corp.
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RISK FACTORS
An investment in shares of our common stock involves a number of risks.
We urge you to read all of the information contained in this prospectus. In
addition, we urge you to consider carefully the following factors in evaluating
us, our business and the offerings before you exercise your subscription rights
or purchase shares of our common stock being offered by this prospectus.
RISKS RELATED TO METROPOLITAN BANK'S BUSINESS
OUR AGREEMENTS WITH REGULATORS IMPOSE OPERATING REQUIREMENTS ON US AND
METROPOLITAN BANK, WHICH, IF VIOLATED, COULD RESULT IN ADDITIONAL SANCTIONS THAT
WOULD BE DETRIMENTAL TO US AND YOUR INVESTMENT.
The Company entered into a supervisory agreement with the OTS on July
26, 2001, requiring the Company to adopt a plan for raising capital. In
addition, Metropolitan Bank entered into a separate supervisory agreement with
the OTS and the ODFI on July 26, 2001, requiring Metropolitan Bank to take a
number of affirmative actions, such as increasing its risk-based capital ratio,
attaining compliance with approved interest rate and credit risk policy
requirements, limiting growth and reducing fixed assets. If the Company or
Metropolitan Bank is unable to comply with the terms and conditions of the
supervisory agreements, the OTS and the ODFI could take additional regulatory
action, including the issuance of a cease and desist order requiring further
corrective action such as raising additional capital, obtaining additional or
new management and restricting dividends from Metropolitan Bank to the Company.
These additional restrictions could make it impossible to service existing debt
of the Company and could adversely impact the value of our common stock.
ROBERT M. KAYE CONTROLS THE COMPANY AND METROPOLITAN BANK AND HIS INTERESTS
COULD BE DIFFERENT THAN YOUR INTERESTS.
Robert M. Kaye, our Chief Executive Officer and Chairman, currently
owns approximately 75% of our common stock. Mr. Kaye intends to purchase common
stock in the rights offering in an amount equal to $8 million. If Mr. Kaye
purchases that amount, upon completion of the offerings, he will own
approximately ___% of the outstanding shares of our common stock and will
continue to have control of our Company. He will continue to be able to elect or
remove all of our directors and determine the outcome of any issue submitted to
a vote of the shareholders, such as:
- Approval of mergers or other business combinations;
- Issuance of any additional shares of common stock or other
equity securities; and
- Issuance of any debt other than in the ordinary course of
business.
Mr. Kaye's ability to reject an unsolicited bid to acquire the Company
or Metropolitan Bank or any other change in control could have an adverse effect
on the market price of our shares of common stock.
METROPOLITAN BANK'S CONCENTRATION OF LOANS SECURED BY COMMERCIAL REAL ESTATE AND
BUSINESS LOANS INCREASES THE POSSIBILITY OF LOAN LOSSES.
We may incur significant losses because approximately 13.8% of
Metropolitan Bank's loans are secured by commercial real estate and
approximately 10.4% of Metropolitan Bank's loans are business loans secured by a
variety of types of collateral. Although generally secured, commercial real
estate and commercial business loans have a higher risk of loss than residential
real estate loans. Significant losses on commercial real estate and commercial
business loans are possible because the repayment of these loans typically
depends upon the successful operation of commercial enterprises. Competitive
pressures, economic cycles, changes in technology and similar factors may
negatively impact the cash flows of the commercial enterprises and their
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ability to repay their loans. As a result, there is an increased possibility
that we may suffer additional delinquencies and ultimately loan losses.
A DETERIORATION OF OUR CURRENT NONPERFORMING LOANS OR AN INCREASE IN THE NUMBER
OF OUR NONPERFORMING LOANS MAY HAVE AN ADVERSE IMPACT ON OUR NET INCOME.
If loans that are currently nonperforming further deteriorate or loans
that are currently performing become nonperforming loans, we may need to
increase our allowance for loan losses. Such an increase would have a negative
impact on net income and earnings per share. As of June 30, 2001, we had an
allowance for loan losses of $17.0 million. However, since the determination of
the allowance for loan losses is based on estimates, which may change over time,
there can be no absolute assurance that the current allowance will be adequate
to cover all losses related to loans currently in the loan portfolio. In
addition, the OTS and ODFI could require that we increase our allowance for loan
losses.
A DECLINE IN REAL ESTATE VALUES, PARTICULARLY IN OHIO OR CALIFORNIA, COULD
REDUCE METROPOLITAN BANK'S INCOME.
The value of Metropolitan Bank's real estate collateral could be
adversely affected by downturns in the real estate markets where it conducts its
business. A decline in real estate values, particularly in Ohio or California,
would reduce the value of the real estate collateral securing Metropolitan
Bank's loans and increase the risk that Metropolitan Bank would incur losses if
borrowers defaulted on their loans. At June 30, 2001, real estate secured
approximately 77.8% of Metropolitan Bank's loans. At June 30, 2001, properties
located in Ohio and California secured approximately 58.9% and 14.5%,
respectively, of the principal amount of Metropolitan Bank's real estate loans.
THE ABILITY OF THE COMPANY TO PREDICT THE EFFECT OF RISING AND DECLINING
INTEREST RATES ON ITS BUSINESS IS LIMITED.
The Company is subject to the risk of fluctuations in net interest
income due to changes in interest rates. Because of Metropolitan Bank's emphasis
on construction, commercial business and consumer loans, many of which are
prime-based assets that react very quickly to changes in interest rates,
standard interest rate models have not been successful in predicting the
Company's exposure to interest rate risk. Based on the combination of changes in
short-term interest rates, changes in the shape and slope of the yield curve and
the effect of local market conditions, the Company has had limited success in
predicting the effect of rising and falling rates on its business.
REGULATORY RESTRICTIONS ON BANK DIVIDENDS COULD LIMIT THE AMOUNTS METROPOLITAN
BANK MAY PAY TO US AND OUR ABILITY TO MAKE PAYMENTS ON OUR DEBT.
As a holding company, we conduct our operations mainly through our
subsidiaries. Other than our investing and financing activities, our principal
source of cash is dividends Metropolitan Bank pays to us. If Metropolitan Bank
is unable to pay dividends to us, we may be unable to make interest or principal
payments on our debt resulting in a default of one or more of our obligations.
Various regulatory provisions could restrict the amount of dividends
Metropolitan Bank can pay to us. For example, Metropolitan Bank operates with
lower capital ratios than most other banks and, as a result, faces a higher risk
of falling below regulatory capital requirements. If Metropolitan Bank becomes
undercapitalized, Metropolitan Bank will have to comply with increased
restrictions on the payment of dividends and may lose its ability to pay
dividends. If Metropolitan Bank were prohibited from paying dividends to us,
based on liquid assets available at June 30, 2001, we would be able to continue
to pay interest on existing holding company obligations for approximately three
months. If we deferred the payment of interest on our trust preferred securities
we would be able to continue to pay interest on existing holding company
obligations for approximately twelve months.
-8-
12
GROWTH RESTRICTIONS MAY ADVERSELY IMPACT OUR ABILITY TO INCREASE PROFITS.
Metropolitan Bank has agreed to limit its growth under its agreement
with regulators. Because we generate the majority of our revenue from interest
we earn on our assets, restricting growth may adversely effect our ability to
increase our revenue and may therefore adversely impact our ability to increase
profits.
IF THE FEDERAL HOME LOAN BANK REQUIRES METROPOLITAN BANK TO SUBMIT ADDITIONAL
COLLATERAL BASED ITS CURRENT FINANCIAL CONDITION, METROPOLITAN BANK MAY BE
REQUIRED TO OBTAIN PLEDGEABLE ASSETS THAT WOULD NOT PROVIDE A POSITIVE SPREAD
OVER OTHER FUNDING SOURCES AVAILABLE.
The Federal Home Loan Bank determines a credit rating for each of their
debtor banks each quarter. In August 2001, based on the financial condition of
Metropolitan Bank as of the end of the first quarter of 2001, the Federal Home
Loan Bank increased Metropolitan Bank's collateral requirement with respect to
one- to four-family loans and multifamily loans from 125% of borrowings to 150%
of borrowings. As a result, Metropolitan Bank's borrowing capacity of $29
million at June 30, 2001 was reduced to a collateral shortage of $12 million at
August 31, 2001. If this shortage is not resolved by December 15, 2001,
Metropolitan Bank will have to pay down existing borrowings or convert existing
assets into pledgeable assets. Further declines in Metropolitan Bank's financial
condition could result in additional collateral shortages requiring additions of
brokered or out of state deposits. These pledgeable assets would not provide a
positive spread over other funding sources available.
RISKS RELATED TO OUR SHARES OF COMMON STOCK
OUR HISTORY OF NOT PAYING DIVIDENDS ON OUR SHARES OF COMMON STOCK MAY ADVERSELY
IMPACT THE MARKET VALUE OF OUR SHARES OF COMMON STOCK.
The market may value our shares of common stock at a lower price than
the common stock of a similar company with a history of paying cash dividends.
Dividend yield is one of a number of factors that can affect the market price of
a stock. We have not historically paid any cash dividends on our shares of
common stock. Currently, we have no plans to pay cash dividends on our common
stock. In addition, we have entered into various agreements that limit or
prohibit our ability to pay cash dividends on our common stock.
FUTURE COMMON STOCK OFFERINGS MAY REDUCE YOUR PERCENTAGE OWNERSHIP IN OUR
COMPANY.
If we conduct additional offerings of shares of common stock in the
future, you may experience dilution in your percentage ownership of our
outstanding common stock.
THE PRICE OF THE SHARES OFFERED BY THIS PROSPECTUS IS NOT NECESSARILY AN
INDICATION OF THE VALUE OF OUR COMPANY.
The price of shares offered for sale by this prospectus was set by our
Board of Directors after considering relevant factors, including market
conditions. The price does not necessarily bear any relationship to the assets,
book value or shareholders' equity or any other established criteria of value.
You should not consider the price as an indication of our present or future
value. After the date of this prospectus, our shares of common stock may trade
at prices above or below the offering price.
THE PRICE OF OUR COMMON STOCK MAY DECLINE BEFORE OR AFTER THE OFFERINGS EXPIRE.
We cannot assure you that the trading price of our common stock will
not decline after you elect to participate in the offerings. Moreover, we cannot
assure you that following the offerings you will be able to sell your shares of
common stock at a price equal to or greater than the $_____ price in the
offerings. Until shares are delivered after the expiration of the offerings, you
may not be able to sell the shares of our common
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13
stock that you purchase in the offerings. Certificates representing shares of
our common stock purchased will be delivered as soon as practicable after
expiration of the offerings.
YOU MAY HAVE DIFFICULTY SELLING YOUR SHARES OF COMMON STOCK BECAUSE OF THE
LIMITED TRADING VOLUME FOR OUR SHARES OF COMMON STOCK.
Because approximately 75% of our shares of common stock is owned by Mr.
Kaye, the trading volume of the shares of common stock has been less active than
many other companies listed on The Nasdaq Stock Market's National Market. A
public market having the desired characteristics of depth, liquidity and
orderliness depends upon the presence of willing buyers and sellers of the
common stock in the marketplace. In turn, the presence of buyers and sellers
depends, among other things, on the individual decisions of investors and upon
general economic and market conditions over which we have no control.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are subject to
assumptions, risks and uncertainties. Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or current
facts. They often include the words "believe," "expect," "anticipate," "likely,"
"intend," "plan," "estimate" or words of similar meaning, or future or
conditional verbs such as "will," "would," "should," "could" or "may." Actual
results could differ materially from those contained in or implied by such
forward-looking statements for a variety of factors including:
- changes in interest rates;
- continued weakening in the economy and other factors that would
materially impact credit quality trends, real estate lending and the
ability of Metropolitan Bank to generate loans;
- business and other factors affecting the economic outlook of
individual borrowers of Metropolitan Bank and their ability to repay
loans as agreed;
- the ability of the Company and Metropolitan Bank to timely meet their
obligations under their respective supervisory agreements;
- increase in the dollar amount of nonperforming loans held by
Metropolitan Bank;
- increased competition which raises rates paid on demand and time
deposits offered by Metropolitan Bank;
- adverse developments in material collection and other lawsuits
involving Metropolitan Bank;
- delay in or inability to execute strategic initiatives designed to
grow revenues and/or manage expenses;
- changes in law imposing new legal obligations or restrictions or
unfavorable resolution of litigation; and
- changes in accounting, tax, or regulatory practices or requirements.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy or
capital expenditure plans that may, in turn, affect our results of operations.
In light of the significant uncertainties inherent in the forward-looking
information included in this prospectus, you should
-10-
14
not regard the inclusion of such information as our representation that we will
achieve any strategy, objectives or other plans. The forward-looking statements
contained in this prospectus speak only as of the date of this prospectus as
stated on the front cover, and we have no obligation to update publicly or
revise any of these forward-looking statements.
USE OF PROCEEDS
We estimate that the proceeds to Metropolitan Financial Corp. from the
offerings will be approximately $19.0 million after fees and expenses. We expect
the net proceeds from these offerings to be used as follows:
- approximately $18.0 million will be contributed as capital to
Metropolitan Bank in order to improve Metropolitan Bank's capital
position; and
- approximately $1.0 million will be used to make a scheduled
principal payment on the Company's commercial bank loan. The debt
to be discharged matures on December 31, 2001 and bears an
interest rate of the commercial bank's prime rate which was 6.50%
as of August 31, 2001.
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15
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
June 30, 2001, as adjusted to give effect to the completion of the offering of
the shares of common stock, including the application of the net proceeds as
proposed.
ACTUAL AS ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS)
Deposits .............................................. $ 1,202,617 $ 1,202,617
Borrowings:
Federal Home Loan Bank advances ....................... 304,766 304,766
9.625% subordinated notes maturing January 1, 2005 .... 13,985 13,985
Commercial bank note payable .......................... 6,000 5,000
Repurchase Agreements ................................. 41,000 41,000
----------- -----------
Total borrowings ................................. 365,751 364,751
----------- -----------
Total deposits and borrowings .................... $ 1,568,368 $ 1,567,368
=========== ===========
Guaranteed preferred beneficial interests in the
company's junior subordinated debentures ............ $ 43,750 $ 43,750
Shareholders' equity:
Shares of common stock, no par value, 30,000,000 shares
authorized, ________ shares issued and outstanding at
______ __, 2001, ______ as adjusted ................. $ -- $ --
Additional paid-in-capital ............................ 20,928 38,908
Retained earnings ..................................... 27,167 27,167
Accumulated other comprehensive loss .................. (1,266) (1,266)
----------- -----------
Total shareholders' equity ....................... $ 46,829 $ 64,809
=========== ===========
The following table sets forth Metropolitan Bank's capital ratios as of
June 30, 2001, as adjusted to give effect to the completion of the offering of
the shares of common stock, including the application of the net proceeds as
proposed.
ACTUAL AS ADJUSTED
------------ -----------
Tangible capital
Amount ........................................... $ 104,567 $ 122,547
Percentage ....................................... 6.20% 7.27%
Core Capital
Amount ........................................... $ 104,567 $ 122,547
Percentage ....................................... 6.20% 7.27%
Risk-based Capital
Amount ........................................... $ 115,219 $ 133,199
Percentage ....................................... 8.71% 10.07%
Tier 1 Capital to Risk-adjusted Assets
Amount ........................................... $ 104,567 $ 122,547
Percentage ....................................... 7.90% 9.26%
See "Regulatory Capital Requirements" for a discussion of current capital
requirements.
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16
SELECTED FINANCIAL DATA
The following tables represent selected financial information which you
should read together with the consolidated financial statements and related
notes found in the quarterly report for the Company for the period ended June
30, 2001 and the annual report for the Company for the year ended December 31,
2001. The following should also be read in connection with the Management's
Discussion and Analysis of Financial Condition and Results of Operations in this
prospectus.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996 (1)
------------- ------------- --------------------------- ---------------------------------------
SELECTED FINANCIAL CONDITION DATA: (DOLLARS IN THOUSANDS)
Total assets ...................... $1,691,247 $1,656,428 $1,695,279 $1,608,119 $1,363,434 $924,985 $769,076
Loans receivable, net ............. 1,066,900 1,231,967 1,235,441 1,183,954 1,018,271 693,655 637,493
Loans held for sale ............... 139,409 17,807 51,382 6,718 15,017 14,230 8,973
Mortgage-backed securities ........ 198,826 214,846 195,829 255,727 198,295 143,167 56,672
Securities ........................ 114,988 50,471 54,786 51,708 35,660 6,446 13,173
Intangible assets ................. 2,637 2,330 2,602 2,461 2,724 2,987 3,239
Loan servicing rights ............. 22,474 17,857 20,597 10,374 13,412 9,224 8,051
Deposits .......................... 1,202,617 1,126,331 1,146,267 1,136,630 1,051,357 737,782 622,105
Borrowings ........................ 365,751 418,693 426,079 360,396 215,486 135,870 101,874
Preferred securities(2) ........... 43,750 43,750 43,750 43,750 27,750 - -
Shareholders' equity .............. 46,829 44,504 49,459 44,868 42,644 36,661 30,244
SELECTED OPERATIONS DATA:
Total interest income ............. $61,705 $61,448 $127,787 $111,921 $85,728 $69,346 $54,452
Total interest expense ............ 44,212 41,731 88,673 73,644 53,784 41,703 33,116
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income ............... 17,493 19,717 39,114 38,277 31,944 27,643 21,336
Provision for loan losses ......... 4,200 3,100 6,350 6,310 2,650 2,340 1,636
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for
Loan losses .................... 13,293 16,617 32,764 31,967 29,294 25,303 19,700
Loan servicing income, net ........ (783) 548 1,148 1,358 788 1,293 1,204
Net gain on sale of loans and
securities ........................ 3,996 1,456 3,573 1,781 3,523 580 336
Other noninterest income .......... 3,518 2,276 4,834 4,016 3,006 2,268 2,233
Noninterest expense ............... 23,771 19,186 40,160 32,591 25,523 20,149 20,839
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes
and extraordinary item .......... (3,747) 1,711 2,159 6,531 11,088 9,295 2,634
Income tax (expense) benefit ...... 1,246 (557) (662) (2,020) (4,049) (3,492) (1,095)
Extraordinary item(3) ............. - - - - (245) - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ................. $(2,501) $1,154 $1,497 $4,511 $6,794 $5,803 $1,539
========== ========== ========== ========== ========== ========== ==========
(1) Noninterest expense for 1996 includes a $2.9 million pre-tax or $1.9 million
net of tax one-time assessment to recapitalize the Savings Association Insurance
(2) Consists of 9.50% preferred securities sold during the second quarter of
1999 by Metropolitan Capital Trust II and 8.60% preferred securities sold during
the second quarter of 1998 by Metropolitan Capital Trust I.
(3) The extraordinary item represents expenses associated with the early
retirement of the outstanding 10% subordinated notes.
