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1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000
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Commission file number 000-21553
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METROPOLITAN FINANCIAL CORP.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-1109469
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
22901 Mill Creek Blvd. Highland Hills, Ohio 44122
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(216) 206-6000
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, without par value
-------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, will not be contained, to the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregated market value of voting stock held by nonaffiliates of the
Registrant as of March 9, 2001 was $4,859,000.
As of March 9, 2001, there were 8,106,459 shares of the Registrant's Common
Stock issued and outstanding.
Documents incorporated by reference:
Portions of the 2000 Annual Report - Parts I and II
Portions of the Proxy Statement for the 2001 Annual Meeting - Part III
2
METROPOLITAN FINANCIAL CORP.
2000 FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 21
Item 3. Legal Proceedings................................... 22
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 22
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters....................................... 24
Item 6. Selected Financial Data............................. 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 27
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk............................................... 39
Item 8. Financial Statements and Supplementary Data
Report of Independent Auditors...................... 43
Consolidated Financial Statements................... 44
Notes to Consolidated Financial Statements.......... 48
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure....................... 73
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 73
Item 11. Executive Compensation............................. 73
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 73
Item 13. Certain Relationships and Related Transactions..... 73
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 73
3
PART I
ITEM 1. BUSINESS
GENERAL
Metropolitan Financial Corp. ("Metropolitan" or the "Corporation") is a
savings and loan holding company that was incorporated in 1972. We are engaged
in the principal business of originating and purchasing mortgage and other loans
through our wholly-owned subsidiary, Metropolitan Bank and Trust Company ("the
Bank"). The Bank is an Ohio chartered stock savings association established in
1958. We obtain funds for lending and other investment activities primarily from
savings deposits, wholesale borrowings, principal repayments on loans, and the
sale of loans. The activities of Metropolitan at the holding company level are
limited and impact the results of operations primarily through interest expense
on a consolidated basis. Unless otherwise noted, all of the activities discussed
below are of the Bank. Our executive office is located at 22901 Mill Creek
Blvd., Highland Hills, Ohio 44122.
Robert M. Kaye of Rumson, New Jersey, is Metropolitan's current majority
shareholder. Mr. Kaye acquired Metropolitan in 1987 and remained sole
shareholder until the initial public offering of Metropolitan's common stock in
October 1996. Currently, Mr. Kaye owns 74.8% of Metropolitan's outstanding
common stock. Mr. Kaye has the ability to decide the outcome of matters
submitted to the shareholders for approval, the ability to elect or remove all
the directors of the Corporation and has ultimate control of the Corporation and
the Bank. In addition, Mr. Kaye is Chairman of the Board and Chief Executive
Officer of the Corporation and the Bank.
At December 31, 2000, we operated 23 full service retail sales offices in
Northeastern Ohio. As of December 31, 2000, we also maintained 10 real estate
loan production offices. As a secondary line of business, we service mortgage
loans for various investors.
At December 31, 2000, we had total assets of $1.7 billion, total deposits
of $1.1 billion and shareholders' equity of $49.5 million. The Federal Deposit
Insurance Corporation insures the deposits of the Bank up to applicable limits.
At December 31, 2000, we directly or indirectly owned the following
wholly-owned subsidiaries:
ACTIVE SUBSIDIARIES INACTIVE SUBSIDIARIES
------------------- ---------------------
- - Metropolitan Bank and Trust Company - MetroCapital Corporation
- - Kimberly Construction Company - Metropolitan Securities Corporation
- - Metropolitan Capital Trust I - Metropolitan II Corporation
- - Metropolitan Capital Trust II
- - Metropolitan I Corporation
- - Metropolitan Savings Service
Corporation
- - Progressive Land Title Agency, Inc.
The Bank changed its name from Metropolitan Savings Bank of Cleveland to
Metropolitan Bank and Trust Company in April 1998. We formed Metropolitan
Capital Trust I during 1998 to facilitate the issuance of cumulative trust
preferred securities. We formed Metropolitan Capital Trust II in 1999 to issue a
second series of trust preferred securities. Metropolitan I Corporation was
formed in 2000 as a holding company for its majority owned subsidiary,
Progressive Land Title Agency, Inc. Kimberly Construction Company's sole
business function is to serve as a principal party to various construction
contracts entered into in connection with the construction of bank premises.
Metropolitan Savings Service Corporation currently holds and manages real estate
which the Bank has foreclosed upon.
All required disclosures as part of Guide 3 are either included in this
document in Management's Discussion and Analysis of Financial Condition and
Results of Operations or in the Five Year Summary of Selected Data.
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LENDING ACTIVITIES
General. Our primary lending activity is the origination and purchase of
mortgage loans secured by multifamily and commercial real estate. We also
originate one- to four-family residential and construction loans, and to a
lesser extent, consumer and business loans.
Loan Portfolio Composition. The following table presents the composition of
our loan portfolio, including loans held for sale, in dollar amounts and as a
percentage of all loans before deductions for loans in process, deferred fees
and discounts and allowance for losses on loans.
DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997
-------------------- -------------------- -------------------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
---------- ------- ---------- ------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family.... $ 288,352 21.1% $ 295,061 23.5% $ 189,182 17.4% $146,685
Multifamily............ 273,358 20.0 292,015 23.3 337,412 31.1 194,450
Commercial............. 254,824 18.6 247,455 19.7 228,825 21.1 166,593
Construction and
land................. 193,464 14.1 156,112 12.4 137,023 12.6 116,829
Held for sale.......... 51,382 3.8 5,866 0.5 9,416 0.9 14,230
---------- ----- ---------- ----- ---------- ----- --------
Total real estate
loans.............. 1,061,380 77.6 996,509 79.4 901,858 83.1 638,787
Consumer Loans........... 163,019 11.9 143,585 11.4 96,115 8.8 68,590
Consumer Held for Sale... -- -- 852 0.1 5,601 0.5 --
Business and Other
Loans.................. 143,329 10.5 114,333 9.1 82,317 7.6 57,496
---------- ----- ---------- ----- ---------- ----- --------
Total loans.......... $1,367,728 100.0% 1,255,279 100.0% 1,085,891 100.0% 764,873
===== ===== =====
LESS:
Loans in process......... 72,156 56,212 46,001 46,833
Deferred fees, net....... 2,191 4,548 5,013 4,108
Discount (premium) on
loans, net............. (7,393) (7,178) (5,320) 425
Allowance for losses on
loans.................. 13,951 11,025 6,909 5,622
---------- ---------- ---------- --------
TOTAL LOANS
RECEIVABLE, NET.... $1,286,823 $1,190,672 $1,033,288 $707,885
========== ========== ========== ========
DECEMBER 31,
----------------------------
1997 1996
------- ------------------
PERCENT AMOUNT PERCENT
------- -------- -------
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family.... 19.2% $114,758 16.8%
Multifamily............ 25.4 276,544 40.3
Commercial............. 21.8 135,635 19.8
Construction and
land................. 15.3 71,697 10.5
Held for sale.......... 1.8 8,973 1.3
----- -------- -----
Total real estate
loans.............. 83.5 607,607 88.7
Consumer Loans........... 9.0 54,180 7.9
Consumer Held for Sale... -- -- --
Business and Other
Loans.................. 7.5 23,508 3.4
----- -------- -----
Total loans.......... 100.0% 685,295 100.0%
===== =====
LESS:
Loans in process......... 31,758
Deferred fees, net....... 2,336
Discount (premium) on
loans, net............. 560
Allowance for losses on
loans.................. 4,175
--------
TOTAL LOANS
RECEIVABLE, NET.... $646,466
========
We had commitments to originate or purchase fixed and adjustable rate loans
of $78.8 million and $98.4 million, respectively, at December 31, 2000. In
addition, we had firm commitments to sell loans of $30.8 million at December 31,
2000.
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The following table presents the composition of our loan portfolio,
including loans held for sale, in dollar amounts and as a percentage of all
loans before deductions for loans in process, deferred fees and discounts and
allowance for losses on loans by fixed and adjustable rates.
DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997
-------------------- -------------------- -------------------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
---------- ------- ---------- ------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
FIXED RATE LOANS:
Real estate:
One- to four-family... $ 112,535 8.2% $ 112,627 9.0% $ 76,566 7.1% $ 59,058
Multifamily........... 163,726 12.0 147,820 11.8 194,521 17.9 60,136
Commercial............ 106,771 7.8 129,865 10.3 147,860 13.6 52,390
Construction and
land................ 10,411 0.8 16,394 1.3 27,849 2.6 20,854
Held for sale......... 39,903 2.9 5,866 0.5 8,920 0.8 6,294
---------- ----- ---------- ----- ---------- ----- --------
Total fixed rate
real estate
loans............. 433,346 31.7 412,572 32.9 455,716 42.0 198,732
Consumer................ 149,957 11.0 137,678 10.9 93,689 8.6 61,307
Consumer held for
sale.................. -- 852 0.1 5,601 0.5 --
Business and other...... 54,576 4.0 46,849 3.7 25,526 2.4 19,575
---------- ----- ---------- ----- ---------- ----- --------
Total fixed rate
loans............. 637,879 46.7% 597,951 47.6% 580,532 53.5% 279,614
---------- ===== ---------- ===== ---------- ===== --------
ADJUSTABLE RATE LOANS:
Real estate:
One- to four-family... 175,817 12.9% 182,434 14.5% 112,616 10.4% 87,627
Multifamily........... 109,632 8.0 144,195 11.5 142,891 13.2 134,314
Commercial............ 148,053 10.8 117,590 9.4 80,965 7.5 114,203
Construction and
land................ 183,053 13.3 139,718 11.1 109,174 10.0 95,975
Held for sale......... 11,479 0.8 -- -- 496 0.0 7,936
---------- ----- ---------- ----- ---------- ----- --------
Total adjustable
rate real estate
loans............. 628,034 45.8 583,937 46.5 446,142 41.1 440,055
Consumer................ 13,062 1.0 5,907 0.5 2,426 0.2 7,283
Business and other...... 88,753 6.5 67,484 5.4 56,791 5.2 37,921
---------- ----- ---------- ----- ---------- ----- --------
Total adjustable
rate loans........ 729,849 53.3% 657,328 52.4% 505,359 46.5% 485,259
---------- ===== ---------- ===== ---------- ===== --------
LESS:
Loans in process........ 72,156 56,212 46,001 46,833
Deferred fees, net...... 2,191 4,548 5,013 4,108
Discount (premium) on
loans, net............ (7,393) (7,178) (5,320) 425
Allowance for losses on
loans................. 13,951 11,025 6,909 5,622
---------- ---------- ---------- --------
TOTAL LOANS
RECEIVABLE, NET... $1,286,823 $1,190,672 $1,033,288 $707,885
========== ========== ========== ========
DECEMBER 31,
----------------------------
1997 1996
------- ------------------
PERCENT AMOUNT PERCENT
------- -------- -------
(DOLLARS IN THOUSANDS)
FIXED RATE LOANS:
Real estate:
One- to four-family... 7.7% $ 41,436 6.1%
Multifamily........... 7.9 88,529 12.9
Commercial............ 6.9 34,726 5.1
Construction and
land................ 2.7 392 0.0
Held for sale......... 0.8 2,531 0.4
----- -------- -----
Total fixed rate
real estate
loans............. 26.0 167,614 24.5
Consumer................ 8.0 46,725 6.8
Consumer held for
sale.................. -- -- --
Business and other...... 2.6 5,650 0.8
----- -------- -----
Total fixed rate
loans............. 36.6% 219,989 32.1%
===== -------- =====
ADJUSTABLE RATE LOANS:
Real estate:
One- to four-family... 11.5% 73,322 10.7%
Multifamily........... 17.6 188,015 27.5
Commercial............ 14.9 100,909 14.7
Construction and
land................ 12.5 71,305 10.4
Held for sale......... 1.0 6,442 0.9
----- -------- -----
Total adjustable
rate real estate
loans............. 57.5 439,993 64.2
Consumer................ 0.9 7,455 1.1
Business and other...... 5.0 17,858 2.6
----- -------- -----
Total adjustable
rate loans........ 63.4% 465,306 67.9%
===== -------- =====
LESS:
Loans in process........ 31,758
Deferred fees, net...... 2,336
Discount (premium) on
loans, net............ 560
Allowance for losses on
loans................. 4,175
--------
TOTAL LOANS
RECEIVABLE, NET... $646,466
========
The following table illustrates the contractual maturity of our loan
portfolio. The table shows loans that have adjustable or renegotiable interest
rates as maturing in the period during which the contract is due. The table does
not reflect the effects of possible prepayments, enforcement of due-on-sale
clauses, or amortization of premiums, discounts, or deferred loan fees. The
table includes demand loans, loans having no stated maturity and overdraft loans
in the due in one year or less category.
DUE AFTER
ONE YEAR
DUE IN ONE THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------------- ------------------- ------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- -------- -------- -------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
REAL ESTATE:
One- to four-family................... $ 646 7.17% $ 9,148 7.50% $278,558 7.30% $ 288,352 7.31%
Multifamily........................... 8,035 9.16 38,190 8.77 227,133 8.32 273,358 8.40
Commercial............................ 14,863 9.05 33,614 8.02 206,347 8.40 254,824 8.39
Construction and land................. 153,664 9.66 34,726 10.00 5,074 8.51 193,464 9.71
CONSUMER................................ 1,331 11.56 16,702 8.89 144,986 10.60 163,019 10.43
BUSINESS................................ 31,658 9.73 45,768 9.01 65,903 9.92 143,329 9.59
-------- -------- -------- ----------
Total........................... $210,197 9.61% $178,148 8.88% $928,001 8.50% $1,316,346 8.73%
======== ======== ======== ==========
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The total amount of loans due after December 31, 2001 which have fixed
interest rates is $571.8 million. The total amount of loans due after that date
which have floating or adjustable rates is $534.3 million.
Multifamily Lending. Historically, our greatest lending emphasis has been
on multifamily real estate loans. We originate these loans from our present
customers, contacts within the investor community, and referrals from mortgage
brokers. We have become known for originating multifamily loans in our primary
multifamily lending markets of Ohio, Kentucky, Michigan, Pennsylvania, and New
Jersey. Although we operate full service retail sales offices solely in
Northeast Ohio, we have loan origination offices throughout Ohio and Western
Pennsylvania. We have purchased multifamily loans from selected banks,
particularly in California.
At December 31, 2000, our multifamily loans totaled $273.4 million, with an
average loan size of approximately $479 thousand. Currently, we emphasize the
origination of multifamily fixed and adjustable loans with principal amounts of
$1.0 million to $6.0 million. Adjustable loans are priced on one-, three- or
five-year treasury rates with amortization periods of 25 or 30 years. Fixed rate
loans are priced at a spread over the ten-year treasury rate. The loans are
subject to a maximum individual aggregate interest rate adjustment as well as a
maximum aggregate adjustment over the life of the loan (generally 6%).
Typically, the loans have balloon maturities of 10 years. The maximum loan to
value ratio of multifamily residential loans is 75%.
Apartment buildings, generally with less than 75 residential units,
typically secure multifamily loan originations. Our underwriting process
includes a site evaluation and involves an evaluation of the borrower, whether
the borrower is an individual or a group of individuals acting as a separate
entity. We review the financial statements of each of the individual borrowers
and often obtain personal guarantees in an amount equal to the original
principal amount of the loan. In addition, we complete an analysis of debt
service coverage of the property. Debt service coverage requirements are
determined based upon the individual characteristics of each loan. Typically,
these requirements range from a ratio of 1.15:1 to 1.30:1.
At December 31, 2000, $202.5 million or 74.1% of our multifamily loan
portfolio represented loans we purchased from a variety of sources. Prior to
purchasing these loans, we use a similar underwriting process with substantially
the same standards as for our originated loans. In some cases, when we consider
the purchase of a portfolio with a considerable number of moderate balance
loans, we use an independent contract inspector for property inspections.
Multifamily real estate in Ohio secures 11.7% of our multifamily and commercial
real estate loan portfolio. Underlying real estate for the remaining multifamily
loans is located primarily in California, Pennsylvania, and New Jersey.
We recognize that multifamily loans generally involve a higher degree of
risk than one- to four-family residential real estate loans. Multifamily loans
involve more risk because they typically involve larger loan balances to single
borrowers or groups of related borrowers. The payment experience on these loans
typically depends upon the successful operation of the related real estate
project and is subject to risks such as excessive vacancy rates or inadequate
rental income levels. In order to manage and reduce these risks, we use strict
underwriting standards in our multifamily residential lending process.
Commercial Real Estate Lending. At December 31, 2000, permanent loans
secured by commercial real estate totaled $254.8 million or 18.6% of our total
portfolio. The average size of these loans was approximately $819 thousand. Of
this amount, we originated $149.2 million or 58.6% and $105.6 million or 41.4%
represented loans purchased from a variety of sources, predominantly other
financial institutions.
We purchase loans secured by commercial real estate generally when these
loans are secured by retail strip shopping centers or office buildings and the
loan yields and other terms meet our requirements. In the recent past, we began
to introduce more geographic diversity into the portfolio based on our desire to
acquire high credit quality loans. We believe a certain amount of geographic
diversity is important to reduce the risk of loss due to regional economic
downturns.
We purchase commercial real estate loans secured by strip shopping centers
and small office buildings to supplement our origination of commercial real
estate loans. As a result of referrals from customers and mortgage brokers, we
make loans on commercial real estate in many states, but predominantly in Ohio,
Pennsylvania, Northern Kentucky, Michigan and California.
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We recognize that commercial real estate loans generally involve a higher
degree of risk than the financing of one- to four-family residential real
estate. These loans typically involve larger loan balances to single borrowers
or groups of related borrowers. The payment experience on these loans is
typically dependent upon the successful operation of the related real estate
project and is subject to certain risks including excessive vacancy due to
tenant turnover and inadequate rental income levels. In addition, the
profitability of the business operating in the property may affect the
borrower's ability to make timely payments. In order to manage and reduce these
risks, we focus our commercial real estate lending on existing properties with a
record of satisfactory performance and target retail strip centers and office
buildings with multiple tenants.
The following table presents information as to the locations and types of
properties securing the multifamily and commercial real estate portfolio as of
December 31, 2000. As of that date, we had loans in 40 states. Properties
securing loans in 37 states are aggregated in the table because none of those
states exceed 5.0% of the outstanding principal balance of the total multifamily
and commercial real estate portfolio.
NUMBER
OF LOANS PERCENT PRINCIPAL PERCENT
-------- -------- --------- -------
(DOLLARS IN THOUSANDS)
OHIO:
Apartments....................................... 116 13.2% $ 61,803 11.7%
Office buildings................................. 34 3.9 24,148 4.6
Retail centers................................... 16 1.8 9,439 1.8
Other............................................ 25 2.8 23,294 4.4
--- ----- -------- -----
Total......................................... 191 21.7 118,683 22.5
--- ----- -------- -----
CALIFORNIA:
Apartments....................................... 233 26.4 124,193 23.5
Office buildings................................. 37 4.2 13,294 2.5
Retail centers................................... 60 6.8 32,510 6.2
Other............................................ 18 2.0 9,954 1.9
--- ----- -------- -----
Total......................................... 348 39.5 179,952 34.1
--- ----- -------- -----
PENNSYLVANIA:
Apartments....................................... 33 3.7 15,407 2.9
Office buildings................................. 15 1.7 37,773 7.2
Retail centers................................... 5 0.6 14,274 2.7
Other............................................ 2 0.2 2,426 0.5
--- ----- -------- -----
Total......................................... 55 6.2 69,880 13.2
--- ----- -------- -----
OTHER STATES:
Apartments....................................... 189 21.4% $ 71,955 13.6%
Office Buildings................................. 34 3.9 34,895 6.6
Retail centers................................... 36 4.1 27,256 5.2
Other............................................ 29 3.3 25,561 4.8
--- ----- -------- -----
Total......................................... 288 32.7 159,667 30.2
--- ----- -------- -----
882 100.0% $528,182 100.0%
=== ===== ======== =====
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8
The following table presents aggregate information as to the type of
security as of December 31, 2000:
AVERAGE
NUMBER BALANCE
OF LOANS PER LOAN PRINCIPAL PERCENT
-------- -------- --------- -------
(DOLLARS IN THOUSANDS)
Apartments......................................... 571 $ 479 $273,358 51.8%
Office buildings................................... 120 918 110,109 20.8
Retail centers..................................... 117 117 83,479 15.8
Other.............................................. 74 828 61,235 11.6
--- -------- -----
Total......................................... 882 $ 599 $528,182 100.0%
=== ======== =====
One- to Four-family Residential Lending. We originate our one- to
four-family residential loans through our full service retail sales offices,
commissioned loan officers, correspondent lenders, our telemarketing department,
and our residential loan origination offices in Ohio and Pennsylvania. We have
focused our one- to four-family residential lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied residences. As
of December 31, 2000, the one- to four-family residential mortgages totaled
$288.4 million or 21.1% of our loan portfolio.
We emphasize the origination of conventional loans suitable for sale in the
secondary market. In addition, we offer fixed rate end loan financing to
borrowers building homes with our approved construction loan builders. We retain
only a limited dollar amount of this fixed rate end loan financing in our
portfolio. Properties located in Northeastern Ohio secure substantially all of
the one- to four-family residential mortgage loans originated for retention in
our portfolio. At December 31, 2000, our fixed rate residential mortgage loan
portfolio totaled $112.5 million, or 8.2%, of our total loan portfolio.
We are presently originating three types of ARM products for our portfolio.
These products offer different features including the index upon which the
interest rate is based and the period for rate adjustment. We originate ARMs
with terms to maturity of up to 30 years. Borrowers are qualified based upon
secondary market requirements.
At December 31, 2000, $31.2 million, or 10.8% of our one- to four-family
residential loan portfolio represented loans we purchased from a variety of
sources. We use an underwriting process with substantially the same standards as
for our originated loans when purchasing these loans.
Construction Lending and Land Development. At December 31, 2000, we had
$193.5 million of construction and land development loans outstanding. We
originate construction loans on single family homes to local builders in our
primary lending market and to individual borrowers on owner-occupied properties.
We also make loans to builders for the purchase of fully-improved single family
lots and to developers for the purpose of developing land into single family
lots. Our primary market areas for construction lending are in Northeastern
Ohio, in the counties of Cuyahoga, Lake, Geauga, Summit, Medina, Portage, and
Lorain and the greater Columbus, Ohio market.
6
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The following table presents the number, amount, and type of properties
securing construction and land development loans at December 31, 2000:
NUMBER OF PRINCIPAL
LOANS BALANCE
---------- ----------
(DOLLARS IN THOUSANDS)
RESIDENTIAL CONSTRUCTION LOANS:
Owner-occupied............................................ 129 $ 29,918
Builder presold........................................... 42 9,075
Builder model homes....................................... 187 51,818
Builder lines of credit................................... 24 35,178
--- --------
Total residential construction loans................... 382 125,989
NONRESIDENTIAL CONSTRUCTION LOANS:
Multifamily............................................... 6 7,502
Commercial................................................ 4 5,873
--- --------
Total nonresidential construction loans................ 10 13,375
LAND LOANS.................................................. 26 4,747
Lot loans................................................. 74 16,843
Development loans......................................... 34 32,510
--- --------
Total.................................................. 526 $193,464
=== ========
The risk of loss on a construction loan largely depends upon the accuracy
of the initial estimate of the property's value upon completion of the project,
the estimated cost of the project, and proper control over disbursements during
construction. We review the borrower's financial position and require a personal
guarantee on all builder loans. We base all loans upon the appraised value of
the underlying collateral, as completed. Construction inspections are required
to support the percentage of completion during construction.
We establish a maximum loan to value ratio for each type of loan based upon
the contract price, cost estimate or appraised value, whichever is less. The
maximum loan to value ratio by type of construction loan is as follows:
- owner-occupied homes - 80%;
- builder presold homes - 80%;
- builder models or speculative homes - 75%;
- lot loans - 75%;
- development loans - 75% (development of single-family home lots for
resale to builders); and
- builder lines of credit - 75% (development of land for cluster or
condominium projects which will be part of builder line of credit).
All construction loans that we make to builders are for relatively short
terms (6 to 24 months) and are at an adjustable rate of interest. Owner-occupied
loans are generally fixed rate.
We offer builders lines of credit to build single family homes. We secure
all lines of credit by the homes that are built with the draws under such credit
agreements. Most of the homes built with the line of credit funds are presold
homes. We base draws upon the percentage of completion. At all times, we retain
enough funds to complete the home.
We also originate construction loans on multifamily and commercial real
estate projects where we intend to provide the financing once construction is
complete. We underwrite these loans in a manner similar to our originated and
purchased multifamily residential and commercial real estate loans described
above.
Consumer Lending. The underwriting standards we employ for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing
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obligations and payments on the proposed loan. Although creditworthiness of the
applicant is a primary consideration, the underwriting process also includes a
comparison of the value of the security, if any, in relation to the proposed
loan amount.
Consumer loans entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. At December 31, 2000, secured
loans comprised $143.0 million or 87.7% of the $163.0 million consumer loan
portfolio. However, even in the case of secured loans, repossessed collateral
for a defaulted consumer loan may not provide an adequate source of repayment of
the outstanding loan balance due to the higher likelihood of damage, loss or
depreciation. In addition, consumer loan collections depend upon the borrower's
continuing financial stability. The application of various federal and state
laws, including bankruptcy and insolvency laws, may limit the amount recovered
on such loans in the event of default.
In order to supplement the growth in the consumer loan portfolio, we have
purchased loans through correspondent lenders and bulk portfolios offered for
sale. At December 31, 2000, purchased consumer loans represented $94.7 million,
or 66.0% of the outstanding balance of consumer loans. Second mortgages on
one-to four-family homes, and first liens on automobiles, or manufactured
housing are the primary collateral types for these loans. In 1997, we acquired
two packages of subprime loans totaling $6.3 million. Subprime loans are loans
where the borrower's credit rating is below an A grade. In 1998, we acquired an
additional loan package of $5.0 million of subprime loans also secured by
manufactured housing. Total subprime loans were $7.8 million, or 4.8% of total
consumer loans at December 31, 2000.
At December 31, 2000, our credit card portfolio had an outstanding balance
of $6.7 million with $31.4 million in unused credit lines.
