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 September 30, 2001
Or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ______
MountainBank Financial Corporation
----------------------------------
(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 __
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
At November 2, 2001, the Company had 1,906,075 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 Financial Corporation are set
forth as follows.
Balance Sheets at September 30, 2001 and December 31, 2000............................... 3
Statement of Operations for the Three and Nine Months Ended September 30, 2001 and 2000.. 4
Statement of Changes in Shareholders' Equity through September 30, 2001 and 2000......... 5
Statement of Cash Flows for the Nine Months Ended September 30, 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............................................................. 15
Item 2. Changes in Securities......................................................... 15
Item 3. Defaults Upon Senior Securities............................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................... 15
Item 5. Other Information............................................................. 16
Item 6. Exhibits and Reports on Form 8-K.............................................. 16
Signatures............................................................................... 18
2
MountainBank Financial Corporation
Balance Sheets
At September 30, 2001 and December 31, 2000
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September 30, 2001 December 31, 2000
------------------ -----------------
(Unaudited}
Assets
Cash and due from banks $ 11,219,973 $ 7,797,745
Interest bearing deposits with banks 177,138 3,667,612
Federal funds sold 7,530,000 9,220,000
Investment securities available for sale 38,614,259 35,415,821
Restricted equity securities 1,421,200 453,300
Loans, net of allowance for loan losses of $5,045,719 at
September 30, 2001 and $3,006,842 at December 31, 2000 360,031,766 197,372,973
Property and equipment, net 3,018,387 2,322,157
Accrued income 2,949,316 2,007,804
Other assets 1,502,522 851,608
------------------ -----------------
Total assets $ 426,464,561 $ 259,109,020
================== =================
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 25,278,070 $ 15,531,055
Interest-bearing deposits 338,698,791 217,807,421
------------------ -----------------
Total deposits 363,976,861 233,338,476
Federal funds purchased and
Securities sold under agreements to repurchase 4,106,315 3,145,147
FHLB Advance 25,000,000 -
Note payable 6,500,000 -
Obligations under capital lease 741,797 759,804
Accrued interest payable 4,596,768 2,840,440
Other liabilities 1,460,742 814,734
------------------ -----------------
Total liabilities 406,382,483 240,898,601
------------------ -----------------
Commitments and contingencies
Stockholders' equity
Common stock, $4 par value; 10,000,000 shares
authorized; 1,871,938 and 1,873,755 shares issued and
outstanding at December 31, 2000 and September 30, 2001 7,495,020 7,487,752
Surplus 9,402,890 9,400,906
Retained earnings (deficit) 3,069,242 1,182,510
Unrealized appreciation on investment securities
available for sale 114,926 139,251
------------------ -----------------
Total stockholders' equity 20,082,078 18,210,419
------------------ -----------------
Total liabilities and stock holders' equity $ 426,464,561 $ 259,109,020
================== =================
3
MountainBank Financial Corporation
Statement of Operations--Unaudited
For the Nine and Three Months Ended September 30, 2001 and 2000
- --------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Deposits with banks $ 78,030 $ 106,362 $ 224,935 $ 445,531
Federal funds sold 23,165 23,652 212,568 139,039
Investment securities, taxable 597,498 531,638 1,659,524 1,196,530
Loans and fees on loans 8,270,630 3,649,457 19,941,982 8,772,955
----------- ----------- ----------- -----------
Total interest income 8,969,323 4,311,109 22,039,009 10,554,055
----------- ----------- ----------- -----------
Interest expense
Deposits 4,156,455 2,365,165 11,361,466 5,702,240
Federal funds purchased and securities sold under
agreements to repurchase 54,655 56,671 163,983 113,525
Other borrowed funds 736,025 18,825 1,082,637 53,401
----------- ----------- ----------- -----------
Total interest expense 4,947,135 2,440,661 12,608,086 5,869,166
Net interest income 4,022,188 1,870,448 9,430,923 4,684,889
Provision for loan losses 705,000 510,000 2,197,000 1,295,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,317,188 1,360,448 7,233,923 3,389,889
----------- ----------- ----------- -----------
