<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
JUNE 30, 1997 0-25938
MERIT HOLDING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1934011
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 LAVISTA ROAD, P. O. BOX 49, TUCKER, GEORGIA 30085-0049
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 770-491-8808
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by mark whether the registrant (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
------ --
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $2.50 Par Value 3,714,233
----------------------------- -------------------------------
Class Outstanding as of July 31, 1997
<PAGE> 2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,337,817 $ 14,295,260
Federal funds sold and other short-term investments 9,883,045 7,759,285
Interest bearing deposits with other
financial institutions 100,000 100,000
Investment securities, at cost (market
value of $1,427,989 and $1,666,200 respectively) 1,522,052 1,757,813
Mortgage-backed securities available for sale 2,816,848 6,987,783
Securities available for sale (Note 4) 40,127,319 36,493,983
Federal Reserve Bank stock 299,850 299,850
Federal Home Loan Bank stock 1,262,700 1,041,600
Loans, less allowance for loan losses
of $2,967,045 and $2,771,784 (Notes 2 and 3) 160,766,683 157,915,964
Real estate owned 166,579 110,747
Premises and equipment, net 5,665,593 5,633,032
Accrued interest receivable and other assets 3,337,618 3,784,986
--------------- ---------------
Total assets $ 239,286,104 $ 236,180,303
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 54,871,054 $ 57,396,092
Checking with interest 27,597,340 27,227,950
Money-market accounts 33,865,399 34,457,084
Savings 2,899,139 3,508,905
Time, $100,000 and over 23,132,067 25,916,972
Other time 51,073,355 44,189,759
--------------- ---------------
193,438,354 192,696,762
Short-term borrowings 10,535,621 11,715,438
Long-term debt 4,315,556 3,085,796
Accrued interest payable and other liabilities 2,603,493 1,882,759
--------------- ---------------
Total liabilities 210,893,024 209,380,755
--------------- ---------------
Stockholders' equity
Common stock, $2.50 par value; 10,000,000 shares
authorized; 3,714,233 and 3,704,102 shares
issued and outstanding, respectively 9,285,583 9,260,255
Paid-in capital 8,087,179 8,061,624
Retained earnings 11,000,391 9,314,117
Unrealized (losses) gains on securities
available for sale, net of tax 19,927 163,552
--------------- ---------------
Total stockholders' equity 28,393,080 26,799,548
--------------- ---------------
Total liabilities and stockholders'
equity $ 239,286,104 $ 236,180,303
=============== ===============
</TABLE>
(See notes to consolidated financial statements)
<PAGE> 3
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three month period ended For the six month period ended
June 30, June 30,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 4,192,049 $ 3,445,348 $ 8,144,798 $ 6,779,730
Interest on securities 707,705 619,976 1,419,872 1,236,336
Interest on federal funds sold
and other short-term investments 90,051 142,867 149,015 224,473
Interest on time deposits with other
financial institutions 1,539 2,987 3,060 5,974
Dividends on Federal Reserve Bank stock 4,497 4,497 8,995 8,995
Dividends on Federal Home Loan Bank
stock 22,508 13,471 42,963 26,019
--------------- --------------- --------------- ---------------
Total interest and dividend income 5,018,349 4,229,146 9,768,703 8,281,527
Interest expense on deposits 1,437,068 1,390,343 2,843,289 2,714,410
Interest expense on FHLB advances 74,536 41,709 136,253 83,499
Interest expense on short-term borrowings 117,667 54,222 246,996 90,109
--------------- --------------- --------------- ---------------
Total interest expense 1,629,271 1,486,274 3,226,538 2,888,018
--------------- --------------- --------------- ---------------
Net interest income 3,389,078 2,742,872 6,542,165 5,393,509
Provision for loan losses 150,000 165,000 300,000 330,000
--------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses 3,239,078 2,577,872 6,242,165 5,063,509
--------------- --------------- --------------- ---------------
Non-interest income:
Service charges and fees on deposits 259,604 176,427 530,142 377,702
Loss on sales of available-for-sale
securities (32,196) (32,196)
Mutual fund sales fees 13,374 34,209 22,156 39,657
Other income 73,537 151,842 150,673 227,700
