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| MCBI > SEC Filings for MCBI > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Special Cautionary Notice Regarding Forward-looking Statements
Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of invoking these safe harbor provisions. These forward-looking statements include information about possible or assumed future results of the Company's operations or performance. Words such as "believe", "expect", "anticipate", "estimate", "continue", "intend", "may", "will", "should", or similar expressions, identifies these forward-looking statements. Many possible factors or events could affect the future financial results and performance of the Company and could cause those financial results or performance to differ materially from those expressed in the forward-looking statement. These possible events or factors include, without limitation:
• changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on the Company's loan portfolio and allowance for loan losses;
• 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 concentration of the Company's loan portfolio in loans collateralized by real estate;
• the Company's ability to raise additional capital;
• the effect of compliance, or failure to comply within stated deadlines, of the provisions of the formal agreement with the Office of the Comptroller of the Currency;
• 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;
• the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations;
• changes in the availability of funds resulting in increased costs or reduced liquidity;
• a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company's securities portfolio;
• 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;
• government intervention in the U.S. financial system; 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.
All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company analyzes the major elements of the Company's balance sheets and statements of income. This section should be read in conjunction with the Company's Condensed Consolidated Financial Statements and accompanying notes and other detailed information appearing elsewhere in this document.
Overview
The Company recorded net income of $1.1 million for the three months ended September 30, 2009, a decrease of $938,000 compared with the same quarter in 2008. The Company's diluted earnings per common share for the three months ended September 30, 2009 was $0.05, a decrease of $0.14 per diluted common share compared with diluted earnings per common share of $0.19 for the same quarter in 2008. Diluted earnings per share 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. Preferred stock dividends were $563,000 or $0.05 per diluted share for the three months ended September 30, 2009. There were no preferred stock dividends for the three months ending September 30, 2008. The Company recorded net income of $256,000 for the nine months ended September 30, 2009, a decrease of $6.3 million compared with the same period in 2008. The Company's diluted loss per common share for the nine months ended September 30, 2009 was $0.12, a decrease of $0.72 per diluted share compared with diluted earnings per common share of $0.60 for the same period in 2008. Preferred stock dividends were $1.6 million or $0.15 per diluted share for the nine months ended September 30, 2009. There were no preferred stock dividends for the nine months ended September 30, 2008. Details of the changes in the various components of net income are further discussed below.
Total assets were $1.63 billion at September 30, 2009, an increase of $49.5 million or 3.1% from $1.58 billion at December 31, 2008. Available-for-sale investment securities at September 30, 2009 were $90.2 million, a decrease of $11.9 million or 11.6% from $102.1 million at December 31, 2008. Net loans at September 30, 2009 were $1.29 billion, a decrease of $35.9 million or 2.7% from $1.32 billion at December 31, 2008. Total deposits at September 30, 2009 were $1.39 billion, an increase of $122.7 million or 9.7% from $1.27 billion at December 31, 2008. Other borrowings at September 30, 2009 were $25.1 million, a decrease of $113.9 million or 81.9% from $139.0 million at December 31, 2008. The Company's return on average assets ("ROAA") for the three months ended September 30, 2009 and 2008 was 0.28% and 0.52%, respectively. The Company's return on average equity ("ROAE") for the three months ended September 30, 2009 and 2008 was 2.74% and 6.67%, respectively. The Company's ROAA for the nine months ended September 30, 2009 and 2008 was 0.02% and 0.57%, respectively. The Company's ROAE for the nine months ended September 30, 2009 and 2008 was 0.21% and 7.21%, respectively. Shareholders' equity at September 30, 2009 was $163.8 million compared to $119.2 million at December 31, 2008, an increase of $44.6 million or 37.4%. Details of the changes in the various balance sheet items are further discussed below.
Results of Operations
Net Interest Income and Net Interest Margin. For the three months ended September 30, 2009, net interest income, before the provision for loan losses, was $14.6 million, an increase of $795,000 or 5.8% compared with $13.8 million for the same period in 2008, primarily due to lower deposit cost. Average interest-earning assets for the three months ended September 30, 2009 were $1.50 billion, an increase of $14.4 million or 1.0% compared with $1.49 billion for the same period in 2008, primarily due to growth in federal funds sold and other short-term investments partially offset by a decline in loans and other investments. The weighted average yield on interest-earning assets for the third quarter of 2009 was 5.77%, a decrease of 62 basis points compared with 6.39% for the same quarter in 2008. Average interest-bearing liabilities for the three months ended September 30, 2009 were $1.22 billion, a decrease of $3.8 million or 0.3% compared with $1.22 billion for the same period in 2008, primarily due to a decrease in other borrowings partially offset by an increase in money market accounts and time deposits. The weighted average interest rate paid on interest-bearing liabilities for the third quarter 2009 was 2.35%, a decrease of 93 basis points compared with 3.28% for the same quarter in 2008. Interest rate cuts by the Federal Reserve, which caused the prime rate to decrease from 5% to 3.25% during the last 12 months, resulted in a decrease in yields and costs for the three months ended September 30, 2009, compared with the same period in 2008.
