UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003 | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-25141
METROCORP BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|
Texas
(State or other jurisdiction of incorporation or organization) |
76-0579161
(I.R.S. Employer Identification No.) |
9600 Bellaire Boulevard, Suite 252
Houston, Texas 77036
(Address of principal executive offices including zip code)
(713) 776-3876
(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, par value $1.00 per share
(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 o .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x .
As of April 30, 2003, the number of outstanding shares of Common Stock, par value $1.00 per share, was 7,034,668.
1
PART I
FINANCIAL INFORMATION
METROCORP BANCSHARES, INC.
See accompanying notes to condensed consolidated financial statements
2
METROCORP BANCSHARES, INC.
See accompanying notes to condensed consolidated financial statements
3
METROCORP BANCSHARES, INC.
METROCORP BANCSHARES, INC.
See accompanying notes to condensed consolidated financial statements
4
METROCORP BANCSHARES, INC
See accompanying notes to condensed consolidated financial statements
5
METROCORP BANCSHARES, INC.
Basis of Presentation
The unaudited condensed consolidated financial statements include the
accounts of MetroCorp Bancshares, Inc. (the “Company”) and its wholly-owned
subsidiary MetroBank, National Association (the “Bank”). The Bank was formed
in 1987 and is engaged in commercial banking activities through its fourteen
branches in Houston and Dallas, Texas. The Company considers itself one
reporting segment. All material intercompany accounts and transactions have
been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions for Form 10-Q. In the opinion of management, the unaudited
condensed consolidated financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair statement of the
Company’s consolidated financial position at March 31, 2003, consolidated
results of operations for the three months ended March 31, 2003 and 2002,
consolidated cash flows for the three months ended March 31, 2003 and 2002,
consolidated comprehensive income for the three months ended March 31, 2003 and
2002, and consolidated changes in shareholders’ equity for the three months
ended March 31, 2003. Interim period results are not necessarily indicative of
results for a full-year period.
Certain amounts applicable to the prior periods have been reclassified to
conform to the classifications currently followed. Such reclassifications had
no effect on net income or shareholders’ equity.
These financial statements and the notes thereto should be read in
conjunction with the Company’s annual report on Form 10-K for the year ended
December 31, 2002.
Stock Compensation
The Company grants stock options under several stock-based incentive
compensation plans. The
Company utilizes the intrinsic value method for its stock compensation plans.
No compensation cost is recognized for fixed stock options in which the
exercise price is equal to or greater than the estimated market price on the
date of grant. Statement of Financial Accounting Standards (“SFAS”) No. 123,
Accounting
for Stock-Based Compensation,
which, if fully adopted by the Company, would
change the methods the Company applies in recognizing the cost of the plans.
Adoption of the cost recognition provisions of SFAS No. 123 is optional and the
Company has decided not to elect these provisions of SFAS No. 123. However,
pro forma disclosures as if the Company adopted the cost recognition provisions
of SFAS No. 123 are required by SFAS No. 123, and by SFAS
No. 148,
Accounting for Stock-Based
Compensation—Transaction and Disclosure, an amendment of FASB
Statement No. 123,
on a quarterly basis.
If the fair value based method of accounting under SFAS No. 123 had been
applied, the Company’s net income available for common shareholders and
earnings per common share would have been reduced to the pro forma amounts
indicated below (assuming that the fair value of options granted during the
year are amortized over the vesting period) (in thousands except per share
amounts):
6
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and the Company anticipates making awards in the future under its
stock-based compensation plans. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company’s employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Basic earnings per share (“EPS”) is computed by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted EPS is computed by dividing net
income available to common shareholders by the weighted-average number of
common shares and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares are computed using the treasury
stock method.
On
October 24, 2002, the Financial Accounting Standards Board
(“FASB”) approved SFAS No. 147,
Acquisitions of Certain
Financial Institutions.
SFAS No. 147 amends previously issued guidance
regarding the accounting and reporting for the acquisition of all or part of a
financial institution. The statement also provides guidance on the accounting
for impairment of core deposits. It is effective for acquisitions after
October 1, 2002. The adoption of this standard has not had any effect
on the Company’s financial condition or results of operations.
7
On December 31, 2002, the FASB approved SFAS No. 148,
Accounting for
Stock-Based Compensation – Transition and Disclosure, an amendment of FASB
Statement No. 123.
SFAS No. 148 amends SFAS No. 123, to provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It also
amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entity’s accounting policy decisions with respect to
stock-based employee compensation. Finally, it amends the Accounting Research
Bulletin (“ARB”) Opinion No. 28,
Interim Financial Reporting,
to require
disclosure about those effects in interim financial information. While the
Company has continued to elect the intrinsic method of accounting for employee
stock options, the disclosure requirements of SFAS No. 148 and ARB Opinion No.