Noninterest income
Service charges on deposit accounts 237,555 119,691 589,030 328,797
Mortgage origination income 318,948 98,369 639,299 295,116
Gain on sale of loan 64,703 -- 64,703 150,977
Other service charges and fees 162,127 76,606 360,465 161,610
----------- ----------- ----------- -----------
Other income 783,333 294,666 1,653,497 936,500
----------- ----------- ----------- -----------
Noninterest expense
Salaries and employee benefits 1,319,007 663,105 3,179,580 1,698,947
Occupancy expense 325,794 178,390 876,342 478,593
Other expense 736,919 366,909 1,895,766 966,669
----------- ----------- ----------- -----------
Total noninterest expense 2,381,720 1,208,404 5,951,688 3,144,209
----------- ----------- ----------- -----------
Income before income taxes 1,718,801 446,710 2,935,732 1,182,180
Income tax expense 629,000 140,000 1,049,000 360,538
----------- ----------- ----------- -----------
Net income $ 1,089,801 $ 306,710 $ 1,886,732 $ 821,642
=========== =========== =========== ===========
Basic earnings per share $ 0.58 $ 0.17 $ 1.01 $ 0.51
Diluted earnings per share $ 0.54 $ 0.16 $ 0.93 $ 0.48
Weighted average shares outstanding 1,873,632 1,787,436 1,873,167 1,613,098
4
MountainBank Financial Corporation
Statements of Cash Flows--Unaudited
For the Nine and Three Months Ended September 30, 2001 and 2000
- --------------------------------------------------------------------------------
Cash flows from operating activities September 30, 2001 September 30, 2000
------------------ ------------------
Net income (loss) $ 1,886,732 $ 821,642
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amoritization 360,000 221,377
Provision for loan losses 2,197,000 1,295,000
Deferred income taxes --
Accretion of discount on securities, net of
amortization of premiums (4,570) 51,290
Changes in assets and liabilities:
Accrued income (941,512) (767,994)
Other real estate owned --
Other assets (650,914) (225,183)
Accrued interest payable 1,756,328 904,676
Other liabilities 646,008 335,998
------------- -------------
Net cash provided (used) by operating activities 5,249,072 2,636,806
------------- -------------
Cash flows from investing activities
Net (increase) decrease in federal funds sold 1,690,000 1,420,000
Net (increase) decrease in interest-bearing deposits with banks 3,490,474 7,651,958
Purchases of investment securities (15,708,809) (19,882,801)
Maturities of investment securities 11,522,716 3,024,921
Net increase in loans (164,855,793) (76,201,971)
Purchases of property and equipment (1,056,230) (575,698)
------------- -------------
Net cash used in investing activities (164,917,642) (84,563,591)
------------- -------------
Cash flows from financing activities
Net increase in noninterest-bearing deposits 9,747,015 6,095,613
Net increase in interest-bearing deposits 120,891,370 72,598,313
Net increase in Federal funds purchased securities sold under
agreements to repurchase 961,168 1,096,026
Net increase in notes payable 31,500,000
Repayment of obligations under capital lease (18,007) (14,899)
Proceeds from the exercise of stock options 9,252 5,791
Proceeds from the issuance of common stock, net -- 6,732,968
------------- -------------
Net cash provided by financing activities 163,090,798 86,513,812
------------- -------------
Net increase in cash and cash equivalents 3,422,228 4,587,027
Cash and cash equivalents, beginning 7,797,745 4,298,207
------------- -------------
Cash and cash equivalents, ending $ 11,219,973 $ 8,885,234
============= =============
Supplemental disclosures of cash flow information
Interest paid $ 10,851,758 $ 4,964,490
============= =============
Income taxes paid $ 1,049,000 $ 360,538
============= =============
5
MountainBank Financial Corporation
Statement of Changes in Stockholders' Equity--Unaudited
For the nine months ended September 30, 2000 and September 30, 2001
- --------------------------------------------------------------------------------
Accumulated
Common Stock Other
------------ Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------ ------ ------- -------- ------ -----
Balance, December 31, 1999 1,442,433 $ 5,769,730 $ 4,385,302 $ 126,541 $ (59,081) $ 10,222,492
Comprehensive income -
Net Income 821,642 821,642
Net change in unrealized
appreciation on investment
securities available for sale 39,454 39,454
------------
Total comprehensive income 861,096
Shares issued pursuant to
secondary stock offering 428,419 1,713,675 5,025,084 6,738,759
-------------------------------------------------------------------------------------
Balance September 30, 2000 1,870,852 $ 7,483,405 $ 9,410,386 $ 948,183 $ (19,627) $ 17,822,347
