<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 25049
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-----------------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File Number 333-35497
---------
Mooresville Savings Bank, Inc., SSB (formerly Mooresville Savings Bank, S.S.B.)*
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-2045998
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
347 North Main Street/Post Office Box 117
Mooresville, North Carolina 28115
---------------------------------
(Address of principal executive office) (Zip code)
(704) 664-4888
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check [x] whether the issuer (1) has 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
--- ---
As of February 1, 1998 there were issued and outstanding 674,475 shares of the
Registrant's common stock, no par value.
* Form 10-Q has been prepared for Mooresville Savings Bank, Inc., SSB (the Bank)
who was acquired by Coddle Creek Financial Corp. (the reporting company)
effective December 30, 1997, pursuant to a Plan of Conversion. The Company had
no operations or business prior to owning the Bank.
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Condensed Statements of Financial Condition as of September 30, 1997 (Unaudited)
and December 31, 1996 1
Condensed Statements of Income for the Three Months and Nine Months ended
September 30, 1997 and 1996 (Unaudited) 2-3
Condensed Statements of Cash Flows for the Nine Months ended
September 30, 1997 and 1996 (Unaudited) 4-5
Notes to Condensed Financial Statements (Unaudited) 6-7
Item 2. Managements' Discussion and Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION 12-13
</TABLE>
This Form 10-Q contains forward-looking statements consisting of estimates with
respect to the financial condition, results of operations and other business of
Mooresville Savings Bank, Inc., SSB that are subject to various factors which
could cause actual results to differ materially from those estimates. Factors
which could influence the estimates include changes in the national, regional
and local market conditions, legislative and regulatory conditions, and an
adverse interest rate environment.
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
-----------------------------------------------------------------------------------------------------------------
(Unaudited) (Note)
Cash
<S> <C> <C>
Interest-bearing deposits $ 1,600,000 $ 2,253,000
Noninterest-bearing deposits 316,000 422,000
Certificates of deposit 100,000 100,000
Securities available for sale 3,454,000 3,959,000
Securities held to maturity 3,208,000 3,708,000
Federal Home Loan Bank stock 930,000 869,000
Loans receivable, net 100,659,000 97,951,000
Office properties and equipment, net 902,000 922,000
Accrued interest receivable 771,000 714,000
Cash value of life insurance 791,000 838,000
Deferred income taxes 1,008,000 713,000
Prepaid expenses and other assets 176,000 103,000
----------------------------------
Total assets $ 113,915,000 $ 112,552,000
==================================
<CAPTION>
LIABILITIES AND EQUITY
-----------------------------------------------------------------------------------------------------------------
Liabilities:
<S> <C> <C>
Deposits $ 96,098,000 $ 93,785,000
Advances from Federal Home Loan Bank - 2,000,000
Advances from borrowers for taxes and insurance 252,000 105,000
Accounts payable and other liabilities 624,000 245,000
Deferred compensation 2,203,000 2,005,000
----------------------------------
Total liabilities 99,177,000 98,140,000
----------------------------------
Equity:
Retained earnings, substantially restricted 14,718,000 14,384,000
Unrealized gain on securities available for sale, net of tax 20,000 28,000
----------------------------------
Total equity 14,738,000 14,412,000
----------------------------------
Total liabilities and equity $ 113,915,000 $ 112,552,000
==================================
</TABLE>
NOTE: The Condensed Statement of Financial Condition as of
December 31, 1996 has been taken from the audited
financial statements at that date.
See Notes to Condensed Financial Statements.