28 have been presented in Footnote 1.
On November 25, 2002, the FASB issued FASB Interpretation (“FIN”) No. 45,
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.
FIN No. 45 considers standby
letters of credit, excluding commercial letters of credit and other lines of
credit, a guarantee of the Bank. The Bank enters into a standby letter of
credit to guarantee performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved is represented by the contractual
amounts of those instruments. Under the standby letters of credit, the Bank is
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary so long as all performance criteria have been met.
Most guarantees extend up to one year. The maximum potential amount of future
payments was approximately $3.3 million at March 31, 2003. The Company has
recorded a liability of approximately $3,400 at March 31, 2003, for the fair
value of the Company’s potential obligations, which represents the unamortized
portion of the letter of credit fees.
On January 17, 2003, the FASB issued FIN No. 46,
Consolidation of Variable
Interest Entities,
which addresses consolidation by business enterprises of
variable interest entities. FIN No. 46 clarifies the application of ARB No.
51,
Consolidated Financial Statements,
to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The adoption of this interpretation is not expected to impact the
Company’s financial condition or results of operations.
The Statements and financial discussion and analysis contained in this
Quarterly Report on Form 10-Q and documents incorporated herein by
reference that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, which describe
the Company’s future plans, strategies and expectations, are based on
assumptions and involve a number of risks and uncertainties, many of which
are beyond the Company’s control. The important factors that could cause
actual results to differ materially from the results, performance or
achievements expressed or implied by the forward-looking statements
include, without limitation:
8
The Company undertakes no obligation to publicly update or otherwise revise any
forward-looking statements, unless the securities laws require the Company to
do so. All written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by these cautionary statements.
Overview
Net income for the three months ended March 31, 2003 was $1.9 million, down
approximately $200,000 or 8.7% from the same quarter in 2002. The Company’s
diluted earnings per share (“EPS”) for the three months ended March 31, 2003
was $0.27, compared to $0.29 for the same quarter in 2002. Both the Company’s
net income and EPS were affected by a decrease in the net interest margin.
At March 31, 2003, total assets were $844.6 million, up $4.5 million or
0.5% from $840.1 million at December 31, 2002. This was primarily the result
of deposit growth during the period. Investment securities at March 31, 2003
were $235.5 million, down $24.5 million or 9.4% from $260.0 million at December
31, 2002. Net loans at March 31, 2003 were $541.8 million, up $24.2 million or
4.7% from $517.6 million at December 31, 2002. Total deposits at March 31,
2003 were $696.8 million, up $5.4 million or 0.8% from $691.4 million at
December 31, 2002. Other borrowings at March 31, 2003 were $65.8 million,
relatively flat compared to other borrowings at December 31, 2002. The
Company’s return on average assets (“ROAA”) for the three months ended March
31, 2003 and 2002 was 0.93% and 1.15%, respectively.
Shareholders’ equity at March 31, 2003 was $75.5 million compared to $74.5
million at December 31, 2002, an increase of $1.0 million or 1.4%, and was
primarily the result of net income for the three months ended March 31, 2003 of
$1.9 million, that was partially offset by a reduction of approximately
$364,000 in accumulated other comprehensive income (unrealized gains in the
market value of securities), dividend payments of approximately $422,000 and
net common stock repurchases of approximately $77,000. The Company’s return on
average shareholders’ equity (“ROAE”) for the three months ended March 31, 2003
and 2002 was 10.27% and 12.64%, respectively.
Results of Operations
Net Interest Income and the Net Interest Margin.
For the three months
ended March 31, 2003, net interest income, before the provision for loan
losses, was $7.8 million, down approximately $200,000 or 2.1% from $8.0 million
for the same quarter in 2002. The decrease in net interest income was
primarily the result of a decrease in the net interest margin to 3.96% for the
three months ended March 31, 2003 compared to 4.68% for the same period in 2002.
9
The decrease was primarily rate driven although partially offset by
increases in average balances in both interest-earning assets and
interest-bearing liabilities. Another factor that impacted the net interest
margin was the increase in nonaccrual loans to $23.4 million at March 31, 2003
compared to $17.2 million at December 31, 2002 and $12.7 million at March 31,
2002. The net interest margin may experience further pressure depending on the
future interest rate environment. Since the Company’s balance sheet is
interest rate sensitive, management believes the Company would benefit from a
rising interest rate environment.