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17
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ----------
PER SHARE DATA, RESTATED FOR
STOCK SPLITS:
Basic net income per share $(0.31) $0.14 $0.19 $0.57 $0.88
Diluted net income per share (0.31) 0.14 0.19 0.57 0.87
Book value per share 5.77 5.51 6.11 5.56 5.50
Tangible book value per share 5.45 5.22 5.79 5.26 5.15
PERFORMANCE RATIOS:(2)
Return on average assets (0.30)% 0.14% 0.09% 0.30% 0.64%
Return on average equity (10.40) 5.21 3.30 10.09 17.16
Interest rate spread 1.97 2.32 2.31 2.52 2.90
Net interest margin 2.24 2.58 2.56 2.73 3.16
Average interest-earning assets to
average interest-bearing 103.43 103.17 103.09 103.73 104.96
liabilities
Noninterest expense to average assets 2.82 2.39 2.45 2.17 2.39
Efficiency ratio(3) 104.24 80.81 83.21 71.05 64.45
ASSET QUALITY RATIOS:(2)(4)
Nonperforming loans to total loans 2.65% 0.77% 1.15% 0.79% 1.23%
Nonperforming assets to total assets 2.11 0.84 1.12 0.91 1.34
Allowance for losses on loans to
total loans 1.39 1.01 1.07 0.92 0.66
Allowance for losses on loans to
nonperforming total loans 53.23 132.75 94.65 117.52 54.44
Net charge-offs to average loans 0.18 0.22 0.27 0.19 0.16
CAPITAL RATIOS:
Shareholders' equity to total assets 2.77% 2.69% 2.92% 2.79% 3.13%
Average shareholders' equity to
average assets 2.85 2.76 2.77 2.97 3.70
Tier 1 capital to total assets(5) 6.20 6.44 6.31 6.57 6.27
Tier 1 capital to risk-weighted assets(5) 7.90 8.62 8.45 8.58 7.85
OTHER DATA:
Loans serviced for others (000s) $2,107,548 $1,624,916 $1,937,499 $1,653,065 $1,496,347
Number of full service offices 24 22 23 20 17
Number of loan production offices 10 10 10 8 5
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996(1)
---------- ----------
PER SHARE DATA, RESTATED FOR
STOCK SPLITS:
Basic net income per share $0.75 $0.22
Diluted net income per share 0.75 0.22
Book value per share 4.73 3.90
Tangible book value per share 4.34 3.48
PERFORMANCE RATIOS:(2)
Return on average assets 0.69% 0.23%
Return on average equity 17.58 5.75
Interest rate spread 3.20 3.07
Net interest margin 3.48 3.34
Average interest-earning assets to
average interest-bearing 105.30 105.39
liabilities
Noninterest expense to average assets 2.40 3.08
Efficiency ratio(3) 62.75 82.57
ASSET QUALITY RATIOS:(2)(4)
Nonperforming loans to total loans 0.44% 0.80%
Nonperforming assets to total assets 0.56 0.70
Allowance for losses on loans to
total loans 0.79 0.64
Allowance for losses on loans to
nonperforming total loans 178.60 80.38
Net charge-offs to average loans 0.13 0.04
CAPITAL RATIOS:
Shareholders' equity to total assets 3.96% 3.93%
Average shareholders' equity to
average assets 3.94 3.96
Tier 1 capital to total assets(5) 5.47 5.58
Tier 1 capital to risk-weighted assets(5) 7.75 7.87
OTHER DATA:
Loans serviced for others (000s) $1,190,815 $1,102,514
Number of full service offices 15 14
Number of loan production offices 4 5
(1) Noninterest expense for 1996 includes a $2.9 million pre-tax or $1.9
million net of tax one-time assessment to recapitalize the Savings
Association Insurance Fund. All per share data and performance ratios
include the effect of this assessment.
(2) Ratios are annualized where appropriate for comparison purposes
(3) Equals noninterest expense less amortization of intangible assets divided
by net interest income plus noninterest income (excluding gains or losses
on securities transactions).
(4) Ratios are calculated on end of period balances except net charge-offs to
average loans.
(5) Ratios are for Metropolitan Bank only.
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18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is the Management's Discussion and Analysis of Financial
Condition and Results of Operations from the Company's quarterly report for the
three and six month periods ended June 30, 2001. This discussion and analysis
has not materially changed from the discussion and analysis in the June 30, 2001
report. The quarterly report for the Company for the period ended June 30, 2001
and the annual report for the Company for the year ended December 31, 2000
contain consolidated financial statements and related notes that should be read
in connection with the following discussion.
OVERVIEW
The reported results of the Company primarily reflect the operations of
Metropolitan Bank and the financing activities of the Company. Our results of
operations are dependent on a variety of factors, including the general interest
rate environment, competitive conditions in the industry, governmental policies
and regulations and conditions in the markets for financial assets. Like most
financial institutions, the primary contributor to our income is net interest
income, the difference between the interest we earn on interest-earning assets,
such as loans and securities, and the interest we pay on interest-bearing
liabilities, such as deposits and borrowings. Our operations are also affected
by noninterest income, such as loan servicing fees, servicing charges on deposit
accounts, and gains or losses on the sales of loans and securities. Our
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, and general and
administrative expenses.
RESULTS OF OPERATIONS
Net Income. Net income decreased $2.6 million to a net loss of $2.1
million for the second quarter, 2001 as compared to net income of $0.5 million
for the second quarter, 2000. Noninterest income increased $2.1 million for the
three months ended June 30, 2001 over the same period in the prior year. The
provision for loan losses increased to $3.1 million for the three months ended
June 30, 2001 compared to $1.6 million from the same period in the prior year.
For the three months ended June 30, 2001, net interest income decreased $1.7
million and noninterest expense increased $2.7 million compared to the same
period in the prior year. Noninterest expense amounted to $12.6 million for the
quarter ended June 30, 2001 from $9.8 million from the same quarter of the prior
year.
Net income for the six-month period ended June 30, 2001 decreased $3.7
million to a net loss of $2.5 million as compared to net income of $1.2 million
for the first six months of 2000. Noninterest income increased $2.5 million for
the six months ended June 30, 2001 over the same period in the prior year. The
provision for loan losses for the six months ended June 30, 2001 increased $1.1
million from the same period in the prior year. For the six months ended June
30, 2001, net interest income decreased $2.2 million and noninterest expense
increased $4.6 million compared to the same period in the prior year.
Noninterest expense amounted to $23.8 million for the six-month period ended
June 30, 2001 from $19.2 million from the same period in the prior year.
The losses for the second quarter, 2001 and the first six months of
2001 were primarily due to increased loan loss provisions, provisions for real
estate owned, compression of the interest rate spread, costs associated with a
computer conversion, and compensation and occupancy expenses relating to new
facilities opened during 2000 and the first half of 2001. Management increased
the provision for loss on loans due to a weakening in the economy, increased
nonperforming loans, and problems with specific borrowers.
Our net interest margin decreased forty-eight and thirty-four basis
points to 2.14% and 2.24%, respectively, for the three and six-month periods
ended June 30, 2001, respectively, as compared to 2.62% and 2.58%, respectively,
for the comparable periods in 2000. The decrease in net interest margin resulted
primarily from declines in market interest rates which resulted in declines on
yields of prime-based loans and adjustable rate investment securities while our
deposit costs increased during the three and six month periods ended June 30,
2001 compared to the same periods in the prior year.
-15-
19
Interest Income. Total interest income for the quarter ended June 30,
2001 decreased 4.7% from the second quarter of 2000 and increased slightly for
the six months ended June 30, 2001 as compared to the six-month period ended
June 30, 2000, to $30.1 million and $61.7 million, respectively, as compared to
$31.5 million and $61.4 million, respectively, in the same periods in 2000.
These results were primarily the effect of declining yields on interest-earning
assets in the three and six-month periods ended June 30, 2001 despite increases
in average earning assets of 2.0% and 2.4% compared to the same periods in the
prior year. An increase in the level of nonperforming loans during the first
half of 2001 also contributed to the decrease in interest income.
Interest Expense. Total interest expense increased 0.9% and 5.9%,
respectively, to $21.7 million and $44.2 million, respectively, for the three
and six-month periods ended June 30, 2001 as compared to $21.5 million and $41.7
million, respectively, for the same periods in 2000. Interest expense for the
quarter ending June 30, 2001 increased generally due to a higher average balance
of interest-bearing liabilities outstanding as opposed to the prior year
quarter. In contrast, the higher interest expense experienced in the first six
months of 2001 as compared to the prior year period was due more to an increased
cost of funds and was affected only slightly by the greater balance of
interest-bearing liabilities outstanding. The average balance of
interest-bearing deposits increased $28.3 million and $10.1 million,
respectively, or 2.7% and 1.0%, respectively, for the three and six-month
periods ended June 30, 2001 as compared to the same periods in 2000. Average
borrowings decreased $8.6 million and increased $21.2 million, or a 2.2%
decrease and a 5.5% increase, respectively, for the three and six-month periods
ended June 30, 2001 as compared to the same periods in 2000. The Company's cost
of funds, on a consolidated basis, decreased slightly to 5.79% for the second
quarter, 2001 as compared to 5.83% for the second quarter, 2000. Conversely, for
the six-month period ended June 30, 2001, the Company's cost of funds, on a
consolidated basis, increased to 5.95% as compared to 5.73% for the first six
months of 2000. In both the three and six-month periods ended June 30, 2001, a
higher cost paid on deposits was partially offset by a lower cost paid on
borrowings.
-16-
20
Average Balances and Yields. The following tables present the total dollar
amount of interest income from average interest-earning assets and the resulting
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Net interest
margin is influenced by the level and relative mix of interest-earning assets
and interest-bearing liabilities. All average balances are daily average
balances. Nonaccruing loans are considered in average loan balances. The average
balances of mortgage-backed securities and securities are presented at
historical cost.
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ----------------------------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ----------- --------- ------------ ----------- ---------
Interest-earning assets:
Loans receivable $1,277,603 $25,342 7.93% $1,238,399 $26,308 8.50%
Mortgage-backed securities 204,307 3,414 6.68% 222,525 3,924 7.05%
Other 86,002 1,314 6.26% 75,872 1,307 6.89%
---------- ------- --------- -------
Total interest-earning assets 1,567,912 30,070 7.68% 1,536,796 31,539 8.21%
------- -------
Noninterest-bearing assets 127,689 81,915
---------- ----------
Total assets $1,695,601 $1,618,711
========== ==========
Interest-bearing liabilities:
Deposits $1,076,052 14,670 5.47% $1,047,703 14,187 5.45%
Borrowings 388,922 6,108 6.30% 397,546 6,442 6.52%
Junior Subordinated Debentures 43,750 999 9.13% 43,750 999 9.13%
---------- ------- --------- -------
Total interest-bearing liabilities 1,508,724 21,777 5.79% 1,488,999 21,628 5.83%
------- ---- ------- ----
Noninterest-bearing liabilities 139,431 85,494
Shareholders' equity 47,446 44,218
---------- ---------
Total liabilities and
shareholders' equity $1,695,601 $1,618,711
========== ==========
Net interest income before
capitalized interest 8,293 9,911
------- -------
Interest rate spread 1.89% 2.38%
==== ====
Net interest margin 2.14% 2.62%
Interest expense capitalized 111 163
------- -------
Net interest income $8,404 $10,074
======= =======
Average interest-earning
assets to average
interest-bearing
Liabilities 103.92% 103.21%
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21
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ----------------------------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ----------- --------- ------------ ----------- ---------
Interest-earning assets:
Loans receivable $1,279,791 $52,340 8.18% $1,223,468 $50,912 8.32%
Mortgage-backed securities 199,782 6,775 6.78% 231,267 8,108 7.01%
Other 83,224 2,590 6.54% 71,873 2,428 6.76%
---------- ------- ---------- -------
Total interest-earning assets 1,562,797 61,705 7.91% 1,526,608 61,448 8.05%
------- -------
Noninterest-bearing assets 123,485 80,699
---------- ----------
Total assets $1,686,282 $1,607,307
========== ==========
Interest-bearing liabilities:
Deposits $1,061,133 29,800 5.66% $1,051,073 27,706 5.30%
Borrowings 406,061 12,754 6.33% 384,816 12,309 6.43%
Junior Subordinated Debentures 43,750 1,997 9.13% 43,750 1,997 9.13%
---------- ------- ---------- -------
Total interest-bearing
liabilities 1,510,944 44,551 5.94% 1,479,639 42,012 5.73%
------- ---- ------- ----
Noninterest-bearing liabilities 127,221 83,359
Shareholders' equity 48,117 44,309
---------- ----------
Total liabilities and
shareholders' equity $1,686,282 $1,607,307
========== ==========
Net interest income before
capitalized interest 17,154 19,436
------- -------
Interest rate spread 1.97% 2.32%
==== ====
Net interest margin 2.24% 2.58%
Interest expense capitalized 339 281
------- -------
Net interest income $17,493 $19,717
======= =======
Average interest-earning
assets to average
interest-bearing
liabilities 103.43% 103.17%
Rate and Volume Variances. Net interest income is affected by changes in
the level of interest-earning assets and interest-bearing liabilities and
changes in yields earned on assets and rates paid on liabilities. The following
table sets forth, for the periods indicated, a summary of the changes in
interest earned and interest paid resulting from changes in average asset and
liability balances and changes in average rates. Changes attributable to the
combined impact of volume and rate have been allocated proportionately to change
due to volume and change due to rate.
THREE MONTHS ENDED JUNE 30,
2001 V. 2000
INCREASE (DECREASE)
----------------------------------------------------------
CHANGE DUE CHANGE DUE
TOTAL CHANGE TO VOLUME TO RATE
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST INCOME ON:
Loans receivable $ (966) $ 883 $(1,849)
Mortgage-backed securities (510) (311) (199)
Other 7 22 (15)
------- ------- -------
Total interest income (1,469) $ 594 $(2,063)
------- ======= =======
INTEREST EXPENSE ON:
Deposits $ 483 $ 419 $ 64
Borrowings (334) (133) (201)
Junior Subordinated Debentures -- -- --
------- ------- -------
Total interest expense 149 $ 286 $ (137)
======= =======
Interest expense capitalized (52)
-------
Decrease in net interest income $(1,670)
=======
-18-
22
SIX MONTHS ENDED JUNE 30,
2001 V. 2000
INCREASE (DECREASE)
----------------------------------------------------------
CHANGE DUE CHANGE DUE
TOTAL CHANGE TO VOLUME TO RATE
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST INCOME ON:
Loans receivable $ 1,428 $ 2,280 $ (852)
Mortgage-backed securities (1,333) (1,075) (258)
Other 162 204 (42)
------- ------- -------
Total interest income 257 $ 1,409 $(1,152)
------- ======= =======
INTEREST EXPENSE ON:
Deposits $ 2,094 $ 257 $ 1,837
Borrowings 445 616 (171)
Junior Subordinated Debentures -- -- --
------- ------- -------
Total interest expense 2,539 $ 873 $ 1,666
======= =======
Interest expense capitalized 58
-------
Decrease in net interest income $(2,224)
=======
Provision for Loan Losses. The provision for loan losses increased to $3.1
million and $4.2 million, respectively, for the three and six-month periods,
respectively, ended June 30, 2001 as compared to $1.6 million and $3.1 million,
respectively, for the same periods in 2000. Management increased the provision
for loan losses based on increased risk of loss due to a weakening in the
economy, increased nonperforming loans, and problems noted with specific
borrowers. As a result, the allowance for losses on loans at June 30, 2001 was
$17.0 million or 1.39% of total loans, as compared to $12.8 million, or 1.01% of
total loans at June 30, 2000.
Noninterest Income. Total noninterest income increased 99.1% to $4.3
million for the three month period ended June 30, 2001 as compared to $2.2
million for the second quarter 2000 and increased $2.5 million to $6.7 million,
or 57.3%, for the first six months of 2001 as compared to $4.3 million for the
first six months of 2000.
Gain on sale of loans was $1.8 million in the three-month period ended June
30, 2001, as compared to $0.7 million during the same period in 2000. For the
six-month period ended June 30, 2001, gain on sale of loans was $2.5 million as
compared to $1.0 million for the prior year period. The primary reason for the
increase in the second quarter and first half of 2001 compared with the same
periods in 2000 was a decrease in interest rates in 2001 which has caused an
increase in refinance activity resulting in increased origination volumes and,
therefore, an increase in loans available to sell. The proceeds of residential
loan sales in the first six months of 2001 were $345.0 million as compared to
$50.0 million in the same period in 2000. Proceeds from the sale of multifamily
and commercial real estate loans were $49.3 million for the first six months of
2001 as compared to $42.2 million for the same period in 2000.
There were losses from net loan servicing of $674,000 and $783,000 in the
three and six-month periods ended June 30, 2001 as compared to income of
$213,000 and $548,000, respectively, for the same periods in 2000. The primary
reason for the decreased income was the increased amortization of servicing
rights due to an increase in paid off loans in 2001 compared to the prior year.
The portfolio of loans serviced for others increased to $2.1 billion at June 30,
2001 as compared to $1.9 billion at December 31, 2000. Origination of loan
servicing offset payoffs and the amortization of existing loans serviced.
Service charges on deposit accounts increased to $489,000 in the
three-month period ended June 30, 2001 compared to $327,000 for the same period
in 2000 and increased to $893,000 for the six months ended June 30, 2001 as
compared to $647,000 for the same period in the prior year. The reasons for the
increases were the overall growth in the number of checking accounts and
increases in deposit fees in 2001 as compared to prior year periods.
Gains on sale of securities were $1.1 million and $1.5 million,
respectively, for the three and six-month periods ended June 30, 2001 as
compared to $85,000 and $418,000, respectively, for the same periods in 2000.
The gains in the first six months of 2001 were the result of the sales of loans
originated, securitized, and sold by Metropolitan Bank to FreddieMac. The gains
in the first half of 2000 were the result of the sale of
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23
FannieMae securities which were part of the 1999 multifamily securitization and
FreddieMac securities comprised of residential loans. The higher level of gains
in 2001 was due primarily to higher loan origination volume than a year ago.
Other noninterest income increased to $1.6 million and $2.6 million,
respectively, in the three and six-month periods ended June 30, 2001 compared to
$0.8 million and $1.6 million, respectively, for the same periods in the
previous year. These increases were primarily due to increased fee income
principally from checking accounts generated from the increased level of
business and increased rental income from the new corporate headquarters
building in the first six months of 2001.
Noninterest Expense. Total noninterest expense increased to $12.6 million
and $23.8 million, respectively, in the three and six-month periods ended June
30, 2001 as compared to $9.8 million and $19.2 million, respectively, for the
same periods in 2000.
Personnel related expenses increased $1.5 million and $2.0 million,
respectively, in the three and six-month periods ended June 30, 2001 as compared
to the same periods in 2000. These increases were primarily a result of
increased staffing levels to support expanded activities such as new retail
sales offices locations and new mortgage origination offices and temporary
employees used to transition to a new computer system. As Metropolitan Bank is
not planning to open any new offices in the next twelve months, personnel costs
are expected to stabilize over that period.