=====================================================================================
Balance, December 31, 2000 1,871,938 $ 7,487,752 $ 9,400,906 $ 1,182,510 $ 139,251 $ 18,210,419
Comprehensive income -
Net Income 1,886,732 1,886,732
Net change in unrealized
appreciation on investment
securities available for sale (24,325) (24,325)
------------
Total comprehensive income 1,862,407
Shares issued pursuant to
secondary stock offering
and Employee and Director
stock option plans 1,817 7,268 1,984 9,252
-------------------------------------------------------------------------------------
Balance September 30, 2001 1,873,755 $ 7,495,020 $ 9,402,890 $ 3,069,242 $ 114,926 $ 20,082,078
=====================================================================================
6
MountainBank Financial Corporation
Notes to Financial Statements--Unaudited
September 30, 2001
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Note 1. Organization and Summary of Significant Accounting Policies
Organization:
MountainBank Financial Corporation (the "Company") is a single bank
holding company incorporated on January 10, 2001 by the Board of Directors
of MountainBank (the "Bank"). 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 Company is subject to regulation by the Federal
Reserve.
MountainBank, the Company's wholly owned bank subsidiary, is a state
chartered, full service commercial banking institution, insured by the FDIC
and incorporated under the laws of North Carolina. The Bank currently
operates nine full service banking offices, one loan production office and
an administration center. The Bank's full service offices are located in
Hendersonville, N.C. (2), Columbus, N.C., Fletcher, N.C., Asheville, N.C.,
Lake Lure, N.C., Forest City, N.C., Marion, N.C. and Waynesville, N.C. The
Bank has received approval from regulators to open an additional branch
office in Morganton, N.C. and expects to open this office within the next
two quarters. The Bank is subject to regulation by the FDIC and the North
Carolina State Banking Commission.
Basis of Presentation:
The financial statements as of September 30, 2001 and for the periods
ended September 30, 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 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, equity acquisition, 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
7
MountainBank Financial Corporation
Notes to Financial Statements--Unaudited
September 30, 2001
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Securities Litigation Reform Act of 1995. Important factors that could
cause actual results or events to differ materially 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 September 30, 2001
was $64.2 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
September 30, 2001
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company currently conducts all business through its wholly owned
subsidiary, MountainBank. The Bank conducts its business through nine full
service branch offices in Henderson, Polk, Buncombe, Rutherford, McDowell,
and Haywood counties in western North Carolina. Additionally, the Bank
opened a loan production office in Morganton, North Carolina during the
first quarter of 2001, and will complete the acquisition of a full-service
mortgage brokerage operation located in Greenwood, South Carolina during
the fourth quarter of 2001. The following discussion and analysis is
provided to address information about the financial condition and results
of operations of the Company and the Bank, 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 September 30, 2001 Compared with December
31, 2000
The Company continued to experience significant growth during the
third quarter of 2001, albeit slower than that experienced in the first two
quarters of the year. During the first nine months of 2001, total assets
increased $167.3 million, or 64.46%, while earning assets increased $163.7
million, or 65.70%, over the same period. Year to date, loans have
increased $164.7 million, or 82.19% as the Company has continued
penetrating its current geographic markets and has opened two full service
offices and one loan production office during 2001. Short-term interest
bearing accounts and Fed funds sold decreased at September 30, 2001 as the
Company has continued to allocate the majority of available funding to its
loan portfolio. At September 30, 2001 the Company's loan to deposit ratio
was 100.30% and its loan to asset ratio was 85.65%. This compares with
85.81% and 77.33%, respectively at December 31, 2000. The Bank's securities
portfolio increased $4.2 million or 11.62 % during the period as some
additional funding was used to acquire pledgeable assets.
