<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
MARCH 31, 1998 0-25938
MERIT HOLDING CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1934011
- --------------------------------------------------------------------------------
(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 4,045,750
- ----------------------------- --------------------------------
Class Outstanding as of April 30, 1998
<PAGE> 2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 13,846,737 $ 17,585,760
Federal funds sold and other short-term investments 34,951,642 14,293,899
Investment securities, at cost (market
value of $1,480,532 and $1,472,473 respectively) 1,520,911 1,521,291
Mortgage-backed securities available-for-sale 4,643,196 4,877,279
Securities available-for-sale (Note 4) 39,957,402 39,476,430
Federal Reserve Bank stock 299,850 299,850
Federal Home Loan Bank stock 1,331,700 1,331,700
Loans, less allowance for loan losses
of $3,006,253 and $2,655,412 (Notes 2 and 3) 175,729,449 179,184,439
Real estate owned 211,391 209,570
Premises and equipment, net 5,584,356 5,529,319
Accrued interest receivable and other assets 5,766,507 3,053,342
------------ ------------
Total assets $283,843,141 $267,362,879
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
Demand $ 61,298,086 $ 61,672,902
Checking with interest 36,279,990 31,403,603
Money-market accounts 40,917,557 40,876,193
Savings 2,869,144 2,695,770
Time, $100,000 and over 29,479,658 26,218,536
Other time 65,394,995 57,416,727
------------ ------------
236,239,430 220,283,731
Short-term borrowings 6,538,990 6,431,752
Long-term debt 5,211,864 5,282,847
Accrued interest payable and other liabilities 3,484,088 3,298,721
------------ ------------
Total liabilities 251,474,372 235,297,051
------------ ------------
Shareholders' equity
Common stock, $2.50 par value; 10,000,000 shares
authorized; 4,081,018 and 3,990,233 shares issued and
4,030,358 and 3,989,033 shares outstanding, respectively 10,202,545 9,975,583
Paid-in capital 8,999,064 8,777,179
Retained earnings 14,065,411 13,110,971
Accumulated other comprehensive income 227,520 224,505
Treasury stock, 50,660 and 1,200 shares at cost, respectively (1,125,771) (22,410)
------------ ------------
Total shareholders' equity 32,368,769 32,065,828
------------ ------------
Total liabilities and shareholders' equity $283,843,141 $267,362,879
============ ============
</TABLE>
(See notes to consolidated financial statements)
<PAGE> 3
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $4,492,126 $3,952,749
Interest on securities 728,250 712,167
Interest on federal funds sold
and other short-term investments 236,992 58,964
Interest on time deposits with other
financial institutions 0 1,521
Dividends on Federal Reserve Bank stock 4,498 4,498
Dividends on Federal Home Loan Bank stock 24,000 20,455
----------- ----------
Total interest and dividend income 5,485,866 4,750,354
Interest expense on deposits 1,799,668 1,406,221
Interest expense on long-term debt 86,031 61,717
Interest expense on short-term borrowings 64,850 129,329
---------- ----------
Total interest expense 1,950,549 1,597,267
---------- ----------
Net interest income 3,535,317 3,153,087
Provision for loan losses 97,500 150,000
---------- ----------
Net interest income after
provision for loan losses 3,437,817 3,003,087
---------- ----------
Non-interest income:
Service charges and fees on deposits 272,434 270,538
Mutual fund sales fees 12,733 8,782
Other income 84,961 77,136
---------- ----------
Total non-interest income 370,128 356,456
---------- ----------
Non-interest expense:
Salaries and other personnel 1,116,071 977,191
Occupancy and equipment 311,654 274,815
Advertising and marketing 27,707 28,159
Legal 32,499 131,000
Data processing 48,521 44,596
Directors' fees 63,700 65,400
Other operating 384,651 411,385
---------- ----------
Total non-interest expense 1,984,803 1,932,546
---------- ----------
Income before income taxes 1,823,142 1,426,997
Provision for income taxes 668,898 494,149
---------- ----------
Net income $1,154,244 $ 932,848
========== ==========
Other comprehensive income, before tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during period $ 4,786 $ (352,914)
Income tax (expense) benefit related to items of other
comprehensive income (1,771) 130,578
---------- ----------
Other comprehensive income, net of tax $ 3,015 $ (222,336)
---------- -----------
Comprehensive income $1,157,259 $ 710,512
========== ===========
Basic earnings per share $ .29 $ .25
========== ===========
Diluted earnings per share $ .24 $ .21
========== ===========
</TABLE>
(See notes to consolidated financial statements)
- 2 -
<PAGE> 4
MERIT HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,154,244 $ 932,848
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 123,638 132,968
Net amortization of premiums on securities 13,149 10,270
Provision for loan losses 97,500 150,000
Decrease in interest receivable 166,905 33,103
Increase in interest payable 143,942 111,287
Increase in accrued expenses and other liabilities 41,326 594,055
Increase in prepaid expenses and other assets (2,881,889) (551,883)
------------- -----------
Net cash provided (used) by operating activities (1,141,185) 1,412,648
------------- -----------