--------------- --------------- --------------- ---------------
Total non-interest income 314,319 362,478 670,775 645,059
--------------- --------------- --------------- ---------------
Non-interest expense:
Salaries and other personnel 915,356 795,451 1,892,547 1,614,203
Occupancy and equipment 284,220 239,686 559,035 454,056
Advertising and marketing 28,749 24,418 56,908 44,686
Legal 131,000 66,000 262,000 96,000
Data processing 44,728 33,536 89,324 64,921
Directors' fees 68,500 67,000 133,900 126,200
Other operating 466,259 365,784 877,644 679,300
--------------- --------------- --------------- ---------------
Total non-interest expense 1,938,812 1,591,875 3,871,358 3,079,366
--------------- --------------- --------------- ---------------
Income before income taxes 1,614,585 1,348,475 3,041,582 2,629,202
Provision for income taxes 564,100 485,325 1,058,249 941,349
--------------- --------------- --------------- ---------------
Net income $ 1,050,485 $ 863,150 $ 1,983,333 $ 1,687,853
=============== =============== =============== ===============
Net income per share $ .23 $ .20 $ .44 $ .39
=============== =============== =============== ===============
</TABLE>
(See notes to consolidated financial statements)
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<PAGE> 4
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
For the six month period ended
June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,983,333 $ 1,687,853
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 268,706 222,025
Net amortization of premiums on securities 21,472 32,859
Provision for loan losses 300,000 330,000
Loss on sale of investment securities 32,196
Gain (loss) on sale of other real estate 299 (8,642)
Increase in interest receivable (73,972) (124,083)
Decrease (increase) in interest payable 108,025 (99,741)
Increase in accrued expenses and
other liabilities 794,336 140,975
Decrease (increase) in prepaid expenses and
other assets 238,280 (776,701)
--------------- ---------------
Net cash provided by operating activities 3,672,675 1,404,545
--------------- ---------------
Cash flows from investing activities:
Purchases of "available for sale" investment securities (5,884,616) (3,755,200)
Proceeds from sales of "available for sale" investment
securities 3,869,209
Proceeds from maturities of "held to maturity"
investment securities 235,000
Proceeds from maturities of "available for sale"
investment securities 2,268,444 2,953,427
Purchases of Federal Home Loan Bank stock (221,100) (46,900)
Proceeds from sale of other real estate 110,447 344,274
Loans made to customers, net (3,150,717) (10,751,427)
Capital expenditures (278,386) (315,447)
--------------- ---------------
Net cash used in investing activities (3,051,719) (11,571,273)
--------------- ---------------
Cash flows from financing activities:
Repayment of short-term borrowing (564,576)
Net increase (decrease) in Federal Home Loan Bank
advances 1,229,760 (64,886)
Net increase in deposits 741,593 8,751,621
Net increase (decrease) in securities sold under
agreements to repurchase (615,241) 1,441,209
Dividends paid (297,059)
Exercise of stock warrants 50,884 207,881
--------------- ---------------
Net cash provided by financing activities 545,361 10,335,825
--------------- ---------------
Net increase in cash and cash equivalents 1,166,317 169,097
Cash and cash equivalents at beginning of period 22,054,545 26,752,927
--------------- ---------------
Cash and cash equivalents at end of period $ 23,220,862 $ 26,922,024
=============== ===============
Supplemental data:
Interest paid $ 3,128,223 $ 2,987,757
=============== ===============
Income taxes paid $ 720,000 $ 1,650,000
=============== ===============
</TABLE>
(See notes to consolidated financial statements)
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<PAGE> 5
MERIT HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for Merit Holding
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of trends or results to be
expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
NOTE 2 - LOANS
Loans are stated at unpaid principal balances, net of unearned income and
deferred loan fees. Interest is accrued only if deemed collectible. Generally
the Company's policy is not to accrue interest on loans delinquent over ninety
days unless the loan is well secured and in the process of collection.