Total Interest Income.
Total interest income for the three months ended
March 31, 2003 was $11.1 million, down approximately $800,000 or 6.8% from
$11.9 million for the same quarter in 2002. This decrease, which was primarily
due to lower interest rates on earning-assets in 2003 compared to 2002, was
partially softened by higher average earning-assets, both in loans and
investment securities. The Federal Reserve’s 50 basis point interest rate cut
in November 2002 partially contributed to the lower interest income. A
majority of the loans in the loan portfolio are variable rate loans that
reprice as the market “prime” rate moves and therefore, are sensitive to
interest rate movement. At March 31, 2003, $468.2 million
or 84.7% of the
total loan portfolio was comprised of variable rate loans.
Interest Income from Loans.
Interest income from loans for the three
months ended March 31, 2003 was $8.9 million, down approximately $600,000 or
6.5% from $9.5 million for the same period in 2002. For the three months ended
March 31, 2003, the average yield on loans was 6.65%, compared to 7.85% for the
same period in 2002, a decrease of 120 basis points. The average yield on
loans was 240 basis points above the prime rate, but was supported by loans
with interest rate floors that represented approximately $330.9 million or
59.9% of the total loan portfolio and carried a weighted average interest rate
of 6.39% at March 31, 2003. Factors that impacted interest income on loans
included an increase in nonaccrual loans, refinancing pressure on existing
loans, and lower interest rates on new loan production.
Interest Income from Investments.
Interest income from investments for
the three months ended March 31, 2003 was $2.2 million, down approximately
$200,000 or 8.1% compared to $2.4 million for the same period in 2002,
primarily due to a lower interest rate yield that was partially offset by
higher average investment balances. The lower interest rate yield on
investments was primarily due to an increased level of prepayments in
mortgage-backed securities with the funds reinvested at lower market interest
rates. For the three months ended March 31, 2003, the average yield on
investments (securities, Federal Funds sold and other temporary investments)
was 3.44% compared to 4.81% for the same period in 2002, a decline of 137 basis
points.
Total Interest Expense.
Total interest expense for the three months ended
March 31, 2003 was $3.2 million, down approximately $700,000 or 17.9% compared
to $3.9 million for the same period in 2002. The decrease in total interest
expense was primarily the result of lower interest rates in 2003 that was
partially offset by higher balances in average interest-bearing liabilities.
Interest Expense on Deposits.
Interest paid on interest-bearing deposits
for the three months ended March 31, 2003 was $2.7 million, down approximately
$800,000 or 22.9% compared to $3.5 million for the same period in 2002. This
was primarily due to decreases in the rates paid for interest-bearing deposits
reflecting the lower interest rate environment in 2003. Average
interest-bearing deposits for the three months ended March 31, 2003 were $544.7
million compared to average interest-bearing deposits for the same period in
2002 of $510.6 million, an increase of $34.1 million or 6.7%. The average rate
paid on interest-bearing deposits for the three months ended March 31, 2003 was
2.04% compared to the average rate for the same three months in 2002 at 2.83%,
a decrease of 79 basis points.
Interest Expense on Borrowed Funds.
Interest paid on borrowed funds for
the three months ended March 31, 2003 was $505,000 compared to $330,000 for the
same period in 2002, an increase of $175,000. Average borrowed funds for the
three months ended March 31, 2003 were $68.4 million compared to average
borrowed funds for the same period in 2002 of $29.2 million, an increase of
$39.2 million. The increase in borrowed funds reflected advances obtained from
the Federal Home Loan Bank (“FHLB”) to fund mortgage-related securities
investments to increase earning assets. The average rate paid on borrowed
funds for the three months ended March 31, 2003 was 3.00%, compared to the same
three months in 2002 of 4.58%, a decrease of 158 basis points.
10
The following table presents the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates for the periods indicated. No tax-equivalent adjustments
were made and all average balances are daily average balances. Nonaccruing
loans have been included in the table as loans having a zero yield.
11
The following table presents the dollar amount of changes in interest income
and interest expense for the major components of interest-earning assets and
interest-bearing liabilities and distinguishes between changes in outstanding
balances and changes in interest rates for the three months ended March 31,
2003 compared with the three months ended March 31, 2002. For purposes of this
table, changes attributable to both rate and volume have been allocated to
rate.
Provision for Loan Losses.
Provisions for loan losses are charged to income to
bring the Company’s allowance for loan losses to a level which management
considers adequate to absorb probable losses inherent in the loan portfolio.
