Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MCBI > SEC Filings for MCBI > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for METROCORP BANCSHARES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for METROCORP BANCSHARES, INC.


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 MetroBank's compliance, or failure to comply within stated deadlines, of the provisions of the formal agreement with the OCC;

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;

incorrect assumptions underlying the establishment of and provisions made to the allowance for loan losses;

increases in the level of nonperforming assets;

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;

an inability to fully realize the Company's net deferred tax asset;

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;


potential environmental risk and associated cost on the Company's foreclosed real estate assets;

the Company's ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes;

increases in FDIC deposit insurance assessments;

government intervention in the U.S. financial system;

the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels;

changes in statutes and government regulations or their interpretations applicable to bank holding companies and the Company's present and future banking and other subsidiaries, including changes in tax requirements and tax rates;

the potential payment of interest on commercial demand deposit accounts in order to effectively complete for clients;

adverse conditions in Asia;

potential interruptions or breaches in security of the Company's information systems; and

possible noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statues and regulations.

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 $2.9 million for the three months ended September 30, 2012, an increase of $612,000 compared with the same quarter in 2011. The Company's diluted earnings per common share for the three months ended September 30, 2012 was $0.15, an increase of $0.02 per diluted common share compared with $0.13 for the same quarter in 2011. For the three months ended September 30, 2012, weighted average diluted common shares outstanding were 18.6 million shares, compared with 13.2 million shares, an increase of 5.4 million shares due to new common shares issued as a result of capital raised in May 2012. Diluted earnings per common share is computed by dividing net income (after deducting dividends and accretion of discount on preferred stock) by the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Preferred stock dividends accrued and discount accreted, including the adjustment for the repurchase of preferred stock, were $169,000 or less than $0.01 per diluted share, and $601,000 or $0.05 per diluted share for the three months ended September 30, 2012 and 2011, respectively. The Company recorded net income of $8.3 million for the nine months ended September 30, 2012, an increase of $1.5 million compared with $6.8 million for the same period in 2011. The Company's diluted earnings per common share for the nine months ended September 30, 2012 was $0.47, an increase of $0.10 per diluted share compared with $0.37 for the same period in 2011. For the nine months ended September 30, 2012, weighted average diluted common shares outstanding were 15.9 million shares, compared with 13.2 million shares, an increase of 2.7 million shares due to new common shares issued as a result of capital raised in May 2012. Preferred stock dividends accrued and discount accreted, including the one-time adjustment for the repurchase of preferred stock, were $872,000 or $0.05 per diluted share and $1.8 million or $0.14 per diluted share for the nine months ended September 30, 2012 and 2011, respectively. Details of the changes in the various components of net income are further discussed below.

Total assets were $1.53 billion at September 30, 2012, an increase of $31.6 million or 2.1% from $1.49 billion at December 31, 2011. Available-for-sale investment securities at September 30, 2012 were $178.3 million, an increase of $5.9 million or 3.4% from $172.4 million at December 31, 2011. Net loans at September 30, 2012 were $1.07 billion, an increase of $55.0 million or 5.4% from $1.02 billion at December 31, 2011. Total deposits at September 30, 2012 were $1.27 billion, an increase of $13.5 million or 1.1% from $1.25 billion at December 31, 2011. Other borrowings at September 30, 2012 were $26.0 million, a decrease of $315,000 or 1.2% from $26.3 million at December 31, 2011. The Company's return on average assets ("ROAA") for the three months ended September 30, 2012 and 2011 was 0.76% and 0.60%, respectively. The Company's return on average equity ("ROAE") for the three months ended September 30, 2012 and 2011 was 6.61% and 5.44%, respectively. The Company's ROAA for the nine months ended September 30, 2012 and 2011 was 0.73% and 0.60%, respectively. The Company's ROAE for the nine months ended September 30, 2012 and 2011 was 6.28% and 5.55%, respectively. Shareholders' equity at September 30, 2012 was $174.6 million compared with $165.2 million at December 31, 2011, an increase of $9.4 million or 5.7%. 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, 2012, net interest income, before the provision for loan losses, was $13.6 million, an increase of $123,000 or 0.9% compared with $13.5 million for the same period in 2011, primarily due to lower cost and volume of deposits, partially offset by a decline in the yield on average total loans. Average interest-earning assets for the three months ended September 30, 2012 were $1.41 billion, an increase of $9.9 million or 0.7% compared with $1.40 billion for the same period in 2011, primarily due to growth in securities and loans, partially offset by a decrease in federal funds sold and other short-term investments. The weighted average yield on interest-earning assets for the second quarter of 2012 was 4.51%, a decrease of 23 basis points compared with 4.74% for the same quarter in 2011. Average interest-bearing liabilities for the three months ended September 30, 2012 were $1.04 billion, a decrease of $40.8 million or 3.8% compared with $1.08 billion for the same period in 2011, primarily due to a decline in time deposits and other borrowings, partially offset by an increase in savings and money market accounts. The weighted average interest rate paid on interest-bearing liabilities for the second quarter 2012 was 0.91%, a decrease of 28 basis points compared with 1.19% for the same quarter in 2011.