Loans consist of :
(in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C> <C> <C>
Commercial $ 92,762 57% $ 91,125 57%
Real estate - construction
and land development 33,831 21% 34,407 21%
Real estate - mortgages 25,181 15% 20,242 13%
Installment and other
Consumer 11,785 7% 14,686 9%
Other 175 0% 228 0%
---------- --- -------- ---
163,734 100% 160,688 100%
Less allowance for loan losses (2,967) (2,772)
---------- --------
$ 160,767 $157,916
========== ========
</TABLE>
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<PAGE> 6
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
A provision for loan losses is charged to operations based on management's
evaluation of potential losses in the loan portfolio. Such evaluation includes
a review of all loans on which full collectibility may not be reasonably
assured and considers, among other matters, management's estimate of the fair
value of the underlying collateral on specific loans, inherent losses in the
loan portfolio, and prevailing and anticipated economic conditions.
Activity in the allowance for loan losses for the six months ended June 30,
1997 and June 30, 1996 follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Balance, January 1 $2,771,784 $2,543,408
Provision charged to expense 300,000 330,000
Net charge-offs (104,739) (26,398)
---------- ----------
Balance, June 30 $2,967,045 $2,847,010
========== ==========
</TABLE>
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY
Securities available-for-sale are securities which management believes may be
sold prior to maturity for liquidity or other reasons and are reported at fair
value, with unrealized gains and losses, net of related income taxes, reported
as a separate component of stockholders' equity. Securities held-to-maturity
are those securities for which management has both the ability and intent to
hold to maturity and are carried at amortized cost.
The amortized cost and estimated market value of investment securities
held-to-maturity at June 30, 1997 and December 31, 1996 are presented below:
<TABLE>
<CAPTION>
1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Government Agencies $1,000,000 $ - $ 103,800 $ 896,200
Tax exempt bonds 522,052 11,314 1,577 531,789
---------- ----------- --------- ----------
$1,522,052 $ 11,314 $ 105,377 $1,427,989
=========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
U.S. Government Agencies $1,000,000 $ - $ 104,940 $ 895,060
Tax exempt bonds 757,813 14,410 1,083 771,140
---------- ----------- --------- -----------
$1,757,813 $ 14,410 $ 106,023 $ 1,666,200
========== =========== ========= ===========
</TABLE>
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<PAGE> 7
The amortized cost and estimated market value of investment securities
available-for-sale at June 30, 1997 and December 31, 1996 are presented below:
<TABLE>
<CAPTION>
1997
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 13,980,311 $ 24,416 $ 9,102 $13,995,625
U.S. Government Agencies 26,144,833 86,903 100,042 26,131,694
Mortgage-backed certificates 2,786,882 34,947 4,981 2,816,848
------------- --------- -------- -----------
$ 42,912,026 $ 146,266 $114,125 $42,944,167
============= ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
U.S.Treasuries $13,950,786 $ 96,707 $ 151 $14,047,342
U.S. Government Agencies 22,286,193 205,283 44,835 22,446,641
Mortgage-backed certificates 6,980,992 34,990 28,199 6,987,783
----------- ----------- ------------ -----------
$43,217,971 $ 336,980 $ 73,185 $43,481,766
=========== =========== ============ ===========
</TABLE>
NOTE 5 - NET INCOME PER SHARE
The Company is required to calculate net income per share based on the
"modified treasury stock" method. Under this method, net income and weighted
average shares are adjusted for the effects of assumed exercise of common stock
equivalents. The number of shares used to compute earnings per share for the
three months and six months ended June 30, 1997 was 4,499,494 and for the three
and six months ended June 30, 1996 was 4,312,808.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"), which prescribes accounting standards to be followed when the Company
transfers control over financial assets to third parties. SFAS 125 is effective
for the Company for transactions occurring after December 31, 1996; however,
the FASB has delayed implementation of certain of the provisions of SFAS 125
for one year. The Company does not believe this Statement will have a
significant impact on its financial statements based upon the current scope of
the Company's operations.
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<PAGE> 8
On March 3, 1997, FASB issued SFAS 128, "Earnings per Share" and SFAS 129,
"Disclosure of Information about Capital Structure." SFAS 128 changes the
methods for calculation of earnings per share and is effective for financial
statements issued for both interim and annual periods ending after December 15,
1997. If this pronouncement had been adopted, the basic earnings per share for
the second quarter of 1997 and 1996 would have been $.28 and $.23 respectively,
and for the first six months of 1997 and 1996 would have been $.53 and $.45,
respectively.
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<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses the factors that have affected the financial
condition and results of operations of Merit Holding Corporation (the
"Company") as reflected in the unaudited consolidated financial statements for
the three and six months ended June 30, 1997 and 1996. The Company's operating
subsidiaries are Mountain National Bank ("Mountain") and Charter Bank & Trust
Co. ("Charter").