Business Lending. At December 31, 2000, we had $143.3 million of business
loans outstanding. Our business lending activities encompass loans with a
variety of purposes and security, including loans to finance accounts
receivable, inventory and equipment. Generally, our business lending has been
limited to borrowers headquartered, or doing business in, our retail market
area. These loans are generally adjustable interest rate loans at some margin
over the prime interest rate and some are guaranteed by the Small Business
Administration.
The following table sets forth information regarding the number and amount
of our business loans as of December 31, 2000:
OUTSTANDING
NUMBER TOTAL LOAN PRINCIPAL
OF LOANS COMMITMENT BALANCE
-------- ---------- -----------
(DOLLARS IN THOUSANDS)
LOANS SECURED BY:
Accounts receivable, inventory and equipment.............. 93 $ 11,385 $ 9,028
First lien on real estate................................. 83 65,274 61,070
Lien on real estate other than first lien................. 121 61,528 56,560
Specific equipment and machinery.......................... 24 2,916 1,714
Titled vehicles........................................... 14 471 248
Stocks and bonds.......................................... 6 15,471 6,667
Certificates of deposit................................... 12 2,260 1,966
UNSECURED LOANS............................................. 31 7,124 6,076
----- -------- --------
Total.................................................. 384 $166,429 $143,329
===== ======== ========
Business loans differ from residential mortgage loans. Residential mortgage
loans generally are made on the basis of the borrower's ability to make
repayment from his or her employment and other income and are secured by real
property whose value is easily ascertainable. Business loans are of higher risk
and typically are made on the basis of the borrower's ability to make repayment
from the cash flow of the borrower's business. As a result, the availability of
funds for the repayment of business loans may depend substantially upon the
success of the business. Furthermore, the collateral securing the loans may
depreciate over time, may be difficult to appraise, and may fluctuate in value
based on the success of the business. We work to reduce this risk by carefully
underwriting business loans.
8
11
SECONDARY MARKET ACTIVITIES
In addition to originating loans for our own portfolio, we participate in
secondary mortgage market activities by selling participations, whole loans, as
well as creating mortgage-backed securities, with FannieMae, FreddieMac, and
other entities. Secondary market sales allow us to make loans during periods
when deposit flows decline, or are not otherwise available, and at times when
customers prefer loans with long-term fixed interest rates which we choose not
to hold in our own portfolio. While our primary focus in mortgage banking
operations is to sell fixed rate one- to four-family residential mortgage loans,
we also sell adjustable one- to four-family residential mortgage loans.
The secondary market for mortgage loans is primarily comprised of
institutional investors who purchase loans meeting certain underwriting
specifications with respect to loan-to-value ratios, maturities and yields.
Subject to market conditions, we tailor some of our real estate loan programs to
meet the specifications of FreddieMac and FannieMae, two of the largest
institutional investors. We generally retain a portion of the loan origination
fee paid by the borrower and receive annual servicing fees as compensation for
retaining responsibility for and performing the servicing of all loans sold to
institutional investors. See "Loan Servicing Activities."
The terms and conditions under which such sales are made depend upon, among
other things, the specific requirements of each institutional investor, the type
of loan, the interest rate environment and our relationship with the
institutional investor. In the case of one- to four-family residential loans, we
periodically obtain formal commitments to sell loans primarily with FreddieMac
and FannieMae. Pursuant to these commitments, FreddieMac or FannieMae is
obligated to purchase a specific dollar amount of whole loans over a specified
period. The terms of the commitments range from ten to sixty days. The pricing
varies depending upon the length of each commitment. We classify loans as held
for sale while we are negotiating the sale of specific loans which meet selected
criteria to a specific investor or after a sale is negotiated but before it is
settled.
During the fourth quarter of 1999, we completed the securitization of
$108.8 million of multifamily loans in a program with FannieMae. This program
uses insurance to provide the credit enhancement necessary to achieve a
satisfactory rating. We are servicing the loans as mortgage-backed securities
for FannieMae. We completed a similar securitization of $93.0 million of
multifamily loans in 1997. During the fourth quarter of 1998, we completed the
securitization of $101.0 million of commercial real estate loans with a private
issuer in a non-rated structure. Similar to the other securitization
transactions, we used an insurance policy to assume a portion of the credit
risk. In addition to decreasing loans receivable and increasing mortgage-backed
securities, the securitizations have provided several other benefits, including
the following:
- improvement in the credit risk profile of the Bank's balance sheet by
converting whole loans into mortgage-backed securities guaranteed by
others; and
- addition of high quality collateral which can be pledged for borrowings
in the secondary market to fund other corporate needs.
We also sell whole loans or participations in multifamily and commercial
real estate loans to private investors and retain the right to service the
loans. We make the majority of our sales of multifamily and commercial real
estate loans under individually negotiated whole loan or participation sales
agreements. These sales are for individual loans or for a package of loans.
During 2000, we sold $66.5 million of multifamily and commercial real estate
participations. The Bank may seek a participant when a loan would otherwise
exceed the loan-to-one borrower limit. We have sold other loans to manage
geographic concentration or interest rate risk.
9
12
LOAN SERVICING ACTIVITIES
At December 31, 2000, our overall servicing portfolio had a value of $2.7
billion. Of that amount, loans serviced for others totaled $1.9 billion. The
following table summarizes the portfolio by investor and source:
ORIGINATED PURCHASED PORTFOLIO
SERVICING SERVICING SERVICING TOTAL
---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
One- to Four-family:
Metropolitan portfolio........................ -- -- $453,256 $ 453,256
FreddieMac.................................... $416,123 $ 466,592 -- 882,715
FannieMae..................................... 41,411 640,209 -- 681,620
Private investors............................. 16,352 9,319 -- 25,671
-------- ---------- -------- ----------
Total One- to Four-family.................. 473,886 1,116,120 453,256 2,043,262
-------- ---------- -------- ----------
Multifamily and Commercial:
Metropolitan portfolio........................ -- -- 355,396 355,396
FannieMae..................................... 113,751 54,101 -- 167,852
Private investors............................. 158,240 21,401 -- 179,641
-------- ---------- -------- ----------
Total Multifamily and Commercial........... 271,991 75,502 355,396 702,889
-------- ---------- -------- ----------
Total...................................... $745,877 $1,191,622 $808,652 $2,746,151
======== ========== ======== ==========
Generally, we service the loans we originate. When we sell loans to an
investor, such as FreddieMac or FannieMae, we generally retain the servicing
rights for the loans. We receive fee income for servicing these sold loans at
various percentages based upon the unpaid principal balances of the loans
serviced. We collect and retain service fees out of monthly mortgage payments.
To further increase our servicing fee income, the Bank during 2000 and in prior
years purchased servicing portfolios from other originating institutions. These
purchased servicing portfolios are primarily FreddieMac and FannieMae single
family loans that are secured by homes located within the eastern half of the
nation. At December 31, 2000, the unpaid principal balance of our purchased
servicing portfolio was $1.2 billion. The related net book value of purchased
mortgage servicing rights was $13.9 million.
Loan servicing functions include collecting and remitting loan payments,
accounting for principal and interest, holding escrow (impound) funds for
payment of taxes and insurance, making rate and payment changes to contractually
adjustable loans, managing loans in payment default, processing foreclosure and
other litigation activities to recover mortgage debts, conducting property
inspections and risk assessment for investment loans and general administration
of loans for the investors to whom they are sold.
LOAN DELINQUENCIES AND NONPERFORMING ASSETS
When a borrower fails to make a required payment on a loan, we begin work
to cure the delinquency by contacting the borrower. In the case of real estate
loans, we send a late notice 15 days after the due date. If the delinquency is
not cured within 30 days of the due date, we contact the borrower by telephone.
We make additional written and verbal contacts with the borrower between 30 and
90 days after the due date. If the delinquency continues for a period of 90
days, we usually bring an action to foreclose on the property. If we foreclose
on the property, we sell the property at public auction where we may be the
acquirer. Delinquent consumer loans are handled in a similar manner, except that
we make our initial contact when the payment is 10 days past due. We bring an
action to collect any loan payment that is delinquent for more than 30 days. Our
procedures for collection efforts, repossession, and sale of consumer collateral
must comply with various requirements under state and federal consumer
protection laws. In the case of business loans, we monitor payment activity on a
weekly basis. We make telephone contact with any borrower who has not made their
payment by its due date. If a delay in payment continues, we meet with the
borrower. The borrowers' cash flow situation is evaluated and a repayment plan
instituted. In some situations, we exercise our rights to collateral or
assignment of receivables in order to liquidate the debt.
10
13
The following table sets forth information concerning delinquent loans at
December 31, 2000, in dollar amounts and as a percentage of each category of the
loan portfolio. The amounts presented represent the total remaining principal
balances of the related loans, rather than the actual payment amounts that are
overdue.
TOTAL LOANS 60 DAYS
60-89 DAYS 90 DAYS AND OVER OR MORE DELINQUENT
--------------------------- --------------------------- ---------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------- -------- ------ ------- -------- ------ ------- --------
(DOLLARS IN THOUSANDS)
REAL ESTATE
One- to four-family................. -- -- -- 4 $ 484 0.14% 4 $ 484 0.14%
Multifamily......................... -- -- -- -- -- -- -- -- --
Commercial real estate.............. 8 $ 8,260 3.23% 3 468 0.18 11 8,728 3.41
Construction and land............... -- -- -- 4 1,133 0.61 4 1,133 0.61
CONSUMER.............................. 113 1,272 0.78 196 4,658 2.86 309 5,930 3.64
BUSINESS.............................. 7 1,374 0.96 43 7,996 5.58 50 9,370 6.54
--- ------- ---- --- ------- ---- --- ------- ----
Total............................. 128 $10,906 0.80% 250 $14,739 1.08% 378 $25,645 1.88%
=== ======= ==== === ======= ==== === ======= ====
Nonperforming assets include all nonaccrual loans, loans past due greater
than 90 days still accruing, and real estate owned. Generally, interest is not
accrued on loans contractually past due 90 days or more as to interest or
principal payments. However, at December 31, 2000, the Bank had $6.4 million of
business loans that were 90 days or more past maturity but not delinquent as to
interest. These loans were nonperforming but not considered nonaccrual loans. In
addition, interest is not accrued on loans as to which payment of principal and
interest in full is not expected unless in our judgment the loan is well
secured, and we expect no loss in principal or interest.
When a loan reaches nonaccrual status, we discontinue interest accruals and
reverse prior accruals. The classification of a loan on nonaccrual status does
not necessarily indicate that the principal is uncollectible in whole or in
part. We consider both the adequacy of the collateral and the other resources of
the borrower in determining the steps to take to collect nonaccrual loans. The
final determination as to these steps is made on a case-by-case basis.
Alternatives we consider are commencing foreclosure, collecting on guarantees,
restructuring the loan, or instituting collection lawsuits.
ALLOCATION OF ALLOWANCE FOR LOSSES ON LOANS
We maintain an allowance for losses on loans because some loans may not be
repaid in full. We maintain the allowance at a level we consider adequate to
cover possible losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations, including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While we may
periodically allocate portions of the allowance for specific problem loans, the
whole allowance is available for any loan charge-offs that occur. We charge a
loan against the allowance as a loss when, in our opinion, it is uncollectible.
Despite the charge-off, we continue collection efforts. As a result, future
recoveries may occur.
The following table sets forth an allocation of the allowance for losses on
loans among categories as of the dates indicated based on our estimate of
probable losses that were currently anticipated based largely on past loss
experience. Since the factors influencing such estimates are subject to change
over time, we believe that any allocation of the allowance for losses on loans
into specific categories lends an appearance of precision which does not exist.
In practice, we use the allowance as a single unallocated allowance available
for all loans. The allowance can also be reallocated among different loan
categories if actual losses differ from expected losses and
11
14
based upon changes in our expectation of future losses. The following allocation
table should not be interpreted as an indication of the actual amounts or the
relative proportion of future charges to the allowance.
DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997
--------------------- --------------------- -------------------- ------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
------- ----------- ------- ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
One-to four-family... $ 759 24.8% $ 778 24.0% $ 304 18.3% $ 237
Multifamily.......... 962 20.5 904 23.3 648 31.1 482
Commercial real
estate............. 1,456 18.7 1,281 19.7 1,019 21.1 1,400
Construction and
land............... 796 13.6 550 12.4 237 12.6 353
Consumer............. 3,631 11.9 3,947 11.5 2,335 9.3 2,132
Business............. 4,952 10.5 2,462 9.1 1,675 7.6 456
Unallocated.......... 1,395 -- 1,103 -- 691 -- 562
------- ----- ------- ----- ------ ----- ------
Total............ $13,951 100.0% $11,025 100.0% $6,909 100.0% $5,622
======= ===== ======= ===== ====== ===== ======
DECEMBER 31,
----------------------------------
1997 1996
----------- --------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
EACH EACH
CATEGORY CATEGORY
TO TOTAL TO TOTAL
LOANS AMOUNT LOANS
----------- ------ -----------
(DOLLARS IN THOUSANDS)
One-to four-family... 19.8% $ 228 17.1%
Multifamily.......... 25.4 1,020 40.8
Commercial real
estate............. 23.0 937 20.3
Construction and
land............... 15.0 193 10.5
Consumer............. 9.0 1,182 7.9
Business............. 7.5 197 3.4
Unallocated.......... -- 418 --
----- ------ -----
Total............ 100.0% $4,175 100.0%
===== ====== =====
With the uncertainties that could adversely affect the overall quality of
the loan portfolio, we consider an adequate allowance for losses on loans
essential. At December 31, 2000, we considered the unallocated allowance
adequate to cover losses from the existing loans that had not demonstrated
problems such as late payments, financial difficulty of the borrower, or
deterioration of collateral values. However, on March 26, 2001, based on
financial projections provided by the borrower on March 12, 2001, management
determined that business loans to related borrowers in the amount of $14.7
million were impaired. Management has estimated the impairment to be
approximately $3.5 million.
The risks associated with off-balance sheet commitments are insignificant.
Therefore, management has not provided an allowance for those commitments.
INVESTMENT PORTFOLIO
We maintain our investment portfolio in accordance with policies adopted by
the Board of Directors that consider the regulatory requirements and
restrictions which dictate the type of securities that we can hold. As a member
of the Federal Home Loan Bank System, the Bank is required to hold a minimum
amount of Federal Home Loan Bank stock based upon asset size and mix. As the
Bank grows, management anticipates this investment will increase.
The following table summarizes the amounts and the distribution of
securities held as of the dates indicated:
AT DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(DOLLARS IN THOUSANDS)
SECURITIES:
Mutual funds.............................................. $ 889 $ 835 $ 2,059
Tax-exempt bond........................................... 14,705 14,699 14,817
Revenue bond.............................................. 775 1,180 1,400
FreddieMac preferred stock................................ 6,150 6,150 7,500
FreddieMac note........................................... 9,986 9,764 9,884
FannieMae notes........................................... 19,920 19,080 --
Federal Home Loan Bank stock.............................. 20,624 10,948 6,054
Treasury notes and bills.................................. 2,361 -- --
------- ------- -------
Total............................................. $75,410 $62,656 $41,714
======= ======= =======
OTHER INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks...................... $ 2,727 $ 2,750 $ 9,275
Term repurchase agreements................................ -- -- --
------- ------- -------
Total............................................. $ 2,727 $ 2,750 $ 9,275
======= ======= =======
12
15
The following table sets forth the contractual maturities and approximate
weighted average yields of debt securities at December 31, 2000.
DUE IN
--------------------------------------------
ONE YEAR ONE TO MORE THAN
OR LESS FIVE YEARS TEN YEARS TOTAL
-------- ----------- --------- -------
(DOLLARS IN THOUSANDS)
Tax-exempt bond.................................... -- -- $14,705 $14,705
Revenue bond....................................... -- $ 775 -- 775
FreddieMac note.................................... -- 9,986 -- 9,986
U.S. Treasury Notes and Bills...................... $2,261 100 -- 2,361
FannieMae notes.................................... -- 19,920 -- 19,920
------ ------- ------- -------
Total......................................... $2,261 $30,781 $14,705 $47,747
====== ======= ======= =======
Weighted average tax-equivalent yield.............. 5.83% 6.04% 10.77% 7.49%
The FreddieMac and FannieMae notes have call features which make them
callable at any time after December 31, 2000.
MORTGAGE-BACKED SECURITIES PORTFOLIO
Mortgage-backed securities offer higher rates than treasury or agency
securities with similar maturities because the timing of the repayment of
principal can vary based on the level of prepayments. However, they offer lower
yields than similar loans because the risk of loss of principal is often
guaranteed by the issuing entity or through mortgage insurance. We acquire
mortgage-backed securities through purchases and securitization of loans from
our portfolio. As rates have risen during 2000, we experienced a decrease in
prepayments on mortgage-backed securities over the level experienced in 1999 and
1998. We classify all mortgage-backed securities as available for sale. The
following table sets forth the fair market value of mortgage-backed securities
portfolio at the dates indicated.
AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
FannieMae pass-through certificates........................ $ 74,412 $112,675 $ 61,705
GNMA pass-through certificates............................. 27,249 29,526 5,870
FreddieMac participation certificates...................... 2,948 6,609 13,149
BPA Commercial Capital L.L.C. mortgage-backed security..... 77,162 92,492 100,995
FreddieMac Collateralized Mortgage Obligation.............. 8,192 8,518 8,494
FannieMae Collateralized Mortgage Obligation............... 5,666 5,703 7,868
Other...................................................... 200 204 214
-------- -------- --------
Total................................................. $195,829 $255,727 $198,295
======== ======== ========
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16
The following table sets forth the final maturities and approximate
weighted average yields of mortgage-backed securities at December 31, 2000.
DUE IN
-------------------------------------------------
ONE YEAR TO FIVE TO OVER
FIVE YEARS TEN YEARS TEN YEARS TOTAL
----------- --------- --------- --------
(DOLLARS IN THOUSANDS)
FannieMae pass-through certificates........... $71,627 $ 2,785 $ 74,412
GNMA pass-through certificates................ $ 25 -- 27,224 27,249
FreddieMac participation certificates......... -- -- 2,948 2,948
BPA Commercial Capital L.L.C. Mortgage-backed
security.................................... -- -- 77,162 77,162
FreddieMac Collateralized Mortgage
Obligation.................................. -- -- 8,192 8,192
FannieMae Collateralized Mortgage
Obligation.................................. -- -- 5,666 5,666
Other......................................... -- -- 200 200
------- ------- -------- --------
Total mortgage-backed securities......... $ 25 $71,627 $124,177 $195,829
======= ======= ======== ========
Weighted average yield........................ 6.50% 6.93% 7.37% 7.21%
The actual timing of the payment of principal on mortgage-backed securities
is dependent on principal payments on the underlying loans which may or may not
carry prepayment penalties for the borrowers. Therefore, the table above is not
necessarily representative of actual or expected cash flows from these
securities.
SOURCES OF FUNDS
The Bank's primary sources of funds are deposits, amortization and
repayment of loan principal, borrowings, sales of mortgage loans, sales or
maturities of mortgage-backed securities, securities, and short-term
investments. Deposits are the principal source of funds for lending and
investment purposes. We offer the following types of accounts:
Statement and Checking Accounts. We offer three types of statement savings
accounts, two interest-bearing checking, and one noninterest-bearing checking
account for consumers. We offer three types of statement savings accounts and
one noninterest-bearing checking account for business and commercial customers.
In connection with loan servicing activities, we maintain custodial
checking accounts for principal and interest payments collected for investors
monthly and for tax and insurance escrow balances.
Certificates of Deposit. We offer fixed rate, fixed term certificates of
deposit. Terms are from seven days to five years. These accounts generally bear
the highest interest rates of any deposit product offered. We review interest
rates offered on certificates of deposit regularly and adjust them based on cash
flow projections and market interest rates.
From time to time, we have accepted certificates of deposit through brokers
or from out-of-state individuals and entities, predominantly credit unions.
These deposits typically have balances of $90,000 to $100,000 and have a term of
one year or more. At December 31, 2000, these individuals and entities held
approximately $118.9 million of certificates of deposits, or 10.4% of total
deposits.
In conjunction with certificates of deposit, we also offer Individual
Retirement Accounts.
14
17
The following table provides information regarding trends in average
deposits for the periods indicated. The noninterest bearing demand deposit
category includes principal and interest custodial accounts and taxes and
insurance custodial accounts for loans serviced for FreddieMac, FannieMae and
private investors.
DECEMBER 31,
-------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- -------------------------
PERCENT PERCENT PERCENT
AVERAGE OF RATE AVERAGE OF RATE AVERAGE OF RATE
AMOUNT TOTAL PAID AMOUNT TOTAL PAID AMOUNT TOTAL PAID
---------- ------- ---- ---------- ------- ---- -------- ------- ----
(DOLLARS IN THOUSANDS)
Noninterest-bearing
deposits.................... $ 71,714 6.3% $ 64,633 5.6% $ 51,385 6.1%
Interest bearing deposits:
Interest-Bearing Checking
Accounts.................. 99,142 8.7 4.15% 54,538 4.7 2.66% 45,980 5.5 2.75%
Passbook Savings and
Statement Savings......... 146,635 12.9 3.82 215,265 18.8 4.21 184,907 21.9 4.54
Certificates of Deposit..... 818,062 72.1 6.11 815,448 70.9 5.50 560,010 66.5 5.87
---------- ----- ---------- ----- -------- -----
Total interest-bearing
deposits................ 1,063,839 93.7 5.60 1,085,251 94.4 5.09 790,897 93.9 5.38
---------- ----- ---------- ----- -------- -----
Total average deposits.... $1,135,553 100.0% $1,149,884 100.0% $842,282 100.0%
========== ===== ========== ===== ======== =====
Deposits increased 0.8% to $1.1 billion at December 31, 2000 from a year
earlier. The increase was primarily due to increased noninterest bearing
checking accounts, interest bearing checking accounts, and certificates of
deposit.
The following table shows rate and maturity information for certificates of
deposit as of December 31, 2000.
PERCENT
OF
2.00-4.99% 5.00-5.99% 6.00-6.99% 7.00-8.99% TOTAL TOTAL
---------- ---------- ---------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
CERTIFICATE ACCOUNTS MATURING
IN QUARTER ENDING:
March 31, 2001................ $15,634 $ 43,240 $139,918 $ 8,311 $207,103 25.3%
June 30, 2001................. 118 22,721 116,101 33,000 171,940 21.0
September 30, 2001............ 20 18,835 141,543 35,685 196,082 23.9
December 31, 2001............. -- 7,233 72,154 16,970 96,357 11.8
March 31, 2002................ 12 1,097 38,643 14,532 54,284 6.6
June 30, 2002................. -- 529 9,774 3,196 13,500 1.6
September 30, 2002............ -- 1,088 13,636 6,915 21,639 2.6
December 31, 2002............. -- 1,432 9,838 3,169 14,439 1.8
March 31, 2003................ -- 617 6,141 3,236 9,994 1.2
June 30, 2003................. -- 550 9,766 972 11,288 1.4
September 30, 2003............ -- 1,432 2,036 15 3,484 0.4
December 31, 2003............. -- 1,438 197 -- 1,636 0.2
Thereafter.................... -- 5,410 10,475 1,456 17,341 2.1
------- -------- -------- -------- -------- -----
Total.................... $15,784 $105,622 $570,222 $127,457 $819,087 100.0%
======= ======== ======== ======== ======== =====
Percent of total.............. 1.9% 12.9% 69.6% 15.6%
15
18
The following table shows the remaining maturity for time deposits of
$100,000 or more as of December 31, 2000.
DECEMBER 31, 2000
----------------------
(DOLLARS IN THOUSANDS)
Three months or less........................................ $ 51,072
Over three through six months............................... 44,585
Over six through twelve months.............................. 104,234
Over twelve months.......................................... 35,541
--------
Total.................................................. $235,432
========
In addition to deposits, we rely on borrowed funds. The discussion below
describes our current borrowings.
Subordinated Note Offering. In December 1995, we issued subordinated notes
due January 1, 2005 with an aggregate principal balance of $14.0 million through
a public offering. The interest rate on the notes is 9.625%.
Line of Credit. We have a commercial line of credit agreement with a
commercial bank. The maximum borrowing under the line is $12.0 million. The
balance at December 31, 2000 was $6.0 million. The line matures annually on May
30. During the second quarter, 2000, by mutual agreement, the line was extended
to May 31, 2001. The interest rate on the line is tied to LIBOR or prime at our
option. As collateral for the loan, our largest shareholder, Robert Kaye, has
agreed to pledge a portion of his shares of Common Stock of Metropolitan in an
amount at least equal in value to 200% of any outstanding balance.
Commercial bank repurchase agreement. In November, 1999, the Bank entered
into a repurchase agreement involving a transaction which allowed a line of
credit for use by the Bank. The balance on this line at December 31, 1999 was
$55 million. During the third quarter 2000, the balance was paid-off and the
line of credit terminated.
Federal Home Loan Bank Advances. The Federal Home Loan Bank makes funds
available for housing finance to eligible financial institutions like the Bank.
We collateralize advances by any combination of the following assets: one- to
four-family first mortgage loans, multifamily loans, home equity loans,
commercial loans, investment securities, mortgage-backed securities, and Federal
Home Loan Bank stock. The aggregate balance of assets pledged as collateral for
Federal Home Loan Bank advances at December 31, 2000 was $578 million.
Repurchase Agreements. From time to time, the Bank borrows funds by using
its investment or mortgage-backed securities to issue repurchase agreements. The
aggregate balance of mortgage-backed securities pledged as collateral for
repurchase agreements at December 31, 2000 was $45 million.
The following table shows the maximum month-end balance, the average
balance, and the ending balance of borrowings during the periods indicated.
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
MAXIMUM MONTH-END BALANCE:
Federal Home Loan Bank advances............................ $365,094 $205,352 $119,000
1993 subordinated notes.................................... -- -- 4,874
1995 subordinated notes.................................... 14,000 14,000 14,000
Commercial bank repurchase agreement....................... 50,000 55,000 --
Commercial bank line of credit............................. 7,000 12,000 8,000
Repurchase agreements...................................... 80,166 88,380 97,983
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YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
AVERAGE BALANCE:
Federal Home Loan Bank advances............................ $290,369 $140,001 $ 65,714
1993 subordinated notes.................................... -- -- 1,999
1995 subordinated notes.................................... 14,000 14,000 14,000
Commercial bank repurchase agreement....................... 25,250 7,708 --
Commercial bank line of credit............................. 6,083 7,891 2,147
Repurchase agreements...................................... 70,595 81,507 70,368
ENDING BALANCE:
Federal Home Loan Bank advances............................ $365,094 $205,352 $111,236
1993 subordinated notes.................................... -- -- --
1995 subordinated notes.................................... 13,985 14,000 14,000
Commercial bank repurchase agreement....................... -- 55,000 --
Commercial bank line of credit............................. 6,000 6,000 8,000
Repurchase agreements...................................... 41,000 80,044 82,250
The following table provides the interest rates which includes amortization
of issuance costs of borrowings during the periods indicated.