For the nine months ended September 30, 2009, net interest income, before the provision for loan losses, was $41.1 million, a decrease of $1.2 million or 2.9% compared with $42.3 million for the same period in 2008, primarily due to lower loan yields as a result of interest rate cuts and an increase in nonperforming assets. Average interest-earning assets for the nine months ended September 30, 2009 were $1.51 billion, an increase of $75.0 million or 5.2% compared with $1.44 billion for the same period in 2008, primarily due to growth in loans and federal funds sold and other short-term investments. The weighted average yield on interest-earning assets for the nine months ended September 30, 2009 was 5.79%, down 104 basis points compared with 6.83% for the same period in 2008. Average interest-bearing liabilities for the nine months ended September 30, 2009 were $1.23 billion, an increase of $47.4 million or 4.0% compared with $1.18 billion for the same period in 2008, primarily due to an increase in money market accounts and time deposits, partially offset by a decrease in other borrowings. The weighted average rate paid on interest-bearing liabilities for the nine months ended September 30, 2009 was 2.67%, down 87 basis points compared with 3.54% for the same period in 2008.
The net interest margin for the three months ended September 30, 2009 was 3.86%, an increase of 16 basis points compared with 3.70% for the same period in 2008. The increase was primarily the result of a decline in the cost of earning assets of 78 basis points partially offset by a decrease in the yield on earning assets of 62 basis points,. The net interest margin for the nine months ended September 30, 2009 was 3.63%, down 29 basis points compared with 3.92% for the same period in 2008. For the nine months ended September 30, 2009, the yield on average earning assets decreased 104 basis points, which was partially offset by a 75 basis point decrease in the cost of average earning assets. The decrease in yield on earning assets and the cost of earning assets for the three and nine months ended September 30, 2009 was due primarily to interest rate cuts and an increase in nonperforming assets.
Total Interest Income. Total interest income for the three months ended September 30, 2009 was $21.8 million, a decrease of approximately $2.1 million or 8.7% compared with $23.9 million for the same period in 2008. Total interest income for the nine months ended September 30, 2009 was $65.6 million, a decrease of $8.0 million or 10.8% compared with $73.6 million for the same period in 2008. The decrease for the three and nine months ended September 30, 2009 was primarily due to lower loan yields and an increase in nonperforming assets.
Interest Income from Loans. Interest income from loans for the three months ended September 30, 2009 was $20.7 million, a decrease of $1.6 million or 7.4% compared with $22.3 million for the same quarter in 2008. Average total loans for the three months ended September 30, 2009 were $1.32 billion compared to $1.33 billion for the same period in 2008, a decrease of $4.7 million or 0.4%. For the third quarter of 2009, the average yield on loans was 6.20%, a decrease of 49 basis points compared to 6.69% for the same quarter in 2008. Interest income from loans for the nine months ended September 30, 2009 was $61.8 million, a decrease of $6.9 million or 10.1% compared with $68.7 million for the same period in 2008. The decrease for the three and nine months ended September 30, 2009 was the result of lower loan yields and an increase in nonperforming assets. Average total loans for the nine months ended September 30, 2009 were $1.33 billion, an increase of $49.5 million or 3.9% compared with average total loans for the same period in 2008 of $1.28 billion. For the nine months ended September 30, 2009, the yield on average total loans was 6.22%, down 96 basis points compared with 7.18% for the same period in 2008.
Approximately $889.7 million or 67.7% of the total loan portfolio are variable rate loans that periodically reprice and are sensitive to changes in market interest rates. To lessen interest rate sensitivity in the event of a falling interest rate environment, the Company originates variable rate loans with interest rate floors. At September 30, 2009, the average yield on total loans was approximately 295 basis points above the prime rate primarily because of interest rate floors. At September 30, 2009, approximately $736.9 million in loans or 56.1% of the total loan portfolio were variable rate loans with interest rate floors that carried a weighted average interest rate of 6.34%. At September 30, 2008, variable rate loans with interest rate floors carried a weighted average interest rate of 6.76% and comprised 50.9% of the total loan portfolio.