Deposits increased $130.6 million, or 56.0 %, from December 31, 2000
to September 30, 2001, with non-interest bearing demand deposits increasing
$9.7 million, or 62.76%, over the same nine month period. Interest bearing
deposits, primarily certificates of deposit, increased $120.9 million, or
55.50%. Approximately $51 million of this increase in certificates of
deposit resulted from the Bank's introductory Internet CD campaign
conducted during the second quarter.
9
MountainBank Financial Corporation
Management Discussion and Analysis
September 30, 2001
- --------------------------------------------------------------------------------
During the first nine months of the year, new liabilities were added
to the Company's balance sheet. A $25 million advance from the Federal Home
Loan Bank of Atlanta was entered into during the second quarter and the
Company acquired mezzanine debt financing from an upstream correspondent
bank of $6.5 million, $1.5 million of which was acquired in the third
quarter. This borrowing was used primarily by the parent company to
purchase additional stock from the Bank, thereby enhancing the Bank's
capital ratios. It is expected that this borrowing will be liquidated in
the second half of 2001 through the acquisition of additional equity.
During the first nine months of 2001, common stock outstanding increased
1,817 shares, or .10% as a result of exercises of stock options.
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. At
September 30, 2001, management considered the Company's liquidity position
to be adequate to meet expected 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, interest margins and the overall leverage of the Company's
balance sheet becomes increasingly important as growth and expansion into
other markets continues. Management considers the Company's deposit base to
be generally stable and not overly vulnerable to volatility experienced in
national financial markets in recent years; however, the Company does
realize the importance of minimizing such volatility while at the same time
balancing growth and earnings capacity as well as maximizing shareholder
value. During the first nine months of 2001, the velocity of the Company's
loan production accelerated thus requiring modifications to the Company's
liquidity plan. As discussed above, new sources of funding have been added
which are expected to provide supplemental funding to support ongoing loan
production and assist in the overall management of funding costs. It is
management's opinion that the addition of these funding sources has
strengthened the Company's liquidity management process.
10
MountainBank Financial Corporation
Management Discussion and Analysis
September 30, 2001
- --------------------------------------------------------------------------------
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,
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 precise as the Bank's simulation
model. The Bank's balance sheet is 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 nine 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.
As a result of the rapid growth experienced during the first nine
months of 2001, the Company's capital ratios have declined during the
period. At September 30, 2001, the Company's equity to assets ratio
was at 4.73%. Several initiatives have been undertaken by management
and the Board of Directors to increase the Company's capital base.
These include the acquisition of First Western Bank which was
announced during the third quarter of 2001 and preparation for the
issuance of a combination of Trust Preferred securities and Preferred
Convertible equity. All of these initiatives are expected to be
completed by the end of 2001 and are expected to significantly
increase the Company's equity by that time. Management expects these
initiatives to generate between $22 million to $26 million to
additional Tier I capital which is expected to be sufficient to
support anticipated near-term growth.
11
MountainBank Financial Corporation
Management Discussion and Analysis
September 30, 2001
- --------------------------------------------------------------------------------
Results of Operations for the Three and Nine Month Periods Ended
September 30, 2001 Compared with the Same Periods in 2000
During the three month period ended September 30, 2001, net
interest income increased $2.2 million, or 115.04%, from the same
period last year. The increase is primarily attributable to the
overall growth and increased volume of the Bank's balance sheet and
the continuing strong loan demand experienced in the Bank's primary
lending markets. During the period, average gross loans increased
$208.5 million, or 141.7%, resulting in an increase of $4.6 million or
126.63% in interest earned on loans.
Interest on securities and overnight investments increased $65.3
thousand, or 1.77%, due to higher average volumes invested during the
quarter. Average securities and overnight investments were $47.9
million compared to $33.8 million during 2000, an increase of $14.1
million or 41.5%. Interest expense increased $2.5 million, or 102.7%,
primarily due to the overall increase in volume of deposits.
