SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC
Form 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2001
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
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MountainBank Financial Corporation
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(Exact name of the registrant as specified in its charter)
North Carolina 56-2237240
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(State of Incorporation) (I.R.S. Employer Identification No.)
201 Wren Dr., Hendersonville, N.C. 28792
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(Address of principal executive offices)
(828) 697-0030
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 __
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
At May 7, 2001, the Company had 1,871,938 shares outstanding of its $4
par common stock.
Transitional Small Business Disclosure Format (check one): Yes__ No_X_
MountainBank Financial Corporation
Form 10-QSB
Table of Contents
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
The financial statements of MountainBank are set forth in the following pages.
Balance Sheets at March 31, 2001 and December 31, 2000...................................... 3
Statement of Operations for the Three Months Ended March 31, 2001 and 2000.................. 4
Statement of Changes in Shareholders' Equity through March 31, 2001 and 2000................ 5
Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000.................. 6
Notes to Financial Statements............................................................... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 14
Item 2. Changes in Securities............................................................ 14
Item 3. Defaults Upon Senior Securities.................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders.............................. 14
Item 5. Other Information................................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................................. 14
Signatures.................................................................................. 15
2
MountainBank Financial Corporation
Balance Sheets
At March 31, 2001 and December 31, 2000
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March 31, 2001 December 31, 2000
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Assets
Cash and due from banks $ 8,394,209 $ 7,797,745
Interest bearing deposits with banks 136,463 3,667,612
Federal funds sold - 9,220,000
Investment securities available for sale 35,246,417 35,415,821
Restricted equity securities 797,000 453,300
Loans, net of allowance for loan losses of $3,619,514 at
March 31, 2001 and $3,006,842 at December 31, 2000 241,259,283 197,372,973
Property and equipment, net 2,416,020 2,322,157
Accrued income 2,114,798 2,007,804
Other assets 763,466 851,608
----------------- -----------------
Total assets $ 291,127,656 $ 259,109,020
================= =================
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 17,911,510 $ 15,531,055
Interest-bearing deposits 235,291,441 217,807,421
----------------- -----------------
Total deposits 253,202,951 233,338,476
Federal funds purchased and
Securities sold under agreements to repurchase 8,612,888 3,145,147
Note payable 5,000,000 -
Obligations under capital lease 753,913 759,804
Accrued interest payable 4,159,847 2,840,440
Other liabilities 550,765 814,734
----------------- -----------------
Total liabilities 272,280,364 240,898,601
----------------- -----------------
Commitments and contingencies
Stockholders' equity
Common stock, $4 par value; 10,000,000 shares
authorized; 1,871,938 and 1,873,461 shares issued and
outstanding at December 31, 2000 and March 31, 2001 7,493,844 7,487,752
Surplus 9,405,696 9,400,906
Retained earnings (deficit) 1,687,823 1,182,510
Unrealized appreciation on investment securities
available for sale 259,929 139,251
----------------- -----------------
Total stockholders' equity 18,847,292 18,210,419
----------------- -----------------
Total liabilities and stockholders' equity $ 291,127,656 $ 259,109,020
================= =================
3
MountainBank Financial Corporation
Statement of Operations
For the Three Months Ended March 31, 2001 and 2000
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Three Months Ended March 31,
----------------------------
2001 2000
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Interest income
Deposits with banks $ 51,794 $ 160,242
Federal funds sold 91,494 52,138
Investment securities, taxable 547,986 288,486
Loans and fees on loans 5,252,655 2,237,326
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Total interest income 5,943,929 2,738,192
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Interest expense
Deposits 3,410,865 1,465,629
Federal funds purchased and securities sold under
agreements to repurchase 53,514 23,331
Other borrowed funds 14,209 13,544
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Total interest expense 3,478,588 1,502,504
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Net interest income 2,465,341 1,235,688
Provision for loan losses 627,000 390,000
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Net interest income after provision for loan losses 1,838,341 845,688
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Noninterest income
Service charges on deposit accounts 148,885 96,381
Mortgage origination income 130,845 93,763
Gain on sale of loan - 150,977
Other service charges and fees 87,354 27,241
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Other income 367,084 368,362
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Noninterest expense
Salaries and employee benefits 762,762 468,118
Occupancy expense 253,249 139,063
Other expense 474,099 255,180
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Total noninterest expense 1,490,110 862,361