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
----- ----- ------
WEIGHTED AVERAGE INTEREST RATE:
Federal Home Loan Bank advances............................. 6.15% 5.60% 5.68%
1993 subordinated notes..................................... -- -- 10.47
1995 subordinated notes..................................... 9.63 9.63 9.63
Commercial bank repurchase agreement........................ 8.25 7.34 --
Commercial bank line of credit.............................. 8.80 7.96 8.49
Repurchase agreements....................................... 6.06 5.60 5.66
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S JUNIOR
SUBORDINATED DEBENTURES
Trust Preferred securities were issued in 1998 and 1999 through two
wholly-owned subsidiaries of Metropolitan Financial Corp. The Corporation used
the net proceeds from the sale of the securities to repay outstanding debt and
contribute capital to the Bank.
COMPETITION
The Bank faces strong competition both in originating real estate and other
loans and in attracting deposits. Competition in originating real estate loans
comes primarily from other savings institutions, commercial banks, mortgage
companies, credit unions, finance companies, and insurance companies.
The Bank attracts its deposits through its retail sales offices, primarily
from the communities in which those retail sales offices are located. Therefore,
competition for those deposits is principally from other savings institutions,
commercial banks, credit unions, mutual funds, and brokerage companies located
in the same communities.
EMPLOYEES
At December 31, 2000, we had a total of 470 employees, including part-time
and seasonal employees. Our employees are not represented by any collective
bargaining group. Management considers its employee relations to be excellent.
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REGULATION AND SUPERVISION
INTRODUCTION
Metropolitan is a savings and loan holding company within the meaning of
the Home Owners' Loan Act. As a savings and loan holding company, we are subject
to the regulations, examination, supervision, and reporting requirements of the
Office of Thrift Supervision. The Bank, an Ohio-chartered savings and loan
association, is a member of the Federal Home Loan Bank System. Its deposits are
insured by the Federal Deposit Insurance Corporation through the Savings
Association Insurance Fund. The Bank is subject to examination and regulation by
the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and
the Ohio Division of Financial Institutions. The Bank must comply with
regulations regarding matters such as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority.
METROPOLITAN
As a savings and loan holding company, we are subject to restrictions
relating to our activities and investments. Among other things, we are generally
prohibited, either directly or indirectly, from acquiring control of any other
savings association or savings and loan holding company, without prior approval
of the Office of Thrift Supervision, and from acquiring more than 5% of the
voting stock of any savings association or savings and loan holding company
which is not a subsidiary. Similarly, a person must obtain Office of Thrift
Supervision approval prior to that person's acquiring control of the Bank or
Metropolitan.
THE BANK
General. The Office of Thrift Supervision has enforcement authority over
all savings associations. This enforcement authority includes the ability to
impose penalties for and to seek correction of violations of laws and
regulations and unsafe or unsound practices.
As a lender and a financial institution, the Bank is subject to various
regulations promulgated by the Federal Reserve Board including, without
limitation, Regulation B (Equal Credit Opportunity), Regulation D (Reserves),
Regulation E (Electronic Fund Transfers), Regulation F (Interbank Liabilities),
Regulation Z (Truth in Lending), Regulation CC (Availability of Funds), and
Regulation DD (Truth in Savings). As lenders of loans secured by real property,
and as owners of real property, financial institutions, including the Bank, are
subject to compliance with various statutes and regulations applicable to
property owners generally.
Insurance of Accounts and Regulation by the Federal Deposit Insurance
Corporation. The Bank is a member of the Savings Association Insurance Fund,
which is administered by the Federal Deposit Insurance Corporation. The Federal
Deposit Insurance Corporation insures deposits up to applicable limits and the
full faith and credit of the United States Government back such insurance. As
insurer, the Federal Deposit Insurance Corporation imposes deposit insurance
premiums and conducts examinations of and requires reporting by Federal Deposit
Insurance Corporation-insured institutions.
The Deposit Insurance Funds Act of 1996 required the merger of the Bank
Insurance Fund and Savings Association Insurance Fund into a single insurance by
January 1, 1999 assuming certain pre-conditions. Those pre-conditions were not
met and a timetable for the merger has not been established. In connection with
this merger, Savings Association Insurance Fund-insured institutions could be
forced to convert to state bank charters or national bank charters. If that
proposal became law, Metropolitan would become a bank holding company. As a
result, Metropolitan would be subject to regulation by the Federal Reserve Board
which impose capital requirements on bank holding companies.
Regulatory Capital Requirements. The capital regulations of the Office of
Thrift Supervision establish a "leverage limit," a "tangible capital
requirement," and a "risk-based capital requirement." In addition, the Office of
Thrift Supervision may establish, on a case by case basis, individual minimum
capital requirements for a savings association which vary from the requirements
that would otherwise apply under the Capital Regulations. The Office of Thrift
Supervision has not established an individual minimum capital requirements for
the Bank.
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The leverage limit currently requires a savings association to maintain
"core capital" of not less than 3% of adjusted total assets. The Office of
Thrift Supervision has taken the position, however, that the prompt corrective
action regulation has effectively raised the leverage ratio requirement for all
but the most highly-rated institutions. The leverage ratio has in effect
increased to 4% since an institution is "undercapitalized" if, among other
things, its leverage ratio is less than 4%.
The tangible capital requirement requires a savings association to maintain
"tangible capital" in an amount not less than 1.5% of adjusted total assets.
The risk-based capital requirement generally provides that a savings
association must maintain total capital in an amount at least equal to 8.0% of
its risk-weighted assets. The risk-based capital regulations are similar to
those applicable to national banks. The regulations assign each asset and
certain off-balance sheet assets held by a savings association to one of four
risk-weighting categories, based upon the degree of credit risk associated with
the particular type of asset.
At December 31, 2000, the Bank complied with each of the tangible capital,
the core capital, and the risk-based capital requirements. The following table
presents the Bank's regulatory capital position at December 31, 2000.
PERCENT
OF ASSETS
AS DEFINED
FOR EACH
AMOUNT CAPITAL TEST
-------- ------------
(DOLLARS IN THOUSANDS)
Tangible capital............................................ $106,608 6.31%
Tangible capital requirement................................ 25,343 1.50
-------- ----
Excess...................................................... $ 81,265 4.81%
======== ====
Core capital................................................ $106,625 6.31%
Core capital requirement.................................... 67,591 4.00
-------- ----
Excess...................................................... $ 39,034 2.31%
======== ====
Risk-based capital.......................................... $118,077 9.35%
Risk-based capital requirement.............................. 101,028 8.00
-------- ----
Excess...................................................... $ 17,049 1.35%
======== ====
The Bank is also subject to the capital adequacy requirements under the
Federal Deposit Insurance Corporation Investment Act of 1991. The additional
capital adequacy ratio imposed under Federal Deposit Insurance Corporation
Investment Act is the Tier 1 capital to risk adjusted assets ratio. This ratio
must be at least 6.0% for a "well capitalized" institution. At December 31,
2000, the Tier 1 risk-based capital ratio of the Bank was 8.45%.
Prompt Corrective Action. Banks and savings associations are classified
into one of five categories based upon capital adequacy, ranging from
"well-capitalized" to "critically undercapitalized." Generally, the regulations
require the appropriate federal banking agency to take prompt corrective action
with respect to an institution which becomes "undercapitalized" and to take
additional actions if the institution becomes "significantly undercapitalized"
or "critically undercapitalized." Based on these requirements, the Bank is an
"adequately capitalized" institution.
The appropriate federal banking agency has the authority to reclassify a
well-capitalized institution as adequately capitalized. In addition, the agency
may treat an adequately capitalized or undercapitalized institution as if it
were in the next lower capital category, if the agency determines, after notice
and an opportunity for a hearing, that the institution is in an unsafe or
unsound condition or that the institution has received and not corrected a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings, or liquidity in its most recent examination. As a result
of such reclassification or determination, the appropriate federal banking
agency may require an adequately capitalized or under-capitalized institution to
comply with mandatory and discretionary supervisory actions.
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Restrictions on Dividends and Other Capital Distributions. Savings
association subsidiaries of holding companies generally are required to provide
their Office of Thrift Supervision regional director not less than thirty days'
advance notice of any proposed declaration of a dividend on the association's
stock. Any dividend declared within the notice period, or without giving the
prescribed notice, is invalid. In some circumstances, an association may be
required to provide their Office of Thrift Supervision regional director with an
application for a proposed declaration of a dividend on the association's stock.
The Office of Thrift Supervision regulations impose limitations upon
certain "capital distributions" by savings associations. These distributions
include cash dividends, payments to repurchase or otherwise acquire an
association's shares, payments to shareholders of another institution in a
cash-out merger, and other distributions charged against capital.
In addition, the Office of Thrift Supervision retains the authority to
prohibit any capital distribution otherwise authorized under the regulation if
the Office of Thrift Supervision determines that the capital distribution would
constitute an unsafe or unsound practice.
The Gramm-Leach Bliley Act, or Financial Services Modernization Act, became
law in November of 1999. This law includes significant changes in the way
financial institutions are regulated and types of financial business they may
engage in. Among other things the law provides for:
- facilitation of affiliations among banks, securities firms, and insurance
companies;
- changes in the regulation of securities activities by banks;
- changes in the regulation of insurance activities by banks;
- elimination of the creation of new unitary thrift holding companies;
- new regulation of the use and privacy of customer information by banks;
and
- modernization of the Federal Home Loan Bank System.
The changes in this law take effect at various times ranging from
immediately to eighteen months after the Act became law. Generally, the law
provides opportunities for new products and new affiliations with other
financial services providers. It will not restrict us from any activities we are
currently engaging in.
Liquidity. Federal regulations currently require savings associations to
maintain, for each calendar quarter, an average daily balance of liquid assets
equal to at least 4% of the ending or average daily balance of deposit accounts
with maturities less than a year and short-term borrowings with maturities less
than a year. Liquid assets include cash, certain time deposits, bankers'
acceptances, and specified United States Government, state or federal agency
obligations. From time to time, the Office of Thrift Supervision may change this
liquidity requirement to an amount within a range of 4% to 10% of such accounts
and borrowings depending upon economic conditions and the deposit flows of
savings associations. The Office of Thrift Supervision may impose monetary
penalties for failure to meet liquidity ratio requirements. At December 31,
2000, the liquidity ratio of the Bank was 5.52%.
Qualified Thrift Lender Test. Pursuant to the Qualified Thrift Lender test,
a savings institution must invest at least 65% of its portfolio assets in
qualified thrift investments on a monthly average basis on a rolling 12-month
look-back basis. Portfolio assets are an institution's total assets less
goodwill and other intangible assets, the institution's business property, and a
limited amount of the institution's liquid assets.
A savings association's failure to remain a Qualified Thrift Lender may
result in: a) limitations on new investments and activities; b) imposition of
branching restrictions; c) loss of Federal Home Loan Bank borrowing privileges;
and d) limitations on the payment of dividends. The qualified thrift investments
of the Bank were in excess of 67.62% of its portfolio assets as of December 31,
2000.
Ohio Regulation. As a savings and loan association organized under the laws
of the State of Ohio, the Bank is subject to regulation by the Ohio Division of
Financial Institutions. Regulation by the Ohio Division of Financial
Institutions affects the internal organization of the Bank as well as its
savings, mortgage lending, and other investment activities. Periodic
examinations by the Ohio Division of Financial Institutions are usually
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23
conducted on a joint basis with the Office of Thrift Supervision. Ohio law
requires the Bank to maintain federal deposit insurance as a condition of doing
business.
Under Ohio law and regulations, an Ohio association may invest in loans and
interests in loans, secured or unsecured, of any type or amount for any purpose,
subject to certain requirements. In addition, certain restrictions are placed on
the limit to which certain investments may be made.
Ohio has adopted a statutory limitation on the acquisition of control of an
Ohio savings and loan association which requires the written approval of the
Division prior to the acquisition by any person or entity of a controlling
interest in an Ohio association. In addition, Ohio law requires prior written
approval of the Ohio Division of Financial Institution of a merger of an Ohio
association with another savings and loan association or a holding company
affiliate.
FEDERAL AND STATE TAXATION
The following discussion of tax matters is only a summary and does not
purport to be a comprehensive description of the tax rules applicable to
Metropolitan or the Bank.
Metropolitan, the Bank and other includable subsidiaries file consolidated
federal income tax returns on a December 31 calendar year basis using the
accrual method of accounting. The Internal Revenue Service has audited
Metropolitan, the Bank and other includable subsidiaries through December 31,
1994.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to an alternative minimum
tax. An alternative minimum tax is imposed at a tax rate of 20% on alternative
minimum taxable income ("AMTI"), which is the sum of a corporation's regular
taxable income with certain adjustments and tax preference items, less any
available exemption. Adjustments and preferences include depreciation deductions
in excess of those allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986 (reduced by
any related interest expense disallowed for regular tax purposes), and, for 1990
and succeeding years, 75% of the difference (positive or negative) between
adjusted current earnings ("ACE") and AMTI. Any ACE reductions to AMTI are
limited to prior aggregate ACE increases to AMTI. ACE equals pre-adjustment AMTI
increased or decreased by certain ACE adjustments and determined without regard
to the ACE adjustment and the alternative tax net operating loss. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax, and alternative tax net operating losses can offset no more
than 90% of AMTI. The payment of alternative minimum tax will give rise to a
minimum tax credit which will be available with an indefinite carry forward
period to reduce federal income taxes in future years (but not below the level
of alternative minimum tax arising in each of the carry forward years).
The Bank is subject to the Ohio corporate franchise tax. As a financial
institution, the Bank computes its franchise tax based on its net worth. Under
this method, the Bank will compute its Ohio corporate franchise tax by
multiplying its net worth (as determined under generally accepted accounting
principles) as specifically adjusted pursuant to Ohio law, by the applicable tax
rate, which is currently 1.3%. As an Ohio-chartered savings and loan
association, the Bank also receives a credit against the franchise tax for a
portion of the state supervisory fees paid by it.
At the present time, Metropolitan, at the holding company level, does not
have a liability for the net worth portion of the franchise tax as it satisfies
the requirements to be treated as a qualified holding company. In addition,
there is no liability on the net income portion of the tax as the holding
company has historically operated at a net loss on a stand alone basis.
ITEM 2. PROPERTIES
Our executive office is located at 22901 Mill Creek Blvd., Highland Hills,
Ohio 44122. We operate twenty-three retail sales offices. We lease seven of
these locations under long-term lease agreements with various parties. We own
the other sixteen retail sales offices, located in Aurora, Beachwood, Brunswick,
Cleveland, Cleveland Heights, Euclid, Hudson, Macedonia, Mayfield Heights,
Medina, Montrose, Pepper Pike, Stow, Twinsburg, Willoughby Hills, and
Willoughby, Ohio. Our executive office and a majority of our retail sales
offices include
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space beyond what is required for the conduct of our business. That space is
rented to nonaffiliated entities under long term leases. In 2001, we will be
opening sales offices in Solon and Strongsville, Ohio. In addition, we have
purchased land in Auburn, Avon, Brecksville, and Broadview Heights, Ohio and we
plan to use these sites for future full service retail offices. The Bank
currently leases office space for its residential and construction loan
production offices in Akron, Canton, Cincinnati, Columbus, Dayton, Massillon,
North Olmsted and Toledo, Ohio. We also have a commercial real estate loan
origination office in Pittsburgh, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
The Bank is involved in various legal proceedings incidental to the conduct
of its business. We do not expect that any of these proceedings will have a
material adverse effect on our financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders of the Corporation during
the fourth quarter of the fiscal year covered by this Report, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
(Included pursuant to Instruction 3 to paragraph (b) of Item 401 of
Regulation S-K)
The executive officers of the Corporation as of March 1, 2001, unless otherwise
indicated, were as follows:
POSITIONS HELD WITH METROPOLITAN
NAME AND THE BANK BUSINESS EXPERIENCE
---- -------------------------------- -------------------
Robert M. Kaye Chairman and Chief Executive Officer, Mr. Kaye has served as Chairman and
Age 64 and a Director of Metropolitan Chief Executive Officer of Metropolitan
Chairman and Chief Executive Officer, and the Bank since 1987. He has also
and a Director of the Bank served as President of Planned
Residential Communities, Inc. since
1960. Planned Residential Communities,
Inc. is actively engaged in every aspect
of multifamily housing from new
construction and rehabilitation to
acquisition and management. Mr. Kaye
serves as a member of the Board of
Directors of Community Bank of New
Jersey. He is a member of the Board of
Directors of Neighborhood Progress Inc.
and Chairman of the Board of New Village
Corp. He has also been a member of the
Corporate Council of the Cleveland
Museum of Art since its inception in
1993 and has been a member of the Board
of Trustees of the College of New Jersey
since 1980 and of The Peddie School
since 1988.
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25
POSITIONS HELD WITH METROPOLITAN
NAME AND THE BANK BUSINESS EXPERIENCE
---- -------------------------------- -------------------
Kenneth T. Koehler President and Director of Mr. Koehler joined Metropolitan in
Age 55 Metropolitan January 1999 as Executive Vice
President. He has served as President
President, Director, and Chief and Chief Operating Officer since
Operating Officer of the Bank October 1999. Previously, Mr. Koehler
served as President and Chief Executive
Officer of United Heritage Bank, Edison,
NJ, a community Bank (1998-1999); and
President and Chief Executive Officer of
Golden City Commercial Bank, New York,
NY, a community bank (1994-1998). He has
also served as a director of Cumberland
Farms/Gulf Oil Company, and as a trustee
of Providence Performing Arts
Association and Catholic Charities
Annual Appeal, Diocese of RI. He is a
trustee of the Great Lakes Theater
Company and Catholic Charities Corp.
Malvin E. Bank Director, Vice Chairman, Secretary Mr. Bank has been the Secretary,
Age 70 and Assistant Treasurer of Assistant Treasurer and a Director of
Metropolitan Metropolitan and Secretary and Director
of the Bank for more than five years and
Director, Vice Chairman, and Vice Chairman for one year. Mr. Bank is
Secretary of the Bank General Counsel of the Cleveland
Foundation, a community foundation. Mr.
Bank also serves as a Director of
Oglebay Norton Company. Mr. Bank also
serves as a Trustee of Case Western
Reserve University, The Holden
Arboretum, Chagrin River Land
Conservancy, Cleveland Center for
Research in Child Development, Hanna
Perkins School, and numerous other civic
and charitable organizations and
foundations.
David P. Miller Director, Treasurer and Assistant Mr. Miller has served as a Director of
Age 68 Secretary of Metropolitan Metropolitan and the Bank since 1992.
Mr. Miller has also held the positions
Director of the Bank of Treasurer and Assistant Secretary of
Metropolitan. Since 1986, Mr. Miller has
been the President and Chief Executive
Officer of Columbia National Group,
Inc., a Cleveland-based scrap and waste
materials wholesaler and steel
manufacturer. He is currently a
commissioner of the Ohio Lottery.
Donald F. Smith Chief Financial Officer of Mr. Smith became Executive Vice
Age 52 Metropolitan President and Chief Financial Officer of
Executive Vice President and Chief the Bank on January 1, 2000. Mr. Smith
Financial Officer of the Bank was previously Senior Vice President and
Chief Financial Officer of Steris
Corporation (1999) and a Partner in the
accounting firm of Ernst & Young LLP and
its predecessor from 1984 to 1999. Mr.
Smith is on the Board of Directors of
Junior Achievement of Greater Cleveland
and Lake County YMCA.
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26
POSITIONS HELD WITH METROPOLITAN
NAME AND THE BANK BUSINESS EXPERIENCE
---- -------------------------------- -------------------
Leonard Kichler Executive Vice President of the Bank Mr. Kichler became Executive Vice
Age 43 President- Relationship Banking in July,
2000. Mr. Kichler was previously Senior
Vice President and Director of National
City Bank.
All executive officers serve at the pleasure of the Board of Directors, with no fixed term of
office.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Metropolitan's common stock, no par value, the only outstanding class of
equity securities of Metropolitan, is traded on the Nasdaq National Market
System. There are 20,000,000 shares of common stock authorized and 8,099,852
shares issued and outstanding. The first day of trading in the Corporation's
common stock was October 29, 1996. Detailed in the following table is the
quarterly high and low price for the Corporation's common stock during 2000 and
1999:
HIGH LOW
------ -----
First quarter 1999.......................................... $11.50 $8.38
Second quarter 1999......................................... 9.25 7.00
Third quarter 1999.......................................... 7.88 6.13
Fourth quarter 1999......................................... 7.00 4.50
First quarter 2000.......................................... 4.69 3.06
Second quarter 2000......................................... 4.94 3.88
Third quarter 2000.......................................... 5.25 3.38
Fourth quarter 2000......................................... 4.13 2.38
Metropolitan paid no dividends during the past three years and has no
intention of paying dividends in the foreseeable future. The Indenture dated as
of December 1, 1995 covering the 1995 Subordinated Notes and the Commercial Bank
Line of Credit Agreement prohibit the Corporation from paying a dividend or
other distribution on its equity securities unless the Corporation's ratio of
tangible equity to total assets exceeds 7%.
At March 9, 2001, there were approximately 1,350 record holders of common
stock. Robert M. Kaye, previously the sole shareholder, controlled 6,060,387
shares or 74.8% of the amount outstanding on this date.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF SELECTED DATA
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996(1)
---------- ---------- ---------- -------- --------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION
DATA:
Total assets................... $1,695,279 $1,608,119 $1,363,434 $924,985 $769,076
Loans receivable, net.......... 1,235,441 1,183,954 1,018,271 693,655 637,493
Loans held for sale............ 51,382 6,718 15,017 14,230 8,973
Mortgage-backed securities..... 195,829 255,727 198,295 143,167 56,672
Securities..................... 54,786 51,708 35,660 6,446 13,173
Intangible assets.............. 2,602 2,461 2,724 2,987 3,239
Loan servicing rights.......... 20,597 10,374 13,412 9,224 8,051
Deposits....................... 1,146,267 1,136,630 1,051,357 737,782 622,105
Borrowings..................... 426,079 360,396 215,486 135,870 101,874
Preferred securities(2)........ 43,750 43,750 27,750 -- --
Shareholders' equity........... 49,459 44,868 42,644 36,661 30,244
SELECTED OPERATIONS DATA:
Total interest income.......... $ 127,787 $ 111,921 $ 85,728 $ 69,346 $ 54,452
Total interest expense......... 88,673 73,644 53,784 41,703 33,116
---------- ---------- ---------- -------- --------
Net interest income.......... 39,114 38,277 31,944 27,643 21,336
Provision for loan losses...... 6,350 6,310 2,650 2,340 1,636
---------- ---------- ---------- -------- --------
Net interest income after
provision for loan
losses.................... 32,764 31,967 29,294 25,303 19,700
Loan servicing income, net..... 1,148 1,358 788 1,293 1,204
Net gain on sale of loans and
securities................... 3,573 1,781 3,523 580 336
Other noninterest income....... 4,834 4,016 3,006 2,268 2,233
Noninterest expense............ 40,160 32,591 25,523 20,149 20,839
---------- ---------- ---------- -------- --------
Income before income taxes
and extraordinary item.... 2,159 6,531 11,088 9,295 2,634
Income tax expense............. (662) (2,020) (4,049) (3,492) (1,095)
Extraordinary item(3).......... -- -- (245) -- --
---------- ---------- ---------- -------- --------
Net income..................... $ 1,497 $ 4,511 $ 6,794 $ 5,803 $ 1,539
========== ========== ========== ======== ========
- ---------------
(1) Noninterest expense for 1996 includes a $2.9 million pre-tax or $1.9 million
net of tax one-time assessment to recapitalize the Savings Association
Insurance Fund.
(2) Consists of 9.50% preferred securities sold during the second quarter of
1999 by Metropolitan Capital Trust II and 8.60% preferred securities sold
during the second quarter of 1998 by Metropolitan Capital Trust I.
(3) The extraordinary item represents expenses associated with the early
retirement of the outstanding 10% subordinated notes.
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AS OF OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996(1)
---------- ---------- ---------- ---------- ----------
PER SHARE DATA, RESTATED FOR STOCK
SPLITS:
Basic net income per share........ $ 0.19 $ 0.57 $ 0.88 $ 0.75 $ 0.22
Diluted net income per share...... 0.19 0.57 0.87 0.75 0.22
Book value per share.............. 6.11 5.56 5.50 4.73 3.90
Tangible book value per share..... 5.79 5.26 5.15 4.34 3.48
PERFORMANCE RATIOS:
Return on average assets.......... 0.09% 0.30% 0.64% 0.69% 0.23%
Return on average equity.......... 3.30 10.09 17.16 17.58 5.75
Interest rate spread.............. 2.31 2.52 2.90 3.20 3.07
Net interest margin............... 2.56 2.73 3.16 3.48 3.34
Average interest-earning assets to
average interest-bearing
liabilities..................... 103.09 103.73 104.96 105.30 105.39
Noninterest expense to average
assets.......................... 2.45 2.17 2.39 2.40 3.08
Efficiency ratio(2)............... 83.21 71.05 64.45 62.75 82.57
ASSET QUALITY RATIOS:(3)
Nonperforming loans to total
loans........................... 1.15% 0.79% 1.23% 0.44% 0.80%
Nonperforming assets to total
assets.......................... 1.12 0.91 1.34 0.56 0.70
Allowance for losses on loans to
total loans..................... 1.07 0.92 0.66 0.79 0.64
Allowance for losses on loans to
nonperforming total loans....... 94.65 117.52 54.44 178.60 80.38
Net charge-offs to average
loans........................... 0.27 0.19 0.16 0.13 0.04
CAPITAL RATIOS:
Shareholders' equity to total
assets.......................... 2.92% 2.79% 3.13% 3.96% 3.93%
Average shareholders' equity to
average assets.................. 2.77 2.97 3.70 3.94 3.96
Tier 1 capital to total
assets(4)....................... 6.31 6.57 6.27 5.47 5.58
Tier 1 capital to risk-weighted
assets(4)....................... 8.45 8.58 7.85 7.75 7.87
OTHER DATA:
Loans serviced for others
(000's)......................... $1,937,499 $1,653,065 $1,496,347 $1,190,185 $1,102,514
Number of full service offices.... 23 20 17 15 14
Number of loan production
offices......................... 10 8 5 4 5
- ---------------
(1) Noninterest expense for 1996 includes a $2.9 million pre-tax or $1.9 million
net of tax one-time assessment to recapitalize the Savings Association
Insurance Fund. All per share data and performance ratios include the effect
of this assessment.
