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, 2002
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
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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 September 30, 2002, the Company had 3,138,912 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 September 30, 2002 and December 31, 2001 ................................. 3
Statement of Operations for the Three and Nine Months Ended September 30,
2002 and 2001 ......................................................................... 4
Statement of Changes in Stockholders' Equity for the Years Ended December
31, 2000 and 2001 and for the Nine Months Ended September 30, 2002 .................... 5
Statement of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 .............. 6
Notes to Financial Statements .............................................................. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................................. 13
Item 3. INTERNAL CONTROLS AND PROCEDURES ................................................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................. 23
Item 2. Changes in Securities and Use of Proceeds .......................................... 23
Item 3. Defaults Upon Senior Securities .................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders ................................ 23
Item 5. Other Information .................................................................. 23
Item 6. Exhibits and Reports on Form 8-K ................................................... 23
Signatures ................................................................................. 24
Officer's Certifications ................................................................... 25
2
MountainBank Financial Corporation
Balance Sheets
At September 30, 2002 (Unaudited) and December 31, 2001 (Audited)
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(Dollars in thousands, except share data) September 30, 2002 December 31, 2001
------------------ -----------------
Assets
Cash and due from banks $ 14,787 $ 10,126
Interest bearing deposits with banks 11,146 525
Federal funds sold - -
Investment securities available for sale 70,583 34,626
U.S. agencies equity investment securities available for sale 8,576 8,702
Restricted equity securities 2,059 2,059
Loans, net of allowance for loan losses of $9,903 at
September 30, 2002 and $7,113 at December 31, 2001 616,268 483,872
Property and equipment, net 8,568 7,204
Accrued income 3,889 3,249
Intangible assets, net 2,572 2,820
Other assets 9,653 7,940
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Total assets $ 748,101 $ 561,123
================== =================
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 56,218 $ 41,188
Interest-bearing deposits 568,009 426,319
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Total deposits 624,227 467,507
Federal funds purchased and
Securities sold under agreements to repurchase 12,932 5,240
Short-term debt - 1,250
Long-term debt 56,191 42,633
Obligations under capital lease 716 736
Accrued interest payable 3,652 4,778
Other liabilities 948 1,964
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Total liabilities 698,666 524,108
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Stockholders' equity
Preferred stock, no par value; 3,000,000 shares authorized;
and 419,243 and 92,667 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 10,062 2,224
Common stock, $4 par value; 10,000,000 shares authorized;
and 3,138,912 and 3,112,699 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 12,556 12,451
Surplus 18,778 18,584
Retained earnings 8,124 3,692
Accumulated other comprehensive income (loss) (85) 64
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Total stockholders' equity 49,435 37,015
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Total liabilities and stock holders' equity $ 748,101 $ 561,123
================== =================
3
MountainBank Financial Corporation
Statement of Operations (Unaudited)
For the three and nine months ended September 30, 2002 and September 30, 2001
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Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(Dollars in thousands, except share data) 2002 2001 2002 2001
---- ---- ---- ----
Interest income
Loans and fees on loans $ 10,924 $ 8,271 $ 31,315 $ 19,942
Federal funds sold 70 23 168 213
Investment securities 601 523 1,366 1,514
Deposits with banks 141 78 144 225
Other 49 74 193 146
---------- ---------- ---------- ----------
Total interest income 11,785 8,969 33,186 22,040
---------- ---------- ---------- ----------
Interest expense
Deposits 4,432 4,156 12,050 11,361
Federal funds purchased and securities sold under
agreements to repurchase 33 55 94 164
Other borrowed funds 739 736 1,792 1,083
---------- ---------- ---------- ----------
Total interest expense 5,204 4,947 13,936 12,608
---------- ---------- ---------- ----------
Net interest income 6,581 4,022 19,250 9,432
Provision for loan losses 1,150 705 3,400 2,197
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 5,431 3,317 15,850 7,235
---------- ---------- ---------- ----------
Noninterest income
Service charges on deposit accounts 641 238 1,746 589
Mortgage origination income 929 319 2,106 639
Gain on sale of loans - 65 - 65
Gain (loss) on sale of securities (7) - 241 -
Other service charges and fees 24 162 344 360
---------- ---------- ---------- ----------
Other income 1,587 784 4,437 1,653
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Noninterest expense
Salaries and employee benefits 2,298 1,319 6,392 3,180
Occupancy expense 716 326 1,785 876
Other expense 1,536 737 4,263 1,896
---------- ---------- ---------- ----------
Total noninterest expense 4,550 2,382 12,440 5,952
---------- ---------- ---------- ----------
Income before income taxes 2,468 1,719 7,847 2,936
Income tax expense 941 629 3,114 1,049
---------- ---------- ---------- ----------
Net income 1,527 1,090 4,733 1,887
Preferred stock dividends
declared 150 -- 301 --
---------- ---------- ---------- ----------
Net income available to
common stockholders $ 1,377 $ 1,090 $ 4,432 $ 1,887