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Income before income taxes 715,315 351,689
Income tax expense 210,000 112,598
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Net income $ 505,315 $ 239,091
========= =========
Basic earnings per share $ 0.27 $ 0.21
Diluted earnings per share $ 0.25 $ 0.19
Weighted average shares outstanding 1,872,416 1,153,946
4
MountainBank Financial Corporation
Statements of Cash Flows
For the Three Months Ended March 31, 2001 and 2000
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Cash flows from operating activities March 31, 2001 March 31, 2000
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Net income (loss) $ 505,315 $ 239,091
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amoritization 106,258 60,815
Provision for loan losses 627,000 390,000
Deferred income taxes - -
Accretion of discount on securities, net of
amortization of premiums (105) (2,228)
Changes in assets and liabilities:
Accrued income (106,994) (91,729)
Other real estate owned - -
Other assets 88,142 (216,697)
Accrued interest payable 1,319,407 261,002
Other liabilities (263,969) 184,409
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Net cash provided by operating activities 2,275,054 824,663
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Cash flows from investing activities
Net (increase) decrease in federal funds sold 9,220,000 (9,260,000)
Net (increase) decrease in interest-bearing deposits with banks 3,531,149 (51,899)
Purchases of investment securities (3,070,246) (303,048)
Maturities of investment securities 3,016,731 566,329
Net increase in loans (44,513,310) (20,016,752)
Purchases of property and equipment (200,121) (108,944)
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Net cash used in investing activities (32,015,797) (29,174,314)
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Cash flows from financing activities
Net increase in non-interest bearing deposits 2,380,455 5,036,681
Net increase in interest-bearing deposits 17,484,020 23,864,610
Net increase in Federal funds purchased securities sold under
agreements to repurchase 5,467,741 154,893
Net increase in notes payable 5,000,000
Repayment of obligations under capital lease (5,891) (3,656)
Proceeds from the exercise of stock options 10,882 -
Proceeds from the issuance of common stock, net -
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Net cash provided by financing activities 30,337,207 29,052,528
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Net increase in cash and cash equivalents 596,464 702,877
Cash and cash equivalents, beginning 7,797,745 4,298,207
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Cash and cash equivalents, ending $ 8,394,209 $ 5,001,084
============= ==============
Supplemental disclosures of cash flow information
Interest paid $ 2,159,181 $ 1,241,502
============= ==============
Income taxes paid $ 170,285 $ 97,965
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5
MountainBank Financial Corporation
Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2001 and 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Other
-------------------- Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------ ------ ------- -------- ------------- ------------
Balance, December 31, 1999 1,153,946 5,769,730 4,385,302 126,541 (59,081) $ 10,222,492
Comprehensive income - - - - - -
Net Income - - - 239,091 - 239,091
Net change in unrealized
appreciation on investment
securities available for sale - - - - (4,262) (4,262)
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Total comprehensive income - - - - - 234,829
Shares issued pursuant to
secondary stock offering - - - - - -
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Balance March 31, 2000 1,153,946 $ 5,769,730 $ 4,385,302 $ 365,632 $ (63,343) $ 10,457,321
==========================================================================================
Balance, December 31, 2000 1,871,938 $ 7,487,752 $ 9,400,906 $ 1,182,510 $ 139,251 $ 18,210,419
Net Income - - - 505,313 - 505,313
Net change in unrealized
appreciation on investment
securities available for sale - - - - 117,678 117,678
Total comprehensive income ------------
622,991
Shares issued pursuant to
secondary stock offering
and Employee and Director
stock option plans 1,523 6,092 4,790 - - 10,882
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Balance March 31, 2001 1,873,461 $ 7,493,844 $ 9,405,696 $ 1,687,823 $ 256,929 $ 18,844,292
==========================================================================================
6
MoutainBank Financial Corporation
Notes to Financial Statements
March 31, 2001
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Note 1. Organization and Summary of Significant Accounting Policies
Organization:
MountainBank Financial Corporation (the "Company") was incorporated
on January 10, 2001 by the Board of Directors of MountainBank (the
"Bank") for the purpose of acquiring the Bank and serving as the Bank's
parent bank holding company. Prior to its acquisition of the Bank, the
Company conducted no business or operations other than those activities
related to the acquisition. On March 30, 2001, the Company acquired the
Bank under North Carolina law and in accordance with the terms of an
Agreement and Plan of Reorganization and Share Exchange dated January 11,
2001 (the "Agreement"). The Agreement and the Reorganization had been
approved by the Bank's shareholders at a special meeting held on February
20, 2001.
MountainBank is a state chartered, full service commercial banking
institution, insured by the FDIC and incorporated under the laws of North
Carolina. The Bank operates seven full service banking offices. These
offices are located in Hendersonville, N.C. (2), Columbus, N.C.,
Fletcher, N.C., Asheville, N.C., Lake Lure, N.C. and Forest City, N.C.