For the nine months ended September 30, 2012, net interest income, before the provision for loan losses, was $40.9 million, an increase of $464,000 or 1.1% compared with $40.5 million for the same period in 2011, due primarily to lower cost and volume of deposits, partially offset by a decline in the yield and volume on average total loans. Average interest-earning assets for the nine months ended September 30, 2012 were $1.41 billion, a decrease of $5.0 million or 0.4% compared with $1.42 billion for the same period in 2011, primarily due to lower loan volume, partially offset by growth in federal funds sold and interest-bearing deposits. The weighted average yield on interest-earning assets for the nine months ended September 30, 2012 was 4.59%, down 21 basis points compared with 4.80% for the same period in 2011. Average interest-bearing liabilities for the nine months ended September 30, 2012 were $1.06 billion, a decrease of $51.1 million or 4.6% compared with $1.11 billion for the same period in 2011, primarily due to a decline in time deposits and other borrowings, partially offset by an increase in savings and money market accounts. The weighted average rate paid on interest-bearing liabilities for the nine months ended September 30, 2012 was 0.97%, down 30 basis points compared with 1.27% for the same period in 2011.


The net interest margin for the three months ended September 30, 2012 was 3.84%, an increase of one basis point compared with 3.83% for the same period in 2011. The yield on average earning assets decreased 23 basis points, and the cost of average earning assets decreased 24 basis points for the same periods. For the three months ended September 30, 2012, the decrease in yield on earning assets was due primarily to a decline in the yield on average total loans, while the decline in cost of earning assets was primarily due to lower cost and volume of deposits. The net interest margin for the nine months ended September 30, 2012 was 3.87%, an increase of six basis points compared with 3.81% for the same period in 2011. The yield on average earning assets decreased 21 basis points, and the cost of average earning assets decreased 27 basis points for the same periods. For the nine months ended September 30, 2012, the decrease in yield on earning assets was due primarily to a decline in average total loans and yields, while the decline in the cost of earning assets was primarily due to lower volume and cost of deposits.

Total Interest Income. Total interest income for the three months ended September 30, 2012 was $16.0 million, a decrease of $739,000 or 4.4% compared with $16.8 million for the same period in 2011. The decrease for the three months ended September 30, 2012 was primarily due to lower loan yield and lower yield on securities, partially offset by an increase in the volume of tax exempt securities and loans. Total interest income for the nine months ended September 30, 2012 was $48.6 million, a decrease of $2.4 million or 4.6% compared with $51.0 million for the same period in 2011. The decrease for the nine months ended September 30, 2012 was primarily due to lower loan volume and yield and lower yield on securities, partially offset by an increase in the yield and volume of federal funds sold and other short-term investments.

