<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, 1998
--------------------------------------------
OR
[_] 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 000-23465
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CODDLE CREEK FINANCIAL CORP.
----------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-2045998
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(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 offices) (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 Securities Exchange Act of 1934 during the
preceding 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 October 20, 1998 there were issued and outstanding 674,475 shares of the
Registrant's common stock, no par value.
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as of
September 30, 1998 (Unaudited) and December 31, 1997 1
Condensed Consolidated Statements of Income and Comprehensive Income for
the Three Months ended September 30, 1998 and 1997 (Unaudited) 2
Condensed Consolidated Statements of Income and Comprehensive Income for
the Nine Months ended September 30, 1998 and 1997 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1998 and 1997 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</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
Coddle Creek Financial Corp. 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>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------------
(Unaudited) (Note)
<S> <C> <C>
Cash and cash equivalents $ 1,347,000 $ 37,071,000
Certificates of deposit 100,000 100,000
Securities available for sale 17,355,000 3,054,000
Securities held to maturity 1,382,000 2,708,000
Federal Home Loan Bank stock 964,000 930,000
Loans receivable, net 108,019,000 101,982,000
Office properties and equipment, net 945,000 891,000
Accrued interest receivable 923,000 755,000
Cash value of life insurance 963,000 971,000
Real estate owned 81,000
Deferred income taxes 1,134,000 1,008,000
Prepaid expenses and other assets 175,000 34,000
-----------------------------------------
TOTAL ASSETS $ 133,307,000 $ 149,585,000
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 85,645,000 $ 99,382,000
Advances from borrowers for taxes and insurance 273,000 105,000
Accounts payable and other liabilities 591,000 835,000
Deferred compensation 2,415,000 2,270,000
-----------------------------------------
TOTAL LIABILITIES 88,924,000 102,592,000
-----------------------------------------
Stockholders' Equity:
Preferred stock, authorized 5,000,000 shares; none issued
Common stock, no par value, authorized 20,000,000 shares;
issued 674,475 shares
Additional paid-in capital 32,494,000 32,494,000
Retained earnings, substantially restricted 16,038,000 15,051,000
Unearned ESOP shares (4,216,000) (577,000)
Accumulated other comprehensive income, unrealized gain
on securities available for sale, net of tax 67,000 25,000
-----------------------------------------
TOTAL STOCKHOLDERS' EQUITY 44,383,000 46,993,000
-----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 133,307,000 $ 149,585,000
=========================================
</TABLE>
NOTE: The Condensed Consolidated Statement of Financial
Condition as of December 31, 1997 has been taken from
the audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Interest income:
Loans $ 2,317,000 $ 2,103,000
Investment securities 270,000 118,000
Other 38,000 27,000
------------------------------------------
2,625,000 2,248,000
------------------------------------------
Interest expense:
Deposits 1,010,000 1,189,000
Federal Home Loan Bank advances 15,000
------------------------------------------
1,010,000 1,204,000
------------------------------------------
NET INTEREST INCOME 1,615,000 1,044,000
Provision for loan losses 80,000 10,000
------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,535,000 1,034,000
------------------------------------------
Noninterest income 43,000 51,000
------------------------------------------
Noninterest expenses:
Compensation and employee benefits 542,000 764,000
Net occupancy 74,000 52,000
Deposit insurance premiums 14,000 7,000
Data processing 41,000 43,000
Other 197,000 150,000
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868,000 1,016,000
------------------------------------------
INCOME BEFORE INCOME TAXES 710,000 69,000
Income taxes 217,000 22,000
------------------------------------------
NET INCOME 493,000 47,000
Other comprehensive income, unrealized holding gains arising
during the period, net of tax 54,000
------------------------------------------
COMPREHENSIVE INCOME $ 547,000 $ 47,000
==========================================
Basic earnings per share $ 0.79 $ n/a
==========================================
Diluted earnings per share $ 0.79 $ n/a
==========================================
Dividends per share $ 0.25 $ n/a