(2) Equals noninterest expense less amortization of intangible assets divided by
net interest income plus noninterest income (excluding gains or losses on
securities transactions).
(3) Ratios are calculated on end of period balances except net charge-offs to
average loans.
(4) Ratios are for the Bank only.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The reported results of Metropolitan Financial Corp. ("Metropolitan," the
"Corporation," "we," "our," or "us") primarily reflect the operations of
Metropolitan Bank and Trust Company (the "Bank"). Our results of operations are
dependent on a variety of factors, including the general interest rate
environment, competitive conditions in the industry, governmental policies and
regulations and conditions in the markets for financial assets. Like most
financial institutions, the primary contributor to our income is net interest
income, the difference between the interest we earn on interest-earning assets,
such as loans and securities, and the interest we pay on interest-bearing
liabilities, such as deposits and borrowings. Our operations are also affected
by noninterest income, such as loan servicing fees, service charges on deposit
accounts, and gains or losses on the sale of loans and securities. Our principal
operating expenses, aside from interest expense, consist of compensation and
employee benefits, occupancy costs, and general and administrative expenses.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Income. Net income decreased 66.8% from net income of 1999. Net income
for 2000 was $1.5 million, or $0.19 per common share, and net income for 1999
was $4.5 million, or $0.57 per common share. This decrease in net income from
1999 was due primarily to a decrease in our interest rate spread due to rising
interest rates during 2000 and higher operational costs due to growth in the
retail sales office system, the relocation of the corporate headquarters, and
investments in technology.
Total assets grew to $1.7 billion at December 31, 2000 from $1.6 billion at
December 31, 1999. Compared to 1999 and prior years, asset growth slowed in 2000
due to the rising interest rate environment. We expect limited asset growth to
continue in the near future until we improve our capital ratios to well
capitalized levels.
Interest Income. Total interest income increased 14.2% to $127.8 million
for 2000 from $111.9 million for 1999. This increase was due to a 8.9% increase
in the average balance of interest-earning assets and an increase in the
weighted average yield on interest earning assets, particularly loans.
Interest Expense. Total interest expense increased 20.4% to $88.7 million
for 2000 from $73.6 million for 1999. Interest expense increased primarily
because the average balance of interest-bearing liabilities increased 9.6% from
the prior year and an increased cost of funds. We increased our average balance
of interest-bearing liabilities in order to fund our growth of interest-earning
assets. The average balance of borrowings increased 58.6% from the previous
year. Due to an increase in market rates paid to deposit customers and the
increased use of borrowings, the cost of funds increased to 5.95% in 2000 from
5.37% in 1999.
Net Interest Margin. Net interest margin refers to net interest income
divided by total interest-earning assets. Our net interest margin declined 17
basis points to 2.56% for 2000 from 2.73% for 1999. Net interest margin declined
because asset yields did not increase in proportion to liability costs while
average interest-earning assets as a percent of average interest-bearing
liabilities remained relatively constant. The yield on interest-earning assets
increased due primarily to the higher yield on loans. This increase in the yield
on interest-earning assets was more than offset by an increased cost of funds.
27
30
Average Balances and Yields. The following table presents the total dollar
amount of interest income from average interest-earning assets and the resulting
rates, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Net interest
margin is influenced by the level and relative mix of interest-earning assets
and interest-bearing liabilities. All average balances are daily average
balances. Nonaccrual loans are included in average loan balances. The average
balance of mortgage-backed securities and securities are presented at historical
cost.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable............ $1,257,530 $107,504 8.55% $1,160,771 $ 93,961 8.09%
Mortgage-backed
securities................ 221,645 15,353 6.93 198,404 13,814 6.96
Other....................... 72,846 4,930 7.33 66,136 4,146 7.13
---------- -------- ---------- --------
Total interest-earning
assets................ 1,552,021 127,787 8.26 1,425,311 111,921 7.89
-------- --------
Nonearning assets........... 90,200 78,162
---------- ----------
Total assets........ $1,642,221 $1,503,473
========== ==========
INTEREST-BEARING
LIABILITIES:
Deposits.................... $1,063,839 $ 59,565 5.60% $1,085,251 $ 55,289 5.09%
Borrowings.................. 397,979 26,071 6.55 250,958 15,079 6.01
Junior subordinated
debentures................ 43,750 3,993 9.13 37,858 3,418 9.03
---------- -------- ---------- --------
Total interest-bearing
liabilities........... 1,505,568 89,629 5.95 1,374,067 73,786 5.37
-------- ---- -------- ----
Noninterest-bearing
liabilities............... 91,221 84,686
Shareholders' equity........ 45,432 44,720
---------- ----------
Total liabilities and
shareholders'
equity................ $1,642,221 $1,503,473
========== ==========
Net interest income before
capitalized interest and
interest rate spread...... 38,158 2.31% 38,135 2.52%
-------- ==== -------- ====
Net interest margin......... 2.56% 2.73%
Interest expense
capitalized............... 956 142
-------- --------
Net interest income......... $ 39,114 $ 38,277
======== ========
Average interest-earning
assets to average interest
bearing liabilities....... 103.09% 103.73%
YEAR ENDED DECEMBER 31,
---------------------------------
1998
---------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
---------- -------- -------
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable............ $ 848,931 $74,059 8.72%
Mortgage-backed
securities................ 119,152 8,895 7.47
Other....................... 43,423 2,774 6.39
---------- -------
Total interest-earning
assets................ 1,011,506 85,728 8.48
-------
Nonearning assets........... 57,804
----------
Total assets........ $1,069,310
==========
INTEREST-BEARING
LIABILITIES:
Deposits.................... $ 790,897 $42,537 5.38%
Borrowings.................. 154,228 9,614 6.23
Junior subordinated
debentures................ 18,577 1,633 8.79
---------- -------
Total interest-bearing
liabilities........... 963,702 53,784 5.58
------- ----
Noninterest-bearing
liabilities............... 66,009
Shareholders' equity........ 39,599
----------
Total liabilities and
shareholders'
equity................ $1,069,310
==========
Net interest income before
capitalized interest and
interest rate spread...... 31,944 2.90%
------- ====
Net interest margin......... 3.16%
Interest expense
capitalized............... --
-------
Net interest income......... $31,944
=======
Average interest-earning
assets to average interest
bearing liabilities....... 104.96%
Rate and Volume Variances. Changes in the level of interest-earning assets
and interest-bearing liabilities (known as changes due to volume) and changes in
yields earned on assets and rates paid on liabilities (known as changes due to
rate) affect net interest income. The following table provides a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates. Changes attributable to the
28
31
combined impact of volume and rate have been allocated proportionately to change
due to volume and change due to rate.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2000 VS. 1999 1999 VS. 1998
INCREASE (DECREASE) INCREASE (DECREASE)
-------------------------------------- ---------------------------------------
CHANGE CHANGE CHANGE CHANGE
TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
------- ------------------- ------ ------- ------------------- -------
(IN THOUSANDS)
INTEREST INCOME ON:
Loans receivable........ $13,543 $ 8,095 $5,448 $19,902 $24,763 $(4,861)
Mortgage-backed
securities............ 1,539 1,609 (70) 4,919 5,473 (554)
Other................... 784 616 168 1,372 1,423 (51)
------- ------- ------ ------- ------- -------
Total interest
income........... 15,866 $10,320 $5,546 26,193 $31,659 $(5,466)
------- ======= ====== ------- ======= =======
INTEREST EXPENSE ON:
Deposits................ $ 4,276 $(1,064) $5,340 $12,752 $14,858 $(2,106)
Borrowings.............. 10,992 9,524 1,468 5,465 5,799 (334)
Junior Subordinated
Debentures............ 575 562 13 1,785 1,738 47
------- ------- ------ ------- ------- -------
Total interest
expense.......... 15,843 $ 9,022 $6,821 20,002 $22,395 $(2,393)
------- ======= ====== ------- ======= =======
Interest expense
capitalized...... 814 142
------- -------
Increase in net
interest
income........... $ 837 $ 6,333
======= =======
Provision for Loan Losses. Our provision for loan losses increased $40
thousand to $6.4 million in 2000 from $6.3 million in 1999. Management increased
the provision due to the ongoing analysis of the appropriate allowance for loan
losses as the Bank continues to grow and increases its amount of loans, and not
as a response to any material change in the level of nonperforming loans. Total
loans, including loans held for sale, increased 8.1% to $1.3 billion at December
31, 2000 from $1.2 billion at the same date a year earlier. The allowance for
losses on loans at December 31, 2000 was $14.0 million, or 1.07% of total loans,
compared to $11.0 million, or 0.92% of total loans, at the same date in 1999.
Management bases its estimate of the adequacy of the allowance for losses on
loans on an analysis of various factors. These factors include historical loan
loss experience, the status of impaired loans, economic conditions affecting
real estate markets and regulatory considerations.
Noninterest Income. Total noninterest income increased 33.5% to $9.6
million in 2000 from $7.2 million in 1999. This increase occurred primarily
because of the increase in our gain on sale of loans and gain on sale of
securities.
Net gain on sale of loans increased to $2.8 million in 2000 compared to
$1.9 million in 1999. The primary reason for the increase in 2000 was the
stabilization of interest rates, particularly in the second half of the year in
2000 compared to 1999. In addition, we added four loan origination offices which
added to the volume of loans available for sale. The proceeds of residential
loan sales in 2000 was $120.3 million compared to $126.4 million in 1999.
Net loan servicing income decreased to $1.1 million in 2000 from $1.4
million in 1999. The portfolio of loans serviced increased to $1.9 billion at
December 31, 2000 compared to $1.7 billion at December 31, 1999. Purchases of
loan servicing rights and origination of loan servicing, including the
securitization of our loans, were offset by payoffs and greater amortization of
existing loans serviced. In 1999, we sold servicing rights for approximately
$400 million of loans in the fourth quarter, and recognized a gain of $762
thousand. We remain committed to servicing loans for others.
Service charges on deposit accounts increased 14.8% to $1.5 million in 2000
from $1.3 million in 1999. The primary reasons for the increase were the overall
growth in the number of checking accounts and increases in deposit fees in 2000.
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32
During 2000, we sold $35.4 million of mortgage-backed securities available
for sale for a net gain of $724 thousand. We purchase or sell securities and
mortgage-backed securities for a variety of reasons. These reasons include the
management of liquidity, interest rate risk, capital levels, collateral levels
for borrowings, and to take advantage of favorable market conditions. We do not
currently hold any securities for trading purposes. Gains or losses from the
sale of securities are incidental to the sale of those securities for the
reasons listed above.
Other operating income increased 87.8% to $3.3 million in 2000 from $1.8
million in 1999. This increase was primarily the result of a 1999 writedown of
$800 thousand of the Bank's investment in a limited partnership which services
residential real estate loans due to a permanent decline in the value of the
investment. The increase was also due to increased fee income from the increased
level of business and increased rental income during 2000.
Noninterest Expense. Total noninterest expense increased 23.5% to $40.2
million in 2000 from $32.6 million in 1999. This increase in expenses resulted
primarily from increased staffing requirements due to greater business volume
and greater occupancy expenses.
Personnel related expenses increased 22.0% to $21.2 million in 2000 from
$17.4 million in 1999. These increases were a result of increased staffing
levels to support new retail sales offices, new mortgage origination offices,
and increased business levels.
Occupancy and equipment expense increased 18.8% to $5.8 million in 2000
from $4.9 million in 1999. This increase was generally the result of opening
three retail sales offices and two additional mortgage origination offices
opened in 2000 along with $200,000 spent on our move to our new corporate
headquarters. Presently, we plan to open two additional retail sales offices by
the end of 2001.
Federal deposit insurance premiums increased 45.2% to $1.4 million in 2000
compared to $943 thousand in 1999. The reason for the increase was the increase
in the Bank's premium rate charged by the Federal Deposit Insurance Corp.
Marketing expense increased 66.1% to $1.2 million for 2000 from $722
thousand for 1999. This increase was the result of the promotion of brand
awareness primarily through radio advertising in current and new markets and
attracting new deposit customers.
State franchise taxes increased 25.4% to $1.0 million for 2000 as compared
to $799 thousand in 1999. The primary reason for the increase is the greater
amount of capital at the Bank, which is the basis for the tax.
Data processing expense increased 14.0% to $1.3 million for the year 2000
as compared to $1.2 million in 1999. This increase was the result of expenses
incurred for electronic banking which is scheduled to begin in 2001 and overall
increases in data processing costs related to a systems conversion which took
place in September, 2000, and for additional retail sales offices and an
increase in the number of customer accounts.
Other operating expenses, which includes miscellaneous general and
administrative costs such as loan servicing, business development, check
processing and ATM expenses, increased 24.2% to $7.9 million for 2000 from $6.4
million for 1999. Generally, these increases were due to expenses pertaining to
increased business activities, real estate owned expenses, and increased costs
for professional services.
Provision for Income Taxes. The provision for income taxes decreased to
$662 thousand in 2000 from $2.0 million in 1999 due to the decrease in income
before taxes. The effective tax rate was 30.7% for 2000 and 30.9% for 1999.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Income. Net income for 1999 decreased 33.6% from net income for 1998.
Net income for 1999 was $4.5 million, or $0.57 per common share, and net income
for 1998 was $6.8 million, or $0.87 per common share. Net income for 1998 was
reduced by an extraordinary expense of $245 thousand, net of tax, or $0.03 per
common share. Net income before the extraordinary item was $7.0 million for
1998, or $0.91 per common share. This decrease in net income from 1998 to 1999
was due to a 138.1% increase in the provision for loan losses,
30
33
declines in gain on sales of loans due to rising interest rates during 1999, and
higher operational costs due to growth and expansion.
Total assets grew 17.9% to $1.6 billion at December 31, 1999 from $1.4
billion at December 31, 1998. Compared to 1998 and prior years, asset growth
slowed in 1999 due to the rising interest rate environment.
Interest Income. Total interest income increased 30.6% to $111.9 million
for 1999 from $85.7 million for 1998. This increase was due to a 40.9% increase
in the average balance of interest-earning assets. The increase in interest
income attributable to the increase in the average balance of interest-earning
assets was partially offset by the decline in the weighted average yield on
interest-earning assets, particularly loans receivable. This decline in weighted
average yield was due primarily to nonresidential real estate loans added to the
loan portfolio late in 1998 which remained in the portfolio during 1999 and loan
securitizations which lowered the yield in 1999.
Interest Expense. Total interest expense increased 36.9% to $73.6 million
for 1999 from $53.8 million for 1998. Interest expense increased primarily
because the average balance of interest-bearing liabilities increased in 1999
42.6% from 1998. We increased our average balance of interest-bearing
liabilities in order to fund our growth of interest-earning assets. The average
balance of interest-bearing deposits increased 37.2% from 1998 to 1999. The
average balance of borrowings increased 62.7% in 1999 from 1998. Due to a
decrease in market rates paid to deposit customers and the use of short-term
borrowings, the cost of funds declined to 5.37% in 1999 from 5.58% in 1998. This
decline in the cost of deposits and borrowings was partially offset by the
increased cost of the additional Junior Subordinated Debentures issued in 1999.
Net Interest Margin. The net interest margin declined 43 basis points to
2.73% for 1999 from 3.16% for 1998. Net interest margin declined because asset
yields declined more than liability costs while average interest-earning assets
as a percent of average interest-bearing liabilities did not change
significantly between years. The yield on interest-earning assets decreased due
to the declining yield on loans. This decline in the yield on interest-earning
assets was partially offset by a decline in our cost of funds.
Provision for Loan Losses. Our provision for loan losses increased $3.7
million to $6.3 million in 1999 from $2.7 million in 1998, an increase of
138.1%. Management increased the provision due to the ongoing analysis of the
appropriate allowance for loan losses considering historical loan loss
experience, the status of impaired loans, economic conditions affecting real
estate markets and regulatory considerations. Nonperforming loans were $9.4
million at December 31, 1999, compared to $12.7 million at December 31, 1998.
Total loans, including loans held for sale, increased 15.2% to $1.2 billion at
December 31, 1999 from $1.0 billion at the same date a year earlier. The
allowance for losses on loans at December 31, 1999 was $11.0 million, or 0.92%
of total loans, compared to $6.9 million, or 0.66% of total loans, at the same
date in 1998.
Noninterest Income. Total noninterest income decreased 2.2% to $7.2 million
in 1999 from $7.3 million in 1998. This decrease occurred primarily because of
the decline in the gain on sale of loans which was offset by increased loan
servicing income, including a gain on the sale of loan servicing, and increased
service charges on deposit accounts.
Net gain on sale of loans decreased to $1.9 million in 1999 as compared to
$3.5 million in 1998. The primary reason for the decline in 1999 was the rise in
long term interest rates experienced in 1999 as compared to 1998. The interest
rate rise led to a decline in fixed rate loan origination and resulted in less
loans to sell. The proceeds of residential loan sales in 1999 was $126.4 million
as compared to $258.1 million in 1998.
Net loan servicing income increased 72.3% to $1.4 million in 1999 from $788
thousand in 1998. This increase in net loan servicing fees was a result of the
strategy to increase fee income. The portfolio of loans serviced increased to
$1.7 billion at December 31, 1999 as compared to $1.5 billion at December 31,
1998. Purchases of loan servicing rights and origination of loan servicing,
including the securitization of our loans, more than offset payoffs and
amortization of existing loans serviced. In 1999, we sold servicing rights for
approximately $400 million of loans in the fourth quarter, and recognized a gain
of $762 thousand. In the fourth quarter of 1999, we acquired loan servicing
rights to approximately $200 million of loans which were not included in the
total loans serviced at December 31, 1999.
31
34
Service charges on deposit accounts increased 45.7% to $1.3 million in 1999
from $906 thousand in 1998. The primary reasons for the increase were the
overall growth in deposit accounts and increases in individual account charges
in 1999.
During 1999, we sold $31.3 million of mortgage-backed securities available
for sale for a net loss of $71 thousand. Also, during 1999, we sold $1.3 million
of securities available for sale in which no gain or loss was recorded.
Loan option income was $168 thousand in 1999 compared to $388 thousand in
1998. During 1999, we did not purchase any loans for option transactions
compared to $17.9 million in 1998. The loan option income recorded was for loans
purchased in 1998 and sold in 1999.
Other operating income increased 3.1% to $1.8 million in 1999 from $1.7
million in 1998. This increase was primarily due to increased fee income from
the increased level of business and increased rental income. These increases
were partially offset by a writedown of $800 thousand of the Bank's investment
in a limited partnership which services residential real estate loans due to a
permanent decline in the value of the investment.
Noninterest Expense. Total noninterest expense increased 27.7% to $32.6
million in 1999 from $25.5 million in 1998. This increase in expenses resulted
primarily from growth in assets and increased staffing requirements due to
greater business volume.
Personnel related expenses increased 27.4% to $17.4 million in 1999 from
$13.7 million in 1998. These increases were a result of increased staffing
levels to support expanded activities such as new retail sales offices and new
mortgage origination offices.
Occupancy and equipment expense increased 34.9% to $4.9 million in 1999
from $3.6 million in 1998. Generally, these expenses increased as a result of
three additional retail sales offices and three mortgage origination offices
opened during 1999. As part of the plan to expand mortgage banking operations,
residential loan production offices were opened during 1999 in the Akron and
Canton, Ohio areas and a residential loan construction office was opened in the
Columbus, Ohio market. In addition, the construction of a new corporate
headquarters in Highland Hills, Ohio we commenced during 1999.
Federal deposit insurance premiums increased 37.1% to $943 thousand in 1999
as compared to $688 thousand in 1998. The reason for the increase was the
overall increase in deposits, which is the basis for the premium amount.
Marketing expense decreased 20.5% to $722 thousand for 1999 from $908
thousand for 1998. This reduction was the result of a decision to decrease
advertising at a time when rates were higher and there was less loan activity
taking place.
State franchise taxes increased 28.3% to $799 thousand for 1999 as compared
to $623 thousand in 1998. The primary reason for the increase was the greater
amount of capital at the Bank, which is the basis for the tax.
Data processing expense increased 139.3% to $1.2 million for the year 1999
as compared to $500 thousand in 1998. This increase was the result of expenses
incurred for consulting services and Year 2000 testing and data processing costs
related to the new retail sales and origination offices.
Other operating expenses, which includes miscellaneous general and
administrative costs such as loan servicing, business development, check
processing and ATM expenses, increased 21.5% to $6.4 million for 1999 from $5.3
million for 1998. Generally, these increases were due to expenses pertaining to
increased business activities, real estate owned expenses, and increased costs
for professional services.
Provision for Income Taxes. The provision for income taxes decreased to
$2.0 million in 1999 from $4.0 million in 1998 due to the decrease in income
before taxes. The effective tax rate was 30.9% for 1999 and 36.5% for 1998. The
effective tax rate in 1999 was lower due to an increase in the level of
tax-exempt interest in 1999 as compared to 1998.
32
35
ASSET QUALITY
Nonperforming Assets. Our goal is to maintain high quality loans in the
loan portfolio through conservative lending policies and prudent underwriting.
We undertake detailed reviews of the loan portfolio regularly to identify
potential problem loans or trends early and to provide for adequate estimates of
potential losses. In performing these reviews, management considers, among other
things, current economic conditions, portfolio characteristics, delinquency
trends, and historical loss experiences. We normally consider loans to be
nonperforming when payments are 90 days or more past due or when the loan review
analysis indicates that repossession of the collateral may be necessary to
satisfy the loan. In addition, a loan is considered impaired when, in
management's opinion, it is probable that the borrower will be unable to meet
the contractual terms of the loan. When loans are classified as nonperforming,
we assess the collectibility of the unpaid interest. Interest determined to be
uncollectible is reversed from interest income. Future interest income is
recorded only if the loan principal and interest due is considered collectible
and is less than the estimated fair value of the underlying collateral.
The table below provides the amounts and categories of our nonperforming
assets as of the dates indicated. At December 31, 2000, all loans classified as
impaired were also classified as nonperforming.
DECEMBER 31,
---------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
Nonaccrual loans
One-to-four family........................... $ 484 $ 1,183 $ 512 $ 792 $ 950
Multifamily.................................. -- -- -- -- 871
Commercial real estate....................... 468 1,696 6,123 198 2,032
Construction and land........................ 1,133 42 1,824 -- --
Consumer..................................... 4,574 3,755 2,038 1,562 802
Business..................................... 1,646 2,257 1,734 211 268
------- ------- ------- ------ ------
Total nonaccrual loans.................... 8,305 8,933 12,231 2,763 4,923
Loans past due 90 days or more, still
accruing..................................... 6,434 448 460 384 271
------- ------- ------- ------ ------
Total nonperforming loans................. 14,739 9,381 12,691 3,147 5,194
Real estate owned.............................. 4,262 5,263 5,534 2,037 177
------- ------- ------- ------ ------
Total nonperforming assets................ $19,001 $14,644 $18,225 $5,184 $5,371
======= ======= ======= ====== ======
Nonperforming loans to total loans............. 1.15% 0.79% 1.23% 0.44% 0.80%
Nonperforming assets to total assets........... 1.12% 0.91% 1.34% 0.56% 0.70%
For the years ended December 31, 2000 and 1999, gross interest income which
would have been recorded had the nonaccrual loans been current in accordance
with their original terms amounted to $625 thousand and $669 thousand,
respectively. The amounts that were included in interest income on these loans
were $148 thousand and $379 thousand for the years ended 2000 and 1999,
respectively.
While nonperforming loans increased $5.4 million to $14.7 million at
December 31, 2000 compared to December 31, 1999, the increase was due to $6.4
million of business loans past due 90 days and still accruing. These loans were
90 days or more past maturity date but were current as to interest. Real estate
owned decreased $1.0 million for the same period to $4.3 million at December 31,
2000 compared to a year earlier.
Nonaccrual one- to four-family loans decreased $699 thousand due to the
decline in the number of nonperforming loans in this category. Most of the
nonperforming loans in this category are individual loans with outstanding
balances less than $200 thousand.
Nonaccrual commercial real estate loans decreased $1.2 million due to
decline in the number and size of loans in this category and related transfers
to real estate owned during the 2000 year.
33
36
Nonaccrual construction and land development loans increased $1.1 million
from 1999 to 2000. The reason for the increase in this category are three loans
to one builder totaling $1.1 million that were nonperforming at year-end.
Nonaccrual business loans decreased $611 thousand in 2000. Total
nonperforming business loans are $1.6 million or 1.1% of that loan category.
Unlike the real estate secured lending which comprises over 75% of our loan
portfolio, business loans often depend on the successful operation of the
business or depreciable collateral. Therefore, we expect nonperforming loans and
losses to be higher for business loans than for real estate loans. We are
aggressively pursuing collection of all nonperforming loans.
Nonaccrual consumer loans have increased $819 thousand to $4.6 million at
December 31, 2000. Nonperforming consumer loans represent 2.8% of the consumer
portfolio. The increase in these loans is primarily attributable to mobile home
loans purchased prior to 2000. All consumer loans that are delinquent 120 days
or more are 100% covered by loan insurance or included in the allowance for loan
losses in an amount equal to the net book value for that loan.
In addition to the nonperforming assets included in the table above, we
identify potential problem loans which are still performing but have a weakness
which causes us to classify those loans as substandard for regulatory purposes.
There were $4.7 of loans in this category at December 31, 2000.
We monitor loans which exhibit some weakness but are not considered
substandard for regulatory purposes. These loans are described as "Special
Mention" or "Watch Loans." At December 31, 2000, the Bank had $14.7 million of
business loans to related borrowers which were classified as special mention
loans. Subsequent to December 31, 2000, these loans became delinquent. On March
26, 2001, based on financial projections provided by the borrower on March 12,
2001, these loans were put on nonaccrual, and were judged to be impaired.
Management has estimated the impairment to be approximately $3.5 million.