Occupancy costs increased $507,000 and $934,000, respectively, in the three
and six-month periods ended June 30, 2001, over the same periods in 2000. This
increase was generally the result of occupancy costs for the new corporate
headquarters, three additional retail sales offices and six residential mortgage
origination offices. Since no new offices are anticipated in the next twelve
months, the only significant increases anticipated in occupancy costs will be
depreciation on vacant corporate headquarters space which will be built out and
rented to unrelated parties.
Data processing expense increased $169,000 and $255,000, respectively, in
the three and six-month periods ended June 30, 2001 as compared to the same
periods in 2000. The primary reason for the increase was greater costs incurred
for data processing following the systems conversion in 2000.
Marketing expense decreased $176,000 and $119,000, respectively, in the
three and six-month periods ended June 30, 2001 compared to the same periods in
the prior year. During the second quarter of 2000, we incurred costs for a
checking account promotion and promotion of a new retail sales office. Marketing
costs in 2001 were limited to more routine activities.
Other operating expenses, which includes miscellaneous general and
administrative costs such as loan servicing, loan processing costs, business
development, check processing, ATM expenses, and expenses pertaining to real
estate owned and professional expenses increased $0.8 million and $1.5 million,
respectively, for the three and six-month periods ended June 30, 2001 as
compared to the same periods in 2000. These increases were generally the result
of increases in expenses pertaining to real estate owned, professional services,
and increased business activities.
Provision for Income Taxes. The benefit for income taxes was $905,000 and
$1.2 million, respectively, for the three and six-month periods ended June 30,
2001 as compared to the provision of $265,000 and $557,000, respectively, for
the same periods in 2000. The primary reason for the decrease in the provision
was the loss recorded for the quarter and six-month period ended June 30, 2001.
The effective tax rates were 30.3% and 33.3%, respectively, for the three and
six-month periods ended June 30, 2001 as compared to 32.6% for both the three
and six-month periods ending June 30, 2000.
ASSET QUALITY
Metropolitan Bank's goal is to maintain high quality loans in the loan
portfolio through conservative lending policies and prudent underwriting. We
undertake detailed reviews of the loan portfolio regularly to identify potential
problem loans or trends early and to provide for adequate estimates of probable
losses. In performing these reviews, management considers, among other things,
current economic conditions, portfolio
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24
characteristics, delinquency trends, and historical loss experiences. We
normally consider loans to be nonperforming when payments are 90 days or more
past due or when the loan review analysis indicates that repossession of the
collateral may be necessary to satisfy the loan. In addition, a loan is
considered impaired when, in management's opinion, it is probable that the
borrower will be unable to meet the contractual terms of the loan. When loans
are classified as nonperforming, we assess the collectibility of the unpaid
interest. Interest determined to be uncollectible is reversed from interest
income. Future interest income is recorded only if the loan principal and
interest due is considered collectible and is less than the estimated fair value
of the underlying collateral.
The table below provides information concerning Metropolitan Bank's
nonperforming assets and the allowance for losses on loans as of the dates
indicated. All loans classified by management as impaired were also classified
as nonperforming.
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans................................................. $28,322 $ 8,305
Loans past due greater than
90 days or impaired, still accruing............................ 3,665 6,434
------- -------
Total nonperforming loans........................................ 31,987 14,739
Real estate owned................................................ 3,616 4,262
------- -------
Total nonperforming assets....................................... $35,603 $19,001
======= =======
Allowance for losses on loans.................................... $17,028 $13,951
======= =======
Nonperforming loans to total loans............................... 2.65% 1.15%
Nonperforming assets to total assets............................. 2.11% 1.12%
Net charge-offs to average loans(1).............................. 0.18% 0.27%
Provisions for loan losses to average loans(1)`.................. 0.66% 0.51%
Allowance for losses on loans to total ..........................
nonperforming loans at end of period........................... 53.23% 94.65%
Allowance for losses on loans to
total loans at end of period................................... 1.39% 1.07%
(1) June 30 information annualized for comparative purposes.
Nonperforming loans at June 30, 2001 increased $17.2 million to $32.0
million as compared to $14.7 million at December 31, 2000. Real estate owned
decreased $0.6 million over the same period. The primary reason for the increase
in nonperforming loans was the inclusion of $14.7 million of business loans to
related borrowers which became nonperforming in the first quarter, 2001.
Management has estimated the impairment to be approximately $3.5 million.
The previously discussed $14.7 million of business loans that became
nonperforming in the first quarter, 2001 are the primary reason for the decline
of the asset quality ratios from year-end 2000. In spite of this decline, net
charge-offs declined from the prior year period.
The provision for loan losses increased for both the three and six-month
periods ended June 30, 2001 as compared to the same periods in 2000. Management
increased the provision for loan losses based on increased risk of loss due to a
weakening in the economy, increased nonperforming loans, and problems noted with
specific borrowers.
In addition to the nonperforming assets included in the table above, we
identify potential problem loans which are still performing but have a weakness
which causes us to classify those loans as substandard for regulatory purposes.
There was $3.5 million of loans in this category at June 30, 2001, compared to
$4.7 million of such loans at December 31, 2000.
FINANCIAL CONDITION
Total assets amounted to $1.691 billion at June 30, 2001, as compared to
$1.695 billion at December 31, 2000, a slight decrease of $4.0 million. The
decrease in assets was concentrated in loans and
-21-
25
was offset by increases in cash and interest bearing deposits, securities, and
premises and equipment. Under the supervisory agreement, we have committed that
quarter end assets for Metropolitan Bank will not exceed $1.702 billion during
the term of the agreement.
Securities increased $60.2 million to $115.0 million at June 30, 2001 as
compared to $54.8 million at December 31, 2000. The primary reason for the
increase was the purchase of $74.3 million of U.S. Treasury securities and $9.5
million of U.S. agency notes, which were offset by the redemption of $20.0
million of U.S. agency notes. The Treasury securities were purchased to invest
idle cash derived primarily from loan sales and subsequently matured in the
beginning of the third quarter, 2001.
Loans receivable, net decreased $168.5 million, or 13.6%, to $1.07 billion
at June 30, 2001 from $1.24 billion at December 31, 2000. This decrease was due
to loan sales, paydowns, and transfers to loans held for sale in the first six
months of 2001. Decreases experienced in particular loans categories were $75.2
million in commercial loans, $50.1 million in multifamily loans, and $39.2
million in one- to four-family loans and modest decreases in other loan
categories which were partially offset by a $14.6 million increase in
construction loans.
Loans held for sale increased $88.0 million to $139.4 million at June 30,
2001 from $51.4 million at December 31, 2000. The primary reasons for the
increase are the large volume of loan originations in the first six months of
2001 and transfers from loans receivable, net of $60.8 million. Transfers to
loans held for sale related to Metropolitan Bank's ongoing attempt to meet the
board directed requirements to get to a well capitalized status and to meet
certain interest rate risk goals. Loans held for sale consists of one- to four-
family, multifamily, and commercial real estate loans. One- to four-family loans
are placed in this category based on the type of loan and the marketability of
the loan. In regards to multifamily and commercial real estate loans, loans are
selected for this category after reviewing current loan production and
determining the impact of a potential sale on risk-based capital and interest
rate risk.
Federal Home Loan Bank stock decreased $4.6 million to $16.0 million at
June 30, 2001 as compared to the December 31, 2000 balance. The reason for the
decrease was the redemption of $5.0 million of stock during the second quarter.
Metropolitan Bank was no longer required to hold the stock due to paydowns on
Federal Home Loan Bank advances.
Real estate owned decreased $0.6 million, or 15.2%, to $3.6 million at June
30, 2001. The primary reason for the decrease was the $0.7 million provision for
loss on real estate owned for the six month period ended June 30, 2001. This
provision will be used to make certain properties more attractive for
disposition.
Premises and equipment net increased $4.8 million to $71.2 million at June
30, 2001. This increase was the result of costs associated with the completion
of the new headquarters. Metropolitan Bank will have additional costs in the
building to complete space leased to tenants. Otherwise, we do not anticipate
opening any new retail locations during the next twelve months.
Total deposits were $1.203 billion at June 30, 2001, an increase of $56.3
million from the balance of $1.146 billion at December 31, 2000. The increase
resulted principally from an increased balance of interest-bearing checking
accounts of $27.4 million and certificates of deposit of $24.5 million, which
were partially offset by smaller declines in other deposit categories.
Borrowings decreased $60.3 million, or 14.2%, from December 31, 2000 to
June 30, 2001. The decrease was the result of decreased use of Federal Home Loan
Bank advances from year end.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The term "liquidity" refers to our ability to generate adequate
amounts of cash for funding loan originations, loan purchases, deposit
withdrawals, maturities of borrowings, and operating expenses. Our primary
sources of internally generated funds are principal repayments and payoffs of
loans, cash flows from operations, and proceeds from sales of assets. External
sources of funds include increases in deposits and borrowings, and public or
private securities offerings by the Company.
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26
The Company's primary sources of funds currently are dividends from
Metropolitan Bank, which are subject to restrictions imposed by federal bank
regulatory agencies and debt and equity offerings. The Company's primary use of
funds is for interest payments on its existing debt. At June 30, 2001, the
Company, excluding Metropolitan Bank, had cash and readily convertible
investments of $1.7 million. At June 30, 2001, the Company held $1.0 million in
liquid assets available to pay expenses and interest. This does not include $0.7
million the Company holds in liquid assets as a requirement of the subordinated
notes due January 1, 2005.
Metropolitan Bank's liquidity ratio (average daily balance of liquid assets
to average daily balance of net withdrawable accounts and short-term borrowings)
for the quarter ending June 2001 was 5.87%. Historically, Metropolitan Bank has
maintained its liquidity close to 4.0% since the yield available on qualifying
investments is lower than alternative uses of funds and is generally not at an
attractive spread over incremental cost of funds.
While principal repayments and Federal Home Loan Bank advances are fairly
stable sources of funds, deposit flows and loan prepayments are greatly
influenced by prevailing interest rates, economic conditions, and competition.
Metropolitan Bank regularly reviews cash flow needed to fund its operations and
believes that the existing resources are adequate for its foreseeable
requirements.
At June 30, 2001, $262.2 million, or 21.8%, of Metropolitan Bank's deposits
were in the form of certificates of deposit of $100,000 and over. Metropolitan
Bank has also accepted out-of-state time deposits from individuals and entities,
predominantly credit unions. These deposits typically have balances of $90,000
to $100,000 and have a term of one year or more. At June 30, 2001, approximately
$63.6 million, or 5.3% of our deposits were held by these individuals and
entities. Of these out-of-state time deposits, $20.8 million were also included
in the $100,000 and over time deposits discussed above. During 2000,
Metropolitan Bank received regulatory approval and began accepting brokered
deposits. At June 30, 2001, brokered deposits totaled $141.1 million. The
regulatory approval to accept brokered deposits expires December 31, 2001 and,
at that time, Metropolitan Bank must re-apply to continue to accept new brokered
deposits. The approval is at the discretion of the appropriate regulatory
agency. The total of all certificates of deposits from brokers, out-of-state
sources, and other certificates of deposit of $100,000 and over was $446.1
million at June 30, 2001, or 37.1% of total deposits. We monitor maturities to
attempt to minimize any potential adverse effect on liquidity. In accordance
with the supervisory agreement, we intend to reduce our reliance on brokered and
out-of-state deposits over the term of the agreement.
We have access to wholesale borrowings based on the availability of
eligible collateral. The Federal Home Loan Bank makes funds available for
housing finance based upon the blanket or specific pledge of certain one- to
four-family and multifamily loans and various types of investment and
mortgage-backed securities. Metropolitan Bank had borrowing capacity at the
Federal Home Loan Bank under its blanket pledge agreement of approximately $334
million at June 30, 2001, of which $305 million was utilized. The financial
market makes funds available through reverse repurchase agreements by accepting
various investment and mortgage-backed securities as collateral. Metropolitan
Bank had borrowings through reverse repurchase agreements of $41.0 million at
June 30, 2001.
Capital. The OTS imposes capital requirements on savings associations.
Savings associations are required to meet three minimum capital standards: (i) a
leverage requirement, (ii) a tangible capital requirement, and (iii) a
risk-based capital requirement. Such standards must be no less stringent than
those applicable to national banks. In addition, the OTS is authorized to impose
capital requirements in excess of these standards on individual associations on
a case-by-case basis. Metropolitan Bank's regulatory capital ratios at June 30,
2001 were in excess of the capital requirements specified by OTS regulations as
shown by the following table:
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
---------------- ------------ ------------------
(DOLLARS IN THOUSANDS)
Capital amount
Actual $104,567 6.20% $104,567 6.20% $115,219 8.71%
Required 25,298 1.50 67,463 4.00 105,827 8.00
-------- ---- -------- ---- -------- ----
Excess $ 79,269 4.70% $ 37,104 2.20% $ 9,392 0.71%
======== ==== ======== ==== ======== ====
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27
It is Metropolitan Bank's goal, as well as required by the supervisory
agreement, to increase risk-based capital to reach the well capitalized
risk-based capital level of 10.00% by December 31, 2001. Under the supervisory
agreement, Metropolitan Bank will submit a plan for increasing capital to
regulatory authorities by September 28, 2001. The following table summarizes
Metropolitan Bank's status compared to the supervisory agreement requirements:
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
---------------- ------------ ------------------
(DOLLARS IN THOUSANDS)
Capital amount
Actual $104,567 6.20% $104,567 6.20% $115,219 8.71%
Required 33,732 2.00 84,329 5.00 132,348 10.00
-------- ---- -------- ---- -------- ------
Excess $ 70,835 4.20% $ 20,238 1.20% $(17,129) (1.29)%
======== ==== ======== ==== ======== ======
RECENT ACCOUNTING DEVELOPMENTS
In June, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141 "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets."
Statement No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for using the purchase method, rather than the
pooling-of-interests method.
SFAS No. 142 addresses accounting for goodwill and intangible assets both
at acquisition and subsequent to acquisition. Under this statement, goodwill
arising from business combinations will no longer be amortized, but will be
assessed regularly for impairment. Such impairment will be recognized as a
reduction in earnings in the period identified. We expect no significant impact
due to the adoption of SFAS No. 141 and No. 142.
BUSINESS
GENERAL
The Company is a savings and loan holding company that was incorporated in
1972. We are engaged in the principal business of originating and purchasing
mortgage and other loans through our wholly-owned subsidiary, Metropolitan Bank.
Metropolitan Bank is an Ohio chartered stock savings association established in
1958. We obtain funds for lending and other investment activities primarily from
savings deposits, wholesale borrowings, principal repayments on loans, and the
sale of loans. The activities of the Company are limited and impact the results
of operations primarily through interest expense on a consolidated basis. Unless
otherwise noted, all of the activities discussed below are of Metropolitan Bank.
Robert M. Kaye is the Company's current majority shareholder. Mr. Kaye
acquired the Company in 1987 and remained its sole shareholder until our initial
public offering of common stock in October 1996. Currently, Mr. Kaye owns
approximately 75% of the Company's outstanding common stock. After the offerings
described in this prospectus, Mr. Kaye will own _____% of the Company's
outstanding common stock. Mr. Kaye currently has, and will continue to have
after these offerings described in this prospectus, the ability to decide the
outcome of matters submitted to the shareholders for approval, the ability to
elect or remove all the directors of the Company and the ultimate control of the
Company and Metropolitan Bank. In addition, Mr. Kaye is Chairman of the Board
and Chief Executive Officer of the Company and Metropolitan Bank.
At June 30, 2001, we operated 24 full service retail sales offices in
Northeastern Ohio. As of June 30, 2001, we also maintained 10 loan origination
offices throughout Ohio and in Western Pennsylvania. We also service mortgage
loans for various investors.
At June 30, 2001, we had total assets of $1.7 billion, total deposits of
$1.2 billion and shareholders' equity of $46.8 million. The Federal Deposit
Insurance Corporation insures the deposits of Metropolitan Bank up to applicable
limits.
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28
At June 30, 2001, we directly or indirectly owned the following
wholly-owned subsidiaries:
ACTIVE SUBSIDIARIES INACTIVE SUBSIDIARIES
------------------- ---------------------
- Metropolitan Bank and Trust Company - MetroCapital Corporation
- Kimberly Construction Company - Metropolitan Securities Corporation
- Metropolitan Capital Trust I - Metropolitan II Corporation
- Metropolitan Capital Trust II - Metropolitan III Corporation
- Metropolitan I Corporation
- Metropolitan Savings Service Corporation
- Progressive Land Title Agency, Inc.
- Venice Inn LLC
Metropolitan Bank changed its name from Metropolitan Savings Bank of
Cleveland to Metropolitan Bank and Trust Company in April 1998. We formed
Metropolitan Capital Trust I during 1998 to facilitate the issuance of
cumulative trust preferred securities. We formed Metropolitan Capital Trust II
in 1999 to facilitate the issuance of additional trust preferred securities.
Metropolitan I Corporation was formed in 2000 as a holding company for its
subsidiary, Progressive Land Title Agency, Inc, which operates as a title
company in Ohio. Kimberly Construction Company's sole business function is to
serve as a principal party to various construction contracts entered into in
connection with the construction of bank premises. Metropolitan Savings Service
Corporation currently holds and manages real estate which Metropolitan Bank has
foreclosed upon. The Venice Inn LLC was formed to hold title to and operate a
hotel that Metropolitan Bank acquired through foreclosure as servicer for a pool
of commercial real estate loans.
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29
LENDING ACTIVITIES
General. Our primary lending activities consist of residential mortgage
banking, multifamily loans, construction and land loans, commercial real estate
loans, consumer loans and commercial business loans.
Loan Portfolio Composition. The following table presents the composition of
our loan portfolio, including loans held for sale, in dollar amounts and as a
percentage of all loans before deductions for loans in process, deferred fees
and discounts and allowance for losses on loans.