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
______________________________________________
The Company's net income for the second quarter of 1997 was $1,050,485, a 21.7%
increase compared to net income of $863,150 for the same period in 1996.
Earnings per share was $.23 in the second quarter of 1997 compared to $.20 for
the same period in 1996. Net income for the six months ended June 30, 1997 was
$1,983,333 compared to $1,687,853 for the same period of 1996, a 17.5%
increase. The increase in net income in the second quarter of 1997 compared to
the same period in 1996 was the result of an increase in net interest income of
$646,206, or 23.6%, and a $15,000 reduction in the provision for loan losses
compared to the second quarter of 1996. These increases were offset by a
decline of $48,159, or 13.3%, in non-interest income, and an increase of
$346,937, or 21.8%, in non-interest expense. The growth in net income for the
six month period ended June 30, 1997 over the corresponding period in 1996
resulted primarily from an increase of $1,148,656, or 21.3%, in net interest
income, and an increase of $25,716, or 4.0%, in non-interest income, offset by
an increase of $791,992, or 25.7%, in non-interest expense.
Return on average equity for the three months and six months ended June 30,
1997 was 14.98% and 14.39% on average equity of $28,041,000 and $27,583,000,
respectively, as compared to 14.11% and 13.95% on average equity of $24,467,000
and $24,195,000, respectively, for the same periods in 1996. Return on average
assets for the three months and six months ended June 30, 1997 was 1.77% and
1.69% on average assets of $237,517,000 and $234,564,000 respectively as
compared to 1.66% and 1.67% on average assets of $208,212,000 and $202,510,000
for the same periods in 1996.
Total assets at June 30, 1997 were $239,286,000, a 1.3% increase from
$236,180,000 at December 31, 1996. Total average assets for the first six
months of 1997 were $234,564,000, up $32,054,000, or 15.8% from the same period
in 1996. Average loans for the first six months of 1997 were $161,049,000, up
$26,763,000, or 19.9% over the same period in 1996. The loan growth was funded
by increased average interest-bearing deposits, up $12,821,000, or 10.4%;
higher average non-interest bearing deposits, up $8,028,000, or 17.6%; and
increased short term borrowings, up $5,819,000, or 127.4%.
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<PAGE> 10
Commencing January 15, 1997, the Company has paid a regular quarterly dividend
of $.04 per share.
Net interest income for the second quarter of 1997 increased $646,206 or 23.6%
over the second quarter of 1996. Net interest income for the six months ended
June 30, 1997 increased $1,148,656 or 21.3% over the same period in 1996. The
net interest margin for the three months and six months ended June 30, 1997
was 6.20% and 6.16% respectively on average total earning assets of
$218,518,000 and $212,556,000, respectively. For the same periods in 1996, the
net interest margin was 5.81% and 5.90% respectively on average earning assets
of $188,906,000 and $182,876,000. The increase in net interest income reflects
the growth in earning assets in 1997 over 1996, a decrease in the average rate
paid on interest-bearing liabilities to 4.28% in the first six months of 1997
from 4.42% for the same period in 1996, and a higher yield on earning assets,
up 13 basis points to 9.19% in the first six months of 1997 compared to the
same period of 1996.
The provision for loan losses for the second quarter of 1997 was $150,000
compared to $165,000 in the second quarter of 1996. The provision for
loan losses for the first six months of 1997 was $300,000 compared to $330,000
for the same period in 1996. The allowance for loan losses at June 30, 1997 was
$2,967,045 compared to $2,771,784 at December 31, 1996. At June 30, 1997 and
December 31, 1996, the allowance for loan losses represented 1.81% and 1.73%
of loans outstanding, respectively. The provision for loan losses and the
adequacy of the allowance for loan losses is based upon management's continuing
evaluation of the collectibility of the loan portfolio under current economic
conditions and includes analysis of underlying collateral value and other
factors which could affect that collectibility. Management considers the
allowance for loan losses to be adequate based upon evaluations of specific
loans, internal loan rating systems, guidelines provided by the banking
regulatory authorities governing Mountain and Charter, and an annual
independent loan review performed by a consultant.