1
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
CONDENSED STATEMENTS OF INCOME
For the Three Months Ended September 30, 1997 and 1996, and the
Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
-----------------------------------------------------------------------------------------------------------------
(Unaudited)
Interest income:
<S> <C> <C>
Loans $ 2,103,000 $ 2,040,000
Investment securities 118,000 163,000
Other 27,000 21,000
-------------------------------------
2,248,000 2,224,000
-------------------------------------
Interest expense:
Deposits 1,189,000 1,166,000
Federal Home Loan Bank advances 15,000 7,000
-------------------------------------
1,204,000 1,173,000
-------------------------------------
Net interest income 1,044,000 1,051,000
Provision for loan losses 10,000 -
-------------------------------------
Net interest income after provision for loan losses 1,034,000 1,051,000
-------------------------------------
Noninterest income 51,000 46,000
-------------------------------------
Noninterest expenses:
Compensation and employee benefits (Note 3) 764,000 457,000
Net occupancy 52,000 43,000
Deposit insurance premiums 7,000 91,000
Special SAIF assessment - 520,000
Data processing 43,000 40,000
Other 150,000 100,000
-------------------------------------
1,016,000 1,251,000
-------------------------------------
Income (loss) before income taxes (benefit) 69,000 (154,000)
Income taxes (benefit) 22,000 (51,000)
-------------------------------------
Net income (loss) $ 47,000 $ (103,000)
=====================================
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
CONDENSED STATEMENTS OF INCOME
For the Three Months Ended September 30, 1997 and 1996, and the
Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------------------------------------------------------------------------------------------------------------
(Unaudited)
Interest income:
<S> <C> <C>
Loans $ 6,233,000 $ 5,929,000
Investment securities 369,000 482,000
Other 79,000 70,000
----------------------------------
6,681,000 6,481,000
----------------------------------
Interest expense:
Deposits 3,497,000 3,471,000
Federal Home Loan Bank advances 73,000 12,000
----------------------------------
3,570,000 3,483,000
----------------------------------
Net interest income 3,111,000 2,998,000
Provision for loan losses 240,000 -
----------------------------------
Net interest income after provision for loan losses 2,871,000 2,998,000
----------------------------------
Noninterest income 138,000 150,000
----------------------------------
Noninterest expenses:
Compensation and employee benefits (Note 3) 1,770,000 1,333,000
Net occupancy 143,000 132,000
Deposit insurance premiums 22,000 195,000
Special SAIF assessment - 520,000
Data processing 126,000 128,000
Other 383,000 308,000
----------------------------------
2,444,000 2,616,000
----------------------------------
Income before income taxes 565,000 532,000
Income taxes 231,000 206,000
----------------------------------
Net income $ 334,000 $ 326,000
==================================
</TABLE>
3
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30,
1997 1996
------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 334,000 $ 326,000
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan losses 240,000 -
Provision for depreciation 54,000 57,000
Provision for deferred income taxes (307,000) (89,000)
Changes in assets and liabilities:
(Increase) decrease in:
Interest receivable (57,000) (75,000)
Cash value of life insurance 47,000 38,000
Prepaid expenses and other assets (73,000) (151,000)
Increase in:
Accounts payable and other liabilities 379,000 590,000
Deferred compensation 198,000 201,000
-----------------------------------
Net cash provided by operating activities 815,000 897,000
-----------------------------------
Cash Flows From Investing Activities
Net decrease in investments 948,000 1,806,000
Net increase in loans receivable (2,948,000) (6,567,000)
Purchases of office properties and equipment (34,000) (37,000)
-----------------------------------
Net cash used in investing activities (2,034,000) (4,798,000)
-----------------------------------
Cash Flows From Financing Activities
Net increase in deposits 2,313,000 1,091,000
Net increase (decrease) in Federal Home Loan Bank advances (2,000,000) 2,000,000
Increase in advances from borrowers for taxes and insurance 147,000 148,000
-----------------------------------
Net cash provided by financing activities 460,000 3,239,000
-----------------------------------
Net decrease in cash and cash equivalents (759,000) (662,000)
Cash and cash equivalents:
Beginning 2,675,000 3,056,000
-----------------------------------
Ending $ 1,916,000 $ 2,394,000
===================================
</TABLE>
(Continued)
4
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30,
1997 1996
------------------------------------------------------------------------------------------------------------------
(Unaudited)
Supplemental Disclosure of Cash Flow Information
Cash payments for:
<S> <C> <C>
Interest $ 3,568,000 $ 3,450,000
Income taxes 376,000 374,000
</TABLE>
See Notes to Condensed Financial Statements.
5
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
NOTES TO CONDENSED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business
Mooresville Savings Bank, Inc., SSB, (the "Bank") is primarily engaged in the
business of obtaining savings deposits and originating single-family residential
loans within its primary lending area of northern Mecklenburg and southern
Iredell Counties of North Carolina. The Bank's underwriting policies require
such loans to be made at 80% loan to value based upon appraised values unless
private mortgage insurance is obtained. These loans are secured by the
underlying properties.