Allowance for Losses on Loans. The provision for loan losses and allowance
for losses on loans is based on an analysis of individual loans, prior loss
experience, growth in the loan portfolio, changes in the mix of the loan
portfolio and other factors including current economic conditions. The following
table provides an analysis of the allowance for losses on loans at the dates
indicated.
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------ ------ ------
(DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD.................. $11,025 $ 6,909 $5,622 $4,175 $2,765
Charge-offs:
One- to four-family........................... 23 12 5 32 22
Multifamily................................... -- 31 39 494 119
Commercial real estate........................ -- 104 -- -- --
Consumer...................................... 3,448 1,944 809 363 95
Business...................................... 358 148 565 10 --
------- ------- ------ ------ ------
Total charge-offs.......................... 3,829 2,239 1,418 899 236
Recoveries:..................................... 405 45 55 6 11
------- ------- ------ ------ ------
Net charge-offs................................. 3,424 2,194 1,363 893 225
Provision for loan losses....................... 6,350 6,310 2,650 2,340 1,635
------- ------- ------ ------ ------
BALANCE AT END OF PERIOD........................ $13,951 $11,025 $6,909 $5,622 $4,175
======= ======= ====== ====== ======
Net charge-offs to average loans................ 0.27% 0.19% 0.16% 0.13% 0.04%
Provision for loan losses to average loans...... 0.50% 0.54% 0.31% 0.35% 0.28%
Allowance for losses on loans to total
nonperforming loans at end of period.......... 94.65% 117.52% 54.44% 178.68% 80.38%
Allowance for losses on loans to total loans at
end of period................................. 1.07% 0.92% 0.66% 0.79% 0.64%
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Loans receivable increased 8.1% in 2000 to $1.3 billion while the allowance
for losses on loans increased 26.5% to $14.0 million. Management increased the
allowance due to the ongoing analysis of the appropriate allowance for loan
losses. We expect to continue to increase the allowance for loan losses when
necessary as the loan portfolio continues to increase and the portfolio mix
changes. We considered the following factors in determining that this increased
level of allowance for loan losses was adequate.
- Charge-offs in 2000 were 71% higher than in 1999 and at the highest level
in our history.
- Total nonperforming loans at December 31, 2000 increased 57.1% from a
year earlier.
- Consumer loan charge-offs continued to increase. This increase was due
primarily to acquisition of subprime and manufactured housing loans. We
are not currently increasing our portfolio in this lending area.
Substantially all recoveries detailed above are in the consumer loan
category.
- We separately evaluated individual nonperforming loans for the adequacy
of collateral values. We consider several of these loans to be large
because they each exceed $1 million. While in most instances, we were
able to determine that our principal balance is well secured, we have
provided specific allowances in those instances where it was deemed
necessary. We reached this determination by reviewing current or updated
appraisals, brokers' price opinions, and other market surveys.
- The potential impact of an economic slowdown.
After careful consideration of all of these factors, we concluded that it
was necessary to substantially increase the allowance for loan losses again in
2000. Therefore, the provision for loan losses was increased to $6.4 million in
2000 which resulted in an increase in the allowance for loan losses to $14.0
million.
COMPARISON OF DECEMBER 31, 2000 AND DECEMBER 31, 1999 FINANCIAL CONDITION
Total assets amounted to $1.7 billion at December 31, 2000 compared to $1.6
billion at December 31, 1999. Total assets increased $87.2 million, or 5.4%. The
increase in assets was funded primarily with increased borrowings of $65.7
million and deposit growth of $9.6 million.
Securities available for sale increased by $3.5 million to $39.3 million at
December 31, 2000 from $35.8 million the prior year. This increase was primarily
due to our purchase of short-term United States Treasury securities used to meet
regulatory liquidity requirements and other collateral maintenance requirements.
Mortgage-backed securities decreased $59.9 million to $195.8 million at
December 31, 2000 from $255.7 million a year earlier. The primary reasons for
the decrease were repayments of $30.9 million and sales of $35.4 million of
mortgage-backed securities.
Loans receivable, including loans held for sale, increased $96.2 million,
or 8.1%, to $1.3 billion. This increase was consistent with our overall strategy
of increasing assets while adhering to prudent underwriting standards and
preserving our capital status as "adequately capitalized."
We experienced the following increases by loan category:
- business loans - $29.0 million;
- consumer loans - $19.4 million;
- construction and land (net of loans in process) - $13.6 million; and
- commercial real estate loans-$7.4 million.
The decrease in one- to four-family loans of $6.7 million was the result of
the sale and securitization of this type of loan, especially in the latter part
of 2000. The decrease in multifamily loans of $11.1 million was primarily the
result of loan repayments which more than offset the growth experienced in this
category.
Federal Home Loan Bank ("FHLB") stock increased 88.4% to $20.6 million at
December 31, 2000 as compared to $10.9 million at the prior year-end. The
increase is the result of stock purchases of $8.6 million, which are required by
the FHLB as borrowings increase, and dividends of $1.1 million.
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Premises and equipment increased $34.6 million, or 108.7%, to $66.4
million. This increase was the result of expenditures for construction costs for
our new corporate headquarters and new retail sales offices, the purchase of
computer equipment to accommodate continued growth, and loan production office
expansion. The new corporate headquarters was substantially complete by the end
of the fourth quarter, 2000. Costs incurred for the new headquarters were $28.9
million through December 31, 2000. We expect to spend additional amounts during
2001 for customized improvements for specific tenants. We plan on opening an
additional 2 retail sales offices in 2001.
Loan servicing rights increased 98.5% to $20.6 million at December 31, 2000
as compared to $10.4 million at December 31, 1999. The primary reason for the
increase was the purchase of loan servicing during the year along with the
associated servicing rights, which had book value of approximately $10.8
million. This increase more than offset amortization of servicing rights of $3.5
million.
Accrued income, prepaid expenses and other assets decreased to $23.6
million at December 31, 2000 as compared to $27.4 million at December 31, 1999.
The reason for the decrease was a decrease in accounts receivable related to the
sale of loan servicing which took place in 1999.
Deposits totaled $1.1 billion at December 31, 2000, an increase of $9.6
million, or 0.8%, from December 31, 1999. The increase resulted primarily from
increased noninterest bearing checking accounts, interest bearing checking
accounts, and certificates of deposit which were offset by decreased passbook
savings and statement savings accounts.
Borrowings increased $65.7 million to $426.1 million at December 31, 2000,
from $360.4 million at December 31, 1999. This increase was the result of
increased use of Federal Home Loan Bank advances of $159.7 million which was
partially offset by a $39.0 million decrease in reverse repurchase agreements
and a $55.0 million decrease in the commercial bank repurchase agreement. The
net increase in borrowings was due to the need to fund the asset growth
discussed previously. In the future, Metropolitan will continue to monitor
sources of borrowings for the most advantageous terms to fulfill its funding
needs.
Other liabilities increased to $29.7 million at December 31, 2000 from
$22.5 million at the prior year-end. The increase was the result of greater
clearing account, escrow account, and accounts payable balances.
Shareholders' equity increased $4.6 million, or 10.2%, to $49.5 million,
due largely to the retention of net income, the issuance of 36 thousand shares
of common stock through the employee stock purchase plan, and the decrease in
the unrealized holding loss.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The term "liquidity" refers to our ability to generate adequate
amounts of cash for funding loan originations, loan purchases, deposit
withdrawals, maturities of borrowings and operating expenses. Our primary
sources of internally generated funds are principal repayments and payoffs of
loans, cash flows from operations, and proceeds from sales of assets. External
sources of funds include increases in deposits and borrowings and public or
private securities offerings by Metropolitan.
In addition to debt or equity offerings, the primary source of funds for
Metropolitan, at the holding company level, is dividends from the Bank. The
payment of these dividends is subject to restrictions imposed by federal bank
regulatory agencies. At December 31, 2000, Metropolitan had liquid assets of
$1.9 million and had $6.0 million available to borrow on its commercial bank
line of credit. Currently, Metropolitan primarily uses funds for tax payments,
business expenses, and interest payments on its existing debt. The covenants
associated with its subordinated notes maturing January 1, 2005 require
Metropolitan to maintain liquid assets sufficient to pay six months interest, or
approximately $675 thousand. Metropolitan could also use funds for additional
capital contributions to the Bank, other operating expenses, purchase of
investment securities, or the acquisition of other assets.
Sources of funds for the Bank such as loan repayments and deposit flows,
are greatly influenced by prevailing interest rates, economic conditions and
competition. Other sources of funds such as borrowings and maturities of
securities are more reliable or predictable. The Bank currently has collateral
pledged to the Federal
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Home Loan Bank sufficient to support borrowings of $421.7 million. As of
December 31, 2000, the balance of FHLB borrowings was $365.1 million. We
regularly review cash flow needs to fund operations. We believe that the
resources described above are adequate to meet our requirements for the
foreseeable future.
At December 31, 2000, $235.4 million, or 20.5% of Metropolitan's deposits
were in the form of certificates of deposit of $100,000 and over. Another option
we have considered and used in the past has been the acceptance of out-of-state
time deposits from individuals and entities, primarily credit unions. These
deposits typically have balances of $90,000 to $100,000 and have a term of one
year or more. At December 31, 2000, approximately $118.9 million of certificates
of deposits, or 10.4% of our total deposits, were held by these individuals and
entities. Of these out-of-state time deposits, $24.2 million are also included
in the $100,000 and over time deposits discussed above. During the third quarter
of 2000, the Bank received regulatory approval and began accepting brokered
deposits. At December 31, 2000, brokered deposits totaled $58.1 million all of
which were included in the $100,000 and over time deposit discussed above. The
total of all certificates of deposit from brokers, out-of-state sources, and
other certificates of deposit of $100,000 and over was $330.1 at December 31,
2000, or 28.8% of total deposits. If we were unable to replace these deposits
upon maturity, our liquidity could be adversely affected. We monitor these
maturities to attempt to minimize any potential adverse effect on liquidity.
Historically, the Bank has been subject to a regulatory liquidity
requirement. These regulations require the Bank to maintain liquid assets equal
to at least 4% of the Bank's liquidity base on a quarterly basis. Liquid assets
generally include all unpledged cash in banks, investment securities maturing
within five years, and securities issued by the Government National Mortgage
Association, FannieMae, or FreddieMac regardless of maturity. The liquidity base
includes amounts due banks and deposits and borrowings maturing in less than one
year. The Bank's liquidity ratio for December 2000 was 5.52%.
Capital. Our total shareholders' equity at December 31, 2000 was $49.5
million, an increase of $4.6 million, or 10.2%, from equity of $44.9 million at
December 31, 1999. This increase was due to net income of $1.5 million, the
issuance of 36,000 shares of common stock for $138 thousand, and unrealized
gains on securities available for sale, net of tax, of $3.0 million. No
dividends were paid in 2000, 1999 or 1998. The terms of our subordinated notes
maturing January 1, 2005 and the commercial bank line of credit prohibit the
payment of dividends unless tangible equity divided by total assets is greater
than 7.0%. At December 31, 2000, Metropolitan's tangible equity divided by total
assets was 2.77%. In 1999, Metropolitan's wholly owned subsidiary, Metropolitan
Capital Trust II, issued $16.0 million of 9.50% cumulative trust preferred
securities. Similarly, in 1998, Metropolitan Capital Trust I, issued $27.8
million of 8.60% cumulative trust preferred securities. Sources of future
capital could include, but would not be limited to, our earnings or additional
offerings of debt or equity securities.
The Office of Thrift Supervision imposes capital requirements on savings
associations. Savings associations are required to meet three minimum capital
standards. These standards are a leverage requirement, a tangible capital
requirement, and a risk-based capital requirement.
These standards must be no less stringent than those applicable to national
banks. In addition, the Office of Thrift Supervision is authorized to impose
capital requirements in excess of these standards on individual associations on
a case-by-case basis.
The Office of Thrift Supervision leverage requirement expressly requires
that savings associations maintain core capital in an amount not less than 3% of
adjusted total assets. The Office of Thrift Supervision has taken the position,
however, that the prompt corrective action regulations have effectively raised
the leverage ratio requirement for all but the most highly rated savings
associations to 4%. Core capital is defined to include shareholders' equity less
intangibles other than qualifying supervisory goodwill and certain qualifying
intangibles, less investments in subsidiaries engaged in activities not
permissible for national banks.
Under the tangible capital requirement, savings associations must maintain
tangible capital in an amount equal to at least 1.5% of adjusted total assets.
Tangible capital is defined as core capital less all intangible assets, except a
limited amount of qualifying purchased mortgage servicing rights. Adjusted total
assets, for the purpose
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of the tangible capital ratio, include total assets less all intangible assets
except qualifying purchased mortgage servicing rights.
The risk-based capital requirement is calculated based on the risk weight
assigned to on-balance sheet assets and off-balance sheet commitments. Risk
weights range from 0% to 100% of the book value of the asset and are based upon
the risk inherent in the asset. The risk weights assigned by the Office of
Thrift Supervision for principal categories of assets are:
- 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S.
Government;
- 20% for securities, other than equity securities, issued by U.S.
Government sponsored agencies, and for mortgage-backed securities issued
by, or fully guaranteed as to principal and interest, by FannieMae or
FreddieMac except for those classes with residual characteristics or
stripped mortgage-related securities;
- 50% for the following loans:
- prudently underwritten permanent one-to four-family first lien
mortgage loans not more than 90 days delinquent and having a loan to
value ratio of not more than 80% at origination unless insured to
that ratio by an insurer approved by FannieMae or FreddieMac;
- certain qualifying multifamily first lien mortgage loans;
- residential construction loans; and
- 100% for all other loans and investments, including consumer loans,
commercial loans, repossessed assets, and loans more than 90 days
delinquent.
The risk-based requirement mandates total capital of 8.0% of risk-weighted
assets. Total capital consists of core capital and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital as well as general valuation
loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital.
The Bank's regulatory capital ratios at December 31, 2000 were in excess of the
capital requirements specified by the Office of Thrift Supervision regulations
as shown by the following table:
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
CAPITAL AMOUNT:
Actual.............................. $106,608 6.31% $106,625 6.31% $118,077 9.35%
Required............................ 25,343 1.50% 67,591 4.00% 101,028 8.00%
-------- ----- -------- ----- -------- -----
Excess.............................. $ 81,265 4.81% $ 39,034 2.31% $ 17,049 1.35%
======== ===== ======== ===== ======== =====
The Bank is also subject to the capital adequacy requirements under the
Federal Deposit Insurance Corporation Improvement Act of 1991. The additional
capital adequacy ratio imposed on the Bank in this evaluation is the Tier 1
risk-based capital ratio which at December 31, 2000 was 8.45% compared to the
required ratio of 4%.
The Bank's primary sources of capital are the earnings of the Bank and
additional capital investments from Metropolitan. At year end, the Bank was
"adequately capitalized." Our strategy is to contribute additional capital to
the Bank as growth occurs to maintain risk-based capital at "adequately
capitalized" or "well capitalized" levels as defined by the Office of Thrift
Supervision regulations. We believe that under current regulations, the Bank
will continue to meet its minimum capital requirements in the foreseeable
future. However, events beyond our control, such as increases in interest rates
or a downturn in the economy, could adversely affect future earnings and,
consequently, the ability of the Bank to meet its future capital requirements.
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RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 addresses the
accounting for derivative instruments and certain derivative instruments
embedded in other contracts and hedging activities. The statement standardizes
the accounting for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the statement of financial position and
measure them at fair value. SFAS No. 133 was subsequently amended by SFAS No.
137 and SFAS No. 138. Under Statement No. 137, the effective date was delayed to
the first quarter of any fiscal year beginning after June 15, 2000, or the first
quarter of 2001 for Metropolitan. We anticipate no significant impact due to the
adoption of SFAS No. 133.
In September, 2000, FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."This statement
supersedes SFAS No. 125 and revises the standards for accounting for
securitizations and transfers of financial assets and collateral and requires
certain disclosures effective for fiscal years ending after December 15, 2000.
There was no significant impact on Metropolitan due to the adoption of SFAS No.
140 and the required disclosures are included in Note 20 to Metropolitan's
financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes included in this annual
report have been prepared in accordance with generally accepted accounting
principles. These principles require the measurement of financial position and
operating results in terms of historical dollars without consideration of
changes in relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of our operations.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are influenced by changes in the inflation
rate, they do not change at the same rate or in the same magnitude as the
inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation and in monetary and fiscal policies. Our ability to
match the interest rate sensitivity of our financial assets to the interest
sensitivity of our financial liabilities in our asset/liability management may
tend to minimize the effect of changes in interest rates on our financial
performance.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts
are forward looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans," "expects,"
"believes," and similar expressions as they relate to Metropolitan, the Bank or
their respective management are intended to identify such forward looking
statements. Metropolitan's actual results, performance, or achievements may
materially differ from those expressed or implied in the forward looking
statements. Risks and uncertainties that could cause or contribute to such
material differences include, but are not limited to, general economic
conditions, interest rate environment, competitive conditions in the financial
services industry, changes in the financial condition of individual borrowers or
changes in the market value of assets they have pledged to secure loans, changes
in law, governmental policies and regulations, and rapidly changing technology
affecting financial services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Metropolitan, like other financial institutions, is subject to market risk.
Market risk is the risk that a company can suffer economic loss due to changes
in the market values of various types of assets or liabilities. As a financial
institution, we make a profit by accepting and managing various types of risks.
The most significant of these risks are credit risk and interest rate risk. See
"-- Asset Quality" for a comprehensive discussion of credit
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risk. The principal market risk for us is interest rate risk. Interest rate risk
is the risk that changes in market interest rates will cause significant changes
in net interest income because interest-bearing assets and interest-bearing
liabilities mature at different intervals and reprice at different times.
The Office of Thrift Supervision currently looks to Thrift Bulletin 13a,
issued December 1, 1998, to evaluate interest rate risk at institutions they
supervise. They categorize interest rate risk as minimal, moderate, significant,
or high based on a combination of the projected Net Portfolio Value ("NPV")
level after a 200 basis point change in interest rates and the size of that
change in NPV due to a 200 basis point change in interest rates.
We manage interest rate risk in a number of ways. Some of the tools used to
monitor and quantify interest rate risk include:
- annual budgeting process;
- quarterly forecasting process;
- monthly review of listing of liability rates and maturities by month;
- monthly shock report of effect of sudden interest rate changes on net
interest income;
- monthly shock report of effect of sudden interest rate changes on net
value of portfolio equity;
- monthly analysis of rate and volume changes in historic net interest
income;
- weekly review of certificate of deposit offering rates and maturities by
day; and
- weekly forecast of balance sheet activity.
We have established an asset and liability committee to monitor interest
rate risk. This committee is made up of senior officers from finance, lending
and deposit operations. The committee meets at least quarterly, reviews our
current interest rate risk position, and determines strategies to pursue for the
next quarter. The activities of this committee are reported to the Board of
Directors of the Bank quarterly. Between meetings the members of this committee
are involved in setting rates on deposits, setting rates on loans and serving on
loan committees where they work on implementing the established strategies.
During 1999 and 2000, like many financial institutions, we had exposure to
potential declines in net interest income from rising interest rates. This is
because Metropolitan has had more short-term interest rate sensitive liabilities
than short-term interest rate sensitive assets. One of the ways we monitor
interest rate risk quantitatively is to measure the potential change in net
interest income based on various immediate changes in market interest rates. The
following table shows the expected change in net interest income for immediate
sustained parallel shifts of 1% and 2% in market interest rates as of the end of
the last two years.
EXPECTED CHANGE IN NET INTEREST INCOME
---------------------------------------
CHANGE IN INTEREST RATE DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------- ----------------- -----------------
+2%......................................... -27% -18%
+1%......................................... -14% -9%
-1%......................................... +13% +8%
-2%......................................... +27% +15%
The change in net interest income from a change in market rates is a
short-term measure of interest rate risk. The results above indicate that we
have a significant short-term exposure to rising rates and that the exposure has
increased over the past year.
Another quantitative measure of interest rate risk is the change in the
market value of all financial assets and liabilities based on various immediate
sustained shifts in market interest rates. This concept is also known as net
portfolio value and is the methodology used by the Office of Thrift Supervision
in measuring interest rate risk.
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The following table shows the expected change in net portfolio value for
immediate sustained parallel shifts of 1% and 2% in market interest rates as of
the end of the last two years.
EXPECTED CHANGE IN NET PORTFOLIO VALUE
---------------------------------------
CHANGE IN INTEREST RATE DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------- ----------------- -----------------
+2%......................................... -26% -51%
+1%......................................... -12% -25%
-1%......................................... +12% +24%
-2%......................................... +28% +47%
The change in net portfolio value is a long-term measure of interest rate
risk. It assumes that no significant changes in assets or liabilities held would
take place if there were a sudden change in interest rates. Because we monitor
interest rate risk regularly and actively manage that risk, these projections
serve as an expected worst case scenario assuming no reaction to changing rates.
The results above indicate that the post-shock NPV has declined during 2000.
Under TB 13a, Metropolitan falls in the moderate interest rate risk category as
of December 31, 2000, based upon current sensitivity to interest rate changes
and the current level of regulatory capital.
Our strategies to limit interest rate risk from rising interest rates are as
follows:
- originate one- to four-family loans primarily for sale;
- originate the majority of business loans to float with prime rates;
- increase core deposits which have low interest rate sensitivity;
- borrow funds with maturities greater than a year;
- borrow funds with maturities matched to new long-term assets acquired;
- increase the volume of loans serviced since the value of that asset rises
as rates rise; and
- consider the use of derivatives to reduce interest rate risk when
economically practical.
We also follow strategies that increase interest rate risk in limited ways
including:
- originating and purchasing fixed rate multifamily and commercial real
estate loans limited to five year maturities; and
- originating and purchasing fixed rate consumer loans with terms from two
to fifteen years.
The result of these strategies taken together is that Metropolitan has
reduced long-term interest rate risk by increasing borrowings due in more than
one year to $314 million at December 31, 2000 from $178 million at December 31,
1999. During 2000, we have strived to fund all significant additions of fixed
rate assets with borrowings with similar repayment terms. We plan to continue
this funding pattern.
The Bank's level of interest rate risk as of December 31, 2000, is outside
the limits set by the Bank's Board of Directors. Therefore, management has
implemented a strategy to decrease interest rate risk during 2001 by focusing
on:
- limiting new five year fixed rate commercial real estate loans to those
that can be readily sold;
- limiting the purchase of fixed rate consumer loans to those with high
enough yields to be profitable when matched with similar borrowing
maturities; and
- extending liability maturities when long term rates are favorable.
We are also aware that any method of measuring interest rate risk including
the two used above has certain shortcomings. For example, certain assets and
liabilities may have similar maturities or repricing dates but their repricing
rates may not follow the general trend in market interest rates. Also, as a
result of competition, the interest rates on certain assets and liabilities may
fluctuate in advance of changes in market interest rates while
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44
rates on other assets and liabilities may lag market rates. In addition, any
projection of a change in market rates requires that prepayment rates on loans
and early withdrawal of certificates of deposits be projected and those
projections may be inaccurate. We focus on the change in net interest income and
the change in net portfolio value as a result of immediate and sustained
parallel shifts in interest rates as a balanced approach to monitoring interest
rate risk when used with budgeting and the other tools noted above.
At the present time we do not hold any trading positions, foreign currency
positions, or commodity positions. Equity investments are approximately 1.6% of
assets and 78.1% of that amount is held in Federal Home Loan Bank stock which
can be sold to the Federal Home Loan Bank of Cincinnati at par. Therefore, we do
not consider any of these areas to be a source of significant market risk.
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[CROWE CHIZEK LOGO]
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Board of Directors and Shareholders
Metropolitan Financial Corp.
Mayfield Heights, Ohio
We have audited the accompanying consolidated statements of financial
condition of Metropolitan Financial Corp. and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metropolitan
Financial Corp. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with generally accepted
accounting principles.
[CROWE, CHIZEK AND COMPANY LLP
SIGNATURE]
Crowe, Chizek and Company LLP
Cleveland, Ohio
March 9, 2001, except
for Note 22, as
to which the
date is March 26, 2001
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METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
(Dollars in thousands)
2000 1999
---------- ----------
ASSETS
Cash and due from banks..................................... $ 17,010 $ 19,001
Interest-bearing deposits in other banks.................... 2,727 2,750
Securities available for sale............................... 39,306 35,829
Securities held to maturity................................. 15,480 15,879
Mortgage-backed securities available for sale............... 195,829 255,727
Loans held for sale......................................... 51,382 6,718
Loans receivable, net....................................... 1,235,441 1,183,954
Federal Home Loan Bank stock................................ 20,624 10,948
Premises and equipment, net................................. 66,393 31,820
Loan servicing rights, net.................................. 20,597 10,374
Accrued income, prepaid expenses and other assets........... 23,626 27,395
Real estate owned, net...................................... 4,262 5,263
Intangible assets........................................... 2,602 2,461
---------- ----------
Total assets...................................... $1,695,279 $1,608,119
========== ==========
LIABILITIES
Noninterest-bearing deposits................................ $ 97,385 $ 70,891
Interest-bearing deposits................................... 1,048,882 1,065,739
---------- ----------
Total deposits.................................... 1,146,267 1,136,630
Borrowings.................................................. 426,079 360,396
Other liabilities........................................... 29,724 22,475
Guaranteed preferred beneficial interests in the
corporation's junior subordinated debentures.............. 43,750 43,750
---------- ----------
Total liabilities................................. 1,645,820 1,563,251
SHAREHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, none
issued.................................................... -- --
Common stock, no par value, 10,000,000 shares authorized
8,099,852 and 8,063,744 shares issued and outstanding,
respectively.............................................. -- --
Additional paid-in-capital.................................. 20,882 20,744
Retained earnings........................................... 29,668 28,171
Accumulated other comprehensive (loss) income............... (1,091) (4,047)
---------- ----------
Total shareholders' equity........................ 49,459 44,868
---------- ----------
Total liabilities and shareholders' equity...... $1,695,279 $1,608,119
========== ==========
See accompanying notes to consolidated financial statements.