Through the six months ended June 30, 1997, charged-off loans totaled $104,739,
net of recoveries, or 0.06% of total loans outstanding. This compares to
$26,398 or 0.02% through the six months ended June 30, 1996. The ratio of non-
performing loans (including loans 90 days or more past due) to total
outstanding loans was 0.34% at June 30, 1997 compared to 0.66% at December 31,
1996 and 0.88% at June 30, 1996. Net charge-offs in the first quarter and
second quarter of 1997 were $73,873 and $30,866, respectively, compared to
$26,526 and $(128) (net recovery) in the first and second quarters of 1996,
respectively.
During the second quarter of 1997, Mountain received a cash settlement from
SouthTrust Bank concerning a lawsuit that was initiated in August 1995 by
Mountain against SouthTrust concerning participation loans. Accordingly, the
Company's June 30, 1997 balance sheet and income statement reflect the effect
of this settlement.
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<PAGE> 11
At June 30, 1997, the Company owned one foreclosed residential property carried
in other real estate owned in the amount of $166,579. The Company does not
anticipate any material loss on the sale of this property.
At June 30, 1997, the Company had $10,535,621 in short-term borrowings compared
to $11,715,438 at year ended December 31, 1996. Short-term borrowings include
$6,922,000 of securities sold under agreements to repurchase with customers,
$1,280,000 of federal funds purchased and $2,000,000 in borrowings from the
Federal Home Loan Bank of Atlanta ("FHLB").
Long-term debt at June 30, 1997 was $4,315,556 compared to $3,085,796 at year
end December 31, 1996. Long-term debt consists of advances from the Federal
Home Loan Bank of Atlanta for the purpose of match funding loans. One new
advance of $1,000,000 was obtained in the first quarter of 1997 and one new
advance of $500,000 was obtained in the second quarter of 1997.
Non-interest income decreased $48,159 or 13.3% during the second quarter of
1997 compared to the same period in 1996, and increased $25,716, or 4.0%, for
the first six months of 1997 compared to the same period in 1996. In the second
quarter of 1997, the Company sold $3.9 million of investment securities from
its available-for-sale portfolio, incurring a net loss of $32,196, and
simultaneously purchased $3.9 million of securities for its available for sale
portfolio. The purchased securities have a net yield improvement of
approximately 90 basis points over those sold. There were no security sales in
1996. Other income decreased $78,305 and $77,027, for the second quarter and
first six months of 1997, compared to the same periods in 1996. These declines
were offset by higher service charges on deposits, up $83,177, or 47.1%, in the
second quarter of 1997 compared to 1996, and up $152,440, or 40.4%, for the
first six months of 1997 compared to 1996. This increase is the result of
increased deposits, as unit service charges were not substantially increased.
Non-interest expense increased $346,937, or 21.8%, for the quarter ended June
30, 1997 as compared to the same period in 1996. Occupancy and equipment
expense increased $44,532, or 18.6%, in the second quarter of 1997 compared to
the same period in 1996, partly resulting from Mountain opening a new combined
branch/operations center in April, 1996 and Charter opening a new full service
branch in November, 1996. Legal expense increased $65,000, or 98.5%, for the
second quarter of 1997 compared to the same period in 1996 as a result of the
lawsuit discussed above. Salaries and other personnel expenses increased
$119,905, or 15.1%, and other operating expenses increased $100,475, or 27.5%,
in the second quarter of 1997 compared to 1996, as the result of the continued
growth of the Company.
Non-interest expense for the six months ended June 30, 1997 increased $791,992,
or 25.7%, over the same period in 1996. Salaries and other personnel expenses
increased $278,344, or 17.2%, to manage continued growth. Occupancy and
equipment expense
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<PAGE> 12
increased $104,979, or 23.1%, in the first six months of 1997 compared to the
same period in 1996, the result of the new branch facilities discussed in the
preceding paragraph. Legal expense increased $166,000, or 173%, for the first
half of 1997 compared to the same period in 1996 as a result of the lawsuit
discussed above. Other operating expenses increased $198,344, or 29.2%, in the
first half of 1997 compared to 1996, the result of continuing growth.
Management continues to closely monitor operating expenses.