The Bank has received approval from regulators to open an additional
branch office in Marion, N.C. and expects to apply for permission to open
offices in Morganton, N.C. and Waynesville, N.C. during the second
quarter of 2001. The Bank is subject to regulation by the FDIC and the
North Carolina State Banking Commission.
Basis of Presentation:
The financial statements as of March 31, 2001 and for the periods
ended March 31, 2001 and 2000, have been prepared by MountainBank
Financial Corporation without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the information furnished in the interim financial statements
reflects all adjustments necessary to present fairly the Company's
financial position, results of operations and cash flows for such interim
periods. Management believes that all interim period adjustments are of a
normal recurring nature. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto as of December 31, 2000, included in its Annual Report on
Form 10KSB for the fiscal year ended December 31, 2000.
Statements in this report as to the Company's projections for
expansion, capital expenditures, earnings and other such issues as well
as for future financial or economic performance of the Company are
"forward looking" statements, and are being provided in reliance upon the
"safe harbor" provision of the Private Securities Litigation Reform Act
of 1995. Important factors that could cause actual results or events to
differ materially
7
MoutainBank Financial Corporation
Notes to Financial Statements
March 31, 2001
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from those projected, estimated, assumed or anticipated in any such
forward looking statements include changes in general economic conditions
in the Company's markets, loan losses, including loan losses resulting
from adverse economic conditions, increased competition, any loss of the
Company's key management personnel, changes in governmental regulations
and other factors.
The accounting and reporting policies of the Company follow generally
accepted accounting principles and general practices within the financial
services industry. The accounting policies followed are set forth in Note
1 to the Company's 2000 Financial Statements incorporated in the
Company's 2000 Form 10KSB.
Commitments and Other Contingencies:
In the normal course of business there are various commitments and
contingent liabilities such as commitments to extend credit, which are
not reflected on the financial statements. Management does not anticipate
any significant losses to result from these transactions. The unfunded
portion of loan commitments and standby letters of credit as of March 31,
2001 was $48.1 million.
Properties and Equipment:
Bank properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by the straight-line method over
periods of two to thirty-five years for capital leases and leasehold
improvements and from two to twenty years for furniture and equipment.
8
MountainBank Financial Corporation
Management Discussion and Analysis
March 31, 2001
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MountainBank Financial Corporation began operations as the parent
bank holding company for MountainBank on March 30, 2001. Prior to its
acquisition of the Bank, the Company conducted no business or operations
other than those activities related to the acquisition. Accordingly, the
following discussion pertains to operations of the Bank except where
specifically indicated. The following discussion and analysis is provided
to address information about the Bank's financial condition and results
of operations which is not otherwise apparent from the financial
statements included in this report. Reference should be made to those
statements for an understanding of the following discussion and analysis.
Changes in Financial Condition March 31, 2001 Compared with December 31,
2000
Total assets increased $32.2 million, or 12.4%, from December 31,
2000 to March 31, 2001. Earning assets increased $31.3 million, or
12.71%, during the same three month period. Loans, the largest earning
asset, increased $44.5 million, or 22.21%, as a result of the continuing
penetration of the Bank's current geographic markets and of opening new
markets. The rapid loan growth experienced during the first quarter of
2001 required the conversion of short duration assets into loans. As a
result, interest bearing deposits and Federal funds sold both decreased
substantially by $3.5 million or 96.28% and $9.2 million or 100.00%,
respectively. The Bank's investment portfolio remained static during the
period.
Deposits also experienced strong growth during the period, however,
deposit growth was not as vigorous as that of loans. During the first
quarter, deposits increased $20.4 million, or 8.73% with non-interest
bearing demand deposits increasing $2.9 million, or 18.55%, while
interest bearing deposits increased $17.5 million or 8.03%. Savings, NOW
and money market deposits experienced healthy growth during the period,
increasing $6.1 million or 12.64%, while retail time deposits increased
$9.8 million or 9.51% and jumbo time deposits increased $1.6 million or
2.36%, over the same period. The Bank's loan to deposit ratio was 96.52%
as of March 31, 2001 compared to 85.88% as of December 31, 2000.
Federal funds purchased and securities sold under agreements to
repurchase increased $5.5 million, or 173.85%. This increase resulted
principally from increased numbers of commercial customers using the
Bank's cash management products and from the use of Federal funds to
provide additional short term funding as loan flows dictate.