DECEMBER 31,
----------------------------------------------------------------------
JUNE 30, 2001 2000 1999 1998
---------------------- ---------------------- ---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ --------- ------------ --------- ------------ --------- ----------- -----------
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family $ 249,126 19.1% $ 288,352 21.1% $ 295,061 23.5% $ 189,182 17.4%
Multifamily 223,249 17.1 273,358 20.0 292,015 23.3 337,412 31.1
Commercial 179,637 13.8 254,824 18.6 247,455 19.7 228,825 21.1
Construction and land 222,887 17.1 193,464 14.1 156,112 12.4 137,023 12.6
Held for sale 139,409 10.7 51,382 3.8 5,866 0.5 9,416 0.9
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total real estate loans 1,014,308 77.8 1,061,380 77.6 996,509 79.4 901,858 83.1
Consumer Loans 154,377 11.8 163,019 11.9 143,585 11.4 96,115 8.8
Consumer Held for Sale -- -- -- -- 852 0.1 5,601 0.5
Business and Other Loans 136,167 10.4 143,329 10.5 114,333 9.1 82,317 7.6
---------- ----- ---------- ----- ---------- ------ ---------- ------
Total loans 1,304,852 100.0% 1,367,728 100.0% 1,255,279 100.0% 1,085,891 100.0%
===== ===== ===== =====
LESS:
Loans in process 86,983 72,156 56,212 46,001
Deferred fees, net 2,323 2,191 4,548 5,013
Discount (premium) on loans, net (7,791) (7,393) (7,178) (5,320)
Allowance for losses on loans 17,028 13,951 11,025 6,909
---------- ---------- ---------- ----------
TOTAL LOANS RECEIVABLE, NET $1,206,309 $1,286,823 $1,190,672 $1,033,288
========== ========== ========== ==========
DECEMBER 31,
----------------------------------------------
1997 1996
--------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- ----------- ------------
REAL ESTATE LOANS:
One- to four-family $146,685 19.2% $114,758 16.8%
Multifamily 194,450 25.4 276,544 40.3
Commercial 166,593 21.8 135,635 19.8
Construction and land 116,829 15.3 71,697 10.5
Held for sale 14,230 1.8 8,973 1.3
-------- ----- -------- -----
Total real estate loans 638,787 83.5 607,607 88.7
Consumer Loans 68,590 9.0 54,180 7.9
Consumer Held for Sale -- -- -- --
Business and Other Loans 57,496 7.5 23,508 3.4
-------- ----- -------- -----
Total loans 764,873 100.0% 685,295 100.0%
===== =====
LESS:
Loans in process 46,833 31,758
Deferred fees, net 4,108 2,336
Discount (premium) on loans, net 425 560
Allowance for losses on loans 5,622 4,175
-------- --------
TOTAL LOANS RECEIVABLE, NET $707,885 $646,466
======== ========
We had commitments to originate or purchase $127.0 million of fixed rate
loans and $56.7 million of adjustable rate loans at June 30, 2001. In addition,
we had firm commitments to sell loans of $110.3 million at June 30, 2001.
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30
The following table presents the composition of our loan portfolio, by
fixed and adjustable rates, including loans held for sale, in dollar amounts and
as a percentage of all loans before deductions for loans in process, deferred
fees and discounts and allowance for losses on loans.
DECEMBER 31,
-----------------------------------------------------------------
JUNE 30, 2001 2000 1999 1998
---------------------- --------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ---------- ----------- --------- ----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
FIXED RATE LOANS:
Real estate:
One- to four-family $ 140,050 10.7% $ 112,535 8.2% $ 112,627 9.0% $ 76,566 7.1%
Multifamily 149,088 11.4 163,726 12.0 147,820 11.8 194,521 17.9
Commercial 81,519 6.2 106,771 7.8 129,865 10.3 147,860 13.6
Construction and land 11,284 0.9 10,411 .8 16,394 1.3 27,849 2.6
Held for sale 53,549 4.1 39,903 2.9 5,866 0.5 8,920 0.8
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total fixed rate real
estate loans 435,490 33.4 433,346 31.7 412,572 32.9 455,716 42.0
Consumer 133,781 10.3 149,957 11.0 137,678 10.9 93,689 8.6
Consumer held for sale -- -- -- -- 852 0.1 5,601 0.5
Business and other 45,729 3.5 54,576 4.0 46,849 3.7 25,526 2.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total fixed rate loans 615,000 47.1% 637,879 46.7% 597,951 47.6% 580,532 53.5%
---------- ===== ---------- ===== ---------- ===== ---------- =====
ADJUSTABLE RATE LOANS:
Real estate:
One- to four-family 109,076 8.4 175,817 12.9 182,434 14.5 112,616 10.4
Multifamily 74,161 5.7 109,632 8.0 144,195 11.5 142,891 13.2
Commercial 98,118 7.5 148,053 10.8 117,590 9.4 80,965 7.5
Construction and land 211,603 16.2 183,053 13.3 139,718 11.1 109,174 10.0
Held for sale 85,860 6.6 11,479 0.8 -- -- 496 --
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total adj. rate real
estate loans 578,818 44.4 628,034 45.8 583,937 46.5 446,142 41.1
Consumer 20,596 1.6 13,062 1.0 5,907 0.5 2,426 0.2
Business and other 90,438 6.9 88,753 6.5 67,484 5.4 56,791 5.2
Total adjustable rate loans 689,852 52.9% 729,849 53.3% 657,328 52.4% 505,359 46.5%
---------- ===== ---------- ===== ---------- ===== ---------- =====
LESS:
Loans in process 86,983 72,156 56,212 46,001
Deferred fees, net 2,323 2,191 4,548 5,013
Discount (premium) on loans, net (7,791) (7,393) (7,178) (5,320)
Allowance for losses on loans 17,028 13,951 11,025 6,909
---------- ---------- ---------- ----------
TOTAL LOANS RECEIVABLE, NET $1,206,309 $1,286,823 $1,190,672 $1,033,288
========== ========== ========== ==========
DECEMBER 31,
----------------------------------------------
1997 1996
----------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ---------- ---------- -----------
FIXED RATE LOANS:
Real estate:
One- to four-family $ 59,058 7.7% $ 41,436 6.1%
Multifamily 60,136 7.9 88,529 12.9
Commercial 52,390 6.9 34,726 5.1
Construction and land 20,854 2.7 392 --
Held for sale 6,294 0.8 2,531 0.4
-------- ----- -------- -----
Total fixed rate real
estate loans 198,732 26.0 167,614 24.5
Consumer 61,307 8.0 46,725 6.8
Consumer held for sale -- -- -- --
Business and other 19,575 2.6 5,650 0.8
-------- ----- -------- -----
Total fixed rate loans 279,614 36.6% 219,989 32.1%
-------- ===== -------- =====
ADJUSTABLE RATE LOANS:
Real estate:
One- to four-family 87,627 11.5 73,322 10.7
Multifamily 134,314 17.6 188,015 27.5
Commercial 114,203 14.9 100,909 14.7
Construction and land 95,975 12.5 71,305 10.4
Held for sale 7,936 1.0 6,442 0.9
-------- ----- -------- -----
Total adj. rate real
estate loans 440,055 57.5 439,993 64.2
Consumer 7,283 0.9 7,455 1.1
Business and other 37,921 5.0 17,858 2.6
Total adjustable rate loans 485,259 63.4% 465,306 67.9%
-------- ===== -------- =====
LESS:
Loans in process 46,833 31,758
Deferred fees, net 4,108 2,336
Discount (premium) on loans, net 425 560
Allowance for losses on loans 5,622 4,175
-------- --------
TOTAL LOANS RECEIVABLE, NET $707,885 $646,466
======== ========
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The following table illustrates the contractual maturity of our loan
portfolio. The table shows loans that have adjustable or renegotiable interest
rates as maturing in the period during which the contract is due. The table does
not reflect the effects of possible prepayments, enforcement of due-on-sale
clauses, or amortization of premium, discounts, or deferred loan fees. The table
includes demand loans, loans having no stated maturity and overdraft loans in
the due in one year or less category.
DUE AFTER
ONE YEAR
DUE IN ONE THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------------------- ------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
REAL ESTATE:
One- to four-family $ 489 8.96% $ 10,310 7.20% $238,327 7.14% $ 249,126 7.15%
Multifamily 12,587 8.14 47,567 8.73 163,095 8.18 223,249 8.29
Commercial 16,749 8.28 39,942 8.59 122,946 8.24 179,637 8.32
Construction and
land 174,415 7.61 43,975 7.69 4,497 7.32 222,887 7.62
CONSUMER 459 9.60 15,848 9.73 138,070 9.87 154,377 9.85
BUSINESS 15,963 8.17 55,834 8.16 64,370 8.11 136,167 8.14
-------- -------- -------- ---------
Total $220,662 7.74% $213,476 8.34% $731,305 8.16% $1,165,443 8.11%
======== ======== ======== ==========
Multifamily Lending. We originate loans from our present customers,
contacts within the investor community, and referrals from mortgage brokers. We
have become known for originating multifamily loans in our primary multifamily
lending markets of Ohio, Kentucky and Pennsylvania. Although we operate full
service retail sales offices solely in Northeast Ohio, we have loan origination
offices throughout Ohio and in Western Pennsylvania. In addition to originating
multifamily loans, we purchase multifamily loans from a variety of sources.
At June 30, 2001, the multifamily loans held for investment totaled $223.2
million or 17.1% of total loans. The average size of these loans was
approximately $427,000. Currently, we emphasize the origination of multifamily
fixed and adjustable loans with principal amounts of $1.0 million to $6.0
million although we have plans to expand originations of multifamily loans less
than $1 million in the Northeast Ohio area. Adjustable loans are priced on one-,
three- or five-year treasury rates with amortization periods of 25 or 30 years.
The loans are subject to a maximum individual aggregate interest rate adjustment
as well as a maximum aggregate adjustment over the life of the loan (generally
6%). The majority of the loans have balloon maturities of 10 years. Typically
the maximum loan to value ratio of multifamily residential loans is 75% or less.
Apartment buildings, generally with less than 75 residential units,
typically secure multifamily loans. Our underwriting process includes a site
evaluation and involves an evaluation of the borrower, whether the borrower is
an individual or a group of individuals acting as a separate entity. We review
the financial statements of each of the individual borrowers and often obtain
personal guarantees in an amount equal to the original principal amount of the
loan. In addition, we complete an analysis of debt service coverage of the
property. Debt service coverage requirements are determined based upon the
individual characteristics of each loan. Typically, these requirements range
from a ratio of 1.15:1 to 1.30:1.
In addition to originating multifamily loans we purchase multifamily loans
from a variety of sources. Prior to purchasing these loans, we use a similar
underwriting process with substantially the same standards as for our originated
loans. In some cases, when we consider the purchase of a portfolio with a
considerable number of moderate balance loans, we use an independent contract
inspector for property inspections. Real estate in Ohio secures 31.6% of our
multifamily loan portfolio. Underlying real estate for the remaining loans is
located primarily in California, Pennsylvania, and New Jersey.
We originate and purchase multifamily loans for investment and to be held
for sale. The decision to hold loans in the portfolio or for sale is based on a
number of factors including our current level of liquidity, interest rate risk,
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geographic concentration and capital available to support asset growth. At June
30, 2001 multifamily loans held for sale totaled $44.6 million. As long as
Metropolitan Bank is subject to the supervisory agreements we anticipate that a
substantial portion of our multifamily loans originated and purchased will be
held for sale.
We recognize that multifamily loans generally involve a higher degree of
risk than one- to four-family residential real estate loans. Multifamily loans
involve more risk because they typically involve larger loan balances to single
borrowers or groups of related borrowers. The payment experience on these loans
typically depends upon the successful operation of the related real estate
project and is subject to risks such as excessive vacancy rates or inadequate
rental income levels.
Commercial Real Estate Lending. At June 30, 2001, permanent loans held for
investment, secured by commercial real estate, totaled $179.6 million or 13.8%
of our total portfolio. The average size of these loans was approximately
$658,000.
We originate loans secured by commercial real estate generally when these
loans are secured by retail strip shopping centers or office buildings and the
loan yields and other terms meet our requirements. In the recent past, we began
to introduce more geographic diversity into the portfolio based on our desire to
acquire high credit quality loans. We believe a certain amount of geographic
diversity is important to reduce the risk of loss due to regional economic
downturns.
We purchase commercial real estate loans secured by retail strip shopping
centers and office buildings to supplement our origination of commercial real
estate loans. As a result of referrals from customers and mortgage brokers, we
make loans on commercial real estate in many states, but predominantly in Ohio,
Pennsylvania, Northern Kentucky and California.
We originate and purchase commercial real estate loans for investment and
to be held for sale. The decision to hold loans in the portfolio or for sale is
based on a number of factors including our current level of liquidity, interest
rate risk, geographic concentration and capital available to support asset
growth. At June 30, 2001, commercial real estate loans held for sale totaled
$53.5 million. As long as Metropolitan Bank is subject to the supervisory
agreements, we anticipate that a substantial portion of our commercial real
estate loans originated and purchased will be held for sale.
We recognize that commercial real estate loans generally involve a higher
degree of risk than the financing of one- to four-family residential real
estate. These loans typically involve larger loan balances to single borrowers
or groups of related borrowers. The payment experience on these loans is
typically dependent upon the successful operation of the related real estate
project and is subject to certain risks including excessive vacancy due to
tenant turnover and inadequate rental income levels. In addition, the
profitability of the business operating in the property may affect the
borrower's ability to make timely payments. In order to manage and reduce these
risks, we focus our commercial real estate lending on existing properties with a
record of satisfactory performance and target retail strip centers and office
buildings with multiple tenants.
The following table presents information as to the locations and types of
properties securing the multifamily and commercial real estate portfolio as of
June 30, 2001. As of that date, we had loans in 40 states. Properties securing
loans in 37 states are aggregated in the table because none of those states
exceed 5.0% of the outstanding principal balance of the total multifamily and
commercial real estate portfolio.
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NUMBER
OF LOANS PERCENT PRINCIPAL PERCENT
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
Ohio:
Apartments.................................................. 112 14.1% $ 70,364 17.4%
Office buildings............................................ 27 3.4 18,807 4.7
Retail centers.............................................. 14 1.8 5,235 1.3
Other ..................................................... 21 2.6 16,793 4.2
--- ----- -------- -----
Total................................................ 174 21.9 111,199 27.6
--- ----- -------- -----
California:
Apartments.................................................. 214 26.9 80,704 20.0
Office buildings............................................ 32 4.0 9,920 2.5
Retail centers.............................................. 60 7.5 26,044 6.5
Other ..................................................... 16 2.0 6,506 1.6
--- ----- -------- -----
Total................................................ 322 40.4 123,174 30.6
--- ----- -------- -----
Pennsylvania:
Apartments.................................................. 26 3.3 14,839 3.7
Office buildings............................................ 10 1.3 27,975 6.9
Retail centers.............................................. 4 0.5 9,044 2.2
Other ..................................................... 2 0.2 2,362 0.6
--- ----- -------- -----
Total................................................ 42 5.3 54,220 13.4
--- ----- -------- -----
Other states:
Apartments.................................................. 171 21.5 57,342 14.2
Office Buildings............................................ 35 4.4 24,441 6.1
Retail centers.............................................. 27 3.4 16,154 4.0
Other ..................................................... 25 3.1 16,356 4.1
--- ----- -------- -----
Total................................................ 258 32.4 114,293 28.4
--- ----- -------- -----
796 100.0% $402,886 100.0%
=== ===== ======== =====
The following table presents aggregate information as to the type of
security as of June 30, 2001:
AVERAGE
NUMBER BALANCE
OF LOANS PER LOAN PRINCIPAL PERCENT
-------- -------- --------- -------
(DOLLARS IN THOUSANDS)
Apartments.................................................... 523 $427 $223,249 55.3%
Office buildings.............................................. 104 780 81,143 20.2
Retail centers................................................ 105 538 56,477 14.0
Other ..................................................... 64 657 42,017 10.5
--- ---- -------- -----
Total................................................ 796 $506 $402,886 100.0%
=== ==== ======== =====
One- to four-family lending. We originate one- to four-family residential
loans for sale and for portfolio. While the proportion originated for sale and
the proportion originated for portfolio vary over time, at the present time, and
we anticipate through at least 2002, the majority of our one- to four-family
loans will be originated for sale. See "Mortgage Banking" in the "Secondary
Marketing Activities" section on page 33 for a discussion of loans originated
for sale.
Our portfolio of one- to four-family loans at June 30, 2001 totaled $249.1
million or 19.1% of our total loan portfolio. These loans are primarily first
mortgages on owner occupied residences. Substantially all loans with loan to
values greater than 85% carry private mortgage insurance. These loans are
concentrated in Northeast Ohio and include both fixed and variable rate loans.
Many of the fixed rate loans were originally construction loans where we offered
the borrower fixed rate permanent financing commitments to commence after the
construction period was over. We limit the amount of this fixed rate end loan
financing retained in our portfolio to limit interest rate risk associated with
long term fixed rate loans.
Construction Lending and Land Development. At June 30, 2001, we had $222.9
million of construction and land development loans outstanding. We originate
construction loans on single family homes to local builders in our primary
lending market and to individual borrowers on owner-occupied properties. We also
make loans to builders for the purchase of fully-improved single family lots and
to developers for the purpose of developing land into single family
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34
lots. Our primary market areas for construction lending are in Northeastern
Ohio, in the counties of Cuyahoga, Lake, Geauga, Summit, Medina, Portage, and
Lorain and the greater Columbus, Ohio market.
The following table presents the number, amount, and type of properties
securing construction and land development loans at June 30, 2001:
NUMBER OF PRINCIPAL
LOANS BALANCE
--------- ---------
(DOLLARS IN THOUSANDS)
RESIDENTIAL CONSTRUCTION LOANS:
Owner-occupied...................................................................... 180 $ 38,626
Builder presold..................................................................... 49 10,673
Builder model homes................................................................. 219 54,617
Builder lines of credit............................................................. 25 41,235
--- --------
Total residential construction loans............................................. 473 145,151
NONRESIDENTIAL CONSTRUCTION LOANS:
Multifamily......................................................................... 3 5,347
Commercial.......................................................................... 3 4,736
--- --------
Total nonresidential construction loans.......................................... 6 10,083
LAND LOANS............................................................................ 19 1,923
LOT LOANS............................................................................. 79 21,185
DEVELOPMENT LOANS..................................................................... 47 44,545
--- --------
Total............................................................................ 624 $222,887
=== ========
The risk of loss on a construction loan largely depends upon the accuracy
of the initial estimate of the property's value upon completion of the project,
the estimated cost of the project, and proper control over disbursements during
construction. We review the borrower's financial position and may require a
personal guarantee on all builder loans. We base all loans upon the appraised
value of the underlying collateral, as completed. Construction inspections are
required to support the percentage of completion during construction.
We establish a maximum loan to value ratio for each type of loan based upon
the contract price, cost estimate or appraised value, whichever is less. The
maximum loan to value ratio by type of construction loan is as follows:
- owner-occupied homes--80%;
- builder presold homes--80%;
- builder models or speculative homes--75%;
- lot loans--75%;
- development loans--75% (development of single-family home lots for
resale to builders); and
- builder lines of credit--75% (development of land for cluster or
condominium projects which will be part of builder line of credit).
All construction loans that we make to builders are for relatively short
terms (6 to 24 months) and are at an adjustable rate of interest. Owner-occupied
loans are generally fixed rate.
We offer builders lines of credit to build single family homes. We secure
all lines of credit by the homes that are built with the draws under such credit
agreements. Most of the homes built with the line of credit funds are presold
homes. We base draws upon the percentage of completion.
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We also originate construction loans on multifamily and commercial real
estate projects where we intend to provide the financing once construction is
complete. We underwrite these loans in a manner similar to our originated and
purchased multifamily residential and commercial real estate loans described
above.