The provision for loan losses for the three months ended March 31, 2003 was
$800,000, up $200,000 compared to $600,000 for the same quarter in 2002. The
increased provision was the result of continued asset quality assessment
coupled with an increase in nonaccrual loans. The allowance for loan losses as
a percent of total loans (net of unearned interest, deferred fees, and
discounts) at March 31, 2003 and December 31, 2002 was 1.94% and 1.92%,
respectively.
Noninterest Income.
Total noninterest income for the three months ended
March 31, 2003 was $2.3 million, up approximately $36,000 or 1.6% compared to
the same quarter in 2002. This was primarily the combined result of a $161,000
increase in the gain on sale of investment securities and a $68,000 increase in
loan-related fees that was partially offset by $193,000 in lower service fees
and other noninterest income.
The following table presents, for the periods indicated, the major
categories of noninterest income:
12
Noninterest Expense.
Total noninterest expense for the three months ended
March 31, 2003 was $6.5 million, down approximately $100,000 or 1.6% compared
to $6.6 million for the same quarter in 2002. The lower noninterest expense
for the three months ended March 31, 2003, compared to the same quarter in
2002, was primarily due both to a net gain on sale of a foreclosed asset that
offset foreclosed asset expenses and to other noninterest expense that was
partially offset by higher employee compensation and benefits expense and
slightly higher occupancy expense. The net gain on sale of the foreclosed
asset approximated $115,000 and was related to the sale of a previously
foreclosed convenience store/real estate loan. This gain offset approximately
$101,000 in foreclosed asset expenses. The increase in employee compensation and
benefits expense was primarily due to increased staffing levels in lending
operations and compliance functions.
Salaries and employee benefits expense for the three months ended March 31,
2003 was $3.8 million, up approximately $270,000 or 7.6% from $3.6 million for
the same quarter in 2002. The full-time equivalent (“FTE”) employees at March
31, 2003 were 301.8 compared to FTE of 284.1 at March 31, 2002.
The Company’s efficiency ratio for the three months ended March 31, 2003 was
64.33%, an slight improvement from 64.48% for the same quarter in 2002 and was
primarily due to higher noninterest income and lower noninterest expense that
was partially offset by lower net interest income.
The following table presents, for the periods indicated, the major
categories of noninterest expense:
Financial Condition
Loan Portfolio.
Net loans at March 31, 2003 were $541.8 million, up $24.2
million or 4.7% from $517.6 million at December 31, 2002, primarily due to new
loan growth that has exceeded prepayments and scheduled repayments. Compared
to the loan level at December 31, 2002, during the first quarter of 2003
commercial and industrial loans increased $14.0 million and real estate loans
increased $10.4 million. At March 31, 2003 and December 31, 2002, the ratio of
total loans to total deposits was 79.30% and 76.34%, respectively. At the same
dates, total loans represented 65.4% and 62.8% of total assets, respectively.
13
The following table summarizes the loan portfolio of the Company by type
of loan:
Nonperforming Assets.
Net nonperforming assets at March 31, 2003 were $21.6
million compared to $15.5 million at December 31, 2002, an increase of $6.1
million. During the first quarter of 2003, the Company added two large loans
to nonaccrual status. A hospitality credit in the amount of $3.4 million was
added to nonaccrual status due to a lack of sufficient cash flows to service
the debt. The guarantor on the loan continues to make the monthly payments,
although there is no assurance he will continue to do so. A second hospitality
credit, in the amount of $1.2 million was placed on nonaccrual status primarily
due to the borrower’s failure to make the required monthly payments. The
remaining $1.5 million added to nonaccrual status during the first quarter 2003
was related to various other commercial loans. In addition, approximately
$15.5 million or 66.2% of the nonperforming loans at March 31, 2003 are
collateralized by real estate. While further deterioration in the loan
portfolio is possible, management is continuing its risk assessment and
resolution program to identify problem loans earlier. In addition, management
is focusing its attention on minimizing the Bank’s credit risk through more
diversified business development channels.
The ratios for net nonperforming assets to total loans and other real estate
were 4.70% and 3.55% at March 31, 2003 and December 31, 2002, respectively.
The ratios for net nonperforming assets to total assets were 2.55% and 1.84%
for the same periods, respectively. These ratios take into consideration
guarantees from the United States Department of Commerce’s Small Business
Administration (the “SBA”), the Export Import Bank of the United States (the
“Ex-Im Bank”), an independent agency of the United States Government, and the
Overseas Chinese Community Guaranty Fund (“OCCGF”), an agency sponsored by the
government of Taiwan, which were $4.4 million at March 31, 2003 compared to
$3.3 million at December 31, 2002.