========== ========== ========== ==========
Basic earnings per share $ 0.44 $ 0.48 $ 1.42 $ 0.84
Diluted earnings per share $ 0.39 $ 0.45 $ 1.22 $ 0.78
Basic weighted average shares outstanding 3,137,172 2,248,358 3,124,893 2,247,800
Diluted weighted average shares outstanding 3,893,943 2,434,358 3,881,664 2,433,800
4
MountainBank Financial Corporation
Statement of Changes in Stockholders' Equity
For the two years ended December 31, 2001, 2000 and the nine months (unaudited)
ended September 30, 2002
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Stock Accumulated
----- Other
Preferred Common Retained Comprehensive
(Dollars in thousands) Amount Amount Surplus Earnings Income (Loss) Total
-------- -------- ------- -------- ------------- --------
Balance, December 31, 1999 $ - $ 5,770 $ 4,385 $ 126 $ (59) $ 10,222
Comprehensive income
Net Income - - - 1,056 - 1,056
Net change in unrealized
appreciation on investment
securities available for sale - - - - 198 198
---------
Total comprehensive income 1,254
Shares sold - 1,705 5,006 - - 6,711
Stock options exercised - 13 10 23
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Balance December 31, 2000 $ - $ 7,488 $ 9,401 $ 1,182 $ 139 $ 18,210
===========================================================================
Comprehensive income
Net Income - - - 2,510 - 2,510
Net change in unrealized
appreciation on investment
securities available for sale - - - - (75) (75)
---------
Total comprehensive income 2,435
Shares sold 2,224 - - - - 2,224
Shares issued to acquire
PremierMortgage Associates, Inc. - 80 220 - - 300
Shares issued to acquire
First Western Bank - 2,751 11,005 - - 13,756
Stock options exercised - 57 33 - - 90
Stock split, effected in
the form of a dividend - 2,075 (2,075) - - -
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Balance December 31, 2001 $ 2,224 $ 12,451 $ 18,584 $ 3,692 $ 64 $ 37,015
===========================================================================
Comprehensive income
Net Income - - - 4,733 - 4,733
Net change in unrealized
appreciation on investment
securities available for sale - - - - (149) (149)
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Total comprehensive income 4,584
Dividends Paid (301) (301)
Shares sold 7,838 - - - - 7,838
Stock options exercised - 108 204 - - 312
Dissenters' Shares - (2) (8) - - (10)
Fractional shares purchased (1) (2) (3)
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Balance September 30, 2002 $ 10,062 $ 12,556 $ 18,778 $ 8,124 $ (85) $ 49,435)
===========================================================================
5
MountainBank Financial Corporation
Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2002 and 2001
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(Dollars in thousands) September 30, 2002 September 30, 2001
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Cash flows from operating activities
Net income $ 4,733 $ 1,887
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amoritization 1,092 360
Provision for loan losses 3,400 2,197
Net gain on sales and calls of investment securities (241) -
Accretion of discount on securities, net of
amortization of premiums 14 (5)
Changes in assets and liabilities:
Accrued income (640) (941)
Other real estate owned (319) -
Other assets (1,318) (651)
Accrued interest payable (1,126) 1,756
Other liabilities (958) 646
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Net cash provided (used) by operating activities 4,637 5,249
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Cash flows from investing activities
Net (increase) decrease in federal funds sold - 1,690
Net increase in interest-bearing deposits with banks (10,621) 3,490
Purchases of investment securities (67,225) (15,709)
Maturities of investment securities 7,650 11,523
Sales and calls of investment securities 23,747
Net increase in loans (135,796) (164,856)
Purchases of property and equipment (2,208) (1,056)
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Net cash used in investing activities (184,453) (164,918)
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Cash flows from financing activities
Net increase in noninterest-bearing deposits 15,030 9,747
Net increase in interest-bearing deposits 141,690 120,892
Net increase in Federal funds purchased and
securities sold under agreements to repurchase 7,692 961
Net (decrease) increase in notes payable (6,500) 6,500
Net (decrease) increase in FHLB advances (1,250) 25,000
Net increase in trust preferred debt 20,000 -
Repayment of obligations under capital lease (19) (18)
Proceeds from the exercise of stock options 312 9
Proceeds from the issuance of preferred stock, net 7,838 -
Dividends paid (302) -
Fractional shares purchased (4) -
Purchase of dissenter's common stock shares (10) -
------------------ ------------------
Net cash provided by financing activities 184,477 163,091
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Net increase in cash and cash equivalents 4,661 3,422
Cash and cash equivalents, beginning 10,126 7,798
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Cash and cash equivalents, ending $ 14,787 $ 11,220
================== ==================
Supplemental disclosures of cash flow information
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Interest paid $ 15,062 $ 10,852
================== ==================
Income taxes paid $ 3,114 $ 1,049
================== ==================
6
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
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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 sole 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
Company is regulated by the Federal Reserve of Richmond.
On December 31, 2001, the Company acquired First Western Bank, located
in Burnsville, N.C. and merged it into MountainBank ("the Bank"). The first
quarter of 2002 represented the initial reporting period of operations for
the combined banks. Accordingly, operating results for the first nine
months of 2002 includes combined operations of both banks, whereas results
for the first nine months of 2001 include only operations of MountainBank.