CAPITAL ADEQUACY
____________________________
Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. These
regulations establish minimum requirements for risk-based capital of 4% for
core capital (tier I), 8% for total risk-based capital and 3% for the leverage
ratio. At June 30, 1997 the Company's tier I risk-based capital was 15.5% and
total risk-based capital was 16.7%, compared to 14.7% and 15.9% at year-ended
December 31, 1996, respectively. At June 30, 1997 the Company's leverage ratio
was 12.8% compared to 11.3% at December 31, 1996.
The Company does not have any commitments which it believes would reduce its
capital to levels inconsistent with the regulatory definition of a well
capitalized financial institution.
LIQUIDITY
_________________________
The goal of liquidity management is to ensure the availability of an adequate
level of funds to meet the loan demand and deposit withdrawal needs of the
Company's customers. The Company does not anticipate any events which would
require liquidity beyond that which is available through deposit growth,
federal funds balances, or investment portfolio maturities. The Company
actively manages the levels, types and maturities of earning assets in relation
to the sources available to fund current and future needs to ensure that
adequate funding will be available at all times. At June 30, 1997 the Company
had $8,300,642 in carrying value of investment securities in its
held-to-maturity and available-for-sale portfolios that would mature in one
year or less.
At June 30, 1997 and December 31, 1996, the Company had federal funds lines of
credit from other banks totaling $25,750,000 and $20,500,000, respectively to
meet short term funding needs. There was $1,280,000 outstanding under these
short term commitments at June 30, 1997.
There are no known trends or any known commitments or uncertainties that will
result in the Company's liquidity increasing or decreasing in any material way.
-11-
<PAGE> 13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.
Certain statements contained in this filing are "forward-looking statements'
within the meaning of the Private Securities Litigation Reform Act of 1995,
such as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
Part II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS FOR VOTE OF SECURITY HOLDERS.
On May 8, 1997, the Company held its 1997 Annual Meeting of
Shareholders. At the meeting, the following persons were elected to
serve on the Company's Board of Directors for a term of one year and
until their successors are elected and have qualified: J. Randall
Carroll, Michael J. Coles, Ronald H. Francis, Patrick H. Hickok and
Walter J. McCloud, II. The number of votes cast for and against the
election of each nominee for director was as follows:
<TABLE>
<CAPTION>
Director For Withhold
-------- --- --------
<S> <C> <C>
J. Randall Carroll 2,420,979 5,668
Michael J. Coles 2,406,693 19,954
Ronald H. Francis 2,420,979 5,668
Patrick H. Hickok 2,420,979 5,668
Walter J. McCloud, II 2,420,979 5,668
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
-12-
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MERIT HOLDING CORPORATION
Date: July 31, 1997 J. Randall Carroll
------------- --------------------------------------------
J. Randall Carroll
Chairman and Chief Executive Officer
Date: July 31, 1997 Ronald H. Francis
------------- --------------------------------------------
Ronald H. Francis
President and Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,337,817
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,883,045
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,944,167
<INVESTMENTS-CARRYING> 1,522,052
<INVESTMENTS-MARKET> 1,427,989
<LOANS> 163,733,728
<ALLOWANCE> 2,967,045
<TOTAL-ASSETS> 239,286,104
<DEPOSITS> 193,438,354
<SHORT-TERM> 10,535,621
<LIABILITIES-OTHER> 2,603,493
<LONG-TERM> 4,315,556
0
0
<COMMON> 9,285,583
<OTHER-SE> 19,107,497
<TOTAL-LIABILITIES-AND-EQUITY> 239,286,104
<INTEREST-LOAN> 8,144,798
<INTEREST-INVEST> 1,419,872
<INTEREST-OTHER> 204,033
<INTEREST-TOTAL> 9,768,703
<INTEREST-DEPOSIT> 2,843,289
<INTEREST-EXPENSE> 3,226,538
<INTEREST-INCOME-NET> 6,542,165
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> (32,196)
<EXPENSE-OTHER> 3,871,358
<INCOME-PRETAX> 3,041,582
<INCOME-PRE-EXTRAORDINARY> 1,983,333
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,983,333
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 6.16
<LOANS-NON> 528,484
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,771,784
<CHARGE-OFFS> 253,207
<RECOVERIES> 148,468
<ALLOWANCE-CLOSE> 2,967,045
<ALLOWANCE-DOMESTIC> 2,967,045
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
