SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(AMENDMENT NO.1)
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2001
-----------------
Commission file number 000-21553
---------
METROPOLITAN FINANCIAL CORP.
-----------------------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1109469
- ------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
22901 Millcreek Blvd. Highland Hills, Ohio 44122
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 206-6000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, without par value
-------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, will not be contained, to the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregated market value of voting stock held by nonaffiliates of the
Registrant as of March 11, 2002 was $5,654,000.
As of March 11, 2002, there were 8,134,471 shares of the Registrant's Common
Stock issued and outstanding.
Documents incorporated by reference:
Portions of the 2001 Annual Report for the year ended December 31, 2001- Parts I
and II Portions of the Proxy Statement for the 2002 Annual Meeting - Part III
The Registrant hereby amends its previously filed Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 for the purpose of correcting the
placement of tables and explanatory information in Item 7A relating to a change
in net interest income based on various immediate changes in market interest
rates, and a change in the market value of all financial assets and liabilities
based on various immediate sustained shifts in market interest rates or net
portfolio value.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Metropolitan, like other financial institutions, is subject to market
risk. Market risk is the risk that a company can suffer economic loss due to
changes in the market values of various types of assets or liabilities. As a
financial institution, we make a profit by accepting and managing various types
of risks. The most significant of these risks are credit risk and interest rate
risk. See "Asset Quality" for a comprehensive discussion of credit risk. The
principal market risk for us is interest rate risk. Interest rate risk is the
risk that changes in market interest rates will cause significant changes in net
interest income because interest-bearing assets and interest-bearing liabilities
mature at different intervals and reprice at different times.
The Office of Thrift Supervision currently looks to Thrift Bulletin
13a, issued December 1, 1998, to evaluate interest rate risk at institutions
they supervise. They categorize interest rate risk as minimal, moderate,
significant, or high based on a combination of the projected Net Portfolio Value
("NPV") level after a 200 basis point change in interest rates and the size of
that change in NPV due to a 200 basis point change in interest rates.
We manage interest rate risk in a number of ways. Some of the tools
used to monitor and quantify interest rate risk include:
- annual budgeting process;
- quarterly forecasting process;
- quarterly shock report of effect of sudden interest rate
changes on net interest income;
- quarterly shock report of effect of sudden interest rate
changes on net value of portfolio equity;
- monthly review of listing of liability rates and maturities by
month;
- monthly analysis of rate and volume changes in historic net
interest income;
- weekly review of certificate of deposit offering rates and
maturities by day; and
- weekly forecast of cash flows and balance sheet activity.
We have established an asset and liability committee to monitor
interest rate risk. This committee is made up of senior officers from finance,
lending and deposit operations. The committee meets twice a month, reviews our
current interest rate risk position, and determines strategies to pursue for the
next month. The activities of this committee are reported to the Board of
Directors of the Bank monthly. Between meetings the members of this committee
are involved in setting rates on deposits, setting rates on loans and serving on
loan committees where they work on implementing the established strategies.
One of the ways we monitor interest rate risk quantitatively is to
measure the potential change in net interest income based on various immediate
changes in market interest rates. The following table shows the expected change
in net interest income for immediate sustained parallel shifts of 1% and 2% in
market interest rates as of the end of the last two years. The results for a
downward parallel shift of 2% at December 31, 2001 are not meaningful because
some rates such as Federal Funds are already less than 2%.
EXPECTED CHANGE IN NET INTEREST INCOME
--------------------------------------
CHANGE IN INTEREST RATE DECEMBER 31, 2001 DECEMBER 31, 2000
- ----------------------- ----------------- -----------------
+2% 7% -27%
+1% 3% -14%
-1% -1% +13%
-2% N/A +27%
The change in net interest income from a change in market rates is a
short-term measure of interest rate risk. The results as of December 31, 2001
above indicate that our exposure to falling rates has increased over the past
year but that exposure is still minimal. During 2001 interest rates declined and
the projection of the change in net interest income as of December 31, 2000
indicated a benefit from declining rates. However, Metropolitan actually
experienced a decline in net interest income during 2001 as a result of
declining rates. This occurred for several reasons. First, the decrease in rates
was more than 2% and interest rate compression resulted in an inability to fully
pass along the rate declines to core deposit customers that were passed along to
borrowers with prime rate based loans. Second, the change in interest rates was
greatest at the shortest maturity term where Metropolitan has a concentration of
loans, which are prime rate based loans that reprice monthly. The projection of
net interest income assumes a parallel shift in rates, which would imply that
the renewal rates on term liabilities would fall just as much as short-term
rates fall. Finally, the dramatic change in the shape of the interest rate yield
curve from the beginning of 2001 to the end of 2001 increased the demand for
long-term fixed rate loans, which we normally sell. As a result, the mix of
assets changed including a reduction of loans as a percent of earning assets.