MountainBank 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 seventeen full service banking
offices located in nine western North Carolina counties as well as a
mortgage brokerage operation headquartered in Greenwood, S.C. The Bank is
subject to regulation by the FDIC and the North Carolina State Banking
Commission. As MountainBank Financial Corporation is a single bank holding
company, much of the following discussion relates both to the Company and
the Bank and the following discussion will speak to both entities
interchangeably.
Basis of Presentation:
The financial statements as of September 30, 2002 and for the periods
ended September 30, 2002 and 2001 have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the information furnished in
these interim financial statements reflects all adjustments necessary to
present fairly the Company's financial position, results of operations,
cash flows and changes in shareholders' equity 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, 2001, included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2001.
Statements in this report as to the Company's projections for
expansion, capital
7
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
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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 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 2001 Financial Statements incorporated in its 2001 Form
10-KSB.
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, 2002
was approximately $86.8 million.
Properties and Equipment:
Company 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.
Note 2. New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, that superseded Accounting Principles Board (APB)
Opinion No. 17. Under SFAS 142, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized, but are to be reviewed at
least annually for impairment. SFAS 142 also changes the amortization
methodology in intangible assets that are deemed to have finite lives, and
adds to required disclosures regarding goodwill and intangible assets. SFAS
142 is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS 142 on January 1, 2002 by the Company did not have a
material impact on the
8
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
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consolidated financial statements, and is not anticipated to have a
material impact in the future. Under guidance in SFAS 142 management
expects to conduct an annual analysis concerning potential impairment of
the goodwill existing on the Company's balance sheet. Any goodwill
determined to be impaired at that time will be written off at the time of
the analysis. The net carrying amount of goodwill at September 30, 2002 on
the Company's balance sheet was $219 thousand. The other intangible assets
on the Company's books at that date were core deposit intangible assets
associated with the acquisition of First Western Bank. These CDI
intangibles amounted to $2.4 million at September 30, 2002 and were
amortized $64 thousand and $193 thousand during the third quarter and first
three quarters of 2002, respectively.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, that superseded SFAS No. 121
and APB Opinion No. 30. SFAS 144 provides guidance on differentiating
between assets held and used, held for sale, and held for disposal other
than by sale, and the required valuation of such assets. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. The adoption
of SFAS No. 144 on January 1, 2002 did not have a material impact on the
consolidated financial statements, and is not anticipated to have a
material impact in the future.
In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS
Statements No. 4 (Reporting Gains and Losses from Extinguishment of Debt),
No. 44 (Accounting for Intangible Assets of Motor Carriers), and No. 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements),
Amendment of SFAS No. 13 (Accounting for Leases), and Technical
Corrections. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS 145 is
effective for transactions occurring after May 15, 2002. The adoption of
SFAS 145 on May 15, 2002 by the Company did not have a material impact on
the consolidated financial statements, and is not anticipated to have a
material impact in the future.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146 requires
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred, as opposed to being recognized at
the date an entity commits to an exit plan under EITF 94-3. SFAS 146 also
establishes that fair value is the objective for initial measurement of the
liability. SFAS 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with earlier application encouraged.
9
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
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Note 3. Net Income Per Share
Basic net income per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the year.
Diluted net income per share reflects the potential dilution that could
occur if the Corporation's potential common stock and contingently issuable
shares, which consist of dilutive stock options and Series A Preferred
Convertible stock, had been issued.
The numerators of the basic net income per share computations are the
same as the numerators of the diluted net income per share computations for
all periods presented. The effect of potential common stock is excluded
from the computation of diluted earnings per common share in periods in
which the effect would be antidilutive. The following table sets forth
information for the computation of net income per share and net income per
share assuming dilution (dollars and shares in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Net income $ 1,527 $ 1,090 $ 4,733 $ 1,887
======= ======= ======= =======
Net income available to common
stockholders $ 1,377 $ 1,090 $ 4,432 $ 1,887
======= ======= ======= =======
Denominator:
Weighted average shares
outstanding 3,137 2,248 3,125 2,248
------- ------- ------- -------
Effect of dilutive securities:
Common stock options 254 186 254 186
Series A Preferred Stock 503 - 503 -
------- ------- ------- -------
Potential dilutive common shares 757 186 757 186
------- ------- ------- -------
Denominator for net income per
share assuming dilution 3,894 2,434 3,882 2,434
======= ======= ======= =======
Assuming conversion at the end of each period in 2002 and 2001, the
period end total of potentially dilutive securities, which are comprised of
stock options and preferred stock, would be 757 thousand shares for the
quarter and nine months ended September 30, 2002, and 186 thousand shares
for the same periods in 2001, respectively.