9
MountainBank Financial Corporation
Management Discussion and Analysis
March 31, 2001
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At the end of March, the Company entered into a term borrowing
arrangement with a correspondent bank in the amount of $5 million. This
credit facility was used to acquire additional capital of the Bank thus
increasing the Bank's capital ratios and lending limit. This credit bears
a seven (7) year term, with interest only due for the first two years and
bears a rate of prime minus one percent (1%). Management expects this
credit facility to be retired through the issuance of common stock or
long-term debt in the near future.
Liquidity, Interest Rate Sensitivity, Capital Adequacy and Market Risks
The objectives of the Company's liquidity management policy include
providing adequate funds to meet the needs of depositors and borrowers at
all times, as well as providing funds to meet the basic needs for
on-going operations of the Bank and regulatory requirements. Management's
goal is to maintain sufficient liquidity for these purposes while
limiting the market volatility of the Bank's available for sale
securities portfolio and returning a positive spread to the Federal funds
rate over time. The rapid loan growth experienced during the first
quarter of 2001 reduced the Bank's liquidity ratios by the end of the
quarter. However, at March 31, 2001, management considered the Bank's
liquidity position to be strong and adequate for all known or anticipated
liquidity demands.
Management and the Board of Directors view the monitoring and
managing of the Company's asset/liability position to be of strategic
importance. The Bank's aggressive plans for growth necessitate relatively
aggressive pricing policies for both assets and liabilities. Thus,
managing interest rate risk, net interest margin and the overall leverage
of the Bank's balance sheet becomes increasingly important as the Bank
continues to grow and expand into other markets. The rapid growth
experienced during the first quarter of fiscal 2001 was funded through
deposit growth and the conversion of shorter term assets into loans.
Management intends to continue to emphasize cross-selling of other
deposit products to assist in lowering the Bank's overall cost of funds
over time as well as beginning to utilize other sources of funding,
particularly FHLB borrowing lines when these sources bear lower interest
rates. Management continues to place a high priority on increasing
franchise value through acquiring core deposits and considers the Bank's
deposit base to be generally stable and not subject to significant
volatility.
The Bank uses several modeling techniques to measure interest rate
risk. Its primary method is the simulation of net interest income under
varying interest rate scenarios. Management believes this methodology is
preferable in that it takes into account the pricing strategies
management would undertake in response to rate changes,
10
MountainBank Financial Corporation
Management Discussion and Analysis
March 31, 2001
- --------------------------------------------------------------------------------
whereas other methods such as interest rate shock analysis do not take
these into consideration.
Periodically, the Bank also utilizes traditional gap analysis to
measure interest rate sensitivity. Gap analysis measures the difference
or gap between the volume of interest-earning assets and interest-bearing
liabilities repricing over a specific time period. This method, however,
addresses only the magnitude of funding mismatches and does not address
the magnitude or relative timing of rate changes and is not considered as
accurate as the Bank's simulation model. The Bank's balance sheet remains
asset-sensitive over the short term (approximately one year), and then
shifts to liability-sensitive in future periods. The result of this is
that in the near term, more assets than liabilities are subject to
immediate repricing as market rates change. Because most of the Bank's
securities portfolio, all overnight investments and approximately
one-third of its loan portfolio, bear variable rates, they reprice more
rapidly than rate sensitive interest-bearing deposits. During periods of
rising rates, this results in increased net interest income. However, in
periods of sustained rising rates, the fixed rate component of the Bank's
loan portfolio would begin to negatively impact net interest income after
the first year of such conditions and would result in lower net interest
income than in a flat rate scenario. The opposite would be expected
during periods of declining rates.
While the Bank's balance sheet has grown substantially over the first
three months of 2001, the mix of its rate-sensitive assets and
liabilities has not changed sufficiently to result in a material change
in its interest rate sensitivity since reported at December 31, 2000.
At March 31, 2001, the Bank's equity was sufficient to classify it as
well capitalized as defined by federal banking regulations. To allow for
continued asset growth and to increase the adequacy of the Company's
overall capital ratios, however, management expects to acquire additional
capital during the second or third quarter of 2001. It is anticipated
that the Company will issue long term debt which will qualify as
regulatory equity at this time. It is also expected that the Company will
require an additional equity infusion within the next twelve months
either through another secondary stock issuance or through the
acquisition of another institution. This capital may take the form of
debt as well as equity.