Interest-bearing deposits averaged $330.9 million compared to $160.5
million last year, an increase of $170.4 million, or 106.17%.
During the first nine months of 2001, net interest income
increased substantially to $9.4 million from $4.7 million,
representing a change of $4.7 million or 101.31%. Again, this increase
resulted primarily from continued growth, particularly with regard to
the Company's loan portfolio which averaged $285.6 million compared to
$123.5 million last year, an increase of $162.2 million, or 131.32 %.
Interest on securities and overnight investments increased $536
thousand, or 40.17%, due to higher average volumes invested during the
period. Average securities and overnight investments were $45.1
million compared to $28.0 million last year, an increase of $17.1
million, or 61.07%.
Interest expense increased $6.7 million or 114.82%, again,
primarily due to overall growth of the Bank's balance sheet.
Interest-bearing deposits averaged $273.3 million compared to $138.4
million last year, an increase of $134.9 million, or 97.48%.
For the quarter ended September 30, 2001, non-interest income
totaled $783.3 thousand, up $488.7 thousand, or 165.84%, from $294.7
thousand earned in the same period of 2000. Fees on deposit accounts
increased $117.9 thousand or 98.47% during the third quarter as
compared with the third quarter of 2000. Origination fees generated
from the origination and sale of mortgage loans increased $220.6
thousand, or 224.24%. Falling mortgage rates during the first nine
months of 2001 have resulted in a high volume of mortgage refinances
which in turn were responsible for the majority of this increase. Fees
from other services increased $85.6 thousand or 111.64% in the third
12
MountainBank Financial Corporation
Management Discussion and Analysis
September 30, 2001
- --------------------------------------------------------------------------------
quarter of 2001 in comparison to the same period in 2000. This
increase resulted primarily from increased sales of commissioned
insurance products.
Third quarter 2001 non-interest expenses totaled $2.4 million, up
$1.2 million or 97.10%, from $1.2 million in the same quarter of 2000.
Personnel costs increased $655.9 thousand or 98.91% resulting from
staffing increases required as the Bank has opened new offices and
grown its infrastructure to support its retail banking network. Other
non-interest expenses totaled $1.1 million during the third quarter of
2001, up $517.4 thousand, or 94.89%, from $545.3 thousand in the same
quarter a year ago. Of the $517.4 thousand increase, $98.7 thousand
was attributed to increases in data processing and data telecom fees.
Printing and supplies expense recorded a $34 thousand increase during
the period, and professional and consulting fees increased $52.6
thousand.
For the nine months ended September 30, 2001, non-interest income
totaled $1.7 million, up $717.0 thousand, or 76.56%, from $936.5
thousand earned in the first nine months of 2000. During the period,
service charges on deposit accounts increased $260.2 thousand, or
79.15% while fees on mortgage originations increased from $295.1
thousand to $ 639.3 thousand, an increase of $344.2 thousand, or
116.63%.
Total non-interest expenses were $6.0 million during the first
nine months of 2001, representing an increase of $2.8 million, or
89.29%, from $3.1 million in the same period of 2000. Year-to-date
increases in the various overhead captions were principally impacted
by the continuing growth of the Bank and the building of
infrastructure to support ongoing expansion. For the period, personnel
expense totaled $3.2 million, up $1.5 million, or 87.15%, from $1.7
million in the same period of 2000. Year-to-date occupancy expense
increased $397.7 thousand, or 83.11%. Other non-interest expense
totaled $1.9 million for the nine months ended September 30, 2001, up
$929.0 thousand, or 96.11%, from $966.7 thousand in the same period of
2000. Of the $929.0 thousand increase in other non-interest expenses,
marketing increased $99.8 thousand, professional and consulting fees
increased $127.3 thousand, $256.6 thousand related to increases in
data processing and data telecom fees and $116.9 thousand related to
printing and supplies.