Interest Income from Investments. Interest income from investments (which includes investment securities, Federal funds sold, and other investments) for the three months ended September 30, 2009 was $1.2 million, a decrease of $431,000 or 27.0% compared to $1.6 million for the same period in 2008. The decrease in interest income from investments for the three months ended September 30, 2009 was primarily the result of declining interest rates. Average total investments for the three months ended September 30, 2009 were $180.3 million compared to average total investments for the same period in 2008 of $161.1 million, an increase of $19.2 million or 11.9%. For the third quarter 2009, the average yield on total investments was 2.57% compared to 3.95% for the same quarter in 2008, a decrease of 138 basis points. Interest income from investments for the nine months ended September 30, 2009 was $3.8 million, down $1.0 million or 21.8% compared with $4.8 million for the same period in 2008. The decrease in interest income from investments for the nine months ended September 30, 2009 was primarily the result of declining interest rates, and the effect of a decline in taxable securities due to paydowns, sales, calls and maturities of securities. Average total investments for the nine months ended September 30, 2009 were $187.1 million compared with average total investments for the same quarter in 2008 of $161.6 million, an increase of $25.5 million or 15.8%. The increase in average total investments for the three and nine months ended September 30, 2009 was primarily the result of an increase in Federal funds sold. For the nine months ended September 30, 2009, the average yield on investments was 2.71% compared with 4.01% for the same quarter in 2008, a decrease of 130 basis points.
Total Interest Expense. Total interest expense for the three months ended September 30, 2009 was $7.2 million, a decrease of $2.9 million or 28.5% compared to $10.1 million for the same period in 2008. Total interest expense for the nine months ended September 30, 2009 was $24.5 million, down $6.8 million or 21.6% compared with $31.3 million for the same period in 2008. Interest expense decreased for both the three and nine months ended September 30, 2009 primarily due to lower cost of funds and the effects of a decrease in other borrowings that was partially offset by an increase in interest-bearing deposits.
Interest Expense on Deposits. Interest expense on interest-bearing deposits for the three months ended September 30, 2009 was $6.4 million, a decrease of $2.2 million or 24.9% compared to $8.6 million for the same period in 2008. Average interest-bearing deposits for the three months ended September 30, 2009 were $1.15 billion compared to average interest-bearing deposits for the same period in 2008 of $1.03 billion, an increase of $122.1 million or 11.8%. The average interest rate paid on interest-bearing deposits for the third quarter of 2009 was 2.22% compared to 3.31% for the same quarter in 2008, a decrease of 109 basis points. The decline in interest expense and the average interest rate paid on interest-bearing deposits was primarily due to declining interest rates in the deposit market.
Interest expense on interest-bearing deposits for the nine months ended September 30, 2009 was $22.2 million, down $4.8 million or 17.8% compared with $27.0 million for the same period in 2008. Average interest-bearing deposits for the nine months ended September 30, 2009 were $1.15 billion compared with average interest-bearing deposits for the same period in 2008 of $1.00 billion, an increase of $146.8 million or 14.6%. The average interest rate incurred on interest-bearing deposits for the nine months ended September 30, 2009 was 2.58% compared with 3.59% for the same period in 2008, a decrease of 101 basis points. The decline in interest expense and the average interest rate paid on interest-bearing deposits was primarily due to declining interest rates in the deposit market.
Interest Expense on Junior Subordinated Debentures. Interest expense on junior
subordinated debentures for the three months ended September 30, 2009 and 2008
was $519,000. Interest expense on junior subordinated debentures for the nine
months ended September 30, 2009 and 2008 was $1.6 million. Average junior
subordinated debentures for the three and nine months ended September 30, 2009
and 2008 were $36.1 million. The average interest rate incurred on junior
subordinated debentures for the three and nine months ended September 30, 2009
and 2008 was 5.76%. The junior subordinated debentures accrue interest at a
fixed rate of 5.76% until December 15, 2010, at which time the debentures will
accrue interest at a floating rate equal to the 3-month LIBOR plus 1.55%.
Related to these debentures, the Company entered into a forward-starting
interest rate swap contract. Under the swap, beginning December 15, 2010, the
Company will pay a fixed interest rate of 5.38% and receive a variable interest
rate of three-month LIBOR plus a margin of 1.55% on a total notional amount of
$17.5 million, with quarterly settlements beginning March 2011. See Note 9,
"Derivative Financial Instruments," to the Condensed Consolidated Financial
Statements for additional information related to this interest rate swap.