The Company is actively involved in the origination and sale of certain
federally guaranteed loans into the secondary market with servicing retained.
Under the terms of the SBA program, the Company is required to repurchase any
loan which may become nonperforming. As a result of this requirement, the
Company’s nonperforming loans may increase during the period of time in which
any loan repurchased is either restored to an accrual status or the Company
files a claim with the SBA for the guaranteed portion of the loan.
14
The following table presents information regarding nonperforming assets at
the periods indicated:
Allowance for Loan Losses.
At March 31, 2003 and December 31, 2002, the
allowance for loan losses was $10.7 million and $10.2 million, respectively, or
1.94% and 1.92% of total loans, respectively. For the three months ended March
31, 2003, net loan charge-offs were $256,000 or 0.05% of total loans
outstanding. The Company seeks recovery of charge-offs through all available
channels.
The allowance for loan losses is established through a provision for loan
losses based on management’s evaluation of known and inherent risk in the loan
portfolio. The allowance is increased by provisions charged against current
earnings and reduced by net charge-offs. Loans are charged off when they are
deemed to be uncollectable. Recoveries are recorded when cash payments are
received. The Company employs a systematic methodology for determining the
allowance for loan losses that includes a review of the changes in the quality
of the loan portfolio as determined by loan quality grades assigned to each
loan. The loan quality grades are administered by ongoing reviews by loan
officers, credit administration and the loan review department. This includes
an assessment of known problem loans, potential problem loans, and other loans
that exhibit weaknesses or deterioration. Specific review factors include, but
are not limited to, the general economic environment in the Company’s markets
as well as the national economy, particularly the real estate markets, value of
the collateral securing loans, payment history, cash flow analysis of borrowers
and other historical information. After the aforementioned assessment of the
loan portfolio, the general economic environment and other relevant factors,
changes are implemented in the allowance for loan losses. While this
methodology is consistently followed, future changes in circumstances, economic
conditions or other factors could cause management to reevaluate the level of
the allowance for loan losses.
15
The following table presents an analysis of the allowance for loan losses
and other related data:
Securities.
At March 31, 2003, the securities portfolio was $235.5
million, reflecting a decrease of $24.5 million or 9.4% from $260.0 million at
December 31, 2002 primarily due to prepayments in mortgage-backed securities
and the reinvestment of securities at lower interest rates. The securities
portfolio is primarily comprised of mortgage-backed securities, collateralized
mortgage obligations, tax-free municipal bonds, and U.S. government agency
securities. The securities portfolio has historically been funded primarily by
the liquidity created from deposit growth and loan prepayments in excess of
loan funding requirements. However, during 2002 approximately $40.8 million in
short-term borrowings obtained from the FHLB were utilized to purchase
approximately the same amount of mortgage-backed securities to increase earning
assets.
Deposits.
At March 31, 2003, total deposits were $696.8 million, up $5.4
million or 0.8% from $691.4 million at December 31, 2002. Noninterest-bearing
demand deposits at March 31, 2003 increased $3.7 million or 2.6% to $148.2
million from $144.5 million at December 31, 2002. The Company’s ratios of
noninterest-bearing demand deposits to total deposits at March 31, 2003 and
December 31, 2002 were 21.3% and 20.9%, respectively. Interest-bearing
deposits at March 31, 2003 increased $1.7 million or 0.3% to $548.6 million
from $546.8 million at December 31, 2002.
Other Borrowings.
Other borrowings at March 31, 2003 were $65.8 million,
relatively flat compared to other borrowings at December 31, 2002. The Company
has two ten-year loans totaling $25.0 million from the FHLB to diversify its
funding sources. The ten-year loans bear interest at an average rate of 5.00%
per annum until the fifth year anniversary of the loans, September 2003, at
which time the loans may be repaid or the interest rate may be renegotiated.
The Company has several FHLB advances totaling $40.4 million with weighted
average fixed rates of 1.78%. Of these advances, $32.4 million with fixed
interest rates averaging 1.62% are scheduled to mature in 2003. Advances in
the amount of $8.0 million with fixed rates averaging 2.39% are scheduled to
mature in 2004. These borrowings were part of a strategic plan to continue the
growth of interest-earning assets that began in February 2002 and concluded in
August 2002. The funds were invested primarily in mortgage-related instruments
with durations of approximately three years or less. Other short-term
borrowings at March 31, 2003 consist of approximately $400,000 in U.S. Treasury
tax note option accounts.
16
The following table provides an analysis of the Company’s other borrowings:
Liquidity.
The Company’s loan to deposit ratio at March 31, 2003 was 79.3%.