Mooresville Savings Bank's results of operations depend primarily on its net
interest income, which is the difference between interest income from
interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's operations are also affected by noninterest income, such as
miscellaneous income from loans, customer deposit account service charges, and
other sources of revenue. The Bank's principal operating expenses, aside from
interest expense, consist of compensation and associated benefits, federal
deposit insurance premiums, occupancy costs, furniture and fixture expense, data
processing charges, and other general and administrative expenses.
Note 2. Basis of Presentation
The accompanying unaudited financial statements (except for the statement of
financial condition at December 31, 1996, which is from audited financial
statements at that date) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (none of which were other than normal recurring accruals, except for
the one-time special SAIF assessment in 1996 and the termination expense for the
defined benefit plan in 1997) necessary for a fair presentation of the financial
position and results of operations for the periods presented have been included.
The results of operations for the three and nine month periods ended September
30, 1997 are not necessarily indicative of the results of operations that may be
expected for the year ended December 31, 1997. The accounting policies followed
are as set forth in Note 1 of the Notes to Financial Statements in the 1996
financial statements of the Bank.
Note 3. Termination of Pension Plan
During the three months ended September 30, 1997, the Bank's Board of Directors
elected to terminate the defined benefit pension plan. As a result, the Bank
recorded an additional $210,000 of compensation expense in order to fully fund
the plan upon termination.
Note 4. Plan of Conversion and Subsequent Event
On December 30, 1997, pursuant to a Plan of Conversion which was approved by it
members and regulators, Mooresville Savings Bank converted from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank and became a wholly-owned subsidiary of Coddle Creek Financial Corp
(the "Company"). Coddle Creek was formed to acquire all of the common stock of
the Bank upon its conversion to stock form. The Company has no operations and
conducts no business of its own other than owning Mooresville Savings, investing
its portion of the net proceeds received in the Conversion, and lending funds to
the Employee Stock Ownership Plan (the "ESOP"), which was established in
connection with the Conversion. The closing of the offering occurred on December
30, 1997 and resulted in the issuance of 674,475 shares of common stock at a
price of $50.00 per share, for
6
<PAGE>
MOORESVILLE SAVINGS BANK, INC.,SSB
NOTES TO CONDENSED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 3. Plan of Conversion and Subsequent Event (Continued)
proceeds of $32,494,000 (net of $1,230,000 in conversion costs). The Company
transferred $14,134,000 of the net proceeds to Mooresville Savings for purchase
of all of the common stock of the Bank. The Company intends to loan the ESOP
trust a maximum of $4,225,000 to purchase up to 53,958 shares of common stock in
the open market.
Concurrent with the conversion, the Bank established a liquidation account in
the amount equal to its net worth as reflected in its latest statement of
financial condition contained in the prospectus used in connection with the
Company's initial public offering. The liquidation account will be maintained
for the benefit of eligible deposit account holders who continue to maintain
their deposit accounts in the Bank after conversion. Only in the event of a
complete liquidation will each deposit account holder be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance for deposit accounts then held before any
liquidation distribution may be made with respect to common stock. Dividends
paid by the Bank subsequent to the conversion cannot be paid from this
liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations. As a
North Carolina-chartered stock savings bank, the Bank may not declare or pay a
cash dividend on its common stock if the effect of such transaction would be to
reduce the net worth of the Bank to an amount which is less than the minimum
amount required by applicable federal and state regulations. For a period of
five years after its conversion from mutual to stock form, the Bank must obtain
written approval from the Administrator of the North Carolina Savings
Institutions Division before declaring or paying a cash dividend on its common
stock in an amount in excess of one-half of the greater of (i) the Banks net
income for the most recent fiscal year end, or (ii) the average of the Banks net
income after dividends for the most recent year end and not more than two of the
immediately preceding fiscal year ends.
In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first three years after completion of the Conversions, neither the
company nor the Bank will pay any taxable dividend or make any taxable
distribution in excess of their current and retained earnings. The Company and
the Bank have agreed to notify the FDIC before make a return of capital during
the first three years following the conversion.
7
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
Comparison of Financial Condition at September 30, 1997 and December 31, 1996:
At September 30, 1997 and December 31, 1996 total assets amounted to $113.9
million and $112.6 million, respectively. The growth from December 31, 1996 to
September 30, 1997 can primarily be attributed to an increase in loan
originations, funded by savings deposit growth and a decrease in investment
securities. Loans receivable, net, increased from $98.0 million at December 31,
1996 to $100.7 million at September 30, 1997, a $2.7 million or 2.8% increase.