44
47
METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in thousands, except per share data)
2000 1999 1998
---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans.................................. $ 107,504 $ 93,961 $ 74,059
Interest on mortgage-backed securities...................... 15,353 13,814 8,895
Interest and dividends on other securities.................. 4,930 4,146 2,774
---------- ---------- ----------
Total interest income.............................. 127,787 111,921 85,728
INTEREST EXPENSE
Interest on deposits........................................ 59,565 55,289 42,537
Interest on borrowings...................................... 25,115 14,937 9,614
Interest on junior subordinated debentures.................. 3,993 3,418 1,633
---------- ---------- ----------
Total interest expense............................. 88,673 73,644 53,784
---------- ---------- ----------
NET INTEREST INCOME......................................... 39,114 38,277 31,944
Provision for loan losses................................... 6,350 6,310 2,650
---------- ---------- ----------
Net interest income after provision for loan losses......... 32,764 31,967 29,294
NONINTEREST INCOME
Net gain on sale of loans................................... 2,849 1,852 3,453
Loan servicing income, net.................................. 1,148 1,358 788
Service charges on deposit accounts......................... 1,517 1,320 906
Gain on sale of loan servicing.............................. -- 762 --
Loan option income.......................................... -- 168 388
Net gain (loss) on sale of securities....................... 724 (71) 70
Other operating income...................................... 3,317 1,766 1,712
---------- ---------- ----------
Total noninterest income........................... 9,555 7,155 7,317
NONINTEREST EXPENSE
Salaries and related personnel costs........................ 21,247 17,413 13,669
Occupancy and equipment expense............................. 5,798 4,881 3,619
Federal deposit insurance premiums.......................... 1,369 943 688
Marketing expense........................................... 1,199 722 908
State franchise taxes....................................... 1,002 799 623
Data processing expense..................................... 1,339 1,175 491
Amortization of intangibles................................. 265 263 263
Other operating expenses.................................... 7,940 6,395 5,262
---------- ---------- ----------
Total noninterest expense.......................... 40,160 32,591 25,523
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM........... 2,159 6,531 11,088
Provision for income taxes before extraordinary item........ 662 2,020 4,049
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM............................ 1,497 4,511 7,039
Extraordinary item, net of tax.............................. -- -- (245)
---------- ---------- ----------
NET INCOME.................................................. $ 1,497 $ 4,511 $ 6,794
========== ========== ==========
Basic earnings per share:
Before extraordinary item................................. $ 0.19 $ 0.57 $ 0.91
Extraordinary item........................................ -- -- (0.03)
---------- ---------- ----------
Basic earnings per share.................................. $ 0.19 $ 0.57 $ 0.88
========== ========== ==========
Diluted earnings per share:
Before extraordinary item................................. $ 0.19 $ 0.57 $ 0.90
Extraordinary item........................................ -- -- (0.03)
---------- ---------- ----------
Diluted earnings per share................................ $ 0.19 $ 0.57 $ 0.87
========== ========== ==========
Weighted average shares for basic earnings per share........ 8,081,820 7,950,637 7,756,393
Effect of dilutive stock options.......................... -- 1,848 82,412
---------- ---------- ----------
Weighted average shares for diluted earnings per share...... 8,081,820 7,952,485 7,838,805
========== ========== ==========
See accompanying notes to consolidated financial statements.
45
48
METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in thousands)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME EQUITY
------ ---------- -------- ------------- -------------
BALANCE JANUARY 1, 1998............. $ -- $11,101 $24,270 $ 1,290 $36,661
Comprehensive income:
Net income........................ 6,794 6,794
Change in unrealized gain (loss)
on securities, net of tax and
net of reclassification of gain
of $46 from net income......... (811) (811)
-------
Total comprehensive
income.................. 5,983
10% stock dividend............. 7,404 (7,404) --
-------- ------- ------- ------- -------
BALANCE DECEMBER 31, 1998........... -- 18,505 23,660 479 42,644
Comprehensive income:
Net income........................ 4,511 4,511
Change in unrealized gain (loss)
on securities, net of tax and
net of reclassification of loss
of $46 from net income......... (4,526) (4,526)
-------
Total comprehensive
income.................. (15)
Issuance of shares of Common stock
Secondary offering-300,000
shares......................... 2,197 2,197
Stock purchase plan-7,351
shares......................... 42 42
-------- ------- ------- ------- -------
BALANCE DECEMBER 31, 1999........... -- 20,744 28,171 (4,047) 44,868
Comprehensive income:
Net income........................ 1,497 1,497
Change in unrealized gain (loss)
on securities, net of tax and
net of reclassification of gain
of $471 from net income........ 2,956 2,956
-------
Total comprehensive
income.................. 4,453
Stock purchase plan-36,108 shares... 138 138
-------- ------- ------- ------- -------
BALANCE DECEMBER 31, 2000........... $ -- $20,882 $29,668 $(1,091) $49,459
======== ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
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METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
2000 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 1,497 $ 4,511 $ 6,794
Adjustments to reconcile net income to net cash from
operating activities:
Net amortization and depreciation......................... 6,123 4,913 4,338
(Gain)/Loss on sale of securities......................... (724) 71 (70)
Provision for loan and REO losses......................... 6,700 7,066 2,850
Deferred tax provision.................................... (896) (1,219) (710)
Loans originated for sale................................. (222,337) (121,124) (211,677)
Loans purchased for sale.................................. (31,496) -- (49,447)
Proceeds from securitized loans held for sale............. 61,892 -- --
Proceeds from sale of loans held for sale................. 120,300 126,391 258,064
Repayments on loans held for sale......................... 87 4,599 --
(Gain )/Loss on sale of premises, equipment and real
estate owned............................................ 433 (210) 123
(Gain) on sale of mortgage servicing rights............... -- (762) --
FHLB stock dividend....................................... (1,073) (576) (400)
Changes in other assets................................... (4,278) (4,188) (3,865)
Changes in other liabilities.............................. 5,391 (3,905) 6,889
---------- ---------- ----------
Net cash from operating activities.................... (58,381) 15,567 12,889
CASH FLOWS FROM INVESTING ACTIVITIES
Disbursement of loan proceeds............................... (419,130) (481,074) (451,629)
Purchases of:
Loans..................................................... (104,618) (176,214) (280,336)
Mortgage-backed securities................................ (3,065) (29,994) (45,663)
Securities available for sale............................. (2,415) (20,052) (38,557)
Securities held to maturity............................... -- -- (16,213)
Mortgage servicing rights................................. (10,804) (2,795) (4,282)
FHLB stock................................................ (8,603) (4,318) (304)
Premises and equipment.................................... (36,997) (16,832) (6,617)
Proceeds from maturities and repayments of:
Loans..................................................... 405,435 305,885 287,096
Mortgage-backed securities................................ 30,926 45,211 46,348
Securities available for sale............................. -- -- 8,000
Securities held to maturity............................... 405 345 4,740
Proceeds from sale of:
Loans..................................................... 93,171 72,719 13,471
Mortgage-backed securities................................ 35,489 31,221 43,187
Securities available for sale............................. -- 1,275 12,800
Mortgage servicing rights................................. -- 6,273 --
Premises, equipment and real estate owned................. 1,275 5,108 1,226
Additional investment in real estate owned.................. (137) (595) (52)
---------- ---------- ----------
Net cash from investing activities.................... (19,068) (263,837) (426,785)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposit accounts.............................. 9,637 85,238 313,502
Proceeds from borrowings.................................... 334,401 162,598 217,007
Repayment of borrowings..................................... (201,618) (68,388) (172,291)
Proceeds from issuance of Guaranteed preferred beneficial
interests in the corporation's junior subordinated
debentures................................................ -- 15,073 26,436
Net activity on lines of credit............................. (67,100) 50,700 34,900
Proceeds from issuance of common stock...................... 138 2,239 --
---------- ---------- ----------
Net cash provided by financing activities................. 75,458 247,460 419,554
Net change in cash and cash equivalents..................... (1,991) (810) 5,658
Cash and cash equivalents at beginning of year.............. 19,001 19,811 14,153
---------- ---------- ----------
Cash and cash equivalents at end of year.................... $ 17,010 $ 19,001 $ 19,811
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 87,353 $ 73,503 $ 51,545
Income taxes............................................ 1,447 1,288 4,218
Transfer from loans receivable to other real estate....... 1,150 4,122 4,844
Transfer from loans receivable to loans held for sale..... 26,890 -- --
Loans securitized......................................... 60,652 108,812 100,710
See accompanying notes to consolidated financial statements.
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METROPOLITAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise indicated, dollar amounts are in thousands, except per
share data.
Metropolitan Financial Corp. ("Metropolitan" or the "Corporation") is a
savings and loan holding company and an Ohio corporation. Metropolitan is
engaged in the business of originating multifamily and commercial real estate
loans primarily in Ohio, Pennsylvania, Michigan, and Kentucky and purchasing
multifamily and commercial real estate loans throughout the United States.
Metropolitan offers full service banking services to communities in Northeast
Ohio where its additional lending activities include originating one- to
four-family residential real estate, construction, business and consumer loans.
The accounting policies of the Corporation conform to generally accepted
accounting principles and prevailing practices within the financial services
industry. A summary of significant accounting policies follows:
CONSOLIDATION POLICY: The Corporation and its wholly owned subsidiaries,
MetroCapital Corporation, Metropolitan Capital Trust I, Metropolitan Capital
Trust II, Metropolitan I Corporation and its wholly owned subsidiary, and
Metropolitan Bank and Trust Company (the "Bank") and its wholly-owned
subsidiaries, are included in the accompanying consolidated financial
statements. All significant intercompany balances have been eliminated.
USE OF ESTIMATES: In preparing financial statements, Management must make
estimates and assumptions. These estimates and assumptions affect the amounts
reported for assets, liabilities, revenues, and expenses as well as affecting
the disclosures provided. Future results could differ from current estimates.
Areas involving the use of Management's estimates and assumptions primarily
include the allowance for losses on loans, the valuation of loan servicing
rights, the value of loans held for sale, fair value of certain securities, the
carrying value and amortization of intangibles, the value of real estate owned,
the determination and carrying value of impaired loans, and the fair value of
financial instruments. Estimates that are more susceptible to change in the near
term include the allowance for loan losses, the valuation of loan servicing
rights, the value of loans held for sale, the value of real estate owned, and
the fair value of certain securities.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed in Note 17. Fair value estimates involve uncertainties and
matters of significant judgment regarding appropriate interest rates, credit
risk, prepayments, and other factors, especially in the absence of broad markets
for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on- and
off-balance sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, and due from banks, overnight repurchase
agreements and federal funds sold. Generally, federal funds and overnight
repurchase agreements are sold for one-day periods. The Corporation reports net
cash flows for customer deposit transactions and activity on line of credit
borrowings.
SECURITIES: The Corporation classifies debt and mortgage-backed securities
as held to maturity or available for sale. The Corporation classifies marketable
equity securities as available for sale.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts.
Securities classified as available for sale are those which management
could sell for liquidity, investment management, or similar reasons, even if
there is not a present intention for such a sale. Securities available for
48
51
sale are carried at fair value with unrealized gains and losses included as a
separate component of shareholders' equity, net of tax and recognized as part of
comprehensive income. Gains or losses on dispositions are based on net proceeds
and the adjusted historic cost of securities sold, using the specific
identification method. Other securities, such as Federal Home Loan Bank stock,
are carried at cost.
LOANS: All loans are held for investment unless specifically designated as
held for sale. When the Bank originates or purchases loans, it makes a
determination whether or not to classify loans as held for sale. The Bank
re-evaluates its intention to hold or sell loans at each balance sheet date
based on the current environment and, if appropriate, reclassifies loans as held
for sale. Sales of loans are dependent upon various factors including interest
rate movements, deposit flows, the availability and attractiveness of other
sources of funds, loan demand by borrowers, and liquidity and capital needs.
Loans held for investment are stated at the principal amount outstanding
adjusted for amortization of premiums and deferred costs and accretion of
discounts and deferred fees using the interest method. At December 31, 2000 and
1999, management had the intent and the Bank had the ability to hold all loans
being held for investment for the foreseeable future.
Loans held for sale are recorded at the lower of cost or market. When the
Bank purchases real estate loans and simultaneously writes an option giving the
holder the right to purchase those loans, those loans are designated as held for
sale. Gains and losses on the sale of loans are determined by the identified
loan method and are reflected in operations at the time of the settlement of the
sale.
Interest on loans is accrued over the term of the loans based upon the
principal outstanding. Management reviews loans that are delinquent 90 days or
more to determine if interest accrual should be discontinued based on the
estimated fair market value of the collateral. When a loan is placed on
nonaccrual status, accrued and unpaid interest is charged against income.
Payments received on nonaccrual loans are applied against principal until the
recovery of the remaining balance is reasonably assured.
ALLOWANCE FOR LOSSES ON LOANS: The allowance for losses on loans is
established by a provision for loan losses charged against income. Estimating
the risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by Management at a level considered
adequate to cover probable losses based on past loss experience, general
economic conditions, information about specific borrower situations including
their financial position, collateral values, and other factors and estimates
which are subject to change over time. While Management may periodically
allocate portions of the allowance for specific problem loans, the whole
allowance is available for any loan charge-offs that occur. A loan is charged
off against the allowance by Management as a loss when deemed uncollectible,
although collection efforts often continue and future recoveries may occur.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by allocating a
portion of the allowance for losses on loans to such loans. If these allocations
require an increase in the allowance for losses on loans, that increase is
reported as a provision for loan losses. The carrying values of impaired loans
are periodically adjusted to reflect cash payments, revised estimates of future
cash flows and increases in the present value of expected cash flows due to the
passage of time. Management excludes all consumer loans from its review for
impairment. However, these loans are considered in determining the appropriate
level of the allowance for loss on loans. All impaired loans are placed on
nonaccrual status.
LOAN FEES AND COSTS: Origination and commitment fees received for loans,
net of direct origination costs, are deferred and amortized to interest income
over the contractual life of the loan using the level yield method. The net
amount deferred is reported in the consolidated statements of financial
condition as a reduction of loans.
LOAN SERVICING RIGHTS: Purchased mortgage servicing rights are initially
valued at cost. When originated loans are sold or securitized and servicing
rights are retained, those rights are valued by allocating the book value of the
loans between the loans or securities and the servicing rights based on the
relative fair value of each. The fair value of originated servicing rights for
one- to four-family loans is determined by using a model to calculate standard
fair market values based on loan size, loan term, interest rate, and market
estimates for prepayments. These standards are updated quarterly. The fair value
of originated servicing rights for multifamily and
49
52
commercial real estate loans is based on a model to calculate fair value for
each sale which includes consideration of number of loans, interest rate,
average loan size and estimates of market prepayment rates. Servicing rights are
amortized in proportion to and over the period of estimated servicing income.
Servicing rights are assessed for impairment periodically. Fair values at the
end of each period are also computed using a model which calculates fair value
based on loan balance, interest rate, terms of the remittance program, and an
estimate of market prepayment rates. This computation is made for each loan and
then aggregated. For purposes of measuring impairment, management stratifies
loans by loan type, interest rate, and investor.
LOAN OPTION INCOME: Periodically the Bank purchases real estate loans for
sale and simultaneously writes an option giving the holder the option to
purchase those loans at a specified price within a specified time period. At the
time the transaction is complete the Bank recognizes a non-refundable fee in
income.
REAL ESTATE OWNED: Real estate owned is comprised of properties acquired
through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.
These properties are recorded at the lower of fair value, less estimated selling
costs or cost at the date of foreclosure. Any reduction from the carrying value
of the related loan to fair value at the time of acquisition is accounted for as
a charge-off. Any subsequent reduction in fair value is reflected in a valuation
allowance account through a charge to income. Expenses to carry real estate
owned are charged to operations as incurred.
PREMISES AND EQUIPMENT: Premises and equipment, including leasehold
improvements and software, are recorded at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets for financial reporting
purposes. For tax purposes, depreciation on certain assets is computed using
accelerated methods. Maintenance and repairs are charged to expense as incurred
and improvements are capitalized. Long-term assets are reviewed for impairment
when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value
based on discounted cash flows.
INTANGIBLE ASSETS: Intangible assets resulting from the acquisition of the
Bank and a title company are being amortized to expense on a straight-line basis
over periods of 25 and 40 years, respectively. This amount is a reduction from
the Bank's shareholder's equity in calculating tangible capital for regulatory
purposes. Identifiable intangible assets are amortized over the estimated
periods of benefit.
INCOME TAXES: The Corporation and its subsidiaries, excluding Metropolitan
Capital Trust I and Metropolitan Capital Trust II, are included in the
consolidated federal income tax return of the Corporation. Income taxes are
provided on a consolidated basis and allocated to each entity based on its
proportionate share of consolidated income. Deferred income taxes are provided
on items of income or expense that are recognized for financial reporting
purposes in one period and recognized for income tax purposes in a different
period. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.
STOCK OPTIONS: Expense for employee compensation under stock option plans
is based on Accounting Principles Board Opinion No. 25 with expense reported
only if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are provided as if the fair
value method of Statement of Financial Accounting Standard No. 123 was used for
stock based compensation. For the periods presented, no expense has been
recognized as the option price of the common shares equaled or exceeded the
market price on the grant date.
TRUST DEPARTMENT ASSETS AND INCOME: Property held by the Bank in a
fiduciary or other capacity for its trust customers is not included in the
accompanying consolidated financial statements since such items are not assets
of the Bank.
EARNINGS PER SHARE: Basic and diluted earnings per share are computed based
on weighted average shares outstanding during the period. Basic earnings per
share has been computed by dividing net income by the weighted average shares
outstanding. Diluted earnings per share has been computed by dividing net income
by the diluted weighted average shares outstanding. Diluted weighted average
shares were calculated assuming the exercise of stock options less the treasury
shares assumed to be purchased from the proceeds using the average market price
of the Corporation's stock. During 1998, the Corporation declared a 10% stock
dividend which was recorded by a transfer, equal to the fair value of the shares
issued, from retained earnings to additional paid in
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53
capital. Stock options for 636,300 shares of common stock were not considered in
computing diluted earnings per common share for 2000 because they were
antidilutive.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale and equity investments which are also
recognized as separate components of equity.
NEW ACCOUNTING PRONOUNCEMENTS: Beginning January 1, 2001, a new accounting
standard and related amendment will require all derivatives to be recorded at
fair value. Unless designated as hedges, changes in these fair values will be
recorded in the income statement. Fair value changes involving hedges will
generally be recorded by offsetting gains and losses on the hedge and on the
hedged item, even if the fair value of the hedged item is not recorded. This is
not expected to have a material effect but the effect will depend on derivative
holdings when this standard applies at adoption.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
INDUSTRY SEGMENT: Internal financial information is primarily reported and
aggregated in two lines of business, retail and commercial banking and mortgage
banking.
FINANCIAL STATEMENT PRESENTATION: Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 2000
presentation.
NOTE 2. SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
investment securities at December 31, 2000 and 1999 are as follows:
2000
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
AVAILABLE FOR SALE
Mutual funds.................................... $ 889 $ 889
FreddieMac preferred stock...................... 7,500 $(1,350) 6,150
FreddieMac note................................. 10,000 (14) 9,986
FannieMae notes................................. 19,950 $ 10 (40) 19,920
Treasury notes and bills........................ 2,361 2,361
Mortgage-backed securities...................... 196,052 534 (757) 195,829
-------- ---- ------- --------
236,752 544 (2,161) 235,135
HELD TO MATURITY
Tax-exempt municipal bond....................... 14,705 (145) 14,560
Revenue bond.................................... 775 9 784
-------- ---- ------- --------
15,480 9 (145) 15,344
-------- ---- ------- --------
Total securities...................... $252,232 $553 $(2,306) $250,479
======== ==== ======= ========
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1999
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
AVAILABLE FOR SALE
Mutual funds.................................. $ 835 $ 835
FreddieMac preferred stock.................... 7,500 $(1,350) 6,150
FreddieMac note............................... 10,000 (236) 9,764
FannieMae term note........................... 19,935 (855) 19,080
Mortgage-backed securities.................... 259,446 $228 (3,947) 255,727
-------- ---- ------- --------
297,716 228 (6,388) 291,556
HELD TO MATURITY
Tax-exempt municipal bond..................... 14,699 176 14,875
Revenue bond.................................. 1,180 1,180
-------- ---- ------- --------
15,879 176 -- 16,055
-------- ---- ------- --------
Total securities...................... $313,595 $404 $(6,388) $307,611
======== ==== ======= ========
The amortized cost and fair value of debt securities at December 31, 2000,
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties:
AMORTIZED FAIR
COST VALUE
--------- --------
Securities available for sale:
Due less than one year............................. $ 2,261 $ 2,261
Due one through five years......................... 30,050 30,006
Due after five years through ten years............. -- --
Mortgage-backed securities available for sale...... 196,052 195,829
-------- --------
Total securities available for sale........... 228,363 228,096
Securities held to maturity:
Due one through five years......................... 775 784
Due after ten years................................ 14,705 14,560
-------- --------
Total securities held to maturity............. 15,480 15,344
-------- --------
Total debt securities......................... $243,843 $243,440
======== ========
Proceeds from the sale of mortgage-backed securities available for sale
were $35,489 in 2000, $31,221 in 1999, and $43,187 in 1998. Proceeds from the
sale of securities available for sale were $0 in 2000, $1,275 in 1999, and
$12,800 in 1998. Gross gains realized on those sales were $724 in 2000 and $108
in 1998. Gross losses of $0, $71, and $38 were realized in 2000, 1999 and 1998,
respectively.
Securities with a carrying value of $77,814 and a market value of $77,698
at December 31, 2000, were pledged to secure FHLB advances. Certain securities
with an amortized cost of $44,700 and a market value of $44,586 at December 31,
2000, were pledged to secure reverse repurchase agreements. Securities with an
amortized cost of $100 and a market value of $100 were pledged to the State of
Ohio to enable Metropolitan to engage in trust activities and the Federal
Reserve Bank to enable Metropolitan to receive treasury, tax and loan payments.
Other securities with an amortized cost of $2,261 and a market value of $2,261
were pledged to a counterparty as part of an interest rate swap agreement.
52
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NOTE 3. LOANS RECEIVABLE
The composition of the loan portfolio at December 31, 2000 and 1999 is as
follows:
2000 1999
---------- ----------
Real estate loans
Construction loans
One-to four-family.............................. $ 125,989 $ 107,830
Multifamily..................................... 7,502 3,175
Commercial...................................... 5,873 447
Land............................................ 54,100 44,660
Loans in process................................ (72,156) (56,212)
---------- ----------
Construction loans, net.................... 121,308 99,900
Permanent loans
One- to four-family............................. 288,352 295,061
Multifamily..................................... 273,358 292,015
Commercial...................................... 254,824 247,455
---------- ----------
Total real estate loans.................... 937,842 934,431
Consumer loans....................................... 163,019 143,585
Business loans and other loans....................... 143,329 114,333
---------- ----------
Total loans................................ 1,244,190 1,192,349
Premium on loans, net................................ 7,393 7,178
Deferred loan fees, net.............................. (2,191) (4,548)
Allowance for losses on loans........................ (13,951) (11,025)
---------- ----------
Total loans receivable..................... $1,235,441 $1,183,954
========== ==========
Loans with adjustable rates, included above, totaled $729,849 and $657,328
at December 31, 2000 and 1999, respectively. These loans had repricing terms
ranging from one month to five years.
Metropolitan's real estate loans are secured by property in the following
states:
2000 1999
---- ----
Ohio........................................................ 57% 53%
California.................................................. 17 19
Pennsylvania................................................ 7 7
New York.................................................... 3 3
Other....................................................... 16 18
--- ---
100% 100%
=== ===
Activity in the allowance for losses on loans is as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- ------
Balance at beginning of year..................... $11,025 $ 6,909 $5,622
Provision for loan losses........................ 6,350 6,310 2,650
Charge-offs...................................... (3,829) (2,240) (1,419)
Recoveries....................................... 405 46 56
------- ------- ------
$13,951 $11,025 $6,909
======= ======= ======
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Nonperforming loans were as follows:
2000 1999
------- ------
Loans past due over 90 days still on accrual............... $ 6,434 $ 448
Nonaccrual loans........................................... 14,739 8,933
Management analyzes loans on an individual basis and considers a loan to be
impaired when it is probable that all principal and interest amounts will not be
collected according to the loan contract based on current information and
events. Loans which are past due two payments or less and that management feels
are probable of being restored to current status within 90 days are not
considered to be impaired loans. All impaired loans are included in
nonperforming loans.
Information regarding impaired loans is as follows at December 31:
2000 1999
------ ------
Balance of impaired loans................................. $4,869 $4,593
Less portion for which no allowance for losses on loans is
allocated............................................... 4,796 3,521
------ ------
Portion of impaired loan balance for which an allowance
for losses on loans is allocated........................ $ 220 $1,072
====== ======
Portion of allowance for losses on loans allocated to the
impaired loan balance $ 197 $1,054
====== ======
Information regarding impaired loans is as follows for the year ended
December 31:
2000 1999 1998
------ ------ -------
Average investment in impaired loans during the
year............................................ $5,505 $6,392 $11,510
Interest income recognized during impairment...... 184 256 191
Interest income recognized on cash basis during
the year........................................ 184 256 191
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
DECEMBER 31,
------------------
2000 1999
------- -------
Land...................................................... $10,535 $ 7,081
Office buildings.......................................... 11,718 9,254
Leasehold improvements.................................... 3,184 3,308
Furniture, fixtures and equipment......................... 17,948 12,313
Construction in progress.................................. 30,210 5,639
------- -------
Total........................................... 73,595 37,595
Accumulated depreciation.................................. 7,202 5,775
------- -------
Total premises and equipment.................... $66,393 $31,820
======= =======
Depreciation expense was $2,363, $1,876 and $1,282 for the years ended
December 31, 2000, 1999 and 1998, respectively.
The Bank leases certain of its branch space under operating lease
agreements whose lease terms are renewable periodically. Rent expense for the
years ended December 31, 2000, 1999 and 1998 was $1,599, $1,252 and $990,
respectively.
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The future minimum annual rental commitments as of December 31, 2000 for
all noncancelable leases are as follows:
2001........................................................ $ 708
2002........................................................ 590
2003........................................................ 546
2004........................................................ 511
2005........................................................ 376
Thereafter.................................................. 920
------
Total rental commitments.......................... $3,651
======
In the second quarter 1999, the Corporation started the construction of a
new corporate headquarters building, a portion of which the Bank now occupies.
As a result, interest expenses have been incurred to finance construction. These
costs, along with those related to the construction of retail sales offices, are
capitalized as incurred while the buildings are under construction and are
included as a portion of the historical cost to be depreciated over the useful
life of the buildings. Interest expense capitalized for the years ended December
31, 2000 and 1999 was $956 and $142, respectively.