As of this same date, the Company had commitments to fund loans in the amount
of $82.8 million and had stand-by letters of credit of
$3.3 million, with a fair value of $3,400 at March 31, 2003. Available
sources to fund these commitments and other cash demands of the Company come
from loan and investment securities repayments, deposit inflows and lines of
credit. With its current level of collateral, the Company has the ability to
borrow an additional $108.5 million from the FHLB. Additionally, the Company
had several unused, unsecured lines of credit with correspondent banks totaling
$15.0 million at March 31, 2003 and at December 31, 2002.
Capital Resources.
Shareholders’ equity at March 31, 2003 was $75.5
million, up $1.0 million or 1.3% from $74.5 million at December 31, 2002. The
increase during the three months ended March 31, 2003 was primarily due to net
income of $1.9 million, that was partially offset by a reduction in other
comprehensive income (the unrealized gains on investment securities) of
approximately $364,000, dividend payments of approximately $422,000, and a net
change in common stock of $77,000.
The following table provides a comparison of the Company’s and the Bank’s
leverage and risk-weighted capital ratios as of March 31, 2003 to the minimum
and well-capitalized regulatory standards:
Critical Accounting Policies.
The Company has established various accounting
policies which govern the application of accounting principles generally
accepted in the United States in the preparation of the Company’s financial
statements. Certain accounting policies involve significant judgments and
assumptions by management which have a material impact on the carrying value of
certain assets and liabilities; management considers such accounting policies
to be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances.
17
Because of the nature of
the judgments and assumptions made by management, actual results could differ
from these judgments and estimates which could have a material impact on the
carrying values of assets and liabilities and the results of operations of the
Company. The Company believes the allowance for loan losses
is a critical accounting policy that requires the most significant judgments
and estimates used in the preparation of its consolidated financial statements.
In estimating the allowance for loan losses, management reviews effect of
changes in the local real estate market on collateral values, the effect of
current economic indicators on the loan portfolio and their probable impact on
borrowers and increases or decreases in nonperforming and impaired loans.
Changes in these factors may cause management’s estimate of the allowance to
increase or decrease and result in adjustments to the Company’s provision for
loan losses. See—“Financial Condition — Allowance for Loan Losses”.
There have been no material changes in the market risk information
previously disclosed in the Company’s Form 10-K for the year ended December 31,
2002. See Form 10-K, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Financial Condition — Interest Rate
Sensitivity and Liquidity.”
Evaluation of Disclosure Controls and Procedures.
Within 90 days prior to the
date of this report, the Company carried out an evaluation, under the
supervision and with the participation of our management, including our
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
the Company’s President and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported to the Company’s management within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Controls.
Subsequent to the date of their evaluation,
there were no significant changes in the Company’s internal controls or in
other factors that could significantly affect the Company’s disclosure controls
and procedures, and there were no corrective actions with regard to significant
deficiencies and material weaknesses based on such evaluation.
Item 1.
Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
March 31,
December 31,
2003
2002
$
29,429
$
30,195
15,490
7,991
44,919
38,186
235,547
260,038
4,478
4,380
541,845
517,609
5,812
5,841
3,180
3,391
1,428
4,080
842
1,190
6,574
5,350
$
844,625
$
840,065
$
148,237
$
144,544
548,553
546,817
696,790
691,361
65,819
65,774
680
717
1,428
4,080
4,399
3,670
769,116
765,602
—
—
7,199
7,196
26,406
26,344
41,425
39,938
1,990
2,354
(1,511
)
(1,369
)
75,509
74,463
$
844,625
$
840,065
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months
Ended March 31,
2003
2002
$
8,862
$
9,479
1,912
1,998
262
310
55
118
11,091
11,905
2,361
2,960
383
601
505
330
3,249
3,891
7,842
8,014
800
600
7,042
7,414
1,542
1,657
428