11
MountainBank Financial Corporation
Management Discussion and Analysis
March 31, 2001
- --------------------------------------------------------------------------------
Results of Operations for the Three Months Ended March 31, 2001
Compared with the Same Period in 2000
During the three month period ended March 31, 2001, net interest
income increased $1.2 million, or 99.51%, from the same period one year
ago. This increase is primarily attributable to the continued growth and
increased volume of the Bank's balance sheet discussed above. Strong loan
production during the quarter fueled the increase in interest income
resulting in a rise in interest on loans of $3.0 million or 134.77%. The
substantial increase in loan volume necessitated payment of relatively
high rates on certificates of deposit to fund this growth. Even though
market interest rates declined during the first quarter of 2001, the
significant growth in deposit liabilities resulted in an increase in
interest expense on deposits of $1.9 million or 132.72%. The result of
these changes was that the Bank's margins declined slightly during the
first quarter of 2001.
Interest on securities and overnight investments increased $259.5
thousand, or 89.95%, due to higher average volumes invested during the
quarter of 2001 as compared with the same period in 2000. Interest
expense on other borrowed funds increased substantially as a result of
increased federal funds purchased balances during the quarter. The
increase in the amount of interest expense associated with these
liabilities was $30.2 thousand or 129.37%.
Management determines the allowance for loan losses based on a number
of factors including reviewing and evaluating the Company's loan
portfolio in order to identify potential problem loans, credit
concentrations and other risk factors connected to the loan portfolio as
well as current and projected economic conditions locally and nationally.
Upon loan origination, management evaluates the relative quality of each
loan and assigns a corresponding loan grade. All loans are periodically
reviewed to determine both the initial and ongoing accuracy of these loan
grades. The loan grading system assists management in determining the
overall risk in the loan portfolio.
Management realizes that general economic trends greatly affect loan
losses and no assurances can be made that further charges to the loan
loss allowance may not be significant in relation to the amount provided
during a particular period or that further evaluation of the loan
portfolio based on conditions then prevailing may not require sizable
additions to the allowance, thus necessitating similarly sizable charges
to operations. During the three month period ended March 31, 2001,
management determined that a charge to operations of $627 thousand was
sufficient to bring the allowance for loan losses to a balance considered
to be adequate to absorb estimated potential losses in the portfolio.
This represents an increase of $237 thousand or 60.77% as compared to the
provision of $390 thousand recorded in the first quarter of 2000. At
March 31, 2001 the loan loss reserve was 1.48% of outstanding loans.
Excluding
12
MountainBank Financial Corporation
Management Discussion and Analysis
March 31, 2001
- --------------------------------------------------------------------------------
government guaranteed, sold and cash collateralized loans, the allowance
for loan losses was approximately 1.55% of total loans.
At March 31, 2001, the Bank had $279.5 thousand in loans that were
considered to be impaired under SFAS No. 114. All of these credits were
on a non-accruing basis.
For the quarter ended March 31, 2001, non-interest income totaled
$367.1 thousand, down slightly from $368.46 thousand recorded during the
same period in 2000. However, a gain on the sale of a loan during the
first quarter of 2000 accounted for $151.0 thousand of non-interest
income during that period. As compared with the first quarter of 2000,
service charges on deposit accounts, mortgage origination income and
other fees recorded increases of $52.5 thousand or 54.48%, $37.1 thousand
or 39.55% and $60.1 thousand or 220.67%, respectively during the first
three months of 2001. The increase in service charges on deposit accounts
was primarily a result of increases in the volume of accounts on which
various charges are collected. Mortgage origination income increased as a
result of declining interest rates and an increase in mortgage
refinances. The recorded increase in other fees was primarily a result of
increases in premiums on loan related insurance products sold during the
period.
First quarter 2001 non-interest expenses totaled $1.5 million, up
$627.7 thousand or 72.79%, from $862.4 thousand in the same quarter of
2000. The most significant portion of this increase related to personnel
costs which increased $294.6 thousand or 62.94% resulting from staffing
increases required as the Bank has expanded its branch network and built
infrastructure to support this growth. Occupancy expenses also increased
substantially as a result of continued growth increasing $114.2 thousand
or 82.11%. Other non-interest expenses totaled $474.1 thousand during the
first quarter of 2001, up $218.9 thousand, or 85.79%, from $255.2
thousand in the same quarter one year ago. The most significant item
contributing to this increase was an increase of $48.0 thousand in data
processing costs and data telecom fees associated with the Bank's core
data processing and its internal telecommunications network.
13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At the date of this filing, the registrant was a party to no legal
proceedings and management was unaware of any pending matters for which
litigation was considered likely.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.
None.
Reports on 8-K.
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MountainBank Financial Corporation
Date: May 10, 2001 /s/ J.W. Davis
------------------------------------
J. W. Davis
President & Chief Executive Officer
(Duly Authorized Officer)
Date: May 10, 2001 /s/ Greg Gibson
------------------------------------
Gregory L. Gibson
Principal Accounting Officer
15