==========================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
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(Unaudited)
<S> <C> <C>
Interest income:
Loans $ 6,680,000 $ 6,233,000
Investment securities 699,000 369,000
Other 406,000 79,000
------------------------------------------
7,785,000 6,681,000
------------------------------------------
Interest expense:
Deposits 3,091,000 3,497,000
Federal Home Loan Bank advances 73,000
------------------------------------------
3,091,000 3,570,000
------------------------------------------
NET INTEREST INCOME 4,694,000 3,111,000
Provision for loan losses 200,000 240,000
------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,494,000 2,871,000
------------------------------------------
Noninterest income 137,000 138,000
------------------------------------------
Noninterest expenses:
Compensation and employee benefits 1,546,000 1,770,000
Net occupancy 181,000 143,000
Deposit insurance premiums 46,000 22,000
Data processing 135,000 126,000
Other 441,000 383,000
------------------------------------------
2,349,000 2,444,000
------------------------------------------
INCOME BEFORE INCOME TAXES 2,282,000 565,000
Income taxes 829,000 231,000
------------------------------------------
NET INCOME 1,453,000 334,000
Other comprehensive income, unrealized holding gains (losses)
arising during the period, net of tax 42,000 (8,000)
------------------------------------------
COMPREHENSIVE INCOME $ 1,495,000 $ 326,000
==========================================
Basic earnings per share $ 2.34 $ n/a
==========================================
Diluted earnings per share $ 2.34 $ n/a
==========================================
Dividends per share $ 0.75 $ n/a
==========================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,453,000 $ 334,000
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan losses 200,000 240,000
Provision for depreciation 48,000 54,000
Provision for deferred income taxes (145,000) (307,000)
Changes in assets and liabilities:
(Increase) decrease in:
Interest receivable (168,000) (57,000)
Prepaid expenses and other assets (141,000) (73,000)
Increase in:
Accounts payable and other liabilities 177,000 379,000
Deferred compensation 145,000 198,000
---------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,569,000 768,000
---------------------------------------
Cash Flows From Investing Activities
Net (increase) decrease in investments (12,948,000) 948,000
Net increase in loans receivable (6,237,000) (2,948,000)
Proceeds from sale of real estate owned 81,000
Purchases of office properties and equipment (102,000) (34,000)
Decrease in cash value of life insurance 8,000 47,000
---------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (19,198,000) (1,987,000)
---------------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in deposits (13,737,000) 2,313,000
Loan to ESOP for purchase of stock, net of principal payment (4,216,000)
Net payments on Federal Home Loan Bank advances (2,000,000)
Increase in advances from borrowers for taxes and insurance 168,000 147,000
Cash dividends paid (310,000)
---------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (18,095,000) 460,000
---------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (35,724,000) (759,000)
Cash and cash equivalents:
Beginning 37,071,000 2,675,000
---------------------------------------
Ending $ 1,347,000 $ 1,916,000
=======================================
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 3,229,000 $ 3,568,000
Income taxes 1,038,000 376,000
Supplemental Schedule of Noncash Financing Transactions
Dividends declared, accrued and deducted from retained earnings $ 156,000 $
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS
On December 30, 1997, pursuant to a Plan of Conversion which was approved by it
members and regulators, Mooresville Savings Bank, Inc., SSB (the "Bank" or
"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 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 the purchase of all of the common stock of the Bank. The Company
then loaned the ESOP trust $4,216,000 to purchase 53,958 shares of common stock
in the open market.
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, occupancy costs, furniture and
fixture expense, data processing charges, and other general and administrative
expenses.
Concurrent with the conversion, and pursuant to North Carolina regulations, the
Bank established a liquidation account in an 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 of the Company
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.
In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first three years after completion of the Conversion, 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 issuing a return of capital
during the first three years following the conversion.