368
134
126
163
2
27
105
2,294
2,258
3,840
3,570
1,282
1,235
(1
)
263
24
24
1,375
1,531
6,520
6,623
2,816
3,049
907
958
$
1,909
$
2,091
$
0.27
$
0.30
$
0.27
$
0.29
7,033
7,020
7,196
7,140
$
0.06
$
0.06
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
For the Three Months
Ended March 31,
2003
2002
$
1,909
$
2,091
(258
)
(363
)
106
1
(364
)
(364
)
$
1,545
$
1,727
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For The Three Months Ended March 31, 2003
(In thousands)
(Unaudited)
Accumulated
Common Stock
Additional
Other
Treasury
Paid-in
Retained
Comprehensive
Stock
Shares
At Par
Capital
Earnings
Income
At Cost
Total
7,032
$
7,196
$
26,344
$
39,938
$
2,354
$
(1,369
)
$
74,463
3
3
25
—
—
—
28
(17
)
—
—
—
—
(212
)
(212
)
9
—
37
—
—
70
107
—
—
—
—
(364
)
—
(364
)
—
—
—
1,909
—
—
1,909
—
—
—
(422
)
—
—
(422
)
7,027
$
7,199
$
26,406
$
41,425
$
1,990
$
(1,511
)
$
75,509
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For The Three Months
Ended March 31,
2003
2002
$
1,909
$
2,091
360
366
800
600
684
228
(163
)
(2
)
(14
)
256
—
(2
)
(19
)
(586
)
211
406
(37
)
(125
)
730
270
(1,071
)
207
3,390
3,709
(25,541
)
(48,207
)
48,895
19,198
(25,017
)
2,810
362
11
—
2
(331
)
(144
)
(1,632
)
(26,330
)
5,429
(4,221
)
45
17,628
28
—
107
105
(212
)
(150
)
(422
)
(421
)
4,975
12,941
6,733
(9,680
)
38,186
58,106
$
44,919
$
48,426
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For The Three Months
Ended March 31,
2003
2002
$
1,909
$
2,091
$
1,870
$
2,051
$
—
$
—
$
39
$
40
$
0.27
$
0.30
$
0.27
$
0.29
$
0.27
$
0.29
$
0.26
$
0.29
2.
EARNINGS PER COMMON SHARE
For The Three Months
Ended March 31,
2003
2002
(in thousands, except
per share amounts)
$
1,909
$
2,091
7,033
7,020
163
120
7,196
7,140
$
0.27
$
0.30
$
0.27
$
0.29
3.
NEW ACCOUNTING PRONOUNCEMENTS
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Cautionary Notice Regarding Forward-looking Statements
•
Changes in interest rates and market prices, which could reduce the
Company’s net interest margins, asset valuations and expense
expectations;
•
Changes in the levels of loan prepayments and the resulting effects
on the value of the Company’s loan portfolio;
•
Changes in local economic and business conditions which adversely
affect the ability of the Company’s customers to transact profitable
business with the Company, including the ability of borrowers to repay
their loans according to their terms or a change in the value of the
related collateral;
•
Increased competition for deposits and loans adversely affecting rates and terms;
•
The Company’s ability to identify suitable acquisition candidates;
•
The timing, impact and other uncertainties of the Company’s ability
to enter new markets successfully and capitalize on growth
opportunities;
•
Increased credit risk in the Company’s assets and increased
operating risk caused by a material change in commercial, consumer
and/or real estate loans as a percentage of the total loan portfolio;
•
The failure of assumptions underlying the establishment of and provisions made to the allowance for loan losses;
•
Changes in the availability of funds resulting in increased costs or reduced liquidity;
•
Increased asset levels and changes in the composition of assets and
the resulting impact on the Company’s capital levels and regulatory
capital ratios;
•
The Company’s ability to acquire, operate and maintain cost
effective and efficient systems without incurring unexpectedly
difficult or expensive but necessary technological changes;
•
The loss of senior management or operating personnel and the
potential inability to hire qualified personnel at reasonable
compensation levels; and
•
Changes in statutes and government regulations or their
interpretations applicable to bank holding companies and our present
and future banking and other subsidiaries, including changes in tax
requirements and tax rates.
For The Three Months Ended March 31,
2003
2002
Average
Interest
Average
Average
Interest
Average
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Balance
Paid
Rate (1)
Balance
Paid
Rate (1)
(Dollars in thousands)
$
540,347
$
8,862
6.65
%
$
489,801
$
9,479
7.85
%
228,850
1,912
3.39
155,542
1,998
5.21
21,166
262
5.02
24,931
310
5.04
12,607
55
1.77
24,203
118
1.98
802,970
11,091
5.60
%
694,477
11,905
6.95
%
(10,467
)
(8,957
)
792,503
685,520
43,863
53,708
$
836,366
$
739,228
$
74,284
134
0.73
%
$
66,818
227
1.38
%
108,182
249
0.93
111,433
374
1.36
362,276
2,361
2.64
332,378
2,960
3.61
68,354
505
3.00
29,190
330
4.58
613,096
3,249
2.15
%
539,819
3,891
2.92
%
141,334
123,832
6,516
8,469
760,946
672,120
75,420
67,108
$
836,366
$
739,228
$
7,842
$
8,014
3.45
%
4.03
%
3.96
%
4.68
%
(1)
Annualized.