Interest Expense on Other Borrowings. Interest expense on other borrowings for the three months ended September 30, 2009 was $240,000, a decrease of $734,000 compared to $974,000 for the same period in 2008. Interest expense on other borrowed funds for the nine months ended September 30, 2009 was $768,000, down $2.0 million compared with $2.7 million for the same period in 2008. Average borrowed funds, consisting primarily of security repurchase agreements and borrowings from the Federal Home Loan Bank ("FHLB"), for the three months ended September 30, 2009 was $28.8 million a decrease of $125.9 million compared to $154.7 million for the same period in 2008. Other borrowings decreased primarily due to liquidity provided by deposit growth and funds received from participation in the Capital Purchase Program ("CPP"). The average interest rate paid on borrowed funds for the third quarter of 2009 was 3.31% compared to 2.50% for the same quarter in 2008. The average interest rate increased as lower cost short-term FHLB borrowings were repaid and higher cost long-term borrowings remained outstanding. Average borrowed funds for the nine months ended September 30, 2009 was $40.2 million, a decrease of $99.3 million compared to $139.5 million for the same period in 2008. Other borrowings decreased primarily due to liquidity provided by deposit growth and funds received from participation in the CPP. The average interest rate paid on borrowed funds for the nine months ended September 30, 2009 was 2.55% compared to 2.63% for the same period in 2008.
The following table presents, for each major category of interest-earning assets and interest-bearing liabilities, 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, with income, if any, recognized at the end of the loan term.
For The Three Months Ended September 30,
2009 2008
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1)
(Dollars in thousands)
Assets
Interest-earning
assets:
Loans $ 1,320,601 $ 20,654 6.20 % $ 1,325,350 $ 22,295 6.69 %
Taxable securities 110,336 965 3.47 108,075 1,207 4.44
Tax-exempt securities 6,787 85 4.97 3,852 47 4.85
Other investments (2) 19,873 89 1.78 25,813 235 3.62
Federal funds sold and
other short-term
investments 43,257 29 0.27 23,400 110 1.87
Total interest-earning
assets 1,500,854 21,822 5.77 1,486,490 23,894 6.39
Allowance for loan
losses (24,918 ) (16,083 )
Total interest-earning
assets, net of
allowance for loan
losses 1,475,936 1,470,407
Noninterest-earning
assets 130,296 107,457
Total assets $ 1,606,232 $ 1,577,864
Liabilities and
shareholders' equity
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 54,727 $ 69 0.50 % $ 59,209 114 0.77 %
Savings and money
market accounts 418,335 1,692 1.60 319,953 2,227 2.77
Time deposits 680,621 4,687 2.73 652,404 6,240 3.81
Junior subordinated
debentures 36,083 519 5.76 36,083 519 5.76
Other borrowings 28,808 240 3.31 154,689 974 2.50
Total interest-bearing
liabilities 1,218,574 7,207 2.35 1,222,338 10,074 3.28
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits 210,040 213,735
Other liabilities 13,104 18,032
Total liabilities 1,441,718 1,454,105
Shareholders' equity 164,514 123,759
Total liabilities and
shareholders' equity $ 1,606,232 $ 1,577,864
Net interest income $ 14,615 $ 13,820
Net interest spread 3.42 % 3.11 %
Net interest margin 3.86 % 3.70 %
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(2) Other investments include CDARS, Federal Reserve Bank stock, Federal Home Loan Bank stock and investment in subsidiary trust.
For The Nine Months Ended September 30,
2009 2008
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1)
(Dollars in thousands)
Assets
Interest-earning
assets:
Loans $ 1,327,198 $ 61,791 6.22 % $ 1,277,701 $ 68,715 7.18 %
Taxable securities 103,808 3,048 3.93 118,684 3,855 4.34
Tax-exempt securities 5,669 210 4.95 4,993 184 4.92
Other investments (2) 20,968 386 2.46 14,102 417 3.95
Federal funds sold and
other short-term
investments 56,669 150 0.35 23,859 393 2.20
Total interest-earning
assets 1,514,312 65,585 5.79 1,439,339 73,564 6.83
Allowance for loan
losses (24,525 ) (15,031 )
Total interest-earning
assets, net of
allowance for loan
losses 1,489,787 1,424,308
Noninterest-earning
assets 123,359 108,479
Total assets $ 1,613,146 $ 1,532,787
Liabilities and
shareholders' equity
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 54,776 $ 209 0.51 % $ 59,033 371 0.84 %
Savings and money
market accounts 400,240 5,981 2.00 291,354 5,937 2.72
Time deposits 696,643 15,991 3.07 654,496 20,671 4.22
Junior subordinated
. . .
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