Savings deposits increased $2.3 million or 2.5% from $93.8 million at December
31, 1996 to $96.1 million at September 30, 1997. Investment securities,
including interest-bearing deposits, decreased $1.6 million or 14.7%, from $10.9
million at December 31, 1996 to $9.3 million at September 30, 1997.
The principal category of earning assets is loans, and during the nine month
period ended September 30, 1997, loans receivable, net, increased by $2.7
million, primarily from originations in residential one-to-four family dwellings
and equity line loans. The Bank's level of nonperforming loans, defined as loans
past due 90 days or more, has historically been and continues to be low as a
percentage of total loans outstanding. The Bank had $983,000 of loans
outstanding which were delinquent more than 90 days at September 30, 1997,
compared to $1,104,000 at December 31, 1996. Based on management's analysis of
the adequacy of the allowance for loan losses, the composition of the loan
portfolio, the credit risk inherent in the portfolio and historical loan loss
experience, the allowance for loan losses was increased by $228,000 to $616,000
at September 30, 1997 from $388,000 at December 31, 1996. Management considers
the allowance to be adequate to absorb any future losses in the portfolio.
The Bank's investment portfolio, including interest-bearing deposits, decreased
$1.6 million from $10.9 million at December 31, 1996 to $9.3 million at
September 30, 1997, as the Bank utilized maturing investments to fund loan
originations.
Savings deposits increased $2.3 million during the nine months ended September
30, 1997 to $96.1 million from $93.8 million at December 31, 1996, as the Bank
focused its marketing on building core deposit relationships, rather than on
maximizing interest rates.
Equity increased due to net income of $334,000 for the nine months ended
September 30, 1997. The unrealized gain on securities available for sale, net of
tax, was $20,000 and $28,000 at September 30, 1997 and December 31, 1996,
respectively.
Mooresville Savings is required to maintain net worth to total assets of 5%
under the Administrator's regulations. At September 30, 1997 Mooresville Savings
had net worth of $14.7 million, or net worth to total assets of 12.9%.
Comparison of Operating Results for the Three Months Ended September 30, 1997
and 1996:
General. Net income for the three months ended September 30, 1997 was $47,000
compared to a net loss of $(103,000) during the same quarter in 1996. As
discussed below, the increase in earnings was primarily attributable to a
one-time assessment to recapitalize the Savings Association Insurance Fund of
$520,000, which was charged to expense in the three months ended September 30,
1996. Net income for the three months ended September 30, 1997 was also lower
than normal as an additional $210,000 was charged to compensation expense as a
result of the termination of the Bank's defined benefit pension plan. Excluding
these items, net of tax, net income for the three months ended September 30,
1997 would have been $173,000 compared to $209,000 during the same quarter in
1996.
8
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Interest income. Interest income was relatively flat at $2.2 million during each
of the three months ended September 30, 1997 and 1996. Interest-earning assets
amounted to $108.7 million at September 30, 1997 as compared to $108.6 million
at September 30, 1996. Approximately 95% of the Bank's assets were
interest-earning at September 30, 1997, and approximately 93% of such
interest-earning assets were held in the form of loans receivable.
Interest Expense. Interest expense was also relatively flat at $1.2 million
during each of the three months ended September 30, 1997 and 1996. There was a
slightly higher level of interest-bearing liabilities outstanding during the
third quarter of 1997 in comparison to the same quarter a year earlier, while
the cost of funds slightly decreased.
Net interest income. Net interest income was stable at $1.0 million and $1.1
million for each of the three months ended September 30, 1997 and 1996,
respectively.
Provision for loan losses. The Bank added $10,000 and $-0- in loan loss
provisions during the quarters ended September 30, 1997 and 1996, respectively.
Provisions, which are charged to operations, and the resulting loan loss
allowances, are amounts the Bank's management believes will be adequate to
absorb losses on existing loans that may become uncollectible. Loans are charged
off against the allowance when management believes that collectibility is
unlikely. The evaluation to increase or decrease the provision and resulting
allowances is based both on prior loan loss experience and other factors, such
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, and current economic conditions.
