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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to ____________________
Commission File Number : 0-28394
MOUNTAIN BANK HOLDING COMPANY
(Exact Name of Small Business Issuer as Specified in Its Charter)
WASHINGTON 91-1602736
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
501 ROOSEVELT AVENUE
ENUMCLAW, WASHINGTON 98022
(Address of Principal Executive Offices)
(360) 825-0100
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 807,482 (September 30,
1998)
Transitional Small Business Disclosure Format: Yes X No
----- -----
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PART I - Financial Information
Item 1. Financial Statements
The following Consolidated Financial Statements are presented for the
Registrant, Mountain Bank Holding Company, and its wholly owned subsidiaries,
Mt. Rainier National Bank and Mountain Real Estate Holdings, Inc.
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<CAPTION>
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1. Consolidated Balance Sheets for September 30, 1998 and December 31,
1997
2. Consolidated Statements of Income and Comprehensive Income for the
three months and nine months ended September 30, 1998 and 1997
3. Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997.
4-6. Notes to consolidated financial statements.
PART II - Other Information
7. Item 6 Exhibits and Reports on Form 8-K
Signatures
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Assets
Cash and due from banks $ 3,112 $ 2,827
Federal funds sold and interest bearing deposits in banks 4,350 2,448
Securities available for sale 25,432 22,962
Loans held for sale 543 332
Loans 44,640 42,577
Less allowance for possible credit losses (625) (555)
-------- --------
Loans, net 44,015 42,022
-------- --------
Premises and equipment 3,080 2,483
Accrued interest receivable and other assets 857 791
-------- --------
Total assets $ 81,389 $ 73,865
-------- --------
-------- --------
Liabilities
Deposits:
Non-interest bearing $ 11,103 $ 8,991
Savings and interest-bearing demand 35,293 31,643
Time 26,496 25,387
-------- --------
Total deposits 72,892 66,021
-------- --------
Long-term debt 44 45
Accrued interest and other liabilities 554 648
-------- --------
Total liabilities 73,490 66,714
-------- --------
Shareholders' Equity
Common stock (par value $1); authorized 5,000,000
shares; issued and outstanding: 1998 - 807,482 shares;
1997 - 803,374 shares 807 803
Paid-in capital 5,094 5,058
Retained earnings 1,804 1,227
Accumulated other comprehensive income 194 63
-------- --------
Total shareholders' equity 7,899 7,151
-------- --------
Total liabilities and shareholders' equity $ 81,389 $ 73,865
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------
1998 1997 1998 1997
----------- ------------ -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest Income
Loans $ 1,169 $ 1,064 $ 3,333 $ 3,008
Securities available for sale 378 329 1,077 884
Federal funds sold and deposits in banks 44 34 178 121
------- ------- ------- -------
Total interest income 1,591 1,427 4,588 4,013
Interest Expense
Deposits 634 555 1,872 1,599
Long Term Debt 1 1 3 3
------- ------- ------- -------
Total Interest Expense 635 556 1,875 1,602
Net interest income 956 871 2,713 2,411
Provision for credit losses - (24) (78) (124)
------- ------- ------- -------
Net interest income after provision for credit losses 956 847 2,635 2,287
------- ------- ------- -------
Noninterest income
Service charges on deposit accounts 112 89 302 267
Origination fees and gains on loans sold 88 60 238 157
Gain (loss) on sales of securities available for sale 6 (2) 19 (14)
Other 33 18 117 83
------- ------- ------- -------
Total noninterest income 239 165 676 493
------- ------- ------- -------
Noninterest expense
Salaries and employee benefits 421 358 1,224 1,067
Occupancy and equipment 114 100 345 321
Other 224 239 838 740
------- ------- ------- -------
Total noninterest expenses 759 697 2,407 2,128
------- ------- ------- -------
Income before income taxes 436 315 904 652
Income taxes (157) (112) (328) (244)
------- ------- ------- -------
Net income $ 279 $ 203 $ 576 $ 408
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities $ 103 $ (16) $ 131 $ 70
arising during the period
Comprehensive income $ 382 $ 187 $ 707 $ 478
------- ------- ------- -------
------- ------- ------- -------
Per share data:
Basic earnings per share $ 0.35 $ 0.29 $ 0.71 $ 0.58
Diluted earnings per share $ 0.33 $ 0.27 $ 0.67 $ 0.54
Weighted average number of common shares outstanding,
including dilutive stock options 856,349 753,375 856,217 752,531
Return on average assets 1.44% 0.91% 0.99% 0.64%
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1998 1997
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net income $ 576 $ 408
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 78 124
Depreciation 209 203
(Gain)/loss on sales of securities available for sale (19) 14
Amortization, net of accretion 32 (6)
Gain on loans sold (238) (157)
Originations of loans held for sale (10,295) (6,446)
Proceeds from sales of loans 10,322 6,348
Other (227) (119)
-------- --------
Net cash provided by operating activities 438 369
-------- --------
Cash Flows from Investing Activities
Net (increase) decrease in Federal funds sold and interest bearing deposits in banks (1,902) 5,775
Purchase of securities available for sale (10,440) (15,610)
Proceeds from maturities and sales of securities available for sale 8,155 8,386
Increase in loans, net of principal collections (2,071) (3,936)
Additions to premises and equipment (810) (177)
Proceeds from disposition of premises and/or equipment 4 -
-------- --------
Net cash used in investing activities (7,064) (5,562)
-------- --------
Cash Flows from Financing
Net increase in deposits 6,871 4,708
Repayment of long term debt (1) -
Common stock sold 41 19
-------- --------
Net cash provided by financing activities 6,911 4,727
-------- --------
Net increase (decrease) in cash $ 285 $ (466)
Cash and Due from Banks
Beginning of period 2,827 3,651
-------- --------
End of period $ 3,112 $ 3,185
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid $ 1,868 $ 1,595
Income Taxes Paid $ 415 $ 235
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Other comprehensive income 131 70
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of
Mountain Bank Holding Company (the Company) and its wholly owned subsidiaries,
Mt. Rainier National Bank (the Bank), and Mountain Real Estate Holdings, Inc.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles for interim financial information and
with general practice within the banking industry. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Significant
intercompany transactions and amounts have been eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the financial statements.