NOTE 5. LOAN SERVICING RIGHTS
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans are summarized as follows:
DECEMBER 31,
------------------------
2000 1999
---------- ----------
Mortgage loan portfolios serviced for:
FreddieMac....................................... $ 882,715 $ 746,688
FannieMae........................................ 849,472 725,045
Others........................................... 205,312 181,332
---------- ----------
Total loans serviced for others.......... $1,937,499 $1,653,065
========== ==========
Custodial balances maintained in noninterest-bearing deposit accounts with
the Bank in connection with the foregoing loan servicing were approximately
$25,484 and $29,958 at December 31, 2000 and 1999, respectively.
Following is an analysis of the changes in loan servicing rights acquired
for the year ended December 31:
2000 1999
------- ------
Balance at beginning of year............................. $ 5,448 $9,894
Additions................................................ 10,833 2,795
Sales.................................................... -- (5,425)
Amortization............................................. (2,382) (1,816)
------- ------
Balance at end of year................................... $13,899 $5,448
======= ======
Following is an analysis of the changes in loan servicing rights originated
for the year ended December 31:
2000 1999
------- ------
Balance at beginning of year............................. $ 4,926 $3,518
Additions................................................ 2,887 2,452
Sales.................................................... -- (86)
Amortization............................................. (1,115) (958)
------- ------
Balance at end of year................................... $ 6,698 $4,926
======= ======
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The Corporation did not have a valuation allowance associated with loan
servicing rights at any time during the years ended December 31, 2000, 1999 and
1998.
NOTE 6. REAL ESTATE OWNED
Activity in the allowance for loss on real estate owned is as follows:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------- ----- -----
Balance at beginning of year.......................... $ 956 $200 $ --
Provision for loss.................................... 350 756 200
Charge-offs........................................... (200) -- --
------ ---- ----
Balance at end of year................................ $1,106 $956 $200
====== ==== ====
NOTE 7. DEPOSITS
Deposits consist of the following:
DECEMBER 31,
----------------------------------------------
2000 1999
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
Noninterest-bearing deposits..................... $ 97,385 8% $ 70,891 6%
Interest-bearing checking accounts............... 123,537 11 57,136 5
Passbook savings and statement Savings........... 106,258 9 200,168 18
Certificates of deposit.......................... 819,087 72 808,435 71
---------- --- ---------- ---
Total interest-bearing deposits........ 1,048,882 92 1,065,739 94
---------- --- ---------- ---
Total deposits......................... $1,146,267 100% $1,136,630 100%
========== === ========== ===
At December 31, 2000, scheduled maturities of certificates of deposit are
as follows:
WEIGHTED
AVERAGE
YEAR INTEREST
ENDED AMOUNT RATE
----- -------- --------
2001..................................................... $671,477 6.46%
2002..................................................... 103,860 6.68%
2003..................................................... 26,401 6.60%
2004..................................................... 10,456 5.91%
2005..................................................... 5,471 6.63%
Thereafter............................................... 1,422 6.53%
-------- ----
$819,087 6.49%
======== ====
The aggregate amount of certificates of deposit with balances of $100 or
more was approximately $235,400 and $164,400 at December 31, 2000 and 1999,
respectively. During 2000, the Bank received regulatory approval and began
accepting brokered deposits. At December 31, 2000, brokered deposits totaled
$58,100, all of which are included in certificates of deposit with balances of
$100,000 or more The Bank accepts out-of-state time deposits from individuals
and corporations, predominantly credit unions. The balance of these deposits at
December 31, 2000 was $118,900, of which $24,200 were certificate of deposits of
$100 or more.
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NOTE 8. BORROWINGS
Borrowings consisted of the following:
DECEMBER 31,
--------------------
2000 1999
-------- --------
Federal Home Loan Bank advances (6.5% and 5.6% at
December 31, 2000 and 1999, respectively)............. $365,094 $205,352
Repurchase agreements (5.9% and 5.6% at December 31,
2000 and 1999, respectively).......................... 41,000 80,044
Commercial bank repurchase agreement (7.7% at December
31, 1999)............................................. -- 55,000
Commercial bank line of credit (8.8% and 8.5% at
December 31, 2000 and 1999, respectively)............. 6,000 6,000
Subordinated debt maturing January 1, 2005
(9.625% fixed rate)................................... 13,985 14,000
-------- --------
$426,079 $360,396
======== ========
At December 31, 2000, scheduled payments on borrowings are as follows:
WEIGHTED
AVERAGE
INTEREST
YEAR ENDED AMOUNT RATE
---------- -------- --------
2001..................................................... $112,445 6.71%
2002..................................................... 58,614 6.20
2003..................................................... 49,104 6.07
2004..................................................... 69,331 6.14
2005..................................................... 98,049 6.98
Thereafter............................................... 38,536 6.42
-------- ----
$426,079 6.51%
======== ====
At December 31, 2000, Federal Home Loan Bank advances are collateralized by
all of our FHLB stock, one-to-four family first mortgage loans, multifamily
loans, and securities with aggregate carrying values of approximately $21, $298,
$181, and $78 million, respectively.
The Corporation has a commercial line of credit agreement with a commercial
bank. The maximum borrowing under the line is $12,000. The balance outstanding
at December 31, 2000 was $6,000. The line matures annually on May 30. During the
second quarter of 2000, by mutual agreement, the line was extended to May 31,
2001. The interest rate on the line is tied to LIBOR or prime at the
Corporation's option. As collateral for the loan, the Corporation's largest
shareholder, Robert Kaye, has agreed to pledge a portion of his common shares of
Metropolitan in an amount at least equal to 200% of any outstanding balance.
In November, 1999, the Bank entered into a commercial bank repurchase
agreement involving a transaction which allows a line of credit for use by the
Bank. The agreement repriced monthly based on LIBOR. The agreement allowed
commercial loans securitized by Metropolitan to be used as collateral. The
balance outstanding on this line of credit at December 31, 1999 was $55,000.
During the third quarter 2000, the balance was paid-off and the line of credit
terminated.
During 1995, the Corporation issued subordinated notes ("1995 Subordinated
Notes") totaling $14,000. Interest on the notes is paid quarterly and principal
will be repaid when the notes mature January 1, 2005. Total issuance costs of
approximately $1,170 are being amortized on a straight line basis over the life
of the notes. The notes are unsecured. Effective November 30, 2000, the notes
may be redeemed at par at any time.
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60
The following tables set forth certain information about borrowings during
the periods indicated.
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
MAXIMUM MONTH-END BALANCES:
Federal Home Loan Bank advances........................ $365,094 $205,352
1995 subordinated notes................................ 14,000 14,000
Commercial bank repurchase agreement................... 50,000 55,000
Commercial bank line of credit......................... 7,000 12,000
Repurchase agreements.................................. 80,166 88,380
AVERAGE BALANCE:
Federal Home Loan Bank advances........................ $290,369 $140,001
1995 subordinated notes................................ 14,000 14,000
Commercial bank repurchase agreement................... 25,250 7,708
Commercial bank line of credit......................... 6,083 7,891
Repurchase agreements.................................. 70,595 81,507
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
WEIGHTED AVERAGE INTEREST RATE:
Federal Home Loan advances............................. 6.15% 5.60%
1995 subordinated notes................................ 9.63 9.63
Commercial bank repurchase agreement................... 8.25 7.34
Commercial bank line of credit......................... 8.80 7.96
Repurchase agreements.................................. 6.06 5.60
NOTE 9. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S JUNIOR
SUBORDINATED DEBENTURES
The Corporation has two issues of cumulative trust preferred securities
(the "Trust Preferred") outstanding through wholly-owned subsidiaries. The Trust
Issuer has invested the total proceeds from the sale of the Trust Preferred in
the Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") issued by the Corporation. The Trust Preferred securities are
listed on the NASDAQ Stock Market's National Market.
A description of the Trust Preferred securities currently outstanding is
presented below:
PRINCIPAL AMOUNT
DECEMBER 31,
NASDAQ DATE OF SHARES INTEREST MATURITY -------------------
ISSUING ENTITY SYMBOL ISSUANCE ISSUED RATE DATE 2000 1999
-------------- ------ -------------- --------- -------- ------------- ------- -------
Metropolitan Capital Trust
I METFP April 27, 1998 2,775,000 8.60% June 30, 2028 $27,750 $27,750
Metropolitan Capital Trust
II METFO May 14, 1999 1,600,000 9.50% June 30, 2029 16,000 16,000
------- -------
$43,750 $43,750
======= =======
NOTE 10. INCOME TAXES
The provision for income taxes before extraordinary item consists of the
following components:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Current tax provision:
Federal expense.................................. $1,496 $3,179 $4,681
State expense.................................... 62 60 78
------ ------ ------
Total current expense......................... 1,558 3,239 4,759
Deferred federal benefit......................... (896) (1,219) (710)
------ ------ ------
$ 662 $2,020 $4,049
====== ====== ======
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Deferred income taxes are provided for temporary differences. The
components of the Corporation's net deferred tax asset (liability) consist of
the following:
YEAR ENDED DECEMBER
31,
--------------------
2000 1999
--------- -------
Deferred tax assets
Provision for loan losses.............................. $ 5,360 $4,131
Equity in partnership.................................. -- 102
Other.................................................. 228 252
-------- ------
5,588 4,485
-------- ------
Deferred tax liabilities
Equity in partnership.................................. (67) --
Deferred loan fees..................................... (352) (527)
Loan servicing rights.................................. (77) (157)
Employment contract.................................... (80) (87)
Depreciation expense................................... (34) (11)
Stock dividends on FHLB stock.......................... (1,008) (632)
Other.................................................. (10) (7)
-------- ------
(1,628) (1,421)
-------- ------
Net deferred tax asset.............................. $ 3,960 $3,064
======== ======
A reconciliation from income taxes at the statutory rate to the effective
provision for income taxes is as follows:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
----- ------ ------
Income taxes at statutory rate of 34%, 34%, and 35%
respectively...................................... 734 2,221 $3,881
Amortization of purchased intangibles............... 71 71 91
Stock dividend exclusion............................ (92) (92) (71)
Tax exempt income................................... (322) (327) (66)
State taxes, net of federal impact.................. 41 40 51
Business expense limitation......................... 80 74 74
Other............................................... 150 (33) 89
----- ------ ------
Provision for income taxes.......................... $ 662 $2,020 $4,049
===== ====== ======
Taxes attributable to securities gains and (losses) totaled $253, ($25) and
$25 for the years ended December 31, 2000, 1999 and 1998, respectively.
Prior to 1996, the Bank was permitted, under the Internal Revenue Code, to
determine taxable income after deducting a provision for loan losses in excess
of the provision recorded in the financial statements. Accordingly, retained
earnings at December 31, 2000 includes approximately $2,883 for which no
provision for federal income taxes has been made. If this portion of retained
earnings is used in the future for any purpose other than to absorb loan losses,
it will be added to future taxable income. The unrecorded deferred tax liability
on the above amount at December 31, 2000 was approximately $980.
NOTE 11. EXTRAORDINARY ITEM
In the second quarter, 1998, earnings were affected by an extraordinary
expense of $376, $245 net of tax, or $0.03 per common share, pertaining to the
Corporation's early retirement of $4,874 of 10% Subordinated Notes which were
scheduled to mature December 31, 2001. This amount represents the write-off of
the unamortized issuance costs and the prepayment premium resulting from the
early retirement. The retirement of the 10%
59
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Subordinated Notes was funded through the issuance of the 8.60% Guaranteed
Preferred Beneficial Interests in the Junior Subordinated Debentures.
NOTE 12. SALARY DEFERRAL--401(K) PLAN
The Corporation maintains a 401(k) plan covering substantially all
employees who have attained the age of 21 and have completed thirty days of
service with the Corporation. This is a salary deferral plan, which calls for
matching contributions by the Corporation based on a percentage (50%) of each
participant's voluntary contribution (limited to a maximum of six percent (6%)
of a covered employee's annual compensation). The matching contributions by the
Corporation commence after one year of service. In addition to the Corporation's
required matching contribution, a contribution to the plan may be made at the
discretion of the Board of Directors. Employee voluntary contributions are
vested at all times, whereas employer contributions vest 20% per year through
year five at which time employer contributions are fully vested. The
Corporation's matching contributions were $231, $220 and $206 for the years
ended December 31, 2000, 1999 and 1998, respectively. No discretionary
contributions have been made by the Corporation for the periods presented.
NOTE 13. STOCK PURCHASE AND STOCK OPTION PLANS (SHARES AND OPTION PRICES NOT IN
THOUSANDS)
In July, 1999, the Board of Directors of Metropolitan authorized the
adoption of a Stock Purchase Plan permitting directors, officers, and employees
of the Corporation and its subsidiaries and certain affiliated companies to make
purchases of the Corporation's common shares at 95% of the fair market value. If
the director, officer, or employee subsequently sells the stock before waiting a
one year holding period, they are required to repay the Corporation an amount
equal to the discount received at the time of purchase. The plan authorized the
issuance of an additional 160,000 common shares for purchases made under the
plan. The purchases under the plan commenced in the fourth quarter, 1999. To
date, 43,459 shares have been issued under the plan.
On October 28, 1997, the Board of Directors of Metropolitan adopted the
Metropolitan Financial Corp. 1997 Stock Option Plan for key employees and
officers of the Corporation. The plan is intended to encourage their continued
employment with Metropolitan and to provide them with additional incentives to
promote the development and long-term financial success of the Corporation.
Subject to adjustment under certain circumstances, the maximum number of
common shares that may be issued under the plan is 915,000, which reflects stock
splits and stock dividends and the addition of 200,000 shares in 1999. The Plan
provides for the grant of options, which may qualify as either incentive stock
options or nonqualified options. Grants of options are made by the Compensation
and Organization Committee of the Board of Directors.
Under the terms of the plan, the exercise price of an option, whether an
incentive stock option or a nonqualified option, will not be less than the fair
market value of the common shares on the date of grant. An option may be
exercised in one or more installments at the time or times provided in the
option instrument. One-half of the options granted to employees will become
exercisable on the third anniversary, and one-fourth of the common shares
covered by the option on the fourth and fifth anniversary of the date of grant.
Currently outstanding options will become exercisable in 2000 through 2005.
Options granted under the plan will expire no later than ten years after grant
in the case of an incentive stock option and ten years and one month after grant
in the case of a nonqualified option.
60
63
A summary of option activity is presented below:
STOCK OPTION ACTIVITY:
INCENTIVE STOCK OPTIONS NONQUALIFIED OPTIONS
------------------------- --------------------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- ---------------
Outstanding at January 1, 1998 88,000 $ 9.21 352,000 $ 9.21 - $10.13
Granted 39,600 $14.44 77,000 $14.44 - $15.88
Exercised -- --
Forfeited (2,200) $ 9.21 --
------- -------
Outstanding at December 31, 1998 125,400 $9.21 - $14.44 429,000 $ 9.21 - $15.88
------- -------
Granted 94,000 $5.38 - $11.00 100,000 $11.00 - $12.10
Exercised -- --
Forfeited (12,100) $9.21 - $14.44 --
------- -------
Outstanding at December 31, 1999 207,300 $5.38 - $14.44 529,000 $ 9.21 - $15.88
------- -------
Granted 47,500 $4.24 - $ 4.89 -- --
Exercised -- --
Forfeited (83,500) $6.18 - $14.44 (64,000) $ 9.21 - $14.44
------- -------
Outstanding at December 31, 2000 171,300 $4.24 - $14.44 465,000 $ 9.21 - $15.88
======= =======
Estimated fair value of options granted:
INCENTIVE NONQUALIFIED
STOCK OPTIONS OPTIONS
------------- ------------
1998:
13,200 shares granted at $14.44........................... $ 5.57 $ 3.02
55,000 shares granted at $15.88........................... $ 1.90
1999:
23,000 shares granted at $11.00........................... $ 5.42 $ 3.05
80,000 shares granted at $12.10........................... $ 2.26
10,000 shares granted at $5.38............................ $ 2.65
38,000 shares granted at $6.18............................ $ 2.24
2000:
15,000 shares granted at $4.89............................ $ 1.97
20,000 shares granted at $4.89............................ $ 1.97
12,500 shares granted at $4.24............................ $ 1.71
Weighted average assumptions used:
Expected option life...................................... 10 years 10 years
Risk-free interest rate -- 1998........................... 4.69% 4.87%
Risk-free interest rate -- 1999........................... 6.79% 6.48%
Risk-free interest rate -- 2000........................... 5.12% 5.12%
Expected stock price volatility -- 1998................... 32.22% 32.22%
Expected stock price volatility -- 1999................... 43.77% 43.77%
Expected stock price volatility -- 2000................... 57.20% --
Dividend yield............................................ -- --
Weighted average life of options.......................... 8.3 years 7.0 years
PRO FORMA DISCLOSURES:
For purposes of providing the required disclosures under Statement of
Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation," the Black Scholes option pricing model was used to estimate the
value of these options. The Black Scholes model was developed to estimate the
fair value of equity
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options. Had compensation costs been determined in accordance with Statement of
Financial Accounting Standard No. 123, net income and earnings per share would
be affected as summarized in the schedule below:
2000 1999 1998
------ ------ ------
Net income -- as reported (In thousands).................... $1,497 $4,511 $6,794
Net income -- pro forma (In thousands)...................... 1,221 4,124 6,529
Earnings per share -- as reported........................... $ 0.19 $ 0.57 $ 0.88
Earnings per share -- pro forma............................. 0.15 0.52 0.84
NOTE 14. CAPITAL AND EXTERNAL REQUIREMENTS
In December, 1998, the Board of Directors approved a 10% stock dividend,
increasing the outstanding number of shares by 705,213 to 7,756,393. The
issuance of Trust Preferred shares occurred contemporaneously with the issuance
of 300,000 additional shares of common stock in 1999. In 1999, the Board of
Directors of Metropolitan Financial Corp. authorized the adoption of a Stock
Purchase Plan permitting directors, officers, and employees of the Corporation
and its subsidiaries and certain affiliated companies to make purchases of the
Corporation's common shares of stock at 95% of the fair market value. The
purchases made under the plan will result in increased capital for the
Corporation.
In September, 2000, the Board of Directors approved a resolution
authorizing management to repurchase securities, other than common stock, issued
by Metropolitan Financial Corp., Metropolitan Capital Trust I, and Metropolitan
Capital Trust II. To date, no securities under this authorization have been
repurchased.
The Bank is subject to regulatory capital requirements administered by
federal regulatory agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept certain deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
62
65
At year end, the Bank's actual capital levels and minimum required levels
were:
MINIMUM REQUIRED
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- ------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- ---------- -----
2000
Total capital to risk weighted
assets........................ $118,077 9.35% greater than greater than
or equal to $101,028 or equal to 8.0%
Tier 1 (core) capital to risk
weighted assets............... 106,625 8.45 greater than greater than
or equal to 50,473 or equal to 4.0
Tier 1 (core) capital to
adjusted total assets......... 106,625 6.31 greater than greater than
or equal to 67,591 or equal to 4.0
Tangible capital to adjusted
total assets.................. 106,608 6.31 greater than greater than
or equal to 25,343 or equal to 1.5
1999
Total capital to risk weighted
assets........................ $113,840 9.25% greater than greater than
or equal to $ 98,484 or equal to 8.0%
Tier 1 (core) capital to risk
weighted assets............... 105,653 8.58 greater than greater than
or equal to 49,242 or equal to 4.0
Tier 1 (core) capital to
adjusted total assets......... 105,653 6.57 greater than greater than
or equal to 64,355 or equal to 4.0
Tangible capital to adjusted
total assets.................. 105,573 6.56 greater than greater than
or equal to 24,132 or equal to 1.5
MINIMUM
REQUIRED
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION REGULATIONS
----------------------------------------------
AMOUNT RATIO
---------- -----
2000
Total capital to risk weighted
assets........................ greater than greater than
or equal to $126,286 or equal to $10.0%
Tier 1 (core) capital to risk
weighted assets............... greater than greater than
or equal to 75,710 or equal to 6.0
Tier 1 (core) capital to
adjusted total assets......... greater than greater than
or equal to 84,489 or equal to 5.0
Tangible capital to adjusted
total assets.................. N/A
1999
Total capital to risk weighted
assets........................ greater than greater than
or equal to $123,105 or equal to $10.0%
Tier 1 (core) capital to risk
weighted assets............... greater than greater than
or equal to 73,863 or equal to 6.0
Tier 1 (core) capital to
adjusted total assets......... greater than greater than
or equal to 80,444 or equal to 5.0
Tangible capital to adjusted
total assets.................. N/A
The Bank at year-end 2000 was categorized as adequately capitalized. At
December 31, 2000, the most restrictive regulatory consideration of the payment
of dividends from the Bank to the holding company and the retention of the
adequately capitalized status was the total capital (to risk weighted capital)
ratio. Management is not aware of any event or circumstances after December 31,
2000 that would change the capital category.
A savings association which fails to meet one or more of the applicable
capital requirements is subject to various regulatory limitations and sanctions,
including a prohibition on growth and the issuance of a capital directive by the
Office of Thrift Supervision requiring the following: an increase in capital;
reduction of rates paid on savings accounts; cessation of or limitations on
deposit-taking and lending; limitations on operational expenditures; an increase
in liquidity; and such other actions deemed necessary or appropriate by the
Office of Thrift Supervision. In addition, a conservator or receiver may be
appointed under certain circumstances.
The appropriate federal banking agency has the authority to reclassify a
well-capitalized institution as adequately capitalized, and to treat an
adequately capitalized or undercapitalized institution as if it were in the next
lower capital category, if it is determined, after notice and an opportunity for
a hearing, to be in an unsafe or unsound condition or to have received and not
corrected a less-than-satisfactory rating for any of the categories of asset
quality, management, earnings or liquidity in its most recent examination. As a
result of such classification or determination, the appropriate federal banking
agency may require an adequately capitalized or under-capitalized institution to
comply with certain mandatory and discretionary supervisory actions. A
significantly undercapitalized savings association may not be reclassified,
however, as critically undercapitalized.
The terms of the 1995 subordinated notes and related indenture agreement
prohibit the Corporation from paying cash dividends unless the Corporation's
ratio of tangible equity to total assets exceeds 7.0%. The commercial bank line
of credit also prohibits Metropolitan from paying cash dividends unless the
Corporation's ratio of tangible equity to tangible assets exceeds 7.0%. As a
result, the Corporation is currently prohibited from paying dividends to its
shareholders.
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NOTE 15. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. The Bank can be a party
to financial instruments with off-balance sheet risk in the normal course of
business to meet financing needs of its customers. These financial instruments
include commitments to make loans. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for
commitments to make loans is represented by the contractual amount of those
instruments. The Bank follows the same credit policy to make such commitments as
is followed for those loans recorded in the financial statements.
As of December 31, 2000, the Bank had fixed and variable rate commitments
to originate and/or purchase loans (at market rates) of approximately $78,818
and $98,368, respectively. In addition, the Bank had firm commitments to sell
loans totaling $30,800 at December 31, 2000. The Bank's commitments to originate
and purchase loans are for loans at rates ranging from 6.63% to 18.00% and
commitment periods up to one year.
During 1998, the Corporation purchased approximately $44,385 of loans and
sold non-refundable options to a third party to purchase these same loans at a
later date. There were no purchases of this type in 1999 or 2000. The
Corporation recognized a fee of $168 and $388 on the sale of options during the
years ended December 31, 1999 and 1998, respectively. During 1998, certain
options were sold with an agreement to share in the gain on sale of the loans in
lieu of an option fee. The Corporation recognized a gain of $251 on the sale of
these loans during the year ended December 31, 1998.
RESERVE REQUIREMENTS. The Bank was required to maintain $241 of cash on
hand or on deposit with the Federal Reserve Bank to meet regulatory reserve
requirements at December 31, 2000. These funds do not earn interest.
LIQUIDITY REQUIREMENT. The Corporation is required to maintain cash or
short-term investments equal to six months interest on the 1995 subordinated
notes, or approximately $675, as a condition of the indenture agreement related
to the 1995 subordinated notes.
NOTE 16. RELATED PARTY TRANSACTIONS
In the years ended December 31, 2000, 1999 and 1998 the Corporation
expensed $96 per year for management fees relating to services provided by a
company with the same majority shareholder as the corporation.
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with Metropolitan's and the Bank's directors,
officers, significant shareholders and associates on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the time for comparable transactions with other persons, and that do not involve
more than the normal risk of collectibility or present other unfavorable terms.
Loans to such related parties totaled $1,734 and $1,611 at December 31, 2000 and
1999, respectively.
Related party deposits totaled $1,178 and $1,752 at December 31, 2000 and
1999, respectively.
In the third quarter, 1999, Robert Kaye purchased from Metropolitan
Financial Corp. the cash surrender value of a life insurance policy on Mr. Kaye
in which Metropolitan Financial Corp. was both the owner and beneficiary. The
amount paid to Metropolitan Financial Corp. was in excess of the book value of
the policy on the date of the transaction.
NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet, for
which it is practicable to estimate that value. Statement of Financial
Accounting Standards No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value estimates presented do not reflect the underlying fair
value of the Corporation. While these estimates are based on management's
judgment of the most appropriate factors, there is no assurance that the
estimated fair values would necessarily have been achieved at that date, since
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market values may differ depending on various circumstances. As such, the
estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at year
end. The following table shows those financial instruments and the related
carrying values. Financial instruments are excluded from this table in the case
of carrying amount and fair value being equal.
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
Financial assets:
Securities.............................. $ 54,786 $ 54,650 $ 51,708 $ 51,884
Mortgage-backed securities.............. 195,829 195,829 255,727 255,727
Loans, net.............................. 1,286,823 1,308,365 1,190,672 1,202,368
Loan servicing rights................... 20,597 28,727 10,374 12,944
Financial liabilities:
Time deposits........................... (819,087) (823,372) (808,435) (808,074)
Borrowings.............................. (426,079) (428,847) (360,396) (357,997)
Trust Preferred securities.............. (43,750) (23,250) (43,750) (25,832)
Off Balance Sheet items:
Interest rate swaps..................... -- (1,296) -- --
The following methods and assumptions were used to estimate the fair value
of financial instruments:
CASH AND EQUIVALENTS -- The carrying amount of these items is a
reasonable estimate of the fair value.
SECURITIES AND MORTGAGE-BACKED SECURITIES -- The estimated fair value is
based on quoted market prices or dealer estimates.