Consumer Lending. The underwriting standards we employ for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. At June 30, 2001, secured loans
comprised $141.0 million or 91.3% of the $154.4 million consumer loan portfolio.
However, even in the case of secured loans, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance due to the higher likelihood of damage, loss or
depreciation. In addition, consumer loan collections depend upon the borrower's
continuing financial stability. The application of various federal and state
laws, including bankruptcy and insolvency laws, may limit the amount recovered
on such loans in the event of default.
In order to supplement the growth in the consumer loan portfolio, we have
purchased loans through correspondent lenders and bulk portfolios offered for
sale. In 1997, we acquired two packages of subprime loans totaling $6.3 million.
Subprime loans are loans where the borrower's credit rating is below an A grade.
These loans require more intensive collection techniques. However, the yield is
significantly higher to cover these incremental costs. In 1998, we acquired an
additional loan package of $5.0 million of subprime loans secured by
manufactured housing. Total subprime loans were $6.2 million, or 4.0% of total
consumer loans at June 30, 2001. We no longer engage in subprime lending.
At June 30, 2001, our credit card portfolio had an outstanding balance of
$6.0 million with $21.7 million in unused credit lines.
Business Lending. At June 30, 2001, we had $136.2 million of business loans
outstanding. Our business lending activities encompass loans with a variety of
purposes and security, including loans to finance accounts receivable, inventory
and equipment. Generally, our business lending has been limited to borrowers
headquartered, or doing business in, our retail market area. These loans are
generally adjustable interest rate loans at some margin over the prime interest
rate and some are guaranteed by the Small Business Administration.
The following table sets forth information regarding the number and amount
of our business loans as of June 30, 2001:
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OUTSTANDING
NUMBER TOTAL LOAN PRINCIPAL
OF LOANS COMMITMENT BALANCE
----------------- ---------------------- --------------------
(DOLLARS IN
THOUSANDS)
LOANS SECURED BY:
Accounts receivable, inventory and
equipment ............................... 109 $ 13,135 $ 7,409
Junior liens on real estate .............. 108 73,272 60,077
First lien on real estate ................ 134 56,303 46,925
Specific equipment and machinery ......... 39 7,233 3,758
Titled vehicles .......................... 11 368 203
Stocks and bonds ......................... 13 25,745 8,532
Certificates of deposit .................. 22 4,463 1,763
UNSECURED LOANS ............................ 65 11,805 7,500
-------- -------- --------
Total .................................... 501 $192,324 $136,167
======== ======== ========
Business loans differ from residential mortgage loans. Residential mortgage
loans generally are made on the basis of the borrower's ability to make
repayment from his or her employment and other income and are secured by real
property whose value is more easily ascertainable. Business loans are of higher
risk and typically are made on the basis of the borrower's ability to make
repayment from the cash flow of the borrower's business. As a result, the
availability of funds for the repayment of business loans may depend
substantially upon the success of the business. Furthermore, the collateral
securing the loans may depreciate over time, may be difficult to appraise, and
may fluctuate in value based on the success of the business. We work to reduce
this risk by carefully underwriting business loans and by taking real estate as
collateral whenever possible.
SECONDARY MARKET ACTIVITIES
Mortgage Banking. We originate one- to four-family loans through our retail
sales office network and through loan origination offices throughout Ohio and in
Western Pennsylvania. In addition we purchase loans for sale from a number of
correspondent lenders. These loans are sole to Freddie Mac, Fannie Mae and
private buyers. Mortgage banking allows us to generate revenue from loan sales
continuously in spite of the level of cash flows from deposits or other sources.
It also allows us to make long-term fixed rate loans desired by our customers
without absorbing the interest rate risk that can be associated with those
loans. The principal balance of one- to four-family loans sold during the first
six months of 2001 was $345 million which generated gains of $3.3 million.
The secondary market for mortgage loans is comprised of institutional
investors who purchase loans meeting certain underwriting specifications with
respect to loan-to-value ratios, maturities and yields. Subject to market
conditions, we tailor some of our real estate loan programs to meet the
specifications of FreddieMac and FannieMae, two of the largest institutional
investors. We generally retain a portion of the loan origination fee paid by the
borrower and receive annual servicing fees as compensation for retaining
responsibility for and performing the servicing of all loans sold to
institutional investors. See "Loan Servicing Activities."
The terms and conditions under which such sales are made depend upon, among
other things, the specific requirements of each institutional investor, the type
of loan, the interest rate environment and our relationship with the
institutional investor. We periodically obtain formal commitments to sell loans
primarily with FreddieMac and FannieMae. Based on these commitments, FreddieMac
or FannieMae is obligated to purchase a specific dollar amount of whole loans
over a specified period. The terms of the commitments range from ten to sixty
days. The pricing varies depending upon the length of each commitment. We
classify loans as held for sale while we are negotiating the sale of specific
loans which meet selected criteria to a specific investor or after a sale is
negotiated but before it is settled. Sales of loans can take the form of cash
sales of loans or sales of mortgage-backed securities. At times we form a
mortgage-backed security and immediately sell the security rather than the
loans. This increases the potential number of buyers since there is an
established market for mortgage-backed securities with numerous buyers, sellers
and brokers.
Commercial Secondary Marketing. We sell commercial real estate and
multifamily loans on a regular basis. These sales are from our portfolio of
loans held for sale which totaled $98.0 million at June 30, 2001. These may be
-33-
37
sales of whole loans or participations. During the first half of 2001 we sold
$44.5 million of commercial real estate and multifamily loans which generated
gains of $671,000. These loan sales may take the form of a securitization. When
we securitize loans we may sell the securities immediately, sell them at a later
date or retain them in our mortgaged-backed securities portfolio. Even if the
securities are retained in the portfolio they are classified as available for
sale.
During the fourth quarter of 1999, we completed the securitization of
$108.8 million of multifamily loans in a program with FannieMae. This program
uses insurance to provide the credit enhancement necessary to achieve a
satisfactory rating. We are servicing the loans as mortgage-backed securities
for FannieMae. We completed a similar securitization of $93.0 million of
multifamily loans in 1997. During the fourth quarter of 1998, we completed the
securitization of $101.0 million of commercial real estate loans with a private
issuer in a non-rated structure. Similar to the other securitization
transactions, we used an insurance policy to assume a portion of the credit
risk. Metropolitan Bank sells and securitizes commercial real estate and
multifamily loans for a number of reasons including to:
- generate income from gain on sales;
- reduce credit risk;
- make loans more easily pledgeable;
- change the mix of assets;
- affect the level of regulatory capital required;
- reduce concentrations of risk by industry, geography or in an
individual borrower; and
- change the overall asset size of Metropolitan Bank.
LOAN SERVICING ACTIVITIES
At June 30, 2001, our overall servicing portfolio had a principal balance
of $2.9 billion. Of that amount, loans serviced for others totaled $2.1 billion.
The following table summarizes the portfolio by investor and source:
ORIGINATED PURCHASED PORTFOLIO
SERVICING SERVICING SERVICING TOTAL
---------- --------- --------- -----
(DOLLARS IN THOUSANDS)
One- to Four-family:
Metropolitan portfolio ............ -- -- $ 406,839 $ 406,839
FreddieMac ........................ $ 556,173 $ 543,741 -- 1,099,914
FannieMae ......................... 36,212 571,239 -- 607,451
Private investors ................. 14,885 8,368 -- 23,253
---------- ---------- ---------- ----------
Total One- to Four-family ...... 607,270 1,123,348 406,839 2,137,457
---------- ---------- ---------- ----------
Multifamily and Commercial:
Metropolitan portfolio ............ -- -- 396,250 396,250
FannieMae ......................... 100,574 62,752 -- 163,326
Private investors ................. 184,084 29,520 -- 213,604
---------- ---------- ---------- ----------
Total Multifamily and Commercial 284,658 92,272 396,250 773,180
---------- ---------- ---------- ----------
Total ........................ $ 891,928 $1,215,620 $ 803,089 $2,910,637
========== ========== ========== ==========
Generally, we service the loans we originate. When we sell loans to an
investor, such as FreddieMac or FannieMae, we normally retain the servicing
rights for the loans. We receive fee income for servicing these sold loans at
various percentages based upon the unpaid principal balances of the loans
serviced. We collect and retain service fees out of monthly mortgage payments.
To further increase our servicing fee income, Metropolitan Bank occasionally
during 2000 pursued purchases of servicing portfolios from other originating
institutions. These purchased servicing portfolios are primarily FreddieMac and
FannieMae single family loans that are secured by homes located within the
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38
eastern half of the nation. At June 30, 2001, the unpaid principal balance of
our purchased servicing portfolio was $1.2 billion. The related net book value
of purchased mortgage servicing rights was $13.9 million.
Loan servicing functions include collecting and remitting loan payments,
accounting for principal and interest, holding escrow (impound) funds for
payment of taxes and insurance, making rate and payment changes to contractually
adjustable loans, managing loans in payment default, processing foreclosure and
other litigation activities to recover mortgage debts, conducting property
inspections and risk assessment for investment loans and general administration
of loans for the investors to whom they are sold.
In general, the market value of purchased or originated servicing rights
increases as interest rates rise and decreases as interest rates fall. During
the first half of 2001 market interest rates have fallen primarily due to
reductions in short-term rates by the Federal Reserve Board. As a result, the
market values of Metropolitan Bank's servicing rights have not increased as
rapidly as the book value. If the book value of servicing rights would exceed
the market value in the future we would have to record an allowance for loss to
reflect any temporary impairment that had occurred. While no impairment of
servicing right stratifications exists at June 30, 2001, impairment could occur
if interest rates continue to decline.
LOAN DELINQUENCIES AND NONPERFORMING ASSETS
Collection procedures vary by type of loan but generally consist of efforts
to collect delinquent balances and if that fails to liquidate the collateral
securing the loan to satisfy the obligation. Collection efforts for one- to
four-family loans generally conform to the servicing requirements of FannieMae
and FreddieMac. Notices are sent by mail when the loan reaches 15 days past due.
Within the following 5 days contact is made by telephone. When a loan reaches 90
days past due we generally begin foreclosure proceedings. Foreclosure culminates
with the sale of property at public auction where we may be the acquirer.
Foreclosed real estate is recorded at the lesser of fair value less selling
costs or the loan balance and marketed for sale.
While each delinquent multifamily or commercial real estate loan receives
individual attention due to the larger size of these loans, certain standard
procedures are followed. First, annual financial statements and rent rolls are
requested from each borrower and are analyzed. Borrowers with debt service
ratios of less than 1:1 or with high vacancy rates are contacted and monitored.
When a loan reaches 20 days past due, contact is made by mail and by telephone
and is documented. If the delinquency continues we send a default letter to the
borrower as soon as we determine that the loan is in default. That letter
indicates what steps the borrower will have to take to cure the default and what
we will do next if the default is not cured. If the default is not cured by the
target date, we notify the borrower in writing that the entire balance of the
loan is due and payable and we begin foreclosure proceedings. Foreclosure may
end in auction, acquisition and marketing of the real estate. Where possible,
further collection actions are taken for deficiencies not satisfied by the sale
of the real estate.
The steps we take to collect delinquent business loans are even more
diverse because the types of collateral taken vary significantly. Collections
are monitored weekly. We make telephone contact with customers who do not pay by
their due date. If a delay in payment continues we meet with the borrower. The
borrower's cash flow situation is evaluated and a repayment plan instituted. In
some cases we exercise our right to collateral or assignment of receivables to
satisfy the debt.
We initiate contact with delinquent consumer loan customers even sooner
making contact when a payment is 10 days past due. We bring an action to collect
any loan payment that is delinquent more than 30 days. Our procedures for
collection efforts, repossession and sale of consumer collateral must comply
with various requirements under state and federal consumer protection laws.
On a monthly basis the credit department classifies loans into a number of
credit risk categories and a management committee monitors and directs
collection efforts for the loans that are large and are classified as having
high credit risk. Also monthly, delinquency statistics are reported to
management and the Board of Directors.
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The following table sets forth information concerning delinquent loans at
June 30, 2001, in dollar amounts and as a percentage of each category of the
loan portfolio. The amounts presented represent the total remaining principal
balances of the related loans, rather than the actual payment amounts that are
overdue.
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
----------------------------- ---------------------------- -----------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------ -------- ------ ------ -------- ------ ------ --------
(DOLLARS IN THOUSANDS)
REAL ESTATE
One- to four-family .. 2 $ 81 0.03% 1 $ 304 0.10% 3 $ 385 0.13%
Multifamily .......... -- -- -- 5 2,779 1.04 5 2,779 1.04
Commercial real estate 1 95 0.04 5 4,069 1.75 6 4,164 1.79
Construction and land -- -- -- 3 971 0.44 3 971 0.44
CONSUMER ............... 56 963 0.62 163 3,687 2.39 219 4,650 3.01
BUSINESS ............... 7 849 0.62 40 20,177 14.82 47 21,026 15.44
--- ------- ---- ---- ------- ----- ---- ------- -----
Total .............. 66 $ 1,988 0.15% 217 $31,987 2.45% 283 $33,975 2.60%
=== ======= ==== ==== ======= ===== ==== ======= =====
The balance of $20.2 million in business loans 90 days and over past due is
significant in relation to total loans 90 days and over past due and to total
business loans. This total includes $14.7 million of loans to one borrower group
which became nonperforming during the first quarter of 2001. Late in the first
quarter, management received revised financial projections from these borrowers.
As a result of management's analysis of the borrower's projections, these loans
were put on nonaccrual and were judged to be impaired. Management has estimated
the impairment of these loans to be $3.5 million. However, Metropolitan Bank is
pursuing a workout plan with the borrower to minimize any actual write-off.
Nonperforming assets include all nonaccrual loans, loans past due greater
than 90 days still accruing, and real estate owned. Generally, interest is not
accrued on loans contractually past due 90 days or more as to interest or
principal payments. In addition, interest is not accrued on loans as to which
payment of principal and interest in full is not expected unless in our judgment
the loan is well secured, and we expect no loss in principal or interest.
When a loan reaches nonaccrual status, we discontinue interest accruals and
reverse prior accruals. The classification of a loan on nonaccrual status does
not necessarily indicate that the principal is uncollectible in whole or in
part. We consider both the adequacy of the collateral and the other resources of
the borrower in determining the steps to take to collect nonaccrual loans. The
final determination as to these steps is made on a case-by-case basis.
Alternatives we consider are commencing foreclosure, collecting on guarantees,
restructuring the loan, or instituting collection lawsuits.
ALLOCATION OF ALLOWANCE FOR LOSSES ON LOANS
We maintain an allowance for losses on loans because some loans may not be
repaid in full. We maintain the allowance at a level we consider adequate to
cover possible losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations, including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While we may
periodically allocate portions of the allowance for specific problem loans, the
whole allowance is available for any loan charge-offs that occur. We charge a
loan against the allowance as a loss when, in our opinion, it is uncollectible.
Despite the charge-off, we continue collection efforts. As a result, future
recoveries may occur.
The following table sets forth an allocation (by total amount and
percentage of loans in each category) of the allowance for losses on loans among
categories as of the dates indicated based on our estimate of probable losses
that were currently anticipated based largely on past loss experience. Since the
factors influencing such estimates are subject to change over time, we believe
that any allocation of the allowance for losses on loans into specific
categories lends an appearance of precision which does not exist. In practice,
we use the allowance as a single unallocated allowance available for all loans.
The allowance can also be reallocated among different loan categories if actual
losses differ from expected losses and based upon changes in our expectation of
future losses. The following allocation table should not be interpreted as an
indication of the actual amounts or the relative proportion of future charges to
the allowance.
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40
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2001 2000 1999 1998 1997
---------------- ---- ---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
One-to four-family $ 302 22.3% $ 759 24.8% $ 778 24.0% $ 304 18.3% $ 237 19.8%
Multifamily....... 1,207 20.5 962 20.5 904 23.3 648 31.1 482 25.4
Commercial real
estate........... 2,869 17.9 1,456 18.7 1,281 19.7 1,019 21.1 1,400 23.0
Construction and land 744 17.1 796 13.6 550 12.4 237 12.6 353 15.0
Consumer.......... 4,272 11.8 3,631 11.9 3,947 11.5 2,335 9.3 2,132 9.0
Business.......... 7,610 10.4 4,952 10.5 2,462 9.1 1,675 7.6 456 7.5
Unallocated....... 24 -- 1,395 -- 1,103 -- 691 -- 562 --
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Total............. $17,028 100.0% $13,951 100.0% $11,025 100.0% $6,909 100.0% $5,622 100.0%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
YEAR ENDED DECEMBER 31,
-------------------------
1996
----
AMOUNT PERCENT
------ -------
One-to four-family $ 228 17.1%
Multifamily....... 1,020 40.8
Commercial real
estate........... 937 20.3
Construction and land 193 10.5
Consumer.......... 1,182 7.9
Business.......... 197 3.4
Unallocated....... 418
------ ------
Total............. $4,175 100.00%
====== ======
The risks associated with off-balance sheet commitments are insignificant.
Therefore, we have not provided an allowance for those commitments.
The following table provides an analysis of the allowance for losses on
loans at the dates indicated.
YEAR ENDED DECEMBER 31,
SIX MONTHS -----------------------------------------------------------------------
ENDED
JUNE 30, 2001 2000 1999 1998 1997 1996
-------------- ----------- ----------- ----------- ----------- -----------
Balance at beginning of period.. $13,951 $11,025 $ 6,909 $ 5,622 $ 4,175 $ 2,765
Charge-offs:
One- to four-family ...... -- 23 12 5 32 22
Multifamily .............. -- -- 31 39 494 119
Commercial real estate ... -- -- 104 -- -- --
Consumer ................. 1,234 3,448 1,944 809 363 95
Business ................. -- 358 148 565 10 --
------- ------- ------- ------- ------- -------
Total charge-offs ..... 1,234 3,829 2,239 1,418 899 236
Recoveries ..................... 111 405 45 55 6 11
------- ------- ------- ------- ------- -------
Net charge-offs ................ 1,123 3,424 2,194 1,363 893 225
Provision for loan losses ...... 4,200 6,350 6,310 2,650 2,340 1,635
------- ------- ------- ------- ------- -------
Balance at end of period ....... $17,028 $13,951 $11,025 $ 6,909 $ 5,622 $ 4,175
======= ======= ======= ======= ======= =======
Net charge-offs to average
loans......................... 0.18% 0.27% 0.19% 0.16% 0.13% 0.04%
Provision for loan losses to
average loans ................ 0.66% 0.50% 0.54% 0.31% 0.35% 0.28%
Allowance for losses on loans to
total nonperforming loan ..... 53.23% 94.65% 117.52% 54.44% 178.68% 80.38%
Allowance for losses on loans to
total loans .................. 1.39% 1.07% 0.92% 0.66% 0.79% 0.64%
Substantially all recoveries indicated above were recoveries of consumer
loans charged off.
