<PAGE>
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 March 31, 1999
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to ____________________
Commission File Number: 0-28394
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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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 907,482 (March 31, 1999)
------------------------------
Transitional Small Business Disclosure Format: Yes X No
--- ---
<PAGE>
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 subsidiary, Mt.
Rainier National Bank.
PAGE:
1. Consolidated Balance Sheets for March 31, 1999, and December 31, 1998
2. Consolidated Statements of Income for the three months ended March 31, 1999
and 1998
3. Consolidated Statements of Shareholders' Equity for the three months ended
March 31, 1999 and 1998
4. Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998.
5. Notes to consolidated financial statements.
PART II - OTHER INFORMATION
8. Item 6 Exhibits and Reports on Form 8-K
Signatures
<PAGE>
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: April 27, 1999
-------------------------------------------
Roy T. Brooks, President and Chief
Executive Officer
Dated: April 27, 1999
-------------------------------------------
Sheila Brumley, Chief Financial Officer
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------------------
(IN THOUSANDS)
<S> <C> <C>
Assets
Cash and due from banks $ 4,668 $ 3,369
Federal funds sold and interest bearing deposits in banks 5,325 10,546
Securities available for sale 26,829 24,995
Loans held for sale 686 675
Loans 45,526 44,785
Less allowance for possible credit losses (614) (618)
------------------------
Loans, net 44,912 44,167
------------------------
Premises and equipment 3,481 3,323
Accrued interest receivable and other assets 798 660
------------------------
Total assets $86,699 $87,735
=======================
Liabilities
Deposits:
Non-interest bearing $11,612 $11,717
Savings and interest-bearing demand 37,756 38,587
Time 27,068 27,289
-----------------------
Total deposits 76,436 77,593
-----------------------
Long-term debt 43 43
Accrued interest payable and other liabilities 472 408
-----------------------
Total liabilities 76,951 78,044
-----------------------
Shareholders' Equity
Common stock (par value $1); authorized 5,000,000
shares; issued and outstanding: 1999 - 907,482 shares;
1998 - 907,482 shares 907 907
Paid-in capital 6,694 6,694
Retained earnings 2,115 1,999
Accumulated other comprehensive income 32 91
-----------------------
Total shareholders' equity 9,748 9,691
-----------------------
Total liabilities and shareholders' equity $86,699 $87,735
=======================
</TABLE>
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1999 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Interest Income
Loans $ 1,103 $ 1,063
Securities available for sale 382 348
Federal funds sold and interest bearing deposits in banks 83 54
----------------------------
Total interest income 1,568 1,465
Interest Expense
Deposits 594 611
Net interest income 974 854
Provision for credit losses - (39)
----------------------------
Net interest income after provision for credit losses 974 815
----------------------------
Noninterest income
Service charges on deposit accounts 116 92
Origination fees and gains on loans sold 40 72
Gain on sales of securities available for sale 1 1
Other 40 39
----------------------------
Total noninterest income 197 204
----------------------------
Noninterest expense
Salaries and employee benefits 538 402
Occupancy and equipment 137 119
Other 343 290
----------------------------
Total noninterest expenses 1,018 811
----------------------------
Income before income taxes 153 208
Income taxes (37) (78)
----------------------------
Net income $ 116 $ 130
============================
Per share data:
Basic earnings per share $ 0.13 $ 0.16
Diluted earnings per share $ 0.12 $ 0.15
Weighted average number of common shares outstanding,
including dilutive stock options 970,305 853,375
Return on average assets 0.54% 0.71%
</TABLE>
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
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<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 803 $ 5,058 $ 1,227 $ 63 $ 7,151
Sale of common stock under employee
stock purchase plan - - - - -
Sale of common stock - - - - -
Comprehensive income:
Net income - - 130 - 130
Other comprehensive income,
net of tax:
Unrealized gain on securities,
net of reclassification adjustment (4) (4)
COMPREHENSIVE INCOME 126
BALANCE AT MARCH 31, 1998 $ 803 $ 5,058 $ 1,357 $ 59 $ 7,277