Cash flows from investing activities:
Purchases of "available-for-sale" investment securities (4,998,594) (1,000,000)
Proceeds from maturities of "held-to-maturity" investment securities 235,000
Proceeds from maturities of "available-for-sale" investment securities 4,740,555 1,094,012
Purchases of Federal Home Loan Bank stock (221,100)
Loans made to customers, net 3,357,490 (2,344,918)
Capital expenditures (178,675) (256,396)
------------- -----------
Net cash provided (used) in investing activities 2,920,776 (2,493,402)
------------- -----------
Cash flows from financing activities:
Repayment of short-term borrowing (1,000,000)
Net increase (decrease) in Federal Home Loan Bank advances (70,983) 851,068
Net increase (decrease) in deposits 15,955,699 (2,284,022)
Net increase (decrease) in securities sold under
agreements to repurchase 107,238 (2,208,452)
Exercise of stock warrants 448,847 40,634
Dividends paid (198,311)
Purchase of treasury stock (1,103,361)
------------- -----------
Net cash provided (used) in financing activities 15,139,129 (4,600,772)
------------- -----------
Net increase (decrease) in cash and cash equivalents 16,918,720 (5,681,526)
Cash and cash equivalents at beginning of period 31,879,659 22,054,545
------------- -----------
Cash and cash equivalents at end of period $ 48,798,379 $16,373,019
============= ===========
Supplemental data:
Interest paid $ 1,765,516 $ 1,500,399
============= ===========
Income taxes paid $ 436,035 $ 0
============= ===========
</TABLE>
(See notes to consolidated financial statements)
- 3 -
<PAGE> 5
MERIT HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 three months ended
March 31, 1998 are not necessarily indicative of trends or results to be
expected for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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>
March 31, 1998 December 31, 1997
----------------------- ---------------------
<S> <C> <C> <C> <C>
Commercial $ 101,500 57% $ 99,747 55%
Real estate - construction
and land development 37,884 21% 39,974 22%
Real estate - mortgages 27,323 15% 30,620 17%
Installment and other
Consumer 12,028 7% 11,491 6%
Other 0 0% 8 0%
--------- -------- -------- ---
178,735 100% 181,840 100%
Less allowance for loan losses (3,006) (2,656)
--------- --------
$ 175,729 $179,184
========= ========
</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 three months ended March 31,
1998 and March 31, 1997 follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31,1997
-------------- -------------
<S> <C> <C>
Balance, January 1 $ 2,655,412 $ 2,771,784
Provision charged to expense 97,500 150,000
Net recoveries (charge-offs) 253,341 (73,873)
-------------- -------------
Balance, March 31 $ 3,006,253 $ 2,847,911
============== =============
</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 shareholders' 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 March 31, 1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
March 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government Agencies $1,000,000 $ - $ 58,863 $ 941,137
Tax exempt bonds 520,911 18,484 539,395
---------- ---------- ---------- ----------
$1,520,911 $ 18,484 $ 58,863 $1,480,532
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government Agencies $1,000,000 $ - $ 69,241 $ 930,759
Tax exempt bonds 521,291 20,423 541,714
---------- ---------- ---------- ----------
$1,521,291 $ 20,423 $ 69,241 $1,472,473
========== ========== ========== ==========
</TABLE>
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<PAGE> 7
The amortized cost and estimated market value of investment securities
available-for-sale at March 31, 1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
March 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasuries $10,003,821 $ 105,327 $ 241 $10,108,907
U.S. Government Agencies 29,623,189 247,582 22,276 29,848,495
Mortgage-backed certificates 4,609,865 36,032 2,701 4,643,196
----------- ---------- ---------- -----------
$44,236,875 $ 388,941 $ 25,218 $44,600,598
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S.Treasuries $11,498,173 $ 97,452 $ $11,595,625
U.S. Government Agencies 27,638,481 256,142 13,818 27,880,805
Mortgage-backed certificates 4,854,949 35,302 12,972 4,877,279
----------- ---------- ---------- -----------
$43,991,603 $ 388,896 $ 26,790 $44,353,709
=========== ========== ========== ===========
</TABLE>
NOTE 5 - NET INCOME PER SHARE
Statement of Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
requires the Company to present both basic and diluted earnings per share on the
statement of income because the Company has potential common stock outstanding.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding for the period. Diluted earnings per share
is computed similarly; however, it is adjusted for the effects of the assumed
exercise of the Company's outstanding options and warrants. Net income is the
same for both the basic and diluted earnings per share calculation in the
respective periods presented . The weighted-average number of shares outstanding
used in computing basic and diluted earnings per share for the three months
ended March 31, 1998 was 3,999,004 and 4,748,310, respectively, and for the
three months ended March 31, 1997 was 3,711,882 and 4,450,559, respectively.