LOANS, NET -- For loans held for sale, the fair value was estimated
based on quoted market prices. The fair value of other loans is
estimated by discounting the future cash flows and estimated prepayments
using the current rates at which similar loans would be made to
borrowers with similar credit ratings for the same remaining term. Some
loan types were valued at carrying value because of their floating rate
or expected maturity characteristics.
FEDERAL HOME LOAN BANK STOCK -- The fair value is based upon the
redemption value of the stock which equates to its carrying value.
ACCRUED INTEREST RECEIVABLE -- The carrying amount and fair value are
equal.
LOAN SERVICING RIGHTS -- The fair value is based upon the discounted
cash flow analysis.
DEMAND AND SAVINGS DEPOSITS -- The fair value is the amount payable on
demand at the reporting date.
TIME DEPOSITS -- the fair value of fixed maturity certificates of
deposit is estimated by discounting the estimated future cash flows
using the rates offered at year end for similar remaining maturities.
BORROWINGS -- The fair value of borrowings is estimated by discounting
the estimated future cash flows using the rates offered at year end for
similar remaining maturities.
ACCRUED INTEREST PAYABLE -- The carrying amount and fair value are
equal.
COMMITMENTS -- The estimated fair value is not materially different from
the nominal value.
TRUST PREFERRED SECURITIES -- The estimated fair value is based upon
quoted market prices.
INTEREST RATE SWAPS -- The estimated fair value is based upon the
discounted cash flow analysis.
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NOTE 18. SEGMENT REPORTING
Metropolitan's operations include two major operating segments. A
description of those segments follows:
RETAIL AND COMMERCIAL BANKING -- Retail and commercial banking is the
segment of the business that brings in deposits and lends those funds out
to businesses and consumers. The local market for deposits is the consumers
and businesses in the neighborhoods surrounding our 23 retail sales offices
in Northeastern Ohio. The market for lending is Ohio and the surrounding
states for originations and throughout the United States for purchases. The
majority of loans are secured by multifamily and commercial real estate.
Loans are also made to businesses secured by business assets and consumers
secured by real or personal property. Business loans are concentrated in
Northeastern Ohio.
MORTGAGE BANKING -- Mortgage banking is the segment of our business
that originates, sells and services permanent or construction loans secured
by one- to four-family residential properties. These loans are primarily
originated through commissioned loan officers located in Ohio and Western
Pennsylvania. In general, fixed rate loans are originated for sale and
adjustable rate loans may be originated for sale or to be retained in the
portfolio. Loans being serviced include loans originated and still owned by
Metropolitan, loans originated by Metropolitan but sold to others with
servicing rights retained by Metropolitan, and servicing rights to loans
originated by others but purchased by Metropolitan. The servicing rights
Metropolitan purchases may be located in a variety of states and are
typically being serviced for FannieMae or FreddieMac.
The category below labeled Parent and Other consists of the remaining
segments of Metropolitan's business. It includes corporate treasury, interest
rate risk, and financing operations which do not generate revenue from outside
customers.
Operating results and other financial data for the current year and
preceding two years are as follows:
As of or for the year ended December 31, 2000
RETAIL AND
COMMERCIAL MORTGAGE PARENT
BANKING BANKING AND OTHER TOTAL
---------- -------- --------- ----------
OPERATING RESULTS:
Net interest income.......................... $ 25,901 $ 8,148 $ 5,065 $ 39,114
Provision for losses on loans................ 5,594 756 -- 6,350
---------- -------- -------- ----------
Net interest income after provision for loan
losses..................................... 20,307 7,392 5,065 32,764
Noninterest income........................... 5,666 3,539 350 9,555
Direct noninterest expense................... 19,651 7,081 666 27,398
Allocation of overhead....................... 9,382 3,380 -- 12,762
---------- -------- -------- ----------
Net income before income taxes............... $ (3,060) $ 470 $ 4,749 $ 2,159
========== ======== ======== ==========
FINANCIAL DATA:
Segment assets............................... $1,059,436 $475,283 $160,560 $1,695,279
Depreciation and amortization................ 2,337 3,272 514 6,123
Expenditures for additions to premises and
equipment.................................. 36,032 965 36,997
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As of or for the year ended December 31, 1999
RETAIL AND
COMMERCIAL MORTGAGE PARENT
BANKING BANKING AND OTHER TOTAL
---------- -------- --------- ----------
OPERATING RESULTS:
Net interest income.......................... $ 27,817 $ 6,127 $ 4,333 $ 38,277
Provision for losses on loans................ 5,662 648 -- 6,310
---------- -------- -------- ----------
Net interest income after provision for loan
losses..................................... 22,155 5,479 4,333 31,967
Noninterest income........................... 4,380 3,504 (729) 7,155
Direct noninterest expense................... 16,751 6,330 315 23,396
Allocation of overhead....................... 6,673 2,522 -- 9,195
---------- -------- -------- ----------
Net income before income taxes............... $ 3,111 $ 131 $ 3,289 $ 6,531
========== ======== ======== ==========
FINANCIAL DATA:
Segment assets............................... $1,089,666 $399,219 $119,234 $1,608,119
Depreciation and amortization................ 1,850 2,634 430 4,913
Expenditures for additions to premises and
equipment.................................. 15,593 1,239 16,832
As of or for the year ended December 31, 1998
RETAIL AND
COMMERCIAL MORTGAGE PARENT
BANKING BANKING AND OTHER TOTAL
---------- -------- --------- ----------
OPERATING RESULTS:
Net interest income.......................... $ 21,733 $ 6,837 $ 3,374 $ 31,944
Provision for losses on loans................ 2,642 8 -- 2,650
---------- -------- ------- ----------
Net interest income after provision for loan
losses..................................... 19,091 6,829 3,374 29,294
Noninterest income........................... 3,823 3,553 (59) 7,317
Direct noninterest expense................... 13,178 4,971 310 18,459
Allocation of overhead....................... 5,129 1,935 -- 7,064
---------- -------- ------- ----------
Net income before income taxes............... $ 4,607 $ 3,476 $ 3,005 $ 11,088
========== ======== ======= ==========
FINANCIAL DATA:
Segment assets............................... $ 898,126 $383,075 $82,232 $1,363,434
Depreciation and amortization................ 1,375 2,612 352 4,338
Expenditures for additions to premises and
equipment.................................. 5,459 1,158 6,617
The financial information provided for each major operating segment has
been derived from the internal profitability system used to monitor and manage
financial performance and allocate resources. The measurement of performance for
the operating segments is based on the organizational structure of Metropolitan
and is not necessarily comparable with similar information for any other
financial institution. The information presented is also not indicative of the
segments' financial condition and results of operations if they were independent
entities.
Metropolitan evaluates segment performance based on contribution to income
before income taxes. Certain indirect expenses have been allocated based on
various criteria considered by management to best reflect benefits derived. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Indirect expense allocations and
accounting policies have been consistently applied for the periods presented.
There are no differences between segment profits and assets and the consolidated
profits and assets of Metropolitan. The net interest income that results from
investing in assets and liabilities with different terms to maturity or
repricing has been eliminated from the two major operating segments and is
included in the category labeled Parent and Other.
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NOTE 19. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Below is condensed financial information of Metropolitan Financial Corp.
(parent company only). In this information, the parent's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of the
subsidiaries since acquisition. This information should be read in conjunction
with the consolidated financial statements.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
--------------------
2000 1999
-------- --------
ASSETS
Cash and due from banks..................................... $ 978 $ 245
Securities available for sale............................... 889 835
Loans receivable............................................ 50 50
Investment in Metropolitan Bank and Trust Company........... 110,643 103,944
Intangible assets........................................... 40 44
Prepaid expenses and other assets........................... 3,114 5,951
-------- --------
Total assets........................................... $115,714 $111,069
======== ========
LIABILITIES
Borrowings.................................................. $ 19,985 $ 20,000
Other liabilities........................................... 2,520 2,451
Guaranteed preferred beneficial interests in the
corporation's junior subordinated debentures.............. 43,750 43,750
-------- --------
Total liabilities...................................... 66,255 66,201
SHAREHOLDERS' EQUITY
Total shareholders' equity............................. 49,459 44,868
-------- --------
Total liabilities and shareholders' equity............. $115,714 $111,069
======== ========
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CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Interest on loans and securities............................ $ 222 $ 240 $ 471
Interest on borrowings...................................... (2,001) (2,234) (1,917)
Interest on junior subordinated debentures.................. (4,156) (3,418) (1,633)
------- ------- -------
Net interest expense........................................ (5,935) (5,412) (3,079)
Noninterest income
Dividends from Metropolitan Bank and Trust Company........ 4,000 2,000 500
Other operating income.................................... (3) 3 4
------- ------- -------
3,997 2,003 504
Noninterest expense
Amortization of intangibles............................... 4 4 4
State franchise taxes..................................... -- -- 23
Other operating expenses.................................. 332 310 283
------- ------- -------
336 314 310
------- ------- -------
Income before income taxes.................................. (2,274) (3,723) (2,885)
Federal income tax benefit................................ (2,118) (1,941) (1,171)
------- ------- -------
Income before equity in undistributed net income of
Metropolitan Bank and Trust Company....................... (156) (1,782) (1,714)
Equity in undistributed net income of Metropolitan Bank and
Trust Company............................................. 1,653 6,293 8,753
------- ------- -------
Income before extraordinary item............................ 1,497 4,511 7,039
Extraordinary item.......................................... -- -- (245)
------- ------- -------
Net income................................................ $ 1,497 $ 4,511 $ 6,794
======= ======= =======
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STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 1,497 $ 4,511 $ 6,794
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in net income of Metropolitan Bank and Trust
Company................................................... (1,653) (6,293) (8,753)
Amortization................................................ 4 4 4
Change in other assets and liabilities...................... 1,061 (668) (655)
------- -------- --------
Net cash from operating activities..................... 909 (2,446) (2,610)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities........................... -- 1,275 13,153
Purchase of securities available for sale................... 329 (51) (12,800)
Capital contributions to Metropolitan Bank and Trust
Company................................................... -- (14,000) (26,000)
Capital contributions to Metropolitan I Corporation......... (275)
------- -------- --------
Net cash from investing activities.......................... (54) (12,776) (25,647)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of guaranteed preferred beneficial
interests in the corporation's junior subordinated
debentures................................................ -- 15,073 26,436
Repayment of borrowings..................................... 15 -- (4,874)
Net activity on lines of credit............................. -- (2,000) 6,500
Proceeds from issuance of common stock...................... 138 2,239 --
------- -------- --------
Net cash from financing activities.......................... 153 15,312 28,062
------- -------- --------
Net change in cash and cash equivalents................ 733 90 (195)
Cash and cash equivalents at beginning of year.............. 245 155 350
------- -------- --------
Cash and cash equivalents at end of year.................... $ 978 $ 245 $ 155
======= ======== ========
NOTE 20. LOAN SECURITIZATIONS
During 2000, the Bank securitized one- to four-family loans and sold all of
these securities while retaining the rights to service those loans. In prior
years, the Bank securitized one- to four-family, multifamily, and commercial
real estate loans. Those securities may have been sold or retained. All of the
rights to service those loans were retained. An analysis of the activity in
securitizations serviced by the Bank during 2000 follows:
1-4 FAMILY MULTIFAMILY COMMERCIAL REAL
LOANS LOANS ESTATE LOANS
-------------- -------------- ---------------
Balance at December 31, 1999
Principal balance of loans............. $19,347 $145,224 $85,204
Amortized cost of servicing rights..... $141 $999 $316
Servicing rights as a % of principal... 0.73% 0.69% 0.37%
New securitizations during the year
Principal balance of loans............. 60,652 -- --
Fair value of servicing rights......... 858 -- --
Servicing rights as a % of principal... 1.42% -- --
Principal payments received on loans
securitized............................ 8,032 7,253 8,080
Balance at December 31, 2000
Principal balance of loans............. $71,967 $137,971 $77,125
Amortized cost of servicing rights..... $988 $772 $194
Servicing rights as a % of principal... 1.37% 0.56% 0.25%
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1-4 FAMILY MULTIFAMILY COMMERCIAL REAL
LOANS LOANS ESTATE LOANS
-------------- -------------- ---------------
Other information at end of period
Securitized assets still owned......... $205 $72,805 $77,125
Delinquencies - past due 30 or more
days................................ 846 5,176 5,877
Weighted average rate.................. 7.73% 8.25% 8.44%
Weighted average maturity (months)..... 319 100 83
Fair value of servicing rights......... $1,052 $2,269 $445
Fair value assumptions
Discount rate....................... 9.0% 11.0% 11.0%
Weighted average prepayment
assumption........................ 236 PSA 14% CPR 15% CPR
Anticipated delinquency............. 1.10% 5.21% 9.09%
Anticipated foreclosure rate........ -- -- --
Other information for the year
Securitized assets sold................ $62,736 $33,545
Gain on securitized assets sold........ 477 247 --
Credit losses net of recoveries........ -- -- --
Range of fair value assumptions used
Discount rate....................... 9.0 - 9.5% 11.0 - 11.5% 11.0 - 11.5%
Prepayment assumption............... 161 - 751 PSA 12% - 14% CPR 12% - 15% CPR
Anticipated delinquency............. 1.10% - 2.00% 5.21% - 7.25% 9.09% - 11.00%
Anticipated foreclosure rate........ -- -- --
The fair value of servicing rights remaining after loans are securitized is
based on the assumptions utilized in calculating fair value. The following table
indicates how fair value might decline if the assumptions changed unfavorably in
two different magnitudes:
1-4 FAMILY MULTIFAMILY COMMERCIAL REAL
LOANS LOANS ESTATE LOANS
---------- ----------- ---------------
Fair value at December 31, 2000....................... $1,052 $2,269 $445
Projected fair value based on
1% added to discount rate........................... 1,018 2,166 391
2% added to discount rate........................... 985 2,127 383
10% increase in prepayment speed.................... 1,003 2,158 391
20% increase in prepayment speed.................... 952 2,103 383
25% increase in delinquency rate.................... 1,048 2,233 397
50% increase in delinquency rate.................... 949 2,227 392
Foreclosure rate of 0.25%........................... 1,033 2,201 382
Foreclosure rate of 0.50%........................... 1,031 2,198 382
These projections are hypothetical and should be used with caution. They
only project changes based on a change in one variable at a time. All variables
are dynamic, are subject to change at any time, and may interrelate so that
movement in one causes movement in another.
All loans securitized were transferred without recourse with the exception
of the multifamily loans. They were securitized with limited recourse. The buyer
has contracted with an insurance company to provide mortgage insurance covering
the first $5 million of losses. The Bank is contingently liable for the next
$8.7 million of losses. The buyer has accepted financial responsibility for all
losses in excess of $13.7 million. There have been no losses to date on any of
the multifamily loans secured by the Bank.
NOTE 21. OFF-BALANCE SHEET ACTIVITIES
The Bank maintains two standby letters of credit at the Federal Home Loan
Bank of Cincinnati for the benefit of Fannie Mae as secondary security for
credit risk on multifamily loans securitized in prior years. These
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standby letters of credit, aggregating approximately $8.7 million, do not accrue
interest and are renewed on an annual basis.
Derivatives, such as interest rate swaps, futures and forwards, and
interest rate options, are used for asset liability management. These
instruments involve underlying items, such as interest rates, and are designed
to transfer risk. Notional amounts are amounts on which calculations and
payments are based, but which do not represent credit exposures as credit
exposure is limited to the amounts required to be received and paid. Derivatives
may be exchanged-traded contracts or may be contracts between two parties.
Collateral, obtained or given, is recorded at fair value.
Information about notional amounts at year-end is as follows:
2000 1999
------- ----
Interest rate swaps................................. $40,000 --
The Bank has entered into two interest rate swap contracts, with each
having a notional amount of $20,000. Both contracts mature within five years and
have the same counterparty. The Bank receives from the respective contracts
variable interest based on one-month or three-month LIBOR. The Bank in turn pays
to the counterparty interest at fixed rates of 6.450% and 6.275%, respectively.
The counterparty has the option to terminate the interest rate swap in the event
LIBOR exceeds certain set rates on specific dates per the terms of the contract.
The Bank has used the interest rate swap position to hedge variable rate
advances with the Federal Home Loan Bank of Cincinnati. The principal amount of
the borrowings matches the notional amount of the counterparty's position,
thereby creating a fixed rate instrument. The variable interest rates paid to
the Federal Home Loan Bank of Cincinnati are one-month LIBOR plus two basis
points and three-month LIBOR less two basis points.
NOTE 22. SUBSEQUENT EVENT
At December 31, 2000, the Bank had $14.7 million of business loans to
related borrowers which were classified as special mention loans. On March 26,
2001, based on financial projections provided by the borrower on March 12, 2001,
these loans were put on nonaccrual and were judged to be impaired. Management
has estimated the impairment to be approximately $3.5 million.
NOTE 23. QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED:
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Interest income............................... $29,909 $31,539 $33,005 $33,334
Net interest income........................... 9,643 10,074 9,624 9,772
Provision for loan losses..................... 1,500 1,600 1,750 1,500
Net income.................................... 607 547 299 44
Basic and diluted earnings per share.......... $ 0.08 $ 0.07 $ 0.04 $ 0.01
1999
Interest income............................... $25,894 $27,374 $29,095 $29,557
Net interest income........................... 8,976 9,648 10,098 9,555
Provision for loan losses..................... 650 1,600 1,800 2,260
Net income.................................... 1,438 1,504 875 694
Basic and diluted earnings per share.......... $ 0.19 $ 0.19 $ 0.11 $ 0.09
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Information in this Part III required by Item 10 ("Directors and Executive
Officers of the Company"), Item 11 ("Executive Compensation"), Item 12
("Security Ownership of Certain Beneficial Owners and Management"), and Item 13
("Certain Relationships and Related Transactions") is incorporated herein by
reference to the information contained in the Corporation's Proxy Statement,
dated March 27, 2001 and filed on that date in connection with the Corporation's
2001 Annual Meeting of Shareholders. Information concerning executive officers
of the Company also required by Item 10 is contained in Part I of this report
under the heading "Executive Officers of the Company."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) Exhibits, financial statements, and financial statement schedules.
PAGE NO.
---------
1. Financial statements
Report of Independent Auditors......................... 43
Consolidated Statements of Financial Condition......... 44
Consolidated Statements of Operations.................. 45
Consolidated Statements of Changes in Shareholders'
Equity................................................ 46
Consolidated Statements of Cash Flows.................. 47
Notes to Consolidated Financial Statements............. 48
2. Financial Statement Schedules
Parent Company Financial Statements.................... 68
3. Exhibits................................................. 74
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of
Metropolitan (filed as Exhibit 2 to the Corporation's Form
8-A, filed October 15, 1996 and incorporated herein by
reference).
3.2 Amended and Restated Code of Regulations of Metropolitan as
of April 25, 2000 (filed herewith).
4.1 Indenture, dated as of April 30, 1998, of the Corporation
relating to the 8.60% Junior Subordinated Debentures due
June 30, 2028 (filed as Exhibit 4.1 to the Corporation's
Form 10-Q, filed May 15, 1998 and incorporated herein by
reference).
4.2 Amended and Restated Trust Agreement, dated as of April 30,
1998, of Metropolitan Capital Trust I (filed as Exhibit 4.2
to the Corporation's Form 10-Q, filed May 15, 1998 and
incorporated herein by reference).
4.3 Guarantee of the Corporation relating to the Trust Preferred
Securities dated April 30, 1998 (filed as Exhibit 4.3 to the
Corporation's Form 10-Q, filed May 15, 1998 and incorporated
herein by reference).
4.4 Agreement as to Expenses and Liabilities, dated as of April
30, 1998 (filed as Exhibit 4.4 to the Corporation's Form
10-Q, filed May 15, 1998 and incorporated herein by
reference).
4.5 Indenture, dated as of May 14, 1999, of the Corporation
relating to the 9.50% Junior Subordinated Debentures due
June 30, 2029 (filed as Exhibit 4.1 to the Corporation's
Form S-1, filed May 11, 1999 and incorporated herein by
reference).
4.6 Amended and Restated Trust Agreement, dated as of May 14,
1999, of Metropolitan Capital Trust II (filed as Exhibit 4.4
to the Corporation's Form S-1, filed May 11, 1999 and
incorporated herein by reference).
4.7 Guarantee of the Corporation relating to the Trust Preferred
Securities dated May 14, 1999 (filed as Exhibit 4.6 to the
Corporation's Form S-1, filed May 11, 1999 and incorporated
herein by reference).
4.8 Agreement as to Expenses and Liabilities, dated as of May
14, 1999 (filed as Exhibit D to Exhibit 4.4 to the
Corporation's Form S-1, filed May 11, 1999 and incorporated
herein by reference).
4.9 Specimen Subordinated Note relating to the 9 5/8%
Subordinated Notes due January 1, 2005 (found at Sections
2.2 and 2.3 of the Form of Indenture filed as Exhibit 4.1 to
Metropolitan's Amendment No. 1 to Registration Statement on
Form S-1, filed November 13, 1995 and incorporated herein by
reference).
4.10 Form of Indenture entered into December 1, 1995 between
Metropolitan and Boatmen's Trust Company (filed as Exhibit
4.1 to Metropolitan's Amendment No. 1 to Registration
Statement on Form S-1, filed November 13, 1995 and
incorporated herein by reference).
10.1 Fifth Amendment to Restated Loan Agreement by and between
The Huntington National Bank and the Corporation dated as of
July 28, 2000 (Incorporated herein by reference to Exhibit
10.1 to the Corporation's Form 10-Q filed on November 14,
2000).
11 Statement regarding computation of per share earnings
(included in Note 1 to Consolidated Financial Statements) of
this Annual Report on Form 10-K.
21 List of subsidiaries of the Corporation (filed as Exhibit 21
to Metropolitan's Registration Statement on Form S-1, filed
February 26, 1999 and incorporated herein by reference).
23 Consent of Independent Accountants.
24 Power of Attorney.
REPORT ON FORM 8-K.
On September 26, 2000 the Corporation filed a Current Report on Form 8-K to
report, under Item 5, that on September 26, 2000, the Board of Directors'
authorized management to repurchase securities, other than common stock, issued
by Metropolitan, Metropolitan Capital Trust I, and Metropolitan Capital Trust
II.
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SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METROPOLITAN FINANCIAL CORP.
By: /s/ Kenneth T. Koehler
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Kenneth T. Koehler,
President, Assistant Secretary,
Assistant Treasurer, and Director
Date: April 2, 2001
------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Donald F. Smith
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Donald F. Smith,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: April 2, 2001
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Robert M. Kaye, Chairman of the Board and Director (Principal Executive
Officer); Malvin E. Bank, Secretary, Assistant Treasurer, and Director; David P.
Miller, Treasurer, Assistant Secretary and Director; Robert R. Broadbent,
Director; Marjorie M. Carlson, Director; Lois K. Goodman, Director; Marguerite
B. Humphrey, Director; James A. Karman, Director; Ralph D. Ketchum, Director;
Alfonse M. Mattia, Director.
By: /s/ Kenneth T. Koehler
--------------------------------------------------------------------
Kenneth T. Koehler
Attorney-in-Fact
Date: April 2, 2001
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of
Metropolitan (filed as Exhibit 2 to the Corporation's Form
8-A, filed October 15, 1996 and incorporated herein by
reference).
3.2 Amended and Restated Code of Regulations of the Corporation
as of April 25, 2000 (filed herewith).
4.1 Indenture, dated as of April 30, 1998, of the Corporation
relating to the 8.60% Junior Subordinated Debentures due
June 30, 2028 (filed as Exhibit 4.1 to the Corporation's
Form 10-Q, filed May 15, 1998 and incorporated herein by
reference).
4.2 Amended and Restated Trust Agreement, dated as of April 30,
1998, of Metropolitan Capital Trust I (filed as Exhibit 4.2
to the Corporation's Form 10-Q, filed May 15, 1998 and
incorporated herein by reference).
4.3 Guarantee of the Corporation relating to the Trust Preferred
Securities dated April 30, 1998 (filed as Exhibit 4.3 to the
Corporation's Form 10-Q, filed May 15, 1998 and incorporated
herein by reference).
4.4 Agreement as to Expenses and Liabilities, dated as of April
30, 1998 (filed as Exhibit 4.4 to the Corporation's Form
10-Q, filed May 15, 1998 and incorporated herein by
reference).
4.5 Indenture, dated as of May 14, 1999, of the Corporation
relating to the 9.50% Junior Subordinated Debentures due
June 30, 2029 (filed as Exhibit 4.1 to the Corporation's
Form S-1, filed May 11, 1999 and incorporated herein by
reference).
4.6 Amended and Restated Trust Agreement, dated as of May 14,
1999, of Metropolitan Capital Trust II (filed as Exhibit 4.4
to the Corporation's Form S-1, filed May 11, 1999 and
incorporated herein by reference).
4.7 Guarantee of the Corporation relating to the Trust Preferred
Securities dated May 14, 1999 (filed as Exhibit 4.6 to the
Corporation's Form S-1, filed May 11, 1999 and incorporated
herein by reference).
4.8 Agreement as to Expenses and Liabilities, dated as of May
14, 1999 (filed as Exhibit D to Exhibit 4.4 to the
Corporation's Form S-1, filed May 11, 1999 and incorporated
herein by reference).
4.9 Specimen Subordinated Note relating to the 9 5/8%
Subordinated Notes due January 1, 2005 (found at Sections
2.2 and 2.3 of the Form of Indenture filed as Exhibit 4.1 to
Metropolitan's Amendment No. 1 to Registration Statement on
Form S-1, filed November 13, 1995 and incorporated herein by
reference).
4.10 Form of Indenture entered into December 1, 1995 between
Metropolitan and Boatmen's Trust Company (filed as Exhibit
4.1 to Metropolitan's Amendment No. 1 to Registration
Statement on Form S-1, filed November 13, 1995 and
incorporated herein by reference).
10.1 Fifth Amendment to Restated Loan Agreement by and between
The Huntington National Bank and the Corporation dated as of
July 28, 2000 (Incorporated herein by reference to Exhibit
10.1 to the Corporation's Form 10-Q filed on November 14,
2000).
11 Statement regarding computation of per share earnings
(included in Note 1 to Consolidated Financial Statements) of
this Annual Report on Form 10-K.
21 List of subsidiaries of the Corporation (filed as Exhibit 21
to Metropolitan's Registration Statement on Form S-1 filed
February 26, 1999 and incorporated herein by reference).
23 Consent of Independent Accountants.
24 Power of Attorney.
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