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ 907 $ 6,694 $ 1,999 $ 91 $ 9,691
Sale of common stock under employee
stock purchase plan - - - - -
Sale of common stock - - - - -
Comprehensive income:
Net income - - 116 116
Other comprehensive income,
net of tax:
Unrealized gain on securities,
net of reclassification adjustment (59) (59)
COMPREHENSIVE INCOME 57
BALANCE AT MARCH 31, 1999 $ 907 $ 6,694 $ 2,115 $ 32 $ 9,748
</TABLE>
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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Net income $ 116 $ 130
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses - 39
Depreciation 94 69
Gain on sales of securities available for sale (1) (1)
Amortization, net of accretion 31 6
Gain on loans sold (40) (72)
Originations of loans held for sale (1,810) (3,189)
Proceeds from sales of loans 1,839 3,303
Other (44) (16)
----------------------
Net cash provided by operating activities 185 269
----------------------
Cash Flows from Investing Activities
Net (increase) decrease in Federal funds sold 5,221 (5,252)
Purchase of securities available for sale (7,442) (3,063)
Proceeds from maturities and sales of securities available for sale 5,489 4,833
(Increase)/decrease in loans, net of principal collections (745) 939
Additions to premises and equipment (252) (301)
----------------------
Net cash used in investing activities 2,271 (2,844)
----------------------
Cash Flows from Financing
Net increase/(decrease) in deposits (1,157) 3,820
Common stock sold - 36
----------------------
Net cash provided by (used in) financing activities (1,157) 3,856
----------------------
Net increase in cash 1,299 1,281
Cash and due from Banks
Beginning of period 3,369 2,827
----------------------
End of period $ 4,668 $ 4,108
======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 594 $ 610
Income taxes paid $ 37 $ 78
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment of securities available for sale, net of tax (59) (4)
</TABLE>
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<PAGE>
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 subsidiary, Mt.
Rainier National Bank (the Bank). 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
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, 1998. The results of operations for the three months
ended March 31, 1999, are not necessarily indicative of the results which may be
obtained for the full year ending December 31, 1999.
NOTE 2 - EARNINGS PER COMMON SHARE
Basic earnings per share are based on the average number of common
shares outstanding, assuming no dilution. Diluted earnings per common share are
computed assuming the exercise of stock options.
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Basic earnings per share:
Net Income $116 907,482 $ 0.13
Effect of dilutive securities:
Options - 62,823 (.01)
Diluted earnings per share:
Net Income $116 970,305 $ 0.12
THREE MONTHS ENDED MARCH 31, 1998
Basic earnings per share:
Net Income $130 806,296 $ 0.16
Effect of dilutive securities:
Options - 47,079 (.01)
Diluted earnings per share:
Net Income $130 853,375 $ 0.15
</TABLE>
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.
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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 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.
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 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
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<PAGE>
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 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.
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,668
<INT-BEARING-DEPOSITS> 5,325
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,829
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 45,526
<ALLOWANCE> 614
<TOTAL-ASSETS> 86,699
<DEPOSITS> 76,436
<SHORT-TERM> 0
<LIABILITIES-OTHER> 472
<LONG-TERM> 43
0
0
<COMMON> 907
<OTHER-SE> 6,694
<TOTAL-LIABILITIES-AND-EQUITY> 86,699
<INTEREST-LOAN> 1,103
<INTEREST-INVEST> 382
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 1,568
<INTEREST-DEPOSIT> 594
<INTEREST-EXPENSE> 594
<INTEREST-INCOME-NET> 974
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 1,018
<INCOME-PRETAX> 153
<INCOME-PRE-EXTRAORDINARY> 153
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.12
<YIELD-ACTUAL> 4.93
<LOANS-NON> 61
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 618
<CHARGE-OFFS> 4
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 614
<ALLOWANCE-DOMESTIC> 614
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