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. 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
5
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS (CONTINUED)
Bank's net income for the most recent fiscal year end, or (ii) the average of
the Bank's net income after dividends for the most recent year end and not more
than two of the immediately preceding fiscal year ends.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements (except for the statement of
financial condition at December 31, 1997, 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 and 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) 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, 1998 are not necessarily
indicative of the results of operations that may be expected for the year ended
December 31, 1998. The financial statements as of and for the three and nine
months ended September 30, 1997 reflect activity of the Bank only. The
accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the 1997 annual report of the Company.
NOTE 3. EARNINGS PER SHARE
Earnings per share has been calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share," and Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans." For
purposes of this computation, the number of shares of common stock purchased by
the Bank's employee stock ownership plan which have not been allocated to
participant accounts are not assumed to be outstanding. The following are
reconciliations of the amounts used in the per share calculations for 1998:
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1998
------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------
<S> <C> <C> <C>
BASIC AND DILUTED EPS
Income available to stockholders $ 493,000 622,008 $ 0.79
For the Nine Months Ended September 30, 1998
------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------
BASIC AND DILUTED EPS
Income available to stockholders $ 1,453,000 621,509 $ 2.34
</TABLE>
6
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4. DIVIDENDS DECLARED
On September 15, 1998, the Board of Directors of Coddle Creek Financial Corp.
declared a dividend of $.25 per share for stockholders of record as of September
30, 1998 and payable on October 15, 1998. The dividends declared were accrued
and reported as other liabilities in the September 30, 1998 consolidated
statement of financial condition.
NOTE 5. COMPREHENSIVE INCOME
The Company was required to adopt Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income", during the nine months ended
September 30, 1998. The Statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The
financial statements for the three and nine months ended September 30, 1997 have
also been restated to reflect the new statement.
7
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997:
At September 30, 1998 and December 31, 1997 total assets amounted to $133.3
million and $149.6 million, respectively. The decrease from December 31, 1997
to September 30, 1998 is attributed to a decrease in cash and deposits, as the
Company refunded deposits to customers as a result of the oversubscription of
the stock offering. Loans receivable, net, increased from $102.0 million at
December 31, 1997 to $108.0 million at September 30, 1998, a $6.0 million
increase. Savings deposits decreased $13.8 million from $99.4 million at
December 31, 1997 to $85.6 million at September 30, 1998, due to refunding
deposits to customers as a result of the oversubscription of the stock offering.
Investment securities increased $13.0 million from $6.8 million at December 31,
1997 to $19.8 million at September 30, 1998, as stock offering proceeds were
used to purchase securities during the first nine months of 1998. Stockholders'
equity decreased by $2.6 million for the nine months ended September 30, 1998.
This decrease is due to $3.6 million of funds used to fully fund the ESOP loan
in order to purchase common stock in the open market and $466,000 of dividends
declared, offset by net income of $1.5 million.
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 $1.1 million of loans outstanding which were
delinquent more than 90 days at September 30, 1998, compared to $1.4 million at
December 31, 1997. 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 $196,000 to $889,000 at September 30,
1998 from $693,000 at December 31, 1997. Management believes the allowance to
be adequate to absorb any future losses in the portfolio.
At September 30, 1998, the Company's capital amounted to $44.4 million, which as
a percentage of total consolidated assets was 33.3%, and was considerably in
excess of the regulatory capital requirements at such date.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 1998 AND 1997:
GENERAL. Net income for the three months ended September 30, 1998 was $493,000
compared to $47,000 during the same quarter in 1997. Net income for the nine
months ended September 30, 1998 was $1.5 million compared to $334,000 during the
same period in 1997. As discussed below, the increase in earnings was primarily
attributable to interest income earned on the increase in average outstanding
earning assets due to proceeds received in the stock offering.
INTEREST INCOME. Interest income increased by $377,000 from $2.2 million for
the three months ended September 30, 1997 to $2.6 million for the three months
ended September 30, 1998. Interest income increased by $1.1 million from $6.7
million for the nine months ended September 30, 1997 to $7.8 million for the
nine months ended September 30, 1998. The increase is primarily due to an
increase in interest-earning assets, which amounted to $128.7 million at
September 30, 1998 as compared to $108.7 million at September 30, 1997.