INVESTMENT PORTFOLIO
We maintain our investment portfolio in accordance with policies adopted by
the Board of Directors that consider the regulatory requirements and
restrictions which dictate the type of securities that we can hold. As a member
of the Federal Home Loan Bank System, Metropolitan Bank is required to hold a
minimum amount of Federal Home Loan Bank stock based upon asset size and
outstanding borrowings.
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41
The following table summarizes the amounts and the distribution of
securities held as of the dates indicated:
JUNE 30, 2001 DECEMBER 31,
--------------- --------------------------------------------------
2000 1999 1998
---- ---- ----
SECURITIES: (DOLLARS IN THOUSANDS)
Mutual funds $ 678 $ 889 $ 835 $ 2,059
Tax -exempt bond 14,548 14,705 14,699 14,817
Revenue bond 630 775 1,180 1,400
FreddieMac preferred stock 6,488 6,150 6,150 7,500
Agency Notes 19,392 29,906 9,764 9,884
Federal Home Loan Bank Stock 15,993 20,624 30,028 6,054
Treasury notes and bills 73,252 2,361 -- --
-------- ------- ------- -------
Total $130,981 $75,410 $62,656 $41,714
======== ======= ======= =======
OTHER INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks $473 $2,727 $2,750 $9,275
The following table sets forth the contractual maturities and approximate
weighted average yields of debt securities at June 30, 2001.
DUE IN DUE IN DUE IN
ONE YEAR FIVE TO MORE THAN
OR LESS TEN YEARS TEN YEARS TOTAL
-------- --------- --------- -----
(DOLLARS IN THOUSANDS)
Tax-exempt bond -- -- $ 14,548 $ 14,548
Revenue bond -- $ 630 -- 630
U.S. Treasury notes and bills $ 73,152 100 -- 73,252
U.S. Government agency notes -- 19,392 -- 19,392
-------- -------- -------- --------
Total $ 73,152 $ 20,122 $ 14,548 $107,822
======== ======== ======== ========
Weighted average tax-equivalent yield 2.87% 6.40% 7.00% 4.08%
MORTGAGE-BACKED SECURITIES PORTFOLIO
Mortgage-backed securities offer higher rates than treasury or agency
securities with similar maturities because the timing of the repayment of
principal can vary based on the level of prepayments of the underlying loans.
However, they offer lower yields than similar loans because the risk of loss of
principal is often guaranteed by the issuing entity or through mortgage
insurance. We acquire mortgage-backed securities through purchases and
securitization of loans from our portfolio. We classify all mortgage-backed
securities as available for sale. The following table sets forth the fair market
value of the mortgage-backed securities portfolio at the dates indicated.
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42
AT DECEMBER 31,
AT JUNE 30, -------------------------------------------------
2001 2000 1999 1998
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
FannieMae pass-through certificates $ 72,440 $ 74,412 $112,675 $ 61,705
GNMA pass-through certificates 37,429 27,249 29,526 5,870
FreddieMac participation certificates 2,365 2,948 6,609 13,149
BPA Commercial Capital L.L.C
mortgage-backed security 72,757 77,162 92,492 100,995
FreddieMac Collateralized Mortgage Obligation 8,422 8,192 8,518 8,494
FannieMae Collateralized Mortgage Obligation 5,218 5,666 5,703 7,868
Other 195 200 204 214
-------- -------- -------- --------
Total $198,826 $195,829 $255,727 $198,295
======== ======== ======== ========
The following table sets forth the final maturities and approximate
weighted average yields of mortgage-backed securities at June 30, 2001.
DUE IN
--------------------------------------------
ONE FIVE
YEAR TO TO TEN OVER
FIVE YEARS YEARS TEN YEARS TOTAL
---------- ----- --------- -----
(DOLLARS IN THOUSANDS)
FannieMae pass-through certificates $ 17,423 $ 52,508 $ 2,509 $ 72440
GNMA pass-through certificates 10 -- 37,419 37,429
FreddieMac participation certificates -- -- 2,365 2,365
BPA Commercial Capital L.L.C
Mortgage-backed security -- -- 72,757 72,757
FreddieMac Collateralized Mortgage Obligation -- -- 8,422 8,422
FannieMae Collateralized Mortgage Obligation -- -- 5,218 5,218
Other -- -- 195 195
-------- -------- -------- --------
Total mortgage-backed securities $ 17,433 $ 52,508 $128,885 $198,826
======== ======== ======== ========
Weighted average yield 7.24% 6.98% 7.10% 7.08%
The actual timing of the payment of principal on mortgage-backed securities
is dependent on principal payments on the underlying loans which may or may not
carry prepayment penalties for the borrowers. Therefore, the table above is not
necessarily representative of actual or expected cash flows from these
securities.
SOURCES OF FUNDS
Metropolitan Bank's primary sources of funds are deposits, amortization and
repayment of loan principal, borrowings, sales of mortgage loans, sales or
maturities of mortgage-backed securities, securities, and short-term
investments. Deposits are the principal source of funds for lending and
investment purposes. We offer the following types of accounts:
Statement and Checking Accounts. We offer three types of statement savings
accounts, two interest-bearing checking, and one noninterest-bearing checking
account for consumers. We offer three types of statement savings accounts and
one noninterest-bearing checking account for business and commercial customers.
In connection with loan servicing activities, we maintain custodial
checking accounts for principal and interest payments collected for investors
monthly and for tax and insurance escrow balances.
Certificates of Deposit. We offer fixed rate, fixed term certificates of
deposit. Terms are from seven days to five years. These accounts generally bear
the highest interest rates of any deposit product offered. We review interest
rates offered on certificates of deposit regularly and adjust them based on cash
flow projections and market interest rates. In conjunction with certificates of
deposit, we also offer Individual Retirement Accounts.
From time to time, we have accepted certificates of deposit through brokers
or from out-of-state individuals and entities, predominantly financial
institutions. These deposits typically have balances of $90,000 to $100,000 and
have a
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43
term of one year or more. At June 30, 2001, these individuals and entities held
approximately $204.8 million of certificates of deposits, or 17.0% of total
deposits. Subsequent to June 30, 2001, Metropolitan Bank has reduced its
dependency on brokered and out-of-state deposits as required by the supervisory
agreement it entered into with the OTS and ODFI. At August 31, 2001,
Metropolitan Bank had reduced brokered and out-of-state deposits by $58.7
million to $145.6 million.
The following table provides information regarding trends in average
deposits for the periods indicated. The noninterest bearing demand deposit
category includes principal and interest custodial accounts and taxes and
insurance custodial accounts for loans serviced for FreddieMac, FannieMae and
private investors.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 2000 1999 1998
------------------------ ---- ---- ----
PERCENT PERCENT PERCENT PERCENT
AVERAGE OF RATE AVERAGE OF RATE AVERAGE OF RATE AVERAGE OF RATE
AMOUNT TOTAL PAID AMOUNT TOTAL PAID AMOUNT TOTAL PAID AMOUNT TOTAL PAID
------ ----- ---- ------ ----- ---- ------ ----- ---- ------ ----- ----
Noninterest Bearing Deposits $ 97,000 8.4% $ 71,714 6.3% $ 64,633 5.6% $ 51,385 6.1%
INTEREST BEARING DEPOSITS:
Interest Bearing Checking
Accounts 140,964 12.2% 4.15% 99,142 8.7% 4.15% 54,538 4.7% 2.66% 45,980 5.5% 2.75%
Passbook Savings and Statement
Savings 102,491 8.8% 2.86% 146,635 12.9% 3.82% 215,265 18.8% 4.21% 184,907 21.9% 4.54%
Certificates of Deposits 817,678 70.6% 6.22% 818,062 72.1% 6.11% 815,448 70.9% 5.50% 560,010 66.5% 5.87%
------- ---- ---- ------- ---- ---- ------- ---- ---- ------- ---- ----
Total Interest-bearing
Deposits 1,061,133 91.6% 5.62% 1,063,839 93.7% 5.6% 1,085,251 94.4% 5.09% 790,897 93.9% 5.38%
--------- ---- --------- ---- --------- ---- ------- ----
Total average deposits $1,158,133 100.0% $1,135,553 100.0% $1,149,884 100.0% $842,282 100.0%
========== ===== ========== ===== ========== ===== ======== =====
Deposits increased 4.9% to $1.2 billion at June 30, 2001 from six
months earlier. The increase was primarily due to increases in interest bearing
checking accounts and noninterest bearing checking accounts.
The following table shows rate and maturity information for
certificates of deposit as of June 30, 2001.
PERCENT OF
2.00-4.99% 5.00-5.99% 6.00-6.99% 7.00-8.99% TOTAL TOTAL
---------- ---------- ---------- ---------- ----- -----
(DOLLARS IN THOUSANDS)
CERTIFICATE ACCOUNTS
MATURING IN QUARTER ENDING:
September 30, 2001 $19,110 $45,177 $150,364 $36,326 $250,977 29.8%
December 31, 2001 32,857 12,480 74,458 17,899 137,694 16.3
March 31, 2002 8,968 31,951 41,977 14,765 97,661 11.6
June 30, 2002 47,171 30,961 11,849 3,243 93,224 11.1
September 30, 2002 41,852 27,330 15,303 7,354 91,839 10.9
December 31, 2002 17,353 2,951 10,106 3,260 33,670 4.0
March 31, 2003 182 58,191 6,701 3,401 68,475 8.1
June 30, 2003 9,611 3,405 10,707 1,037 24,760 2.9
September 30, 2003 272 10,780 3,430 16 14,498 1.7
December 31, 2003 1,175 5,882 545 2 7,604 1.0
March 31, 2004 129 3,000 77 -- 3,206 0.3
June 30, 2004 414 2,616 256 -- 3,286 0.3
Thereafter 63 4,654 10,280 1,724 16,721 2.0
----- ----- ------ ----- ------ ---
Total $179,157 $239,378 $336,053 $ 89,027 $843,615 100.0%
======= ======= ======= ======= ======= =====
Percent of total 21.2% 28.4% 39.8% 10.6%
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44
The following table shows the remaining maturity for time deposits of
$100,000 or more as of June 30, 2001.
(DOLLARS IN THOUSANDS)
-----------------------
Three months or less $55,124
Over three through six months 36,704
Over six through twelve months 41,798
Over twelve months 55,574
--------
$189,200
========
In addition to deposits, we rely on borrowed funds. The discussion
below describes our current borrowings.
Subordinated Note Offering. In December 1995, we issued subordinated
notes due January 1, 2005 with an aggregate principal balance of $14.0 million
through a public offering. The interest rate on the notes is 9.625%.
Commercial Bank Loan. We have a loan agreement with a commercial bank.
The balance of the loan at June 30, 2001 was $6.0 million. Interest on the loan
is due monthly. The principal is due as follows: $1.0 million to be paid by
December 31, 2001 and $5 million to be paid by December 31, 2002. The interest
rate on the line is tied to the commercial bank's prime lending rate. As
collateral for the loan, our largest shareholder, Robert Kaye, has pledged
4,585,397 shares of our common stock and has agreed to pledge all shares he
purchases in the offerings but in no event less than 50% of all issued and
outstanding shares after the offerings.
Federal Home Loan Bank Advances. The Federal Home Loan Bank makes funds
available for housing finance to eligible financial institutions like
Metropolitan Bank. We collateralize advances by any combination of the following
assets: one- to four-family first mortgage loans, multifamily loans, home equity
loans, commercial real estate loans, investment securities, mortgage-backed
securities, Federal Home Loan Bank deposits, and Federal Home Loan Bank stock.
The aggregate balance of assets pledged as collateral for Federal Home Loan Bank
advances at June 30, 2001 was $392 million. In August 2001, based on the
financial condition of Metropolitan Bank as of the end of the first quarter of
2001, the Federal Home Loan Bank increased Metropolitan Bank's collateral
requirement with respect to one- to four-family loans and multifamily loans from
125% of borrowings to 150% of borrowings. As a result, Metropolitan Bank's
borrowing capacity of $29 million at June 30, 2001 was reduced to a collateral
shortage of $12 million at August 31, 2001. If this shortage is not resolved by
December 15, 2001, Metropolitan Bank will have to pay down existing borrowings
or convert existing assets into pledgeable assets. Further declines in
Metropolitan Bank's financial condition could result in additional collateral
shortages requiring additions of brokered or out of state deposits. These
pledgeable assets would not provide a positive spread over other funding sources
available.
Repurchase Agreements. From time to time, Metropolitan Bank borrows
funds by using its investment or mortgage-backed securities to issue reverse
repurchase agreements. The aggregate balance of mortgage-backed securities
pledged as collateral for reverse repurchase agreements at June 30, 2001 was
approximately $45 million.
The following table shows the maximum month-end balance, the average
balance, and the ending balance of borrowings during the periods indicated.
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45
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
--------------------------------------------------
JUNE 30, 2001 2000 1999 1998
------------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------
MAXIMUM MONTH-END BALANCE:
Federal Home Loan Bank advances................ $378,143 $365,094 $205,352 $119,000
1993 subordinated notes........................ -- -- -- 4,874
1995 subordinated notes........................ 13,985 14,000 14,000 14,000
Commercial bank repurchase agreement........... -- 50,000 55,000 --
Commercial bank loan........................... 6,000 7,000 12,000 8,000
Repurchase agreements.......................... 41,000 80,166 88,380 97,983
AVERAGE BALANCE:
Federal Home Loan Bank advances................ $345,076 $290,369 $140,001 $65,714
1993 subordinated notes........................ -- -- -- 1,999
1995 subordinated notes........................ 13,985 14,000 14,000 14,000
Commercial bank repurchase agreement........... 25,250 7,708 --
Commercial bank loan........................... 6,000 6,083 7,891 2,147
Repurchase agreements.......................... 41,000 70,595 81,507 70,368
ENDING BALANCE:
Federal Home Loan Bank advances................ $304,766 $365,094 $205,352 $111,236
1993 subordinated notes........................ -- -- -- --
1995 subordinated notes........................ 13,985 13,985 14,000 14,000
Commercial bank repurchase agreement........... -- -- 55,000 --
Commercial bank loan........................... 6,000 6,000 6,000 8,000
Repurchase agreements.......................... 41,000 41,000 80,044 82,250
The following table provides the interest rates which includes
amortization of issuance costs of borrowings during the periods indicated.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
--------------------------------------------------
JUNE 30, 2001 2000 1999 1998
----------------- ---- ---- ----
------------------------------------------------------------------------
WEIGHTED AVERAGE INTEREST RATE:
Federal Home Loan Bank advances................ 6.04% 6.15% 5.60% 5.68%
1993 subordinated notes........................ -- -- -- 10.47
1995 subordinated notes........................ 9.63 9.63 9.63 9.63
Commercial bank repurchase agreement........... -- 8.25 -- --
Commercial bank loan........................... 7.78 8.80 7.96 8.49
Repurchase agreements.......................... 5.94 6.06 5.60 5.66
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46
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S JUNIOR SUBORDINATED
DEBENTURES
The Company has two issues of cumulative trust preferred securities
outstanding through wholly-owned subsidiaries. The issuing entity has invested
the total proceeds from the sale of the securities in junior subordinated
deferrable interest debentures issued by the holding company. The securities are
listed on the NASDAQ Stock Market's National Market. A description of the
securities follows. (Dollars in thousands).
PRINCIPAL AMOUNT
NASDAQ DATE OF SHARES INTEREST MATURITY ----------------------------------
ISSUING ENTITY SYMBOL ISSUANCE ISSUED RATE DATE JUNE 30, 2001 DECEMBER 31, 2000
-------------- ------ -------- ------ ---- ---- ------------- -----------------
Metropolitan
Capital Trust I METFP 4\27\98 2,775,000 8.6% 6\30\28 $27,750 $27,750
Metropolitan
Capital Trust II METFO 5\14\99 1,600,000 9.5% 6\30\29 16,000 16,000
------ ------
Total $43,750 $43,750
====== ======
COMPETITION
Metropolitan Bank faces strong competition both in originating real
estate and other loans and in attracting deposits. Competition in originating
real estate loans comes primarily from other savings institutions, commercial
banks, mortgage companies, credit unions, finance companies, and insurance
companies.
Metropolitan Bank attracts its deposits through its retail sales
offices, primarily from the communities in which those retail sales offices are
located. Therefore, competition for those deposits is principally from other
savings institutions, commercial banks, credit unions, mutual funds, and
brokerage companies located in the same communities.
EMPLOYEES
At June 30, 2001, we had a total of 510 employees, including part-time
and seasonal employees. Our employees are not represented by any collective
bargaining group. Management considers its employee relations to be excellent.
REGULATION AND SUPERVISION
INTRODUCTION
The Company is a savings and loan holding company within the meaning of
the Home Owners' Loan Act. As a savings and loan holding company, we are subject
to the regulations, examination, supervision, and reporting requirements of the
OTS. Metropolitan Bank, an Ohio-chartered savings and loan association, is a
member of the Federal Home Loan Bank System. The Federal Deposit Insurance
Corporation, through the Savings Association Insurance Fund, insures
Metropolitan Bank's deposits. Metropolitan Bank is subject to examination and
regulation by the OTS, the Federal Deposit Insurance Corporation, and the ODFI.
Metropolitan Bank must comply with regulations regarding matters such as capital
standards, mergers, establishment of branch offices, subsidiary investments and
activities, and general investment authority.
METROPOLITAN FINANCIAL CORP.
As a savings and loan holding company, we are subject to restrictions
relating to our activities and investments. Among other things, we are generally
prohibited, either directly or indirectly, from acquiring control of any other
savings association or savings and loan holding company, without prior approval
of the OTS, and from acquiring more than 5% of the voting stock of any savings
association or savings and loan holding company which is not a subsidiary.
Similarly, a person must obtain OTS approval prior to that person's acquiring
control of the Company or Metropolitan Bank.
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47
METROPOLITAN BANK AND TRUST COMPANY
General. The enforcement authority of the OTS includes the ability to
impose penalties for and to seek correction of violations of laws and
regulations and unsafe or unsound practices. This authority includes the power
to assess civil money penalties, issue cease and desist orders against an
institution, its directors, officers or employees and other persons or initiate
legal action.
On July 26, 2001 we signed supervisory agreements with the OTS and the
ODFI. These documents acknowledge that these two regulatory authorities are of
the opinion that we have engaged in acts and practices that are unsafe and
unsound. We have agreed to take a number of steps to improve our safety and
soundness without admitting or denying any unsafe or unsound practices.
As a lender and a financial institution, Metropolitan Bank is subject
to various regulations promulgated by the Federal Reserve Board including,
without limitation, Regulation B (Equal Credit Opportunity), Regulation D
(Reserves), Regulation E (Electronic Fund Transfers), Regulation F (Interbank
Liabilities), Regulation Z (Truth in Lending), Regulation CC (Availability of
Funds), and Regulation DD (Truth in Savings). As lenders of loans secured by
real property, and as owners of real property, financial institutions, including
Metropolitan Bank, are subject to compliance with various statutes and
regulations applicable to property owners generally, including environmental
laws and regulations.