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
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<PAGE> 8
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.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company currently has one item, unrecognized gains or losses on
available-for-sale securities, that is considered a component of comprehensive
income. SFAS 130 is effective for the Company in 1998. SFAS 131 requires that
public business enterprises report financial and descriptive information about
its reportable operating segments using the "management approach." This approach
focuses on financial information that an enterprise's management uses to make
decisions about operating matters. SFAS 131 is effective for 1998, however,
there will be no impact to the Company as it has only one operating segment.
-7-
<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
months ended March 31, 1998 and 1997. 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 first quarter of 1998 was $1,154,244, a 23.7%
increase compared to net income of $932,848 for the same period in 1997. Basic
earnings per share was $.29 in the first quarter of 1998 compared to $.25 in the
same period in 1997 and diluted earnings per share was $.24 in the first quarter
of 1998 compared to $.21 for the same period in 1997. The increase in net income
in the first quarter of 1998 compared to the same period in 1997 was primarily
the result of an increase in net interest income of $382,230, or 12.1%, and a
$52,500 reduction in the provision for loan losses; offset by an increase of
$52,257, or 2.7%, in non-interest expense.
Return on average equity for the three months ended March 31, 1998 was 14.18% on
average equity of $32,563,000 as compared to 13.70% on average equity of
$27,235,000 for the same period in 1997. Return on average assets for the three
months ended March 31, 1998 was 1.73% on average assets of $267,608,000 as
compared to 1.60% on average assets of $233,094,000 for the same period in 1997.
Total assets at March 31, 1998 were $283,843,000, a 6.2% increase from
$267,363,000 at December 31, 1997. Total average assets for the first three
months of 1998 were $267,608,000, up $34,514,000, or 14.8% from the same period
in 1997. Average loans for the first three months of 1998 were $178,581,000, up
$19,512,000, or 12.3% over the same period in 1997. The loan growth was funded
by increased average interest-bearing deposits, up $27,623,000, or 20.3%, and
higher average non-interest bearing deposits, up $4,474,000, or 8.7%.
Commencing January 15, 1997, the Company paid a regular quarterly cash dividend
of $.04 per share. Effective January 15, 1998 the quarterly dividend was
increased to $.05 per share.
Net interest income for the first quarter of 1998 increased $382,230 or 12.1%
over the first quarter of 1997. The net interest margin for the three months
ended March 31, 1998 was 5.82% on average total earning assets of $242,857,000.
For the same period in 1997,
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<PAGE> 10
the net interest margin was 5.97% on average earning assets of $211,210,000. The
increase in net interest income for the first three months reflects the 15.0%
growth in average earning assets in 1998 over 1997, and a slightly higher yield
on earning assets, up 4 basis points to 9.04% in the first three months of 1998
compared to the same period of 1997, offset by an increase in the average rate
paid on interest-bearing liabilities to 4.45% in the first three months of 1998
from 4.20% for the same period in 1997.
The provision for loan losses for the first quarter of 1998 was $97,500 compared
to $150,000 in the first quarter of 1997. The allowance for loan losses at March
31, 1998 was $3,006,253 compared to $2,655,412 at December 31, 1997. At March
31, 1998 and December 31, 1997, the allowance for loan losses represented 1.68%
and 1.46% 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 three months ended March 31, 1998, recoveries, net of charge-offs,
on loans totaled $253,341, or 0.14%, of average loans outstanding for the
period. This compares to $73,873 in net charge-offs, or 0.05% of average loans
outstanding through the three months ended March 31, 1997. Total non-performing
loans as of March 31, 1998 were $396,954 compared to $476,395 at December 31,
1997. The ratio of non-performing loans (including loans 90 days or more past
due) to total outstanding loans was .22% at March 31, 1998 compared to 0.26% at
December 31, 1997 and 0.70% at March 31, 1997.
At March 31, 1998, the Company owned one foreclosed residential property carried
in other real estate owned in the amount of $211,391. The Company does not
anticipate any material loss on the sale of this property.
At March 31, 1998, the Company had $6,539,000 in short-term borrowings compared
to $6,432,000 at December 31, 1997. The short-term borrowings consist of
securities sold under agreements to repurchase with customers.
Long-term debt at March 31, 1998 was $5,212,000 compared to $5,283,000 at
December 31, 1997. Long-term debt consists of advances from the Federal Home
Loan Bank of Atlanta for the purpose of match funding specific loans. One new
advance of $1,000,000 was obtained in the first quarter of 1997; no new advances
were obtained in 1998.