Note 4. Deposits
Interest-bearing deposit account balances at September 30, 2002 and
2001 are
10
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
- --------------------------------------------------------------------------------
summarized as follows (dollars in thousands):
September 30, 2002 September 30, 2001
---------------------------------------- ----------------------------------------
Percent Weighted Weighted
of Average Percent Average
Amount Total Rate Amount of Total Rate
------ ----- ---- ------ -------- ----
NOW $ 68,645 12.1% 1.47% $ 20,432 6.0% 1.16%
Savings 10,874 1.9% 1.34% 3,781 1.1% 1.97%
Money Market 86,803 15.3% 2.35% 55,132 16.3% 3.61%
------ ------
Transaction Deposits 166,322 29.3% 1.91% 79,345 23.4% 2.88%
------- ------
CDs under $100,000 239,064 42.1% 3.57% 167,753 49.5% 5.63%
CDs over $100,000 162,623 28.6% 3.75% 91,601 27.1% 5.45%
------- ------
Total CDs 401,687 70.7% 3.64% 259,354 76.6% 5.57%
------- -------
Interest-Bearing Deposits $568,009 100.0% 3.18% $338,699 100.0% 4.98%
======== ========
Note 5. Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures
On June 28, 2002, MountainBank Financial Corporation Capital Trust I,
a Delaware business trust formed by the Company, completed the sale of
$20.0 million of floating rate (three-month LIBOR plus 3.65%) preferred
securities, due June 30, 2032. The Company has the right to redeem the
securities, in whole or in part, on or after June 30, 2007, at par plus any
accrued but unpaid interest to the redemption date.
Note 6. Recent Developments
The Company recently announced agreements to acquire two bank holding
companies in Virginia, Cardinal Bankshares Corporation, located in Floyd,
Virginia and CNB Holdings, Inc., located in Pulaski, Virginia. The Company
reported the execution of these merger agreements via filings on Form 8-K
on May 31, 2002 and June 27, 2002. Additionally, on July 23, 2002, the
Company filed a Form 8-K regarding the signing of a merger agreement with
TrustCo Holding, Inc., located in Greenville, South Carolina. TrustCo
Holding, Inc. is the parent company for Trust Company of the South, a
non-depository Trust Company and Asset Management of the South, a
Registered Investment Advisory company. The Company reported the execution
of this merger agreement via
11
MountainBank Financial Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2002 (Unaudited)
- --------------------------------------------------------------------------------
filing on Form 8-K on July 23, 2002. Management had originally expected all
of these mergers to be completed in the fourth quarter of 2002. However,
the company's Form S-4 filing relating to the Cardinal Bankshares, Inc.
acquisition was selected for routine review by the Securities and Exchange
Commission. This review has delayed the closing of these acquisitions.
Management now expects to complete these transactions early in the first
quarter of 2003.
On September 27, 2002, the Company filed a Form 8-K with the
Securities and Exchange Commission which announced the approval of the
Company for listing of its stock on the Nasdaq SmallCap market. The
Company's stock began trading on Nasdaq's SmallCap market on September 30,
2002.
12
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management has provided the following discussion and analysis to
address information about the Company'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. The following
discussion and analysis should be read in conjunction with the consolidated
financial statements of MountainBank Financial Corporation (the "Company")
and the notes thereto located herein and in the Company's 2001 Annual
Report and filing on Form 10-KSB.
The following discussion contains certain forward-looking statements
about the Company's financial condition and results of operations, which
are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's judgment only as of
the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
Factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among others, the
following possibilities: (1) projected business increases in connection
with the implementation of our business plan are lower than expected; (2)
competitive pressure among financial services companies increases
significantly; (3) costs or difficulties related to the integration of
acquisitions, or expenses in general, are greater than expected; (4)
general economic conditions, in the markets in which the company does
business, are less favorable than expected; (5) risks inherent in making
loans, including repayment risks and risks associated with collateral
values, are greater than expected; (6) changes in the interest rate
environment reduce interest margins and affect funding sources; (7) changes
in market rates and prices may adversely affect the value of financial
products; (8) any inability to generate liquidity necessary to meet loan
demand or other cash needs; (9) any inability to accurately predict the
adequacy of the loan loss allowance needs; (10) legislation or regulatory
requirements or changes adversely affect the businesses in which the
company is engaged; and (11) decisions to change the business mix of the
company.
Changes in Financial Condition September 30, 2002 Compared with December
31, 2001
The Company growth continued to grow at a rapid pace during the third
quarter of 2002. Asset growth for the quarter totaled $56.1 million or
8.1%, bringing total asset growth for the first nine months of 2002 to
$187.0 million or 33.3%. This level of organic growth is within
management's original plan for internal growth for fiscal 2002 which was
budgeted at approximately $250 million. Management expects internal growth
rates comparable to those experienced during the first nine months of the
year to
13
continue through the remainder of 2002. Management had anticipated closing
the three acquisitions announced over the past several months by year-end
2002. However, the Securities and Exchange Commission notified the Company
that it would perform a routine review of the Company's filing on Form S-4
for the Cardinal Bankshares Corporation merger. Therefore, it is likely
that closings for these transactions will not occur until January of 2003.
When these closings occur, management expects the Company's total assets to
be nearly $1.1 billion.