Insurance of Accounts and Regulation by the Federal Deposit Insurance
Corporation. Metropolitan Bank is a member of the Savings Association Insurance
Fund, which is administered by the Federal Deposit Insurance Corporation. The
Federal Deposit Insurance Corporation insures deposits up to applicable limits
and the full faith and credit of the United States Government backs such
insurance. As insurer, the Federal Deposit Insurance Corporation imposes deposit
insurance premiums and conducts examinations of and requires reporting by
Federal Deposit Insurance Corporation-insured institutions. The Federal Deposit
Insurance Corporation also has the authority to initiate enforcement actions
against savings associations after giving the OTS an opportunity to take such
action. It may terminate the deposit insurance if it determines that the
institution has engaged or is engaging in unsafe or unsound practices or is in
an unsafe or unsound condition.
Regulatory Capital Requirements. The capital regulations of the OTS
establish a "leverage limit," a "tangible capital requirement," and a
"risk-based capital requirement." The leverage limit currently requires a
savings association to maintain "core capital" of not less than 3% of adjusted
total assets. The OTS has taken the position, however, that the prompt
corrective action regulation has effectively raised the leverage ratio
requirement for all but the most highly-rated institutions. The leverage ratio
has in effect increased to 4% since an institution is "undercapitalized" if,
among other things, its leverage ratio is less than 4%. The tangible capital
requirement requires a savings association to maintain "tangible capital" in an
amount not less than 1.5% of adjusted total assets. The risk-based capital
requirement generally provides that a savings association must maintain total
capital in an amount at least equal to 8.0% of its risk-weighted assets. The
risk-based capital regulations are similar to those applicable to national
banks. The regulations assign each asset and certain off-balance sheet assets
held by a savings association to one of four risk-weighting categories, based
upon the degree of credit risk associated with the particular type of asset.
Metropolitan Bank is also subject to the capital adequacy requirements
under the Federal Deposit Insurance Corporation Investment Act of 1991. The
additional capital adequacy ratio imposed under Federal Deposit Insurance
Corporation Investment Act is the Tier 1 capital to risk adjusted assets ratio.
This ratio must be at least 6.0% for a "well capitalized" institution.
Banks and savings associations are classified into one of five
categories based upon capital adequacy, ranging from "well-capitalized" to
"critically undercapitalized." Generally, the regulations require the
appropriate federal banking agency to take prompt corrective action with respect
to an institution which becomes "undercapitalized" and to take additional
actions if the institution becomes "significantly undercapitalized" or
"critically undercapitalized." Based on these requirements, Metropolitan Bank is
an "adequately capitalized" institution.
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The appropriate federal banking agency has the authority to reclassify
a well-capitalized institution as adequately capitalized. In addition, the
agency may treat an adequately capitalized or undercapitalized institution as if
it were in the next lower capital category, if the agency determines, after
notice and an opportunity for a hearing, that the institution is in an unsafe or
unsound condition or that the institution has received and not corrected a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings, or liquidity in its most recent examination. As a result
of such reclassification or determination, the appropriate federal banking
agency may require an adequately capitalized or under-capitalized institution to
comply with mandatory and discretionary supervisory actions.
While the OTS has not established individual minimum capital
requirements for Metropolitan Bank, they have entered into a supervisory
agreement with Metropolitan Bank. Under that agreement Metropolitan Bank must
achieve well-capitalized status for core capital (5%) and risk-based capital
(10%) by December 31, 2001. If Metropolitan Bank is unable to achieve this
result by that date, despite its best efforts and/or for reasons beyond its
control, the OTS may extend this date. At June 30, 2001 we complied with all
requirements for an adequately capitalized institution. The following table
indicates our capital position compared to the requirements for an adequately
capitalized institution and a well-capitalized institution as of June 30, 2001.
ADEQUATELY CAPITALIZED WELL CAPITALIZED
------------------------------------ -------------------------------------
PERCENT OF PERCENT OF
AMOUNT ASSETS AMOUNT ASSETS
--------------- --------------- ---------------- ----------------
Tangible Capital:
Actual $104,567 6.20% $104,567 6.20%
Requirement 25,298 1.50 33,732 2.00
Excess (Deficiency) 79,269 4.70 70,835 4.20
Core Capital:
Actual $104,567 6.20 $104,567 6.20
Requirement 67,463 4.00 84,329 5.00
Excess (Deficiency) 37,104 2.20 20,238 1.20
Risk-based Capital:
Actual $115,219 8.71 $115,219 8.71
Requirement 105,827 8.00 132,348 10.00
Excess (Deficiency) 9,392 0.71 (17,129) (1.29)
Tier 1 Capital to Risk-adjusted Assets
Actual $104,567 7.90 $104,567 7.90
Requirement 52,939 4.00 79,409 6.00
Excess (Deficiency) 51,628 3.90 25,158 1.90
Metropolitan Bank's plan to increase its capital is to have the
Company raise $20 million in the offerings described in this prospectus, of
which $18 million will be used for a capital infusion for Metropolitan Bank.
However, if the Company is not successful in completing the offerings,
management's plan to reach the 10% risk based capital level may, subject to
negotiations with regulators, include a plan to sell up to $24 million of
mortgage servicing rights, $1.3 million of fixed assets and $81 million of
loans. The servicing rights to be sold are carried at book value which was less
than market value at June 30, 2001. The loans that management would sell were
classified as held for sale at June 30, 2001. In addition, the fixed assets
management has identified for sale are marketable and management believes would
be sold at a gain and therefore are not impaired.
Restrictions on Dividends and Other Capital Distributions. Savings
association subsidiaries of holding companies generally are required to provide
their OTS regional director with not less than thirty days' advance notice of
any proposed declaration of a dividend on the association's stock. Any dividend
declared within the notice period, or without giving the prescribed notice, is
invalid. In some circumstances, an association may be required to provide their
OTS regional director with an application for a proposed declaration of a
dividend on the association's stock.
The OTS regulations impose limitations upon certain "capital
distributions" by savings associations. These distributions include cash
dividends, payments to repurchase or otherwise acquire an association's shares,
payments to shareholders of another institution in a cash-out merger, and other
distributions charged against capital.
In addition, the OTS retains the authority to prohibit any capital
distribution otherwise authorized under the regulation if the OTS determines
that the capital distribution would constitute an unsafe or unsound practice.
Metropolitan Bank operates with lower capital ratios than most other banks and,
as a result, faces a higher risk of falling below regulatory capital
requirements. If Metropolitan Bank becomes undercapitalized, Metropolitan Bank
will have to comply with increased restrictions on the payment of dividends and
may lose its ability to pay dividends.
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The Gramm-Leach Bliley Act, or Financial Services Modernization Act,
became law in November of 1999. This law includes significant changes in the way
financial institutions are regulated and types of financial business they may
engage in. Among other things the law provides for:
- facilitation of affiliations among banks, securities firms, and
insurance companies;
- changes in the regulation of securities activities by banks;
- changes in the regulation of insurance activities by banks;
- elimination of the creation of new unitary thrift holding
companies;
- new regulation of the use and privacy of customer information by
banks; and
- modernization of the Federal Home Loan Bank System.
The changes in this law take effect at various times ranging from immediately to
eighteen months after the Act became law. Generally, the law provides
opportunities for new products and new affiliations with other financial
services providers. It will not restrict us from any activities we are currently
engaging in.
Qualified Thrift Lender Test. Pursuant to the Qualified Thrift Lender
test, a savings institution must invest at least 65% of its portfolio assets in
qualified thrift investments on a monthly average basis on a rolling 12-month
look-back basis. Portfolio assets are an institution's total assets less
goodwill and other intangible assets, the institution's business property, and a
limited amount of the institution's liquid assets.
A savings association's failure to remain a Qualified Thrift Lender may
result in: a) limitations on new investments and activities; b) imposition of
branching restrictions; c) loss of Federal Home Loan Bank borrowing privileges;
and d) limitations on the payment of dividends. The qualified thrift investments
of Metropolitan Bank were in excess of 68.7% of its portfolio assets as of June
30, 2001.
Ohio Regulation. As a savings and loan association organized under the
laws of the State of Ohio, Metropolitan Bank is subject to regulation by the
ODFI. Regulation by the ODFI affects the internal organization of Metropolitan
Bank as well as its savings, mortgage lending, and other investment activities.
Periodic examinations by the ODFI are usually conducted on a joint basis with
the OTS. Ohio law requires Metropolitan Bank to maintain federal deposit
insurance as a condition of doing business.
Ohio has adopted a statutory limitation on the acquisition of control
of an Ohio savings and loan association which requires the written approval of
the ODFI prior to the acquisition by any person or entity of a controlling
interest in an Ohio association. In addition, Ohio law requires prior written
approval of the ODFI of a merger of an Ohio association with another savings and
loan association or a holding company affiliate.
FEDERAL AND STATE TAXATION
The Company, Metropolitan Bank and other includable subsidiaries file
consolidated federal income tax returns on a December 31 calendar year basis
using the accrual method of accounting. The Internal Revenue Service has audited
the Company, Metropolitan Bank and other includable subsidiaries through
December 31, 1994.
In addition to the regular income tax, corporations, including savings
associations such as Metropolitan Bank, generally are subject to an alternative
minimum tax. An alternative minimum tax is imposed at a tax rate of 20% on
alternative minimum taxable income ("AMTI"), which is the sum of a corporation's
regular taxable income with certain adjustments and tax preference items, less
any available exemption. Adjustments and preferences include depreciation
deductions in excess of those allowable for alternative minimum tax purposes,
tax-exempt interest on most private activity bonds issued after August 7, 1986
(reduced by any related interest expense disallowed for regular tax purposes),
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and, for 1990 and succeeding years, 75% of the difference (positive or negative)
between adjusted current earnings ("ACE") and AMTI. Any ACE reductions to AMTI
are limited to prior aggregate ACE increases to AMTI. ACE equals pre-adjustment
AMTI increased or decreased by certain ACE adjustments and determined without
regard to the ACE adjustment and the alternative tax net operating loss. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax, and alternative tax net operating losses can offset no more
than 90% of AMTI. The payment of alternative minimum tax will give rise to a
minimum tax credit which will be available with an indefinite carry forward
period to reduce federal income taxes in future years (but not below the level
of alternative minimum tax arising in each of the carry forward years).
Metropolitan Bank is subject to the Ohio corporate franchise tax. As a
financial institution, Metropolitan Bank computes its franchise tax based on its
net worth. Under this method, Metropolitan Bank will compute its Ohio corporate
franchise tax by multiplying its net worth (as determined under generally
accepted accounting principles) as specifically adjusted pursuant to Ohio law,
by the applicable tax rate, which is currently 1.3%. As an Ohio-chartered
savings and loan association, Metropolitan Bank also receives a credit against
the franchise tax for a portion of the state supervisory fees paid by it.
At the present time, the Company does not have a liability for the net
worth portion of the franchise tax as it satisfies the requirements to be
treated as a qualified holding company. In addition, there is no liability on
the net income portion of the tax as the holding company has historically
operated at a net loss on a stand-alone basis.
THE OFFERINGS
Before purchasing our shares of common stock, we strongly urge you to
read carefully the information set forth under "Risk Factors" beginning on page
7.
GENERAL
Reasons for the Offerings. We are engaging in the offerings in order to
raise equity capital to improve Metropolitan Bank's capital position, as
required under the supervisory agreements with the OTS and ODFI, and to make a
$1 million required principal payment on our commercial bank loan. Our Board of
Directors has chosen to raise capital in part through a rights offering to give
you the opportunity to limit your ownership dilution by buying additional shares
of common stock. Of course, we cannot assure you that we will not need to seek
additional financing in the future.
No Recommendation. We are not making any recommendation as to whether
or not you should purchase our shares of common stock being offered in this
prospectus. You should make your decision based on your own assessment of your
best interests.
Determination of Price. The price of the common stock to be purchased
in the offerings was determined by our Board of Directors based upon relevant
factors including market conditions. The price is not necessarily related to the
assets, book value, or shareholders' equity of our Company or any other
established criteria of value and may not be indicative of the fair market value
of the securities offered. The price may be different than the market price of
our common stock on The Nasdaq Stock Market's National Market at the close of
the offerings.
Termination. Our Board of Directors may terminate the offerings, in its
sole discretion, at any time prior to _______________, 2001, for any reason
(including, without limitation, a change in the market price of the shares of
common stock). If we terminate the offerings, any funds you paid will be
promptly refunded, without interest or penalty.
Shares of Common Stock Outstanding After the Offerings. Approximately
_______ shares of common stock will be issued and outstanding following the
offerings. This will represent a ______% increase in the number of outstanding
shares of common stock.
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Issuance of Stock Certificates. If you purchase shares of common stock
through the offerings, and your present shares are registered in your name, you
will receive certificates representing the new shares of common stock you are
purchasing as soon as practicable after the expiration date, ___________, 2001.
If your shares of our common stock are currently held by a broker or bank,
however, you will not receive stock certificates for your new shares. Instead,
your account with the bank or broker will be credited with the shares that you
purchase.
THE RIGHTS OFFERING
The Subscription Rights. We are distributing to you, at no charge, a
subscription right to purchase __ of a share of common stock for each share of
common stock that you owned on ________, 2001. Each subscription right entitles
you to purchase __ of a share of common stock for $________ , subject to the
terms of this rights offering. When you exercise a subscription right, that
means that you choose to purchase the amount of common stock that the
subscription right entitles you to purchase. For example, if you own 100 shares
of our common stock, you are entitled to purchase _____ additional shares for
$__________. You may exercise any number of your subscription rights, or you may
choose not to exercise any subscription rights. Subscription rights are not
transferable. The number of shares you are entitled to purchase through the
exercise of subscription rights is indicated on your subscription certificate.
Over-Subscription Privilege. The over-subscription privilege entitles
you, if you fully exercise your basic subscription rights, to subscribe for
additional shares of our common stock. Additional shares will be available to
the extent that other shareholders do not fully exercise their basic
subscription rights. We do not expect that all of our shareholders will exercise
all of their basic subscription rights.
The number of shares available for over-subscription privileges will be
the total shares offered in the rights offering, __________, less the number of
shares purchased upon exercise of all basic subscription rights. There is no
limit on the amount of common stock a shareholder may subscribe for pursuant to
the over-subscription privilege. If sufficient shares of common stock are
available, we will seek to honor the over-subscription requests in full. If
over-subscription requests exceed the number of shares of common stock
available, we will allocate the available shares of common stock among
shareholders who over-subscribed in proportion to the number of shares of common
stock purchased by those over-subscribing shareholders through the basic
subscription rights. However, if your pro rata allocation exceeds the number of
shares of common stock you requested, you will receive only the number of shares
of common stock that you requested. The remaining shares of common stock from
your pro rata allocation will be divided among other shareholders exercising
their over-subscription privileges who have subscribed for additional shares of
common stock in proportion to the number of shares of common stock purchased by
that group of over-subscribing shareholders through the basic subscription
rights.
Purchase Commitments. As of the date of this prospectus, certain
directors and officers, excluding Robert M. Kaye, have committed to purchase up
to an aggregate of _______ shares of common stock in the rights offering if the
shares of common stock are not otherwise subscribed for by other shareholders.
To effect this commitment, each of these purchasers has individually agreed to
exercise his or her basic subscription rights in full in the aggregate amount of
$__________ and to subscribe for additional shares of common stock pursuant to
the over-subscription privilege. In addition, Robert M. Kaye, our Chief
Executive Officer and Chairman, has advised the Company that he will exercise
his basic subscription rights in part in the amount of $8 million, or
approximately 71.1% of Mr. Kaye's basic subscription rights.
We have entered into agreements with certain institutional and high net
worth investors, who we refer to as standby purchasers. These agreements provide
that the standby purchasers will purchase, at the same price per share, all of
the shares of our common stock that are not subscribed for by our shareholders
in the rights offering.
Expiration Date. The basic subscription rights will expire at ________
Eastern Time, on _____________, 2001, unless we decide to extend the offerings.
If you do not exercise your basic subscription rights prior to that time, your
basic subscription rights will be null and void. We will not be required to
issue shares of common stock to you if the subscription agent does not receive
your payment by the expiration of the rights offering. Your properly completed
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subscription certificate must also be received by this time, unless you deliver
payment in compliance with the guaranteed delivery procedures described herein.
Exercise of Subscription Rights. If you currently hold a stock
certificate for shares of our common stock, you have received a subscription
certificate and return envelope. You may exercise your subscription rights by
delivering to Georgeson Shareholder Communications, Inc., the subscription
agent:
- Payment in full of $_______ per share for the shares of common
stock subscribed for by exercising your basic subscription rights
and, if desired, your over-subscription privilege;
- A properly completed and duly executed subscription certificate,
including any required signature guarantees, OR a notice of
guaranteed delivery as described below.
You should deliver your subscription certificate and payment to the
subscription agent at the address shown under the heading "-- Subscription
Agent." You may use the enclosed return envelope. However, registered mail or
overnight delivery is recommended. Your order should be received by the
subscription agent by _______________. We will not pay you interest on funds
delivered pursuant to the exercise of rights.
If you currently hold your shares of our common stock through a bank,
broker, dealer or other nominee, you are required to place your order through
the bank, broker, dealer or other nominee subject to the provisions described
below under the heading "Guaranteed Delivery Procedures". You will not receive a
subscription certificate.
Method of Payment. Payment for the shares of common stock purchased
through the rights offering must be made by certified check, bank draft or
cashier's check drawn upon a U.S. bank or by a postal, telegraphic or express
money order payable to Georgeson Shareholder Communications, Inc., as
subscription agent. Personal checks are not acceptable. Payment may also be
effected through wire transfer of immediately available funds to the account
maintained by the subscription agent at ________, ABA #_______________, Account
No. _______. Any wire transfer of funds should clearly indicate the identity of
the subscriber who is paying the price by wire transfer.
Payment will be deemed to have been received by the subscription agent
only upon:
- Receipt by the subscription agent of the entire payment due,
through a properly completed certified check, cashier's check
or bank draft drawn upon a U.S. bank or by any postal,
telegraphic, or express money order; or
- Receipt by the subscription agent of the entire payment due
through funds transferred by wire transfer.