The Bank's loan loss provisions were relatively minor during the three month
periods ended September 30, 1997 and 1996 because the Bank's level of
nonperforming loans has remained consistently low in relation to prior periods
and total loans outstanding. However, during the six months ended June 30, 1997,
management determined that its allowance for loan losses should be increased to
reflect the credit risk inherent in the portfolio resulting from the changing
economic environment in the Bank's market area. At September 30, 1997, the
Bank's level of general valuation allowances for loan losses amounted to
$616,000, which management believes is adequate to absorb potential losses in
its loan portfolio.
Noninterest expense. Noninterest expense decreased by $235,000 to $1.0 million
for the three month period ended September 30, 1997 from $1.3 million for the
comparable quarter in 1996. During the three months ended September 30, 1997, an
additional $210,000 was charged to compensation expense as a result of the
termination of the Bank's defined benefit pension plan. During the three months
ended September 30, 1996, a one-time special assessment of $520,000 to
recapitalize the Savings Association Insurance Fund was charged to expense.
Other categories of noninterest expense fluctuated by insignificant amounts
between the periods, except for deposit insurance expense which decreased by
$84,000 during the current quarter as compared to the same quarter a year
earlier. This resulted from a reduction in the Bank's deposit insurance premium
in 1997 after the Savings Association Insurance Fund was recapitalized in 1996.
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
1996:
General. Net income for the nine months ended September 30, 1997 was $334,000
compared to a $326,000 during the same quarter in 1996. As discussed below, the
modest increase in earnings was attributable to several factors, including a
one-time assessment to recapitalize the Savings Association Insurance Fund of
$520,000, which was charged to expense in the nine months ended September 30,
1996. During the nine months ended September 30, 1997, an additional $210,000
was charged to compensation expense as a result of the termination of the Bank's
defined benefit pension plan and $240,000 was charged to the provision for loan
losses. Excluding the special insurance assessment and termination of benefit
plan
9
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
expenses, tax effected, the net income for the nine months ended September
30, 1997 would have been $460,000 compared to $535,000 during the same period in
1996.
Interest income. Interest income increased by $200,000 to $6.7 million for the
nine months ended September 30, 1997 as compared to $6.5 million for the same
period in 1996. Interest-earning assets amounted to $108.7 million at September
30, 1997 as compared to $108.6 million at September 30, 1996. However, during
the nine months ended September 30, 1997, the Bank utilized matured investments
to fund its loan portfolio growth, which resulted in a higher yield and
increased interest income. Approximately 95% of the Bank's assets were
interest-earning at September 30, 1997, and approximately 93% of such
interest-earning assets were held in the form of loans receivable.
Interest Expense. Interest expense increased by $87,000 to $3.6 million for the
nine months ended September 30, 1997, as compared to $3.5 million for the same
period in 1996. There was a slightly higher level of interest-bearing
liabilities outstanding during the nine months ended September 30, 1997 in
comparison to the same period a year earlier, while the cost of funds slightly
decreased. In addition, interest expense on Federal Home Loan Bank advances
increased by $61,000 during the nine months ended September 30, 1997 as compared
to the same period in 1996, due to an increase in outstanding borrowings.
Net interest income. Net interest income increased by $113,000 to $3.1 million
for the nine months ended September 30, 1997 from $3.0 million for the same
period in 1996. This was a result of growth in the loan portfolio that was
offset by higher interest expense due to a higher level of interest-bearing
liabilities.
Provision for loan losses. The Bank added $240,000 and $-0- in loan loss
provisions during the nine months ended September 30, 1997 and 1996,
respectively. Provisions, which are charged to operations, and the resulting
loan loss allowances are amounts the Bank's management believes will be adequate
to absorb losses on existing loans that may become uncollectible. Loans are
charged off against the allowance when management believes that collectibility
is unlikely. The evaluation to increase or decrease the provision and resulting
allowances is based both on prior loan loss experience and other factors, such
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, current economic conditions and peer group comparisons. During the nine
months ended September 30, 1997, management determined that its allowance for
loan losses should be increased to reflect the credit risk inherent in the
portfolio resulting from the changing economic environment in the Bank's market
area. At September 30, 1997, the Bank's level of general valuation allowances
for loan losses amounted to $616,000, which management believes is adequate to
absorb potential losses in its loan portfolio.