During the first nine months of 2002, earning assets increased $181.6
million, or 33.8%. Loans continue to represent the Company's single largest
class of earning assets. During the first nine months of 2002, outstanding
loans increased $135.2 million, or 27.5%. Cash and cash equivalents
(Federal funds sold and deposits with banks) increased substantially from
$10.7 million at December 31, 2001 to $25.9 million at September 30, 2002,
an increase of $15.2 million or 142.1%. Several events transpired which
resulted in increased levels of cash and cash equivalents at the end of the
third quarter. Three new branch offices were brought into full production
during the first nine months. This coupled with deposit acquisition
campaigns executed during the period and the funding of $20 million in
Trust Preferred securities at the end of June resulted in the substantial
increase reported in the period. Management expects to use a portion of
these assets to fund loans during the fourth quarter. In conjunction with
the overall growth of the Company's balance sheet, investment securities
increased $35.8 million or 78.9% during the first nine months of 2002 from
$45.4 million to $81.2 million.
Deposits increased $156.7 million, or 33.5%, from December 31, 2001 to
September 30, 2002. Noninterest-bearing demand deposits increased $15.0
million, or 36.4%, over the same period. Management has established a goal
of increasing demand, NOW, savings and money market totals as a percent of
total deposits over fiscal 2002. As a result, NOW's increased during the
first nine months of 2002 in the amount of $37.0 million or 117.1% and
savings and money market deposit accounts increased $22.7 million or 30.3%.
Certificates of deposit increased $82.0 million or 25.6% during the period.
As noted above, the Company completed its first issuance of Trust
Preferred securities in late June 2002 in the amount of $20 million. The
proceeds of this increase in long-term debt were used to extinguish $5
million in short term borrowings by the parent company with the remainder
being used to supplement both the parent and subsidiary bank's capital
ratios. While this issuance is accounted for as long-term debt in the
accompanying financial statements, for regulatory capital purposes, the
majority of this issuance is considered Tier I capital with the remainder
qualifying as Tier II capital. The remaining long-term debt reported on the
Company's balance sheet represents long-term borrowings by MountainBank
from the Federal Home Loan Bank of Atlanta. The Company's equity increased
$12.4 million during the first nine months of 2002, principally through the
Company issuance of an additional $7.8 million in Preferred Stock as noted
above. The Series A Preferred Stock offering that was begun in the later
part of December 2001 was concluded during the first six months of the
year, bringing the total outstanding amount of Series A Preferred
Convertible Stock to $10.1 million. The remaining increase in equity
resulted from retention of earnings and exercise of stock
14
options. The following table illustrates the Company's Capital position and
ratios along with minimum regulatory ratios at September 30, 2002.
Risk-Based Capital
-------------------------------------------------------
Leverage Capital Tier 1 Capital Total Capital
------------------------ -------------------------- ---------------------------
(Dollars in thousands) Amount Percentage(1) Amount Percentage(2) Amount Percentage(2)
- ---------------------- -------- ------------- -------- ------------- -------- -------------
Actual $ 62,445 8.61% $ 62,445 9.80% $ 74,825 11.74%
Required 29,023 4.00 25,495 4.00 50,990 8.00
Excess 33,422 4.61 36,950 5.80 23,835 3.74
(1) Percentage of total adjusted average assets. The FRB minimum leverage ratio
requirement is 3 percent to 5 percent, depending on (1) the institution's
composite rating as determined by its regulators. The FRB has not advised
the Corporation of any specific requirements applicable to it.
(2) Percentage of risk-weighted assets.
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 as
well as providing funds to meet the basic needs for on-going operations of
the Bank and regulatory requirements. Management's liquidity 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, 2002, the Company's liquidity position was higher than at
December 31, 2001 as a result of capital infusions and deposit campaigns
resulting in overall increases in the Company's deposit base. At September
30, 2002, management deemed the Company's liquidity to be adequate to meet
all known 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.
Managing interest rate risk, net interest margin and the overall leverage
of the Company's balance sheet becomes increasingly important as the
Company continues to grow and expand into other markets. One of
management's primary goals for the foreseeable future is to increase
transactional deposits and reduce, to a degree, the Bank's reliance on
certificates of deposits. Over time, this process should enhance the Bank's
interest margin and allow for additional flexibility in managing overall
funding costs. While management has been successful during the first nine
months of 2002 in attracting additional transaction accounts, it expects to
continue to have deposits more heavily weighted toward certificates of
deposit for the foreseeable future.
The Company uses several modeling techniques to measure interest rate
risk. Its primary method is the simulation of net interest income under
varying interest rate
15
scenarios. Management believes this methodology to be 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
accurate as the Bank's simulation model. The result of the Company's
interest rate modeling at September 30, 2002 indicated that the Company's
balance sheet was moderately asset-sensitive over the short term
(approximately one year), and then shifted to liability-sensitive in future
periods. This balance sheet configuration indicates that in the near term,
more assets than liabilities are subject to immediate repricing as market
rates change. Therefore, the Company should experience a modest increase in
net interest income and a modest decline in net interest income in a
falling rate environment. Because most of the Bank's securities portfolio,
all overnight investments and nearly one-half 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 as compared with a
flat rate scenario. The opposite would be expected during periods of
declining rates.
During the first nine months of 2002, management has begun to shorten
the overall duration of the balance sheet and particularly the Company's
loan portfolio by increasing the amount of that portfolio bearing floating
rates. This is being initiated in anticipation of the possibility of rising
interest rates over the next eighteen to twenty-four months. With these
changes, however, at September 30, 2002, the Company's mix of
rate-sensitive assets and liabilities had not changed sufficiently to
result in a material change in its interest rate sensitivity as compared to
that reported at December 31, 2001.