Interest Income from Loans. Interest income from loans for the three months ended September 30, 2012 was $14.6 million, a decrease of $771,000 or 5.0% compared with $15.4 million for the same quarter in 2011. The decrease for the three months ended September 30, 2012 was the result of lower loan yields. Average total loans for the three months ended September 30, 2012 were $1.07 billion compared with $1.06 billion for the same period in 2011, an increase of $4.1 million or 0.4%. For the third quarter of 2012, the average yield on loans was 5.44%, a decrease of 30 basis points compared with 5.74% for the same quarter in 2011. Interest income from loans for the nine months ended September 30, 2012 was $44.3 million, a decrease of $2.4 million or 5.0% compared with $46.7 million for the same period in 2011. The decrease for the nine months ended September 30, 2012 was the result of lower loan volume and yields. Average total loans for the nine months ended September 30, 2012 were $1.06 billion, a decrease of $28.1 million or 2.6% compared with average total loans for the same period in 2011 of $1.09 billion. For the nine months ended September 30, 2012, the yield on average total loans was 5.59%, a decrease of 15 basis points compared with 5.74% for the same period in 2011.

At September 30, 2012, approximately $783.0 million or 71.2% 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. For the nine months ended September 30, 2012, the average yield on total loans was approximately 219 basis points above the prime rate primarily because of interest rate floors and credit spreads. At September 30, 2012, approximately $627.1 million in loans or 57.0% of the total loan portfolio were variable rate loans with interest rate floors that carried a weighted average interest rate of 5.79%. At September 30, 2011, variable rate loans with interest rate floors comprised 59.8% of the total loan portfolio and carried a weighted average interest rate of 6.08%.

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, 2012 and 2011 was $1.4 million. Average total investments for the three months ended September 30, 2012 were $346.4 million compared with average total investments for the same period in 2011 of $340.5 million, an increase of $5.8 million or 1.7%. The increase in average total investments was primarily the result of an increase in tax-exempt securities and taxable securities, partially offset by a decrease in federal funds sold and interest-bearing deposits. For the third quarter 2012, the average yield on total investments was 1.65% compared with 1.64% for the same quarter in 2011, a decrease of one basis point.

Interest income from investments for the nine months ended September 30, 2012 and 2011 was $4.3 million. Average total investments for the nine months ended September 30, 2012 were $355.9 million compared with average total investments for the same quarter in 2011 of $332.8 million, an increase of $23.1 million or 6.9%. The increase was primarily the result of an increase in federal funds sold and interest-bearing deposits primarily due to the new capital raised. For the nine months ended September 30, 2012, the average yield on investments was 1.60% compared with 1.71% for the same quarter in 2011, a decrease of 11 basis points.


Total Interest Expense. Total interest expense for the three months ended September 30, 2012 was $2.4 million, a decrease of $862,000 or 26.6% compared with $3.2 million for the same period in 2011. Total interest expense for the nine months ended September 30, 2012 was $7.7 million, a decrease of $2.8 million or 26.8% compared with $10.5 million for the same period in 2011. Interest expense decreased for both the three and nine months ended September 30, 2012 primarily due to lower deposit cost and lower time deposit volume.

Interest Expense on Deposits. Interest expense on interest-bearing deposits for the three months ended September 30, 2012 was $1.8 million, a decrease of $861,000 or 32.4% compared with $2.7 million for the same period in 2011. Average interest-bearing deposits for the three months ended September 30, 2012 were $977.8 million compared with $1.01 billion for the same period in 2011, a decrease of $30.4 million or 3.0%. The average interest rate paid on interest-bearing deposits for the third quarter of 2012 was 0.73% compared with 1.05% for the same quarter in 2011, a decrease of 32 basis points. The decline in interest expense and the average interest rate paid on interest-bearing deposits was primarily due to lower deposit volume and declining interest rates in the deposit market.

Interest expense on interest-bearing deposits for the nine months ended September 30, 2012 was $5.9 million, a decrease of $2.8 million or 32.0% compared with $8.7 million for the same period in 2011. Average interest-bearing deposits for the nine months ended September 30, 2012 were $994.0 million compared with the same period in 2011 of $1.03 billion, a decrease of $32.1 million or 3.1%. The average interest rate incurred on interest-bearing deposits for the nine months ended September 30, 2012 was 0.80% compared with 1.13% for the same period in 2011, a decrease of 33 basis points. The decline in interest expense and the average interest rate paid on interest-bearing deposits was primarily due to lower deposit volume and 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, 2012 was $338,000, an increase of $11,000 or 3.4% from $327,000 at September 30, 2011. Interest expense on junior subordinated debentures for the nine months ended September 30, 2012 was $1.0 million, an increase of $31,000 or 3.2% from $976,000 at September 30, 2011. Average junior subordinated debentures for the three and nine months ended September 30, 2012 and 2011 were $36.1 million. The average interest rate incurred on junior subordinated debentures for the three months ended September 30, 2012 and 2011 was 3.67% and 3.55%, respectively. The average interest rate incurred on junior subordinated debentures for the nine months ended September 30, 2012 and 2011 was 3.67% and 3.57%, respectively.

