SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could because actual results to
differ material from those discussed in the statement. Market Financial
Corporation desires to take advantage of the "safe harbor" provisions of the
Act. Certain information, particularly information regarding future economic
performance and finances and plans and objectives of management, contained or
incorporated by reference in Market Financial Corporation's Annual Report on
Form 10-KSB for fiscal year 2000 is forward-looking. In some cases, information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement. In addition,
forward-looking statement s are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
Interest Rate Risk
Market Financial Corporation's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. The interest income and interest expense of Market Financial
Corporation change as the interest rates on mortgages, securities and other
assets and on deposits and other liabilities change. Interest rates may change
because of general economic conditions, the policies of various regulatory
authorities and other factors beyond Market Financial Corporation's control. The
interest rates on specific assets and liabilities of Market Financial
Corporation will change or "reprice" in accordance with the contractual terms of
the asset or liability instrument and in accordance with customer reaction to
general economic trends. In a rising interest rate environment, loans tend to
prepay slowly and new loans at higher rates increase slowly, while interest paid
on deposits increases rapidly because the terms to maturity of deposits tend to
be shorter than the terms to maturity or prepayment of loans. Such differences
in the adjustment of interest rates on assets and liabilities may negatively
affect Market Financial Corporation income. Moreover, rising interest rates tend
to decrease loan demand in general, negatively affecting Market Financial
Corporation income.
Possible Inadequacy of the Allowance for Loan Losses
Market Bank maintains an allowance for loan losses based upon a number of
relevant factors, including, but not limited to, trends in the level of
nonperforming assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience, possible losses
arising from specific problem assets and changes in the composition of the loan
portfolio. While the Board of Directors of Market Bank believes that it uses the
best information available to determine the allowance for loan losses,
unforeseen market conditions could result in material adjustments, and net
earnings could be significantly adversely affected if circumstances differ
substantially from the assumptions used in making the final determination.
Loans not secured by one- to four-family residential real estate are generally
considered to involve greater risk of loss than loans secured by one- to
four-family residential real estate due, in part, to the effects of general
economic conditions. The prepayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions that cause leases not to be renewed or that negatively
affect the operations of a commercial borrower. Construction loans may also be
negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, higher
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans, and the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan.
Competition
Market Bank competes for deposits with other savings associations, commercial
banks and credit unions and issuers of commercial paper and other securities,
such as shares in money market mutual funds. The primary factors in competing
for deposits are interest rates and convenience of office location. In making
loans, Market Bank competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage companies
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and other lenders. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable. The
size of financial institutions competing with Market Bank is likely to increase
as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon Market Financial
Corporation.
Legislation and Regulation that may Adversely Affect Market Financial
Corporation's Earnings
Market Bank is subject to extensive regulation by the Office of Thrift
Supervision (the "OTS") and the Federal Deposit Insurance Corporation (the
"FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, Market Financial Corporation is also subject to regulation and
examination by the OTS. Such supervision and regulation of Market Bank and
Market Financial Corporation are intended primarily for the protection of
depositors and not for the maximization of shareholder value and may affect the
ability of the company to engage in various business activities. The
assessments, filing fees and other costs associated with reports, examinations
and other regulatory matters are significant and may have an adverse effect on
Market Financial Corporation's net earnings.
The FDIC is authorized to establish separate annual assessment rates for deposit
insurance of members of the Bank Insurance fund (the "BIF") and the Savings
Association Insurance Fund (the "SAIF") . The FDIC may increase assessment rates
for either fund if necessary to restore the fund's ratio of reserves to insured
deposits to the target level within a reasonable time and may decrease such
rates if such target level has been met. The FDIC has established a risk-based
assessment system for both SAIF and BIF members. Under such system, assessments
may vary depending on the risk the institution poses to its deposit insurance
fund. Such risk level is determined by reference to the institution's capital
level and the FDIC's level of supervisory concern about the institution.
Specific References
In addition to the foregoing, some of the matters, which are addressed in the
Form 10-KSB and Forms 10-QSB's filed by Market Financial Corporation and contain
forward-looking statements, include the following.
Management's determination of the amount of the allowance for loan losses and
expectations regarding its adequacy.
Management's efforts to manage delinquencies.
Management's efforts to manage interest rate risk.
Management's characterization of its competition.
Management's determination of the effect of the Gramm-Leach -Bliley Act on the
business of Market Bank.