Reference is hereby made to the notes to consolidated financial statements
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997. The results of operations for the nine months ended September
30, 1998, are not necessarily indicative of the results which may be obtained
for the full year ending December 31, 1998.
NOTE 2 - EARNINGS PER COMMON SHARE
Basic earnings per share is based on the average number of common
shares outstanding, assuming no dilution. Diluted earnings per common share is
computed assuming the exercise of stock options.
NOTE 3 - YEAR 2000
The century date change for the year 2000 is a serious issue that may
impact virtually every organization, including the Company. Many software
programs are not able to recognize the year 2000, since most programs and
systems were designed to store calendar years in the 1900s by assuming the "19"
and storing only the last two digits of the year. The problem is especially
important to financial institutions since many transactions, such as interest
accruals and payments, are date sensitive, and because the Bank interacts with
numerous customers, vendors and third party service providers who must also
address the year 2000 issue. The problem is not limited to computer systems.
Year 2000 issues will potentially affect every system that has an embedded
microchip, such as automated teller machines, elevators and vaults.
THE COMPANY'S STATE OF READINESS
The Company and the Bank are committed to addressing these Year 2000
issues in a prompt and responsible manner, and they have dedicated the resources
to do so. Management has completed an assessment of its automated systems and
has implemented a program consistent with applicable regulatory guidelines, to
complete all steps necessary to resolve identified issues. The Company's
compliance program has several phases, including (1) project management; (2)
assessment; (3) testing; and (4) remediation and implementation.
PROJECT MANAGEMENT. The Company has formed a Year 2000 compliance
committee consisting of senior management and departmental representatives. The
committee has met regularly since September 1997. A Year 2000 compliance plan
was developed and regular meetings have been held to discuss the process, assign
tasks, determine priorities and monitor progress. The committee regularly
reports to the Company's Board.
ASSESSMENT. All of the Bank's computer equipment and mission-critical
software programs have been identified. This phase is essentially complete. The
Bank's primary software vendors were also assessed during this phase, and
vendors who provide mission-critical software have been contacted. The Company
will continue to monitor and work with these vendors. The Company has also
identified, and begun working with, the Bank's significant borrowers to assess
the extent to which they may be affected by year 2000 issues.
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TESTING. Updating and testing of the Company's and the Bank's automated
systems is currently underway and the Company anticipates that all testing will
be complete by June 30, 1999. Upon completion, the Company will be able to
identify any internal computer systems that remain non-compliant.
REMEDIATION AND IMPLEMENTATION. This phase involves obtaining and
implementing renovated software applications provided by the Company's vendors.
As these applications are received and implemented, the Company will test them
for year 2000 compliance. This phase also involves upgrading and replacing
automated systems where appropriate and will continue throughout 1998 and 1999.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The total financial effect that year 2000 issues will have on the
Company and the Bank cannot be predicted with any certainty at this time. In
fact, in spite of all efforts being made to rectify these problems, the success
of the Company's efforts will not be known until the year 2000 actually arrives.
However, based on its assessment to date, the Company does not believe that
expenses related to meeting Year 2000 challenges will have a material effect on
the operations or financial condition of the Company or the Bank. Year 2000
challenges facing vendors of mission-critical software and systems, and facing
Bank customers, could have a material effect on the operations or financial
condition of the Company and the Bank, to the extent such parties are materially
affected by such challenges.
RISKS RELATED TO YEAR 2000 ISSUES
The year 2000 poses certain risks to the Company and the Bank and their
operations. Some of these risks are present because the Company purchases
technology and information systems applications from other parties who face Year
2000 challenges. Other risks are inherent in the business of banking or are
risks faced by many companies. Although it is impossible to identify all
possible risks that the Company may face moving into the millennium, management
has identified the following significant potential risks:
Commercial banks may experience a contraction in their deposit base, if
a significant amount of deposited funds are withdrawn by customers prior to the
year 2000, and interest rates may increase as the millennium approaches. This
potential deposit contraction could make it necessary for the Bank to change its
sources of funding and could impact future earnings. The Company established a
contingency plan for addressing this situation, should it arise, into its asset
and liability management policies. The plan includes maintaining the ability to
borrow funds from correspondent banks and the Federal Home Loan Bank of Seattle.