The junior subordinated debentures 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 began paying a fixed interest rate of 5.38% and receiving 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 that began in March 2011. The interest rate swap contract was entered into with the objective of protecting a portion of the quarterly interest payments from the risk of variability resulting from changes in the three-month LIBOR interest rate. See Note 10, "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, 2012 was $247,000, a decrease of $12,000 compared with $259,000 for the same period in 2011. Average borrowed funds, consisting primarily of security repurchase agreements and unsecured debentures, for the three months ended September 30, 2012 were $26.0 million a decrease of $10.4 million compared with $36.4 million for the same period in 2011. Other borrowings decreased primarily due to repayment of FHLB San Francisco advances in the fourth quarter of 2011. The average interest rate paid on borrowed funds for the third quarter of 2012 was 3.78% compared with 2.82% for the same quarter in 2011. The cost increased due primarily to the repayment of the lower cost short-term borrowings.

Interest expense on other borrowed funds for the nine months ended September 30, 2012 was $741,000, a decrease of $62,000 compared with $803,000 for the same period in 2011. Average borrowed funds for the nine months ended September 30, 2012 were $26.0 million, a decrease of $19.0 million compared with $45.0 million for the same period in 2011, due to repayment of FHLB San Francisco advances in the second and fourth quarters of 2011. The average interest rate paid on borrowed funds for the nine months ended September 30, 2012 was 3.81% compared with 2.39% for the same period in 2011. The cost increased due primarily to the repayment of the lower cost short-term borrowings.


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,
                                          2012                                      2011
                          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                   $  1,066,352     $  14,593          5.44 %   $  1,062,275   $  15,364     5.74 %
Taxable securities           156,216         1,020          2.60          154,764       1,025     2.63
Tax-exempt securities         16,523           145          3.49            8,310          99     4.73
Other investments (2)          5,825            42          2.87            6,650          41     2.45
Federal funds sold
and other short-term
investments                  167,811           229          0.54          170,823         239     0.56
Total
interest-earning
assets                     1,412,727        16,029          4.51        1,402,822      16,768     4.74
Allowance for loan
losses                       (27,214 )                                    (30,718 )
Total
interest-earning
assets, net of
allowance for loan
losses                     1,385,513                                    1,372,104
Noninterest-earning
assets                       125,064                                      132,789
Total assets            $  1,510,577                                 $  1,504,893

Liabilities and
shareholders' equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits         $     67,545     $      20          0.12 %   $     65,145   $      36     0.22 %
Savings and money
market accounts              446,282           488          0.44          419,541         764     0.72
Time deposits                463,947         1,288          1.10          523,484       1,857     1.41
Junior subordinated
debentures                    36,083           338          3.67           36,083         327     3.55
Other borrowings              26,000           247          3.78           36,385         259     2.82
Total
interest-bearing
liabilities                1,039,857         2,381          0.91        1,080,638       3,243     1.19
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits              277,707                                      241,394
Other liabilities             19,643                                       17,466
Total liabilities          1,337,207                                    1,339,498

Shareholders' equity         173,370                                      165,395
Total liabilities and
shareholders' equity    $  1,510,577                                 $  1,504,893

Net interest income                      $  13,648                                  $  13,525
Net interest spread                                         3.60 %                                3.55 %
Net interest margin                                         3.84 %                                3.83 %



(1) Annualized.
(2) Other investments include Federal Reserve Bank stock, Federal Home Loan Bank stock and investment in subsidiary trust.


                                            For The Nine Months Ended September 30,
                                          2012                                      2011
                          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                   $  1,058,782     $  44,346          5.59 %   $  1,086,860   $  46,696     5.74 %
. . .
  Add MCBI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MCBI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.