At September 30, 2002, the Company's equity to assets ratio was 6.61%.
Additionally, risk based capital ratios for the Company and the Bank were
as follows. The Company's Tier I Leverage and Risk Based capital ratios
along with its Total Risk Based capital ratio were 8.61%, 9.80% and 11.74%,
respectively. For the Bank, Tier I Leverage and Risk Based capital ratios
were 7.72% and 8.79% and its Total Risk Based capital ratio was 10.04%. The
Preferred Stock issuance conducted by the Company during the first six
months of 2002 enhanced total and primary equity ratios for both the
Company and the Bank. It is expected that this issuance will be sufficient
to support the Company's projected 2002 growth. At September 30, 2002, both
the Company's and the Bank's equity exceeded the minimum requirements of a
"well capitalized" institution as defined by federal banking regulations.
16
Results of Operations for the Three-Month Periods Ended September 30, 2002
and 2001
During the third quarter of 2002, net interest income increased $2.6
million or 63.6% over the third quarter of 2001. Total interest income
increased $2.8 million or 31.4% from $9.0 million for the three months
ended September 30, 2001 to $11.8 million for the three months ended
September 30, 2002. This change reflects increases in the average balances
of interest-earning assets along with a decrease in the yield on average
interest-earning assets. Average interest-earning assets increased $284.9
million while yields decreased 199 basis points from 8.73% to 6.74%.
Interest and fees on loans increased $2.7 million or 32.1% from $8.3
million to $10.9 million as a result of a $232.5 million or 65.2% increase
in average loans outstanding from $356.7 million to $589.2 million.
Interest on securities, fed funds sold and interest on deposits with other
banks increased $78 thousand, $47 thousand and $63 thousand respectively,
partially offset by a decrease of $25 thousand in other interest income.
These increases in interest income on securities, federal funds sold and
deposits with other banks can be attributed to an increase in the volume of
these assets resulting from an increase in liquidity during the period.
Interest expense increased $257 thousand or 5.2% from $4.9 million for the
three months ended September 30, 2001 to $5.2 million for the three months
ended September 30, 2002. This increase was the result of higher volumes of
interest-bearing liabilities combined with a decrease in the average cost
of funds. Average interest-bearing liabilities increased $252.2 million
from $367.7 million to $619.9 million while the cost of funds decreased 201
basis points from 5.34% to 3.33%.
The provision for loan losses for the three-month period ended
September 30, 2002 was $1.2 million compared to $705 thousand for the
three-month period ended September 30, 2001. This increase was primarily
attributable to the overall increase in loans and the requisite increase in
the allowance for loan losses associated with such increase in loans.
Other income increased $803 thousand or 102.4% from $784 thousand for
the three months ended September 30, 2001 to $1.6 million for the same
period in 2002. The increase was attributable to higher service charges and
fees earned on deposit accounts, higher mortgage origination income and
increases in other service charges and fees. In addition to a higher number
of deposit accounts compared to the same period in 2001, the most
significant increase in service charges on deposit accounts is attributed
to the offering of a new checking account overdraft product that was
introduced during the fourth quarter of 2001 which resulted in an increase
in NSF fees for the period of $320 thousand. The increase in mortgage
origination income was a result of two primary factors. The first of these
was a considerably lower interest rate environment resulting in a higher
demand for mortgage refinancings. Secondly, management has elected to
significantly increase the Company's mortgage loan origination capacity
over the past year and has expanded this service to all markets the Company
serves, thereby significantly increasing the volume of loans generated as
well as fees recognized.
Other expenses increased $2.2 million or 91.0% from 2.4 million to
$4.6 million for the three months ended September 30, 2002 compared to the
same period in the prior year. Increases in non-interest expense were
attributed to a rise in salaries and wages of $979
17
thousand or 74.2% as well as increases in occupancy expense of $390
thousand or 119.6%. These increases were primarily a result of the
Company's continued expansion both through de novo branching and through
the acquisition of First Western Bank, which is reflected only in 2002
expense totals. Other expenses increased $799 thousand or 108.4% primarily
due to increases in telecom, data processing and professional services, the
majority of which were associated with expansion of the Company's branch
banking network. These increases were also due to the overall expansion of
the Company's branch network and overall volume of business. The following
table summarizes the major components for noninterest expense for three and
nine months ended September 30, 2002 and 2001.
Quarter Ended September 30, Nine Months Ended September 30,
-------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Noninterest Expense
Salaries and benefits $ 2,297 $ 1,319 $ 6,392 $ 3,180
Occupancy expenses 309 145 801 403
Furniture/equipment expenses 407 181 984 473
Professional service fees 175 71 594 180
Data processing fees 261 143 801 365
Advertising and business promotion 83 79 339 231
Printing and related supplies 99 56 326 201
Other expenses 919 388 2,203 919
------- ------- -------- -------
Total noninterest expense $ 4,550 $ 2,382 $ 12,440 $ 5,952
======= ======= ======== =======
Income before income taxes totaled $2.5 million for the three-month
period ended September 30, 2002 representing an increase of $749 thousand
or 43.6% compared to $1.7 million for the comparable period in 2001. Income
tax expense for the third quarter totaled $941 thousand compared to $629
thousand during the same period in 2001, an increase of $312 thousand or
49.6%. The Company's net income for the quarter increased to $1.5 million
as compared with $1.1 million, an increase of $437 thousand or 40.1%.