Significant demand for funds from other banks could reduce the amount of funds
available for the Bank to borrow. If insufficient funds are available from these
sources, the Bank may also sell investment securities or other liquid assets to
meet liquidity needs.
The Bank lends significant amounts to businesses in its marketing area.
If these businesses are adversely affected by year 2000 problems, their ability
to repay loans could be impaired. This increased credit risk could adversely
affect the Bank's financial performance. During the assessment phase of the
Company's Year 2000 program, each of the Bank's substantial borrowers were
identified, and the Bank is working with such borrowers to ascertain their
levels of exposure to year 2000 problems. To the extent that the Bank is unable
to assure itself of the year 2000 readiness of such borrowers, it intends to
apply additional risk assessment criteria to the indebtedness of such borrowers
and make any necessary related adjustments to the Bank's provision for loan
losses.
The Company's and the Bank's operations, like those of many other
companies, can be adversely affected by the year 2000 triggered failures of
other companies upon whom the Company and the Bank depend for the functioning of
their automated systems. Accordingly, the Company's and the Bank's operations
could be materially affected, if the operations of mission-critical third party
service providers are adversely affected. As
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described above, the Company has identified its mission-critical vendors and
is monitoring their year 2000 compliance programs.
THE COMPANY'S CONTINGENCY PLANS
The Company has not yet developed any specific contingency plans
related to year 2000 issues, other than those described above. As the Company
and the Bank continue the testing phase, and based on future ongoing assessment
of the readiness of vendors, service providers and substantial borrowers, the
Company will develop appropriate contingency plans. Certain circumstances, as
described above in "Risks", may occur for which there are no completely
satisfactory contingency plans.
FORWARD LOOKING STATEMENTS
The discussion above regarding the century date change for the year
2000 includes certain "forward looking statements" concerning the future
operations of the Company. The Company desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 as
they apply to forward looking statements. This statement is for the express
purpose of availing the Company of the protections of such safe harbor with
respect to all "forward looking statements". Management's ability to predict
results of the effect of future plans is inherently uncertain and is subject to
factors that may cause actual results to differ materially from those projected.
Factors that could affect the actual results include the Company's success in
identifying systems and programs that are not Year 2000 compliant; the
possibility that systems modifications will not operate as intended; unexpected
costs associated with remediation, including labor and consulting costs; the
uncertainty associated with the impact of the century change on the Company's
customers, vendors and third party service providers; and the economy generally.
NOTE 4 - ACCOUNTING CHANGE
In the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No.
130), which was effective for years beginning after December 31, 1997. SFAS No.
130 requires that an entity report and display comprehensive income with the
same prominence as other financial statements. Comprehensive income is defined
as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. With regard to the Company,
currently the only items of comprehensive income are changes in the fair value
of its available for sale securities portfolio. Accordingly, changes in the
value of that portfolio during the period, net of tax, are reported as "Other
Comprehensive Income" in the accompanying Consolidated Statement of Income and
Comprehensive Income. Changes in the fair value of the available for sale
securities portfolio for the nine months ended September 30, 1997, which were
previously reported in the Consolidated Statement of Shareholders' Equity, have
been reclassified and retroactively reported as Other Comprehensive Income. The
cumulative adjustment, net of taxes, to record the available for sale securities
portfolio at fair value at period end was previously reported as "Net unrealized
gain (loss) on securities available for sale, net of tax" in the Company's
consolidated balance sheets. That cumulative adjustment is now termed
"Accumulated other comprehensive income". There was no effect on previously
reported net income as a result of this reporting change.
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PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
MOUNTAIN BANK HOLDING COMPANY
(Registrant)
Dated: October 29, 1998 ------------------------------------------
Roy T. Brooks, President and Chief
Executive Officer
Dated: October 29, 1998 ------------------------------------------
Sheila Brumley, Chief Financial Officer
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<TABLE> <S> <C>
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,112
<INT-BEARING-DEPOSITS> 4,350
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,432
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 44,640
<ALLOWANCE> 625
<TOTAL-ASSETS> 81,389
<DEPOSITS> 72,892
<SHORT-TERM> 0
<LIABILITIES-OTHER> 554
<LONG-TERM> 44
0
0
<COMMON> 807
<OTHER-SE> 7,092
<TOTAL-LIABILITIES-AND-EQUITY> 81,389
<INTEREST-LOAN> 3,333
<INTEREST-INVEST> 1,077
<INTEREST-OTHER> 178
<INTEREST-TOTAL> 4,588
<INTEREST-DEPOSIT> 1,872
<INTEREST-EXPENSE> 1,875
<INTEREST-INCOME-NET> 2,713
<LOAN-LOSSES> 78
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 2,407
<INCOME-PRETAX> 904
<INCOME-PRE-EXTRAORDINARY> 904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 576
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 4.39
<LOANS-NON> 281
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 555
<CHARGE-OFFS> 9
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 625
<ALLOWANCE-DOMESTIC> 625
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