Three Months Ended March 31,
2003 vs. 2002
Increase (Decrease)
Due To
Volume
Rate
Total
(Dollars in thousands)
$
978
$
(1,595
)
$
(617
)
942
(1,028
)
(86
)
(47
)
(1
)
(48
)
(57
)
(6
)
(63
)
1,816
(2,630
)
(814
)
25
(118
)
(93
)
(11
)
(114
)
(125
)
266
(865
)
(599
)
443
(268
)
175
723
(1,365
)
(642
)
$
1,093
$
(1,265
)
$
(172
)
For The Three Months
Ended March 31,
2003
2002
(Dollars in thousands)
$
1,542
$
1,657
428
368
134
126
163
2
27
105
$
2,294
$
2,258
For The Three Months
Ended March 31,
2003
2002
(Dollars in thousands)
$
3,840
$
3,570
1,282
1,235
(1
)
263
24
24
180
173
72
90
1,123
1,268
2,680
3,053
$
6,520
$
6,623
As of March 31, 2003
As of December 31, 2002
Amount
Percent
Amount
Percent
(Dollars in thousands)
$
339,494
60.76
%
$
325,424
60.94
%
7,111
1.27
7,326
1.37
174,610
31.25
165,608
31.01
11,293
2.02
10,589
1.98
15,729
2.81
14,805
2.77
10,534
1.89
10,286
1.93
558,771
100.00
%
534,038
100.00
%
(6,232
)
(6,279
)
552,539
527,759
(10,694
)
(10,150
)
$
541,845
$
517,609
As of
As of
March 31, 2003
December 31, 2002
(Dollars in thousands)
$
23,406
$
17,209
1,737
380
837
1,185
5
5
25,985
18,779
(4,432
)
(3,310
)
$
21,553
$
15,469
3.08
%
2.24
%
4.70
%
3.55
%
2.55
%
1.84
%
3.89
%
2.92
%
(1)
Net nonperforming assets are net of the loan portions guaranteed by the SBA, Ex-Im Bank and
OCCGF.
As of and for the
As of and for the
Three Months Ended
Year Ended
March 31, 2003
December 31, 2002
(Dollars in thousands)
$
540,347
$
489,801
$
552,539
$
527,759
$
10,150
$
8,903
800
3,853
(438
)
(2,721
)
(37
)
(271
)
—
—
(56
)
(132
)
(531
)
(3,124
)
222
450
40
20
—
—
13
48
275
518
(256
)
(2,606
)
$
10,694
$
10,150
1.94
%
1.92
%
0.05
%
0.49
%
42.53
%
57.71
%
51.63
%
71.08
%
March 31,
2003
2002
(Dollars in thousands)
$
—
$
—
—
56
—
—
$
65,400
$
42,300
67,839
28,576
69,300
42,300
$
419
$
523
515
559
570
536
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
18
Exhibit
Number
Identification of Exhibit
11
—
Computation of Earnings Per Common Share, included as Note (2)
to the Condensed Consolidated Financial Statements on Page 6 of
this Form 10-Q.
99.1
—
Certification of President pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2
—
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Item 6B.
Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended March 31, 2003:
| (1) | Current report on Form 8-K filed January 30, 2003 announcing the release of the Company’s earnings for the year ended December 31, 2002. |
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| METROCORP BANCSHARES, INC. | ||||
| Date: May 13, 2003 | By: | /s/ Allen D. Brown | ||
|
|
||||
|
Allen D. Brown
President (principal executive officer) |
||||
| Date: May 13, 2003 | By: | /s/ David D. Rinehart | ||
|
|
||||
|
David D. Rinehart
Executive Vice President and Chief Financial Officer (principal accounting officer and principal financial officer) |
||||
20
CERTIFICATIONS
I, Allen D. Brown, President of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| Dated: | May 13, 2003 | /s/ Allen D. Brown | ||
|
|
|
21
I, David D. Rinehart, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| Dated: | May 13, 2003 | /s/ David D. Rinehart | ||
|
|
|
22
EXHIBIT INDEX
Exhibit
Number
Identification of Exhibit
11
—
Computation of Earnings Per Common Share, included as Note (2)
to the Condensed Consolidated Financial Statements on Page 6 of
this Form 10-Q.
99.1
—
Certification of President pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2
—
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
23
Exhibit 99.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Allen D. Brown, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material respects, the financial condition and operating results of the Company.
|
/s/ Allen D. Brown
President |
24
Exhibit 99.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David D. Rinehart, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material respects, the financial condition and operating results of the Company.
|
/s/ David D. Rinehart
Executive Vice President and Chief Financial Officer |
25