Guaranteed Delivery Procedures. If you want to exercise your
subscription rights, but time will not permit your subscription certificate to
reach the subscription agent on or prior to ___________, 2001, you may exercise
your subscription rights if you satisfy the following guaranteed delivery
procedures:
(1) You send, and the subscription agent receives, payment in full
for each share of common stock being subscribed for through
the basic subscription right and the over-subscription
privilege, by _____ Eastern Time, on or prior to _____, 2001;
(2) You send, and the subscription agent receives, by __________
Eastern Time, on _______________, 2001, a notice of guaranteed
delivery. A form has been provided to you. The notice of
guaranteed delivery must state your name, the number of
subscription rights that you hold, and the number of shares of
common stock that you wish to purchase pursuant to the basic
subscription right, and the number of shares of common stock,
if any, you wish to purchase pursuant to the over-subscription
privilege. The notice of guaranteed delivery must guarantee
the delivery of your subscription certificate to the
subscription agent within three Nasdaq National Market trading
days following the date of the notice of guaranteed delivery;
and
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(3) You send, and the subscription agent receives, your properly
completed and duly executed subscription certificate,
including any required signature guarantees, within three
Nasdaq National Market trading days following the date of your
notice of guaranteed delivery. The notice of guaranteed
delivery may be delivered to the subscription agent in the
same manner as your subscription certificate at the address
set forth under the heading "Subscription Agent," or may be
transmitted to the subscription agent by facsimile
transmission. You may obtain additional copies of the form of
notice of guaranteed delivery by requesting them at the
address or phone number set forth under the heading
"Subscription Agent."
Signature Guarantee. Signatures on the subscription certificate do not
need to be guaranteed if either the subscription certificate provides that the
shares of common stock to be purchased are to be delivered directly to the
record owner of such subscription rights, or the subscription certificate is
submitted for the account of a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc., or
a bank or trust company having an office or correspondent in the United States.
If a signature guarantee is required, signatures on the subscription certificate
must be guaranteed by an Eligible Guarantor Institution, as defined in Rule
17A-15 of the Securities Exchange Act of 1934, as amended. Eligible Guarantor
Institutions include banks, brokers, dealers, credit unions, national securities
exchanges, and savings associations.
Shares of Common Stock Held for Others. If you are a bank broker,
dealer, trustee or other nominee, or you otherwise hold shares of common stock
for the account of a beneficial owner of shares of common stock, you should
notify the beneficial owner of such shares of common stock as soon as possible
to obtain instructions with respect to his or her subscription rights. If you
are a beneficial owner of shares of common stock held by a holder of record,
such as a broker, trustee or depository for securities, you should contact the
holder and ask him or her to effect transactions in accordance with your
instructions.
Subscription Agent. We have appointed Georgeson Shareholder
Communications, Inc. as subscription agent for the rights offering. The
subscription agent's address is ____________. The subscription agent's telephone
number is ( ) ___-____ and its facsimile number is ( ) ___-____. Please call the
subscription agent if you have questions about your subscription certificate or
about submitting payment. You should deliver your subscription certificate,
payment of the price and notice of guaranteed delivery (if any) to the
subscription agent. You may use the enclosed return envelope, registered mail or
overnight delivery. We will pay the fees and certain expenses of the
subscription agent, which we estimate will total $11,250. Under certain
circumstances we may indemnify the subscription agent from certain liabilities
that may arise in connection with the rights offering.
Ambiguities in Exercise of Subscription Rights. If you do not specify
on your subscription certificate the number of subscription rights being
exercised, or if your payment is not sufficient to pay the total purchase price
for all of the shares of common stock that you indicated you wished to purchase,
you will be deemed to have exercised the maximum number of subscription rights
that could be exercised for the amount of the payment that we receive from you.
If your payment exceeds the total purchase price for all of the subscription
rights shown on your subscription certificate, your payment will be applied,
until depleted, to subscribe for shares of common stock in the following order:
(1) To subscribe for shares of common stock until your basic
subscription privilege has been fully exercised;
(2) To subscribe for additional shares of common stock pursuant to
the over-subscription privilege (subject to any applicable
proration).
Any excess payment remaining after the foregoing allocation will be
returned to you as soon as practicable by mail, without interest or deduction.
State and Foreign Securities Laws. The rights offering is not being
made in any state or other jurisdiction in which it is unlawful to do so, nor
are we selling or accepting any offers to purchase any shares of common stock to
you if you are a resident of any such state or other jurisdiction. We may delay
the commencement of the rights offering in certain states or other jurisdictions
in order to comply with the securities law requirements of such states or other
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jurisdictions. It is not anticipated that there will be any changes in the terms
of the rights offering. In our sole discretion, we may decline to make
modifications to the terms of the rights offering requested by certain states or
other jurisdictions, in which case shareholders who live in those states or
jurisdictions will not be eligible to participate in the rights offering.
Our Decision Regarding Certain Matters Is Binding On You. All questions
concerning the timeliness, validity, form, and eligibility of any exercise of
subscription rights will be determined by us, and our determinations will be
final and binding. In our sole discretion, we may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as we may determine, or reject the purported exercise of any subscription
right by reason of any defect or irregularity in such exercise. Subscriptions
will not be deemed to have been received or accepted until all irregularities
have been waived or cured within such time as we determine in our sole
discretion. We will not be under any duty to notify you of any defect or
irregularity in connection with the submission of a subscription certificate or
incur any liability for failure to give such notification.
No Revocation. After you have exercised your basic subscription right
and your over-subscription privilege, if applicable, YOU MAY NOT REVOKE THAT
EXERCISE. You should not exercise your subscription rights unless you are
certain that you wish to purchase shares of common stock in the rights offering
at the price of $_____ per share.
Fees and Expenses. We will pay all fees in connection with the
processing of subscriptions and the issuance of shares of common stock. You are
responsible for paying any expenses you incur in connection with the exercise of
the subscription rights.
IF YOU HAVE QUESTIONS. IF YOU HAVE A QUESTION ABOUT COMPLETING AND
DELIVERING YOUR SUBSCRIPTION CERTIFICATE OR SUBMITTING A PAYMENT, CALL OUR
SUBSCRIPTION AGENT, GEORGESON SHAREHOLDER COMMUNICATIONS, INC., AT
___-___-______ MONDAY THROUGH FRIDAY ____ A.M. TO ______ P.M. EASTERN TIME. IF
YOU HAVE A QUESTION ABOUT THE COMPANY OR THE RIGHTS OFFERING, CALL OUR
INFORMATION AGENT, RYAN BECK, AT (800) _________, MONDAY THROUGH FRIDAY, 9:00
A.M. TO 1:00 P.M. EASTERN TIME.
THE OFFERING TO STANDBY PURCHASERS
We have agreed to sell _________ shares of common stock to standby
purchasers in consideration for their commitment to purchase, at the same price
per share, all of the shares of our common stock that are not subscribed for in
the rights offering.
We will issue _______ new shares of common stock in the rights offering
and ___ new shares of common stock in the offering to the standby purchasers. We
will have approximately _________ shares of common stock outstanding after the
completion of these offerings. The offering to the standby purchasers will
result in the dilution of your ownership interest in the Company.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. YOU ARE RESPONSIBLE FOR
CHOOSING THE PAYMENT AND DELIVERY METHOD FOR YOUR SUBSCRIPTION CERTIFICATE AND
PAYMENT, AND YOU BEAR THE RISKS ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO
DELIVER YOUR SUBSCRIPTION CERTIFICATE AND PAYMENT BY U.S. MAIL, WE RECOMMEND
THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED.
PLAN OF DISTRIBUTION
On or about _____________, 2001, we will distribute the subscription
rights, subscription certificates and copies of this prospectus to those who
owned shares of common stock on ____________, 2001. If you wish to exercise your
subscription rights and purchase shares of common stock, you should complete the
subscription certificate and return it with payment for the shares of common
stock, to Georgeson Shareholder Communications, Inc. as subscription agent, at
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the address on page 50. If you have any questions, you should contact either the
subscription agent or the information agent, as appropriate, at the telephone
number and address on page __.
Subject to the terms and conditions of an agency agreement (the "Agency
Agreement"), dated ________ 2001, among the Company and Ryan, Beck, Ryan, Beck
has agreed to act as our financial advisor and marketing agent for the
offerings. The Company will pay Ryan, Beck an advisory and management fee of
$200,000 in connection with services rendered to the Company under the Agency
Agreement. In addition, Ryan, Beck will receive a fee of five percent (5%) of
the dollar amount of the shares of common stock sold to the Company's
shareholders, except those purchased by Robert Kaye, pursuant to the rights
offering and a fee of five percent (5%) of the dollar amount of the shares of
common stock sold to the standby purchasers in the offerings. In addition, the
Company has agreed to reimburse Ryan, Beck upon request, for its usual and
customary out-of-pocket expenses incurred in connection with its services under
the Agency Agreement, whether or not the rights offering is consummated,
including fees and disbursements of Ryan, Beck's legal counsel. Certain of our
officers and other employees may solicit responses from you, but such officers
and other employees will not receive any commissions or other compensation for
such services other than their normal employment compensation. We estimate that
our total expenses in connection with the offerings will be $145,250.
As a condition to Ryan, Beck entering into the Agency Agreement, the
Company, our senior management, directors, and major shareholders have agreed
not to offer, sell, or otherwise dispose of, any shares of our common stock
convertible into or exchangeable for shares of our common stock for 180 days
after the date of this prospectus, without Ryan, Beck's prior written consent,
except for:
- The issuance of shares of common stock pursuant to the
exercise of stock options under our stock option plans;
- The granting of stock options after the date of this
prospectus under the option plans; and
- As a bona fide gift to a third party or as a distribution to
the partners or stockholders of one of our shareholders,
provided the recipient(s) thereof agree to be bound by the
terms of the lock-up arrangement to which such shareholder is
bound.
We have agreed to indemnify Ryan, Beck and its affiliates (as defined
in Rule 405 under the Securities Act of 1933) and their respective directors,
officers, employees, agents, and controlling persons against certain
liabilities, including liabilities under the Securities Act of 1933.
DESCRIPTION OF COMMON STOCK
Holders of common stock are entitled to one vote for each share held by
them on all matters being voted upon by the shareholders. Subject to the
preferences of outstanding preferred stock, if any, holders of common stock are
entitled to receive dividends ratably if, as, and when declared by the Board out
of funds available for the payment of dividends. If the Company is liquidated,
dissolved, or wound up, holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities and liquidation preferences of
any outstanding preferred stock. Holders of common stock have no preemptive
rights and no right to convert their shares of common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
shares of common stock. All outstanding shares of common stock are, and all
shares of common stock to be outstanding upon completion of the offerings will
be, fully paid and nonassessable.
EXPERTS
The financial statements incorporated in this prospectus by reference
from the Company's annual report on Form 10-K for the year ended December 31,
2000 have been audited by Crowe, Chizek and Company LLP, independent auditors as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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LEGAL MATTERS
Thompson Hine LLP, Cleveland, Ohio, will pass on the validity of the
issuance of the shares of our common stock offered by this prospectus for us.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Metropolitan Financial Corp. files annual, quarterly and current
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). You may read and copy such reports,
proxy statements and other information at the following locations of the
Commission:
Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
Midwest Regional Office
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
You may also obtain copies of this information by mail at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain further information on the
operation of the Commission's Public Reference Room in Washington, D.C. by
calling the Commission at 1-800-SEC-0330. This information is also available
online through the Commission's Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), located on the Commission's web site
(http://www.sec.gov).
Also, we will provide you (free of charge) with any of our documents
filed with the Commission. To get your free copies, please call or write to
Metropolitan Financial Corp. at:
22901 Mill Creek Boulevard
Highland Hills, Ohio 44122
Attention: Donald F. Smith
(216) 206-6000
We have filed a registration statement with the Commission on Form S-2
with respect to the offerings. This prospectus is a part of the registration
statement, but does not contain all of the information in the registration
statement. The rules and regulations of the Commission allow us to omit portions
of the registration statement from the prospectus. Additionally, the Commission
allows us to "incorporate by reference" documents included in the registration
statement and in other filings, but not included in this prospectus, which means
that we can disclose important information to you by referring you to other
documents. The documents that are incorporated by reference are legally
considered to be a part of this prospectus. The documents incorporated by
reference are:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2000;
(2) Our Quarterly Reports on Form 10-Q for the periods ended March
31, 2001 and June 30, 2001; and
(3) Current Report on Form 8-K filed on August 3, 2001.
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on the
statement made in the most recent document.
This prospectus contains a description of the material terms and
features of all material contracts, reports or exhibits to the registration
statement required to be disclosed. The descriptions of such documents are brief
and are not
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necessarily complete. As a result, we urge you to refer to the copy of each
material contract, report and exhibit attached to the registration statement for
a more complete description of such document. Each such statement in this
prospectus is qualified in its entirety by reference to the complete document.
You may read the registration statement without charge at the principal office
of the Commission in Washington, DC, and you may obtain copies of all or part of
it from the Commission by paying the prescribed fees.
This prospectus is accompanied by a copy of our most recent annual
report on Form 10-K for the period ended December 31, 2000 and our most recent
quarterly report on Form 10-Q for the period ended June 30, 2001. We strongly
urge you to read carefully these documents before you exercise your subscription
rights to purchase shares of our common stock being offered by this prospectus.
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YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE OFFERS
AND SALES ARE NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR SHARES OF COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR SHARES OF COMMON STOCK OR POSSESSION OR
DISTRIBUTION OF THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO
POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS
OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
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[METROPOLITAN LOGO]
[ ] SHARES
OF
METROPOLITAN
FINANCIAL CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RYAN, BECK & CO.
, 2001
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59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses incurred by
Metropolitan Financial Corp. in connection with the issuance and distribution of
the securities being registered.
Securities and Exchange Commission registration fee $ 5,000
Accountants' fees and expenses* 30,000
Legal fees and expenses* 85,000
Subscription Agent's fees and expenses* 11,250
Printing and engraving expenses* 10,000
Miscellaneous* 4,000
--------
Total Expenses $145,250
========
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Ohio law, Ohio corporations are authorized to indemnify
directors, officers, employees and agents within prescribed limits and must
indemnify them under certain circumstances. Ohio law does not provide statutory
authorization for a corporation to indemnify directors, officers, employees and
agents for settlements, fines or judgments in the context of derivative suits.
However, it provides that directors (but not officers, employees and agents) are
entitled to mandatory advancement of expenses, including attorneys' fees,
incurred in defending any action, including derivative actions, brought against
the director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard to the
corporation's best interests.
Ohio law does not authorize payment of judgments to a director,
officer, employee or agent after a finding of negligence or misconduct in a
derivative suit absent a court order. Indemnification is required, however, to
the extent such person succeeds on the merits. In all other cases, if a
director, officer, employee or agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, indemnification is discretionary except as otherwise provided by a
corporation's articles of incorporation, code of regulations or by contract
except with respect to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it
is proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
Our Amended and Restated Code of Regulations provide that we shall
indemnify, subject to certain limitations, any person (and the heirs, executors
and administrators of each such person) made or threatened to be made a party to
any action, suit, proceeding, or claim by reason of the fact that he is or was a
director or officer of the Company or of any other corporation for which he was
serving as a director or officer at the request of the Company, for all expenses
and liabilities incurred by him in connection with the defense of any such
action, suit, proceeding, or claim.
Under a directors' and officers' liability insurance policy, directors
and officers of the Company are insured against certain liabilities, including
certain liabilities arising under the Securities Act.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits filed as part of the
registration statement.
Exhibit
No. Description
------- ------------------------------------
1.1 Ryan Beck Agency Agreement.*
1.2 Standby Purchase Agreement.*
5.1 Opinion of Thompson Hine LLP.*
10.1 Supervisory Agreement dated July 26, 2001, between Metropolitan
Financial Corp. and the Office of Thrift and Supervision (Exhibit 10.2
to the Company's Form 10-Q filed with the Commission on August 14,
2001, is incorporated herein by reference).
10.2 Supervisory Agreement dated July 26, 2001, between Metropolitan Bank
and Trust Company, the State of Ohio, Division of Financial
Institutions and the Office of Thrift Supervision (Exhibit 10.3 to the
Company's Form 10-Q filed with the Commission on August 14, 2001, is
incorporated herein by reference).
23.1 Consent of Crowe, Chizek and Company LLP.
23.2 Consent of Thompson Hine LLP (included in Exhibit 5.1).*
24.1 Power of Attorney.
99.1 Form of Subscription Certificate.*
99.2 Instructions on Use of Subscription Certificate.*
99.3 Form of Letter to Shareholders.*
99.4 Form of Letter to Brokers.*
99.5 Form of Notice of Guaranteed Delivery.*
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities
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61
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission
pursuant to rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and information
required to be included in a post-effective amendment is contained in periodic
reports filed with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement
shall be deemed to be a new Registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Highland Hills, State of Ohio on the 20th day of
September, 2001.
METROPOLITAN FINANCIAL CORP.
By: /s/ Robert M. Kaye
------------------
Robert M. Kaye, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
S-2 registration statement has been signed by the following persons in the
capacities indicated as of September 20, 2001.
SIGNATURE
TITLE
/s/ Robert M. Kaye Chairman of the Board, Chief Executive
---------------------------- Officer and Director (Principal Executive
Robert M. Kaye Officer)
/s/ Donald F. Smith Chief Financial Officer (Principal Financial
---------------------------- and Accounting Officer)
Donald F. Smith
/s/ Malvin E. Bank Director
----------------------------
Malvin E. Bank
/s/ Robert R. Broadbent Director
----------------------------
Robert R. Broadbent
/s/ Marjorie M. Carlson Director
----------------------------
Marjorie M. Carlson
/s/ Lois K. Goodman Director
----------------------------
Lois K. Goodman
/s/ Marguerite B. Humphrey Director
----------------------------
Marguerite B. Humphrey
/s/ James A. Karman Director
----------------------------
James A. Karman
/s/ Ralph D. Ketchum Director
----------------------------
Ralph D. Ketchum
/s/ Kenneth T. Koehler Director
----------------------------
Kenneth T. Koehler
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/s/ Alfonse M. Mattia Director
----------------------------
Alfonse M. Mattia
/s/ David P. Miller Director
----------------------------
David P. Miller
/s/ Kenneth T. Koehler Attorney-in-Fact for the Officers and
---------------------------- Directors signing in the capacities indicated
Kenneth T. Koehler
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INDEX TO EXHIBITS
Exhibit
No. Description
------- ------------------------------------
1.1 Ryan Beck Agency Agreement.*
1.2 Standby Purchase Agreement.*
5.1 Opinion of Thompson Hine LLP.*
10.1 Supervisory Agreement dated July 26, 2001, between Metropolitan
Financial Corp. and the Office of Thrift and Supervision (Exhibit 10.2
to the Company's Form 10-Q filed with the Commission on August 14,
2001, is incorporated herein by reference).
10.2 Supervisory Agreement dated July 26, 2001, between Metropolitan Bank
and Trust Company, the State of Ohio, Division of Financial
Institutions and the Office of Thrift Supervision (Exhibit 10.3 to the
Company's Form 10-Q filed with the Commission on August 14, 2001, is
incorporated herein by reference).
23.1 Consent of Crowe, Chizek and Company LLP.
23.2 Consent of Thompson Hine LLP (included in Exhibit 5.1).*
24.1 Power of Attorney.
99.1 Form of Subscription Certificate.*
99.2 Instructions on Use of Subscription Certificate.*
99.3 Form of Letter to Shareholders.*
99.4 Form of Letter to Brokers.*
99.5 Form of Notice of Guaranteed Delivery.*
* To be filed by amendment.