Provisions for Possible Loan Losses, Allowance for Loan Losses and
Discussion of Asset Quality
With the rapid growth of the Company, management is extremely
focused on maintaining safe and sound lending practices and on
protecting its asset quality to the
13
MountainBank Financial Corporation
Management Discussion and Analysis
Setember 30, 2001
- --------------------------------------------------------------------------------
fullest extent deemed practical. The adequacy of the allowance for loan
losses is assessed at least quarterly and is evaluated based on a number of
factors including identification of potential problem loans, credit
concentrations, the volume of new loans, industry standards and other risk
factors connected to the loan portfolio as well as current and projected
economic conditions both locally and nationally. On an ongoing basis,
management evaluates the relative quality of individual loans and assigns a
corresponding loan grade. Periodically, loans are 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. During the three and nine month periods ended September 30,
2001, management determined charges to operations of $705 thousand and $2.2
million, respectively, were sufficient to bring the allowance for loan
losses to a balance considered to be adequate to absorb estimated potential
losses in the portfolio. It should be noted 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. The following table presents an analysis of changes
in the allowance for loan losses for the third quarter of 2001 and for the
fiscal year of 2001.
Analysis of Allowance for Loan Losses
-------------------------------------
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------------- -----------------------
Allowance for loan losses, beginning of period $4,424,528 $3,006,842
-------------------------- ------------------------
Net loan charge offs:
Real estate 3,463 3,463
Commercial and industrial 3,974 8,507
Credit cards and related plans - -
Consumer installment 78,382 152,291
-------------------------- ------------------------
Total charge offs 85,819 164,261
-------------------------- ------------------------
Recoveries of previously charged off loans
Real estate - -
Commercial and industrial - 697
Credit cards and related plans - -
Consumer installment 2,010 5,441
-------------------------- ------------------------
Total Recoveries 2,010 6,138
-------------------------- ------------------------
Total net charge offs 83,809 158,123
-------------------------- ------------------------
Loss provisions charged to operations 705,000 2,197,000
-------------------------- ------------------------
Allowance for loan losses at September 30, 2001 $5,045,719 $5,045,719
========================== ========================
14
MountainBank Financial Corporation
Management Discussion and Analysis
Setember 30, 2001
- --------------------------------------------------------------------------------
Ratio of annualized net charge-offs during the
period to average loans during the period 0.09% 0.07%
Allowance coverage of annualized net charge-offs 1,505.14% 2,393.25%
Allowance as a percentage of gross loans 1.38%
Allowance as a percentage of gross loans less
government guaranteed and sold loans 1.40%
Ratio of provision for loan losses to annualized
net charge-offs 210.30% 1,042.07%
With the slowing economy and the economic shock experienced during
September of this year, management has begun to place a higher level of
scrutiny on the Company's existing loan portfolio. Management is currently
taking measures to further enhance the quality of new loan originations and
to ensure loan yields are commensurate with the risk associated with each
credit. Management expects these actions to slow the Company's loan growth
over the next two quarters and possibly later into 2002. However,
management also expects these actions to favorably impact asset yields and
the Company's interest rate margin over the period. At September 30, 2001
and December 31, 2000, the Company had non-performing assets totaling $594
thousand and $46 thousand, respectively. The following table presents
non-performing assets at September 30, 2001 and December 31, 2000.
Non-performing Assets
---------------------
September 30, 2001 December 31, 2000
------------------ -----------------
Non-accruing loans $535,467 $79,975
Loans past due 90 days or more
and still accruing interest - -
---------------------- ----------------------
Total non-performing loans 535,467 79,975
---------------------- ----------------------
Foreclosed and repossessed properties 58,500 3,219
-------------------------------------------------
Total non-performing assets $593,967 $83,194
=================================================
Non-performing loans to total loans 0.15% 0.04%
Allowance coverage of non-performing loans 849.49% 3,614.25%
Non-performing assets to total assets 0.14% 0.03%
15
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
16
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: November 2, 2001 /s/ J.W. Davis
-----------------------------------------
J. W. Davis
President & Chief Executive Officer
(Duly Authorized Officer)
Date: November 2, 2001 /s/ Gregory L. Gibson
-----------------------------------------
Gregory L. Gibson
Principal Accounting Officer
17