Results of Operations for the Nine-Month Periods Ended September 30, 2002
and 2001
Net interest income increased $9.8 million or 104.1% over the first
nine months of 2001. Total interest income increased $11.2 million or 50.6%
from $22.0 million for the nine months ended September 30, 2001 to $33.2
million for the nine months ended September 30, 2002. This change reflects
increases in the average balances of interest-earning assets along with a
decrease in the yield on average interest-earning assets. Average
interest-earning assets increased $286.1 million while yields decreased 167
basis points from 8.81% to 7.14%. Interest and fees on loans increased
$11.4 million or 57.0% from
18
$19.9 million to $31.3 million as a result of a $265.0 million or 92.8%
increase in average loans outstanding from $285.7 million to $550.7
million. Interest on securities, fed funds sold and interest on deposits
with other banks decreased $148 thousand, $45 thousand and $81 thousand
respectively, partially offset by increases of $47 thousand in other
income. These decreases in interest income on securities, federal funds
sold and deposits with other banks resulted from reallocation of cash from
short-term investments to the Company's loan portfolio during the first
half of 2002 and from significant declines in the overall interest rate
environment during 2002. Interest expense increased $1.3 million or 10.5%
from $12.6 million for the nine months ended September 30, 2001 to $13.9
million for the nine months ended September 30, 2002. This increase was the
result of higher volumes of interest-bearing liabilities combined with a
decrease in the average cost of funds. Average interest-bearing liabilities
increased $250.6 million from $297.6 million to $548.2 million while the
cost of funds decreased 226 basis points from 5.66% to 3.40%.
During the first nine months of 2002, the Company provided $3.4
million for possible loan losses as compared to $2.2 million for the
nine-month period ended September 30, 2001. Management determines the
adequacy of the Bank's allowance for loan losses based on a number of
factors including reviewing and evaluating its 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. As a
result of management's assessment of overall loan growth, general economic
conditions and specific economic conditions in the markets in which the
Bank operates, the Company's provision for loan losses was increased by
more than 50% as compared with the same period during 2001. While a portion
of this increase was attributable to increased loan volume, a sizeable
portion of this increase resulted from management's assessment of a weak
economy and the additional risk to the loan portfolio presented by such an
economy. Accordingly, management has deemed it prudent to increase the
Company's ratio of allowance for loan losses to loans in the event the
domestic economy does not recover during 2002. Consequently, management has
increased this ratio by 13 basis points during the first nine months of
2002, from 1.45% to 1.58%. The following table illustrates the balances and
activities in the Company's allowance for loan losses for the three and
nine months ended September 30, 2002 and 2001.
19
Allowance For Loan Losses
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Balance, beginning of period (dollars in thousands) $ 9,117 $ 4,425 $ 7,113 $ 3,007
------- ------- ------- ------
Loan charge-offs:
Commercial 163 4 219 8
Construction - 3 60 3
Real estate mortgage 26 - 27 -
Real estate non-farm non-residential - - 78 -
Consumer 212 79 387 153
Other - - 2 -
------- ------- ------- -------
Total loans charged-off 401 86 773 164
------- ------- ------- -------
Recoveries of loans previously charged-off:
Commercial - - 5 1
Construction - - -
Real estate mortgage 1 - 19 -
Consumer 36 2 138 5
Other - - 1 -
------- ------- ------- -------
Total recoveries of loans previously charged-off 37 2 163 6
------- ------- ------- -------
Net charge-offs 364 84 610 158
------- ------- ------- -------
Provision for loan losses 1,150 705 3,400 2,197
------- ------- ------- -------
Balance, September 30 $ 9,903 $ 5,046 $ 9,903 $ 5,046
======= ======= ======== =======
Average Loans 589,270 356,687 550,637 285,647
Net charge-offs to average loans (annualized) 0.25% 0.09% 0.14% 0.07%
Allowance for loan losses to loans at September 30 1.58% 1.38% 1.58% 1.38%
Due in large part to a weaker economy, the Company's non-performing
assets increased from $1.2 million at December 31, 2001 to $4.2 million at
September 30, 2002. Approximately $2.6 million of this increase of $3
million is attributable to one relationship that was placed on non-accruing
status during the second quarter. This client is an operating company and
the credit is current with respect to scheduled payments and is secured by
real estate. Management views this to be a work out situation and has made
a special allocation of $500 thousand for this credit in its calculation of
the adequacy of the allowance for loan losses at September 30, 2002. This
determination was based on the current financial condition of the customer
and an assessment of collateral value.
20
Continued strengthening of the financial condition of the borrower and
continued payment performance may result in this credit being placed back
into an accruing status by year-end. Loans past due 30 to 89 days increased
from $4.6 million at December 31, 2001 to $8.0 million at September 30,
2002 and represented 1.27% of gross loans at the end of the third quarter.