Approximately 97% of the Bank's assets were interest-earning at September 30,
1998, and approximately 84% of such interest-earning assets were held in the
form of loans receivable.
8
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense decreased by $194,000 from $1.2 million
during the three months ended September 30, 1997 to $1.0 million for the three
months ended September 30, 1998. Interest expense decreased by $479,000 from
$3.6 million for the nine months ended September 30, 1997 to $3.1 million for
the nine months ended September 30, 1998. There was a lower level of average
interest-bearing liabilities outstanding during the first three quarters of 1998
in comparison to the same quarters a year earlier due to deposits utilized to
purchase stock.
NET INTEREST INCOME. Net interest income increased by $571,000 from $1.0
million for the three months ended September 30, 1997 to $1.6 million for the
three months ended September 30, 1998. Net interest income increased by $1.6
million from $3.1 million for the nine months ended September 30, 1997 to $4.7
million for the nine months ended September 30, 1998. The increases are
primarily due to the increase in interest income discussed above.
PROVISION FOR LOAN LOSSES. The Bank added $80,000 and $10,000 in loan loss
provisions during the quarters ended September 30, 1998 and 1997, respectively,
and $200,000 and $240,000 in loan loss provisions during the nine months ended
September 30, 1998 and 1997, 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 level of nonperforming loans has remained consistently low in
relation to prior periods and total loans outstanding. However, during the nine
months ended September 30, 1998 and 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, 1998, the Bank's level of general
valuation allowances for loan losses amounted to $889,000, which management
believes is adequate to absorb potential losses in its loan portfolio.
NONINTEREST EXPENSE. Noninterest expense decreased by $148,000 to $868,000 for
the three month period ended September 30, 1998 from $1.0 million for the same
quarter in 1997. Noninterest expense decreased by $95,000 to $2.3 million for
the nine months ended September 30, 1998 from $2.4 million for the nine months
ended September 30, 1997. 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. Compensation expense
includes $109,000 of ESOP expense for the nine months ended September 30, 1998.
All other categories of noninterest expense fluctuated by insignificant amounts
between the periods.
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
9
<PAGE>
CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 has decreased from
December 31, 1997 as deposits were refunded to customers due to the stock
oversubscription, however, the Bank's liquidity ratio at September 30, 1998 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 Company is heavily dependent on computer systems in the conduct of
substantially all of its business activities. The Company's most critical
external exposure to Year 2000 system problems is with its new data processing
provider, Fiserv. Fiserv recently acquired the Company's former provider,
Central Service Corporation. In connection with this change of data processing
providers, the Company is being required to purchase new computer software and
hardware in order to best utilize Fiserv's capabilities. This new equipment is
currently in the testing and implementation stage and is believed to be Year
2000 compliant. The total cost of the new equipment is estimated to be
$150,000, of which $74,000 has already been purchased, and is to be operating by
the end of the first quarter of 1999. Fiserv also renovated its systems in June
of 1998 and is currently testing its remediation efforts. Fiserv plans to have
all of its systems Year 2000 compliant by December of 1998. In addition, the
Company has contacted its major customers and vendors to inquire about their
progress in addressing the Year 2000 problem and does not believe that the
problems of such customers and vendors will have a material adverse effect on
the Company or its operations. The Company will continue to monitor the
progress of these parties in addressing the Year 2000 problem as the new
millennium approaches.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not experienced any substantive changes in its portfolio risk
during the nine month period ended September 30, 1998.
10
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any material legal proceedings at the
present time. From time to time, the Company 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 and Use of Proceeds
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) 27 - Financial Data Schedule
(b) Not applicable
11
<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.
CODDLE CREEK FINANCIAL CORP.
Dated October 20, 1998 By: /s/ George W. Brawley, Jr.
------------------------------ ------------------------------
George W. Brawley
President and CEO
Dated October 20, 1998 By: /s/ Billy R. Williams
----------------------------- ------------------------------
Billy R. Williams
Secretary/Controller
12
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