Noninterest expense. Noninterest expense decreased by $172,000 to $2.4 million
for the nine months ended September 30, 1997 from $2.6 million for the
comparable period in 1996. During the nine months ended September 30, 1997, an
additional $210,000 was charged to compensation expense as a result of the
termination of the Bank's defined benefit pension plan. During the nine months
ended September 30, 1996, a one-time special assessment to recapitalize the
Savings Association Insurance Fund amounting to $520,000 was charged to expense.
Other categories of noninterest expense fluctuated by insignificant amounts
between the periods, except for deposit insurance expense which decreased by
$173,000 during the current period as compared to the same period a year
earlier. This resulted in a reduction to the Bank's deposit insurance premium in
1997 after the Savings Association Insurance Fund was recapitalized in 1996.
10
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
Capital Resources and Liquidity:
The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service, dividends to stockholders, and other institutional commitments.
Funds are primarily provided through financial resources from operating
activities, expansion of the deposit base, borrowings, through the sale or
maturity of investments, the ability to raise equity capital, or maintenance of
shorter term interest-bearing deposits.
Mooresville Savings Bank must maintain liquidity in the form of cash, cash
equivalents and investment securities, including mortgage-backed securities,
equal to at least 10% of total assets. The Bank's liquidity ratio at September
30, 1997 was considerably in excess of such requirements. Given its excess
liquidity and its ability to borrow from the Federal Home Loan Bank, the Bank
believes that it will have sufficient funds available to meet anticipated future
loan commitments, unexpected deposit withdrawals, and other cash requirements.
Year 2000 Issue:
The Year 2000 Issue relates to whether computer systems will properly recognize
and process date sensitive information on and after January 1, 2000. Systems
that do not properly recognize such information could generate erroneous data or
fail. The Bank is heavily dependent on computer systems in the conduct of
substantially all of its business activities. The Bank is conducting a
comprehensive review of its computer systems, including its core processing
systems maintained by an independent data processing service center, to identify
the systems that could be affected by the Year 2000 Issue. Upon completion of
the assessment phase of the review, management expects to identify the
corrective action required to ensure that the Bank's internal and
vendor-maintained systems that are date sensitive are Year 2000 compliant and to
test all such systems prior to the year 2000.
Because the Company has not completed its review of the computer systems,
management is unable to estimate the cost of making all of its systems Year 2000
compliant.
11
<PAGE>
- -------------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal
proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a like kind.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable
(b) Not applicable
12
<PAGE>
- -------------------------------------------------------------------------------
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.
Mooresville Savings Bank, Inc., SSB
Dated January 30, 1998 By: s/s George W. Brawley, Jr.
------------------------- --------------------------
George W. Brawley
President and CEO
Dated January 30, 1998 By: s/s Billy R. Williams
------------------------- --------------------------
Billy R. Williams
Secretary/Controller
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOORESVILLE
SAVINGS BANK, INC., SSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 316 288
<INT-BEARING-DEPOSITS> 1,600 2,106
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,454 4,083
<INVESTMENTS-CARRYING> 4,238 5,276
<INVESTMENTS-MARKET> 4,251 5,232
<LOANS> 100,659 97,122
<ALLOWANCE> 616 394
<TOTAL-ASSETS> 113,915 112,339
<DEPOSITS> 96,098 93,194
<SHORT-TERM> 0 2,000
<LIABILITIES-OTHER> 3,079 3,143
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,738 14,002
<TOTAL-LIABILITIES-AND-EQUITY> 113,915 112,339
<INTEREST-LOAN> 6,233 5,929
<INTEREST-INVEST> 369 482
<INTEREST-OTHER> 79 70
<INTEREST-TOTAL> 6,681 6,481
<INTEREST-DEPOSIT> 3,497 3,471
<INTEREST-EXPENSE> 3,570 3,483
<INTEREST-INCOME-NET> 3,111 2,998
<LOAN-LOSSES> 240 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,444 2,616
<INCOME-PRETAX> 565 532
<INCOME-PRE-EXTRAORDINARY> 565 532
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 334 326
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 8.03 7.86
<LOANS-NON> 983 954
<LOANS-PAST> 1,017 1,020
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 983 954
<ALLOWANCE-OPEN> 388 396
<CHARGE-OFFS> 14 8
<RECOVERIES> 2 6
<ALLOWANCE-CLOSE> 616 394
<ALLOWANCE-DOMESTIC> 616 394
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 271 65
</TABLE>