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<PAGE> 11
Non-interest income increased $13,672 or 3.8% during the first quarter of 1998
compared to the same period in 1997. Service charges and fees on deposits were
up $1,896, or 0.7%, in the first quarter of 1998 compared to 1997. Unit service
charges and fees have not substantially increased in 1997 or 1998. Other income
increased $7,825 for the first quarter of 1998 compared to the same period in
1997.
Non-interest expense increased $52,257, or 2.7%, for the quarter ended March 31,
1998 as compared to the same period in 1997. Occupancy and equipment expense
increased $36,839, or 13.4%, in the first quarter of 1998 compared to the same
period in 1997, the result of Mountain opening a new branch in the Peachtree
Corners area in Norcross, Georgia. Legal expense decreased $98,501, or 75.2%,
for the first quarter of 1998 compared to the same period in 1997 as a result of
the settlement in 1997 of a lawsuit initiated in 1995. Salaries and other
personnel expenses increased $138,880, or 14.2%, in the first quarter of 1998
compared to 1997, as the result of the continued growth of the Company.
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
March 31, 1998 the Company's tier I risk-based capital was 15.5% and total
risk-based capital was 16.8%, compared to 15.6% and 16.9% at year-ended December
31, 1997, respectively.
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.
The Company has developed and is implementing a strategic plan to address Year
2000 issues. The Year 2000 problem involves the risk that various systems will
not operate correctly beyond the century date change-over on January 1, 2000.
The Company has identified the various systems impacted, assessed the risks
involved, and is currently testing the systems for compliance. The Company is
also contacting its vendors and major loan customers to address their exposure
to this problem. At this time, the Company does not believe that the cost
arising from the Year 2000 project will be material, although there can be no
assurance that unforeseen difficulties or costs will not arise.
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<PAGE> 12
In January 1998, the Board of Directors of the Company approved a stock
repurchase program under which the Company may purchase up to 100,000 shares of
its common stock in the open market at prevailing market rates. During the first
three months of 1998, the Company repurchased 49,460 shares of its common stock
at a total cost of $1,103,361. In addition, 84,880 warrants originally issued to
Mountain's organizers in 1988 and 5,905 options originally issued to Charter
officers were exercised during the first quarter of 1998 for total proceeds of
$448,847.
LIQUIDITY AND INTEREST SENSITIVITY
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 March 31, 1998, the Company had $4,409,000 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 March 31, 1998 and December 31, 1997, the Company had federal funds lines of
credit from other banks totaling $25,750,000 to meet short term funding needs.
There was no balance outstanding under these short term commitments at March 31,
1998.
The liquidity and maturity structure of the Company's assets and liabilities are
important to the maintenance of acceptable net interest income levels. A
decreasing interest rate environment negatively impacts earnings as the
Company's rate-sensitive assets generally reprice faster than its rate-sensitive
liabilities. Conversely, in an increasing interest rate environment, earnings
are positively impacted. This potential asset/liability mismatch in pricing is
referred to as gap and is measured as rate sensitive assets divided by rate
sensitive liabilities for a defined time period. A gap of 1.0 means that assets
and liabilities are perfectly matched as to repricing within a specific time
period and interest rate movements will not affect net interest margin, assuming
all other factors hold constant. Management has specified gap guidelines for a
one year time horizon of between .80 and 1.2. At March 31, 1998 the Company had
a gap ratio of 1.09 for the one year period ending March 31, 1999. Thus, over
the next twelve months, more rate-sensitive assets will reprice than
rate-sensitive liabilities.
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<PAGE> 13
RIDER
The Company may from time to time make written or oral "forward-looking
statements," including statements contained in the Company's filings with the
Securities and exchange Commission (including this Quarterly Report on Form 10-Q
and any exhibits hereto), in its reports to shareholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Company's control). The words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify forward-looking statements. The following
factors, among others, could cause the Company's financial performance to differ
materially from that expressed in such forward-looking statements: the strength
of the United States economy in general and the strength of the local economies
in which the Company conducts operations; the effects of, and changes in,
monetary and fiscal policies, including interest rate policies of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"),
inflation; interest rate, market and monetary fluctuations; the timely
development of competitive new products and services by the Company and the
acceptance of such products and services by customers; the willingness of
customers to substitute the competitors' products and services for the Company's
products and services and vice versa; the impact of changes in financial
services' laws and regulations (including laws concerning taxes, banking,
securities and insurance); technological changes; future acquisitions; the
growth and profitability of the Company's noninterest or fee income being less
than expected; unanticipated regulatory or judicial proceedings; changes in
consumer spending and saving habits; and the success of the Company at managing
the risks involved in the foregoing.
The company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
-12-
<PAGE> 14
Part II. OTHER INFORMATION
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
March 31, 1998.
-13-
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