Another quantitative measure of interest rate risk is the change in the
market value of all financial assets and liabilities based on various immediate
sustained shifts in market interest rates. This concept is also known as net
portfolio value and is the methodology used by the Office of Thrift Supervision
in measuring interest rate risk. The following table shows the expected change
in net portfolio value for immediate sustained parallel shifts of 1% and 2% in
market interest rates as of the end of the last two years. The results for a
downward parallel shift of 2% at December 31, 2001 are not meaningful because
some rates such as Federal Funds are already less than 2%.
EXPECTED CHANGE IN NET PORTFOLIO VALUE
CHANGE IN INTEREST RATE DECEMBER 31, 2001 DECEMBER 31, 2000
- ----------------------- ----------------- -----------------
+2% -16% -42%
+1% -8% -22%
-1% 0% +23%
-2% N/A +48%
The change in net portfolio value is a long-term measure of interest
rate risk. It assumes that no significant changes in assets or liabilities held
would take place if there were a sudden change in interest rates. Because we
monitor interest rate risk regularly and actively manage that risk, these
projections serve as an expected worst case scenario assuming no reaction to
changing rates. Under TB 13a, Metropolitan falls in the minimal interest rate
risk category as of December 31, 2001, based upon current sensitivity to
interest rate changes and the current level of regulatory capital.
Our strategies to limit interest rate risk from rising interest rates are as
follows:
- originate fixed rate one- to four-family loans primarily for
sale;
- originate the majority of business loans to float with prime
rates;
- increase core deposits which have low interest rate
sensitivity;
- borrow funds with maturities matched to new long-term assets
acquired;
- maintain the volume of loans serviced since the value of that
asset rises as rates rise; and
- consider the use of derivatives to reduce interest rate risk
when economically practical.
We also follow strategies that increase interest rate risk in limited ways
including:
- originating and purchasing fixed rate multifamily and
commercial real estate loans limited to five year maturities;
and
- originating and purchasing fixed rate consumer loans with
terms from two to fifteen years.
The result of these strategies taken together is that Metropolitan has
reduced long-term interest rate risk by extending the maturities of borrowings
and certificates of deposit due in more than one year during 2001. The Bank's
level of interest rate risk as of December 31, 2001, is within the limits set by
the Bank's Board of Directors. Management does not anticipate efforts to reduce
interest rate risk further in 2002.
We are also aware that any method of measuring interest rate risk
including the two used above has certain shortcomings. For example, certain
assets and liabilities may have similar maturities or repricing dates but their
repricing rates may not follow the general trend in market interest rates. Also,
as a result of competition, the interest rates on certain assets and liabilities
may fluctuate in advance of changes in market interest rates while rates on
other assets and liabilities may lag market rates. In addition, any projection
of a change in market rates requires that prepayment rates on loans and early
withdrawal of certificates of deposits be projected and those projections may be
inaccurate. Finally, as we experienced in 2001, when rates change the shape and
slope of the yield curve often change although our projection model assumes that
rates change uniformly throughout the yield curve. We focus on the change in net
interest income and the change in net portfolio value as a result of immediate
and sustained parallel shifts in interest rates as a balanced approach to
monitoring interest rate risk when used with budgeting and the other tools noted
above.
At the present time we do not hold any trading positions, foreign
currency positions, or commodity positions. Equity investments are approximately
1.5% of assets and 71.4% of that amount is held in Federal Home Loan Bank stock
which can be sold to the Federal Home Loan Bank of Cincinnati at par. Therefore,
we do not consider any of these areas to be a source of significant market risk.
METROPOLITAN FINANCIAL CORP.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METROPOLITAN FINANCIAL CORP.
By: /s/Kenneth T. Kohler
---------------------
Kenneth T. Kohler,
President & Chief Operating Officer
(on behalf of the Registrant)
By: /s/Timothy W. Esson
---------------------
Timothy W. Esson,
Vice President-Finance for the Bank
(as Principal Accounting Officer)
Date: May 29, 2002