The following table summarizes the Company's nonperforming assets over the
past five quarters.
Nonperforming and Problem Assets
(Dollars in thousands) 9/30/02 6/30/02 3/31/02 12/31/01 9/30/01
------- ------- ------- -------- -------
Nonaccrual loans $3,893 $4,181 $1,905 $1,528 $535
Other real estate 319 - 159 - -
------- ------- ------- -------- -------
Total nonperforming assets 4,212 4,181 2,064 1,528 535
------- ------- ------- -------- -------
Loans 90 days or more past due and still accruing
interest 21 - 164 - -
------- ------- ------- -------- -------
Total nonperforming assets and loans 90 days or
more past due and still accruing interest $ 4,233 $ 4,181 $ 2,228 $ 1,528 $535
======= ======= ======= ======== ====
Nonperforming assets as a percentage of:
Assets 0.56% 0.60% 0.34% 0.27% 0.13%
Total loans and other real estate 0.69% 0.75% 0.39% 0.32% 0.15%
Non-interest income increased $2.8 million or 168.4% from $1.7 million
for the nine months ended September 30, 2001 to $4.4 million for the same
period in 2002. The increase was attributable to higher service charges and
fees earned on deposit accounts, increased fees associated with additional
mortgage origination volume, gain on sale of securities, and other service
charges and fees. The increase in service charges on deposit accounts can
be attributed to a higher number of deposit accounts compared to the same
period in 2001 and to the addition of a new checking account overdraft
product discussed above. The new checking account product significantly
contributed to the $883 thousand increase in NSF fees recognized during the
first nine months of 2002. The Bank's securities portfolio was restructured
during the first nine months of 2002, resulting in gains on the sale of
securities in the amount of $241 thousand. The increase in other service
charges and fees can be attributed primarily to increases in commissions on
the sale of credit life and accident and health insurance commissions.
Other expenses increased $6.5 million or 109.0% from $6.0 million to
$12.4 million for the nine months ended September 30, 2002 compared to the
same period in the prior year. The increase in other expenses can be
attributed to increases in salaries and wages, occupancy expense and other
expenses. Salaries and wages expense and occupancy expense increased
primarily due to the continued expansion and overall growth of the Company.
Other expenses increased $2.4 million or 126.3% primarily due to increases
in telecom, data processing and professional services. These increases were
also due to the overall expansion
21
of the Company's business locations and volume. These increases are
summarized above in the table following the noninterest expense changes for
the third quarter of 2002.
Income before income taxes was $7.8 million for the nine-month period
ended September 30, 2002 compared to $2.9 million for the comparable period
in 2001, representing an increase of $4.9 million or 167.3%. Income tax
expense amounted to $3.1 million for the nine months ended September 30,
2002 compared to $1.0 million during the same period in 2001 and the
Company's net income for the period increased $2.8 million or 150.1% to
$4.7 million from $1.9 million.
ITEM 3. Internal Controls and Procedures.
We maintain a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of our published
financial statements and other disclosures included in this report. Our
Board of Directors, operating through its audit committee which is composed
entirely of independent outside directors, provides oversight to our
financial reporting process.
Within the 90-day period prior to the date of this report, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange
Act of 1934. Based upon that evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to MountainBank Financial Corporation (including its consolidated
subsidiaries) required to be included in this quarterly report on Form
10-QSB.
There have been no significant changes in our internal controls or in
other factors which could significantly affect internal controls subsequent
to the date that we carried out our evaluation.
22
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
None.
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
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed by the Corporation during
the quarter ended September 30, 2002:
Current report on Form 8-K dated and filed July 23, 2002, announcing
the signing of a definitive agreement to acquire TrustCo Holding, Inc.
of Greenville, South Carolina. Items 5 and 7.
Current report on Form 8-K dated September 24, 2002 and filed
September 27, 2002, announcing the listing of the Company's stock on
the Nasdaq SmallCap Market and the amendment of the merger agreement
with Cardinal Bankshares, Inc. Items 5 and 7.
23
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 12, 2002 /s/ J.W. Davis
--------------
J. W. Davis
President & Chief Executive Officer
Date: November 12, 2002 /s/ Gregory L. Gibson
----------------------
Gregory L. Gibson
Chief Financial Officer
24
CERTIFICATION
I, J. W. Davis, President and Chief Executive Officer of MountainBank
Financial Corporation (the "Company"), certify that:
1. I have reviewed this report on Form 10-Q of MountainBank Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report in being
prepared;
b. evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit
committee of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability
to record, process, summarize and report financial data and have
identified for the Company's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significant affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ J.W. Davis
--------------------------------------
J.W. Davis
President and Chief Executive Officer
(Principal Executive Officer)
November 12, 2002
25
CERTIFICATION
I, Gregory L. Gibson, Executive Vice President and Chief Financial Officer of
MountainBank Financial Corporation (the "Company"), certify that:
1. I have reviewed this report on Form 10-Q of MountainBank Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report in being
prepared;
b. evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit
committee of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability
to record, process, summarize and report financial data and have
identified for the Company's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significant affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Gregory L. Gibson
----------------------------------------------------
Gregory L. Gibson
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
November 12, 2002
26