UNITED STATES
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, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 1-14343
MIDLAND CAPITAL HOLDINGS CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 36-4238089
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
8929 S. Harlem Avenue, Bridgeview, Illinois 60455
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (708) 598-9400
Check whether the Issuer (1) has 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
Transitional Small Business Disclosure Format. Yes No (X)
Indicate the number of shares of each of the Issuer's classes of common stock as
of the latest practicable date:
Common Stock, par value $.01
(Title of Class)
As of November 12, 1999, the Issuer had
363,975 shares of Common Stock issued and outstanding.
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
Part I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1999 (unaudited) and June 30, 1999.................1
Consolidated Statements of Earnings - Three Months
Ended September 30, 1999 and 1998 (unaudited)....................2
Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended September 30, 1999 (unaudited)................3
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 1999 and 1998 (unaudited)....................4
Notes to Consolidated Financial Statements.....................5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................7-12
Part II. OTHER INFORMATION...................................................13
Index to Exhibits........................................................14
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
Assets September 30, June 30,
1999 1999
------------------------------------
(Unaudited)
Cash and amounts due from
depository institutions $ 3,263,235 3,933,658
Interest-bearing deposits 35,404,343 31,086,638
------------ ------------
Total cash and cash equivalents 38,667,578 35,020,296
Investment securities, held to
maturity (fair value:
September 30, 1999 - $19,933,594;
June 30, 1999 - $19,933,594) 19,993,243 19,994,152
Investment securities available for
sale, at fair value 5,059,735 5,098,307
Mortgage-backed securities, held to
maturity (fair value: September 30,
1999 - $24,495,090; June 30, 1999
- $15,938,491) 24,546,680 15,881,826
Loans receivable (net of allowance
for loan losses: September 30, 1999
- $367,425; June 30, 1999
- $365,863) 48,754,605 48,914,195
Loans receivable, held for sale 368,700 435,150
Real estate owned, net 0 276,372
Stock in Federal Home Loan Bank of
Chicago 636,000 636,000
Office properties and equipment, net 2,563,742 2,594,050
Accrued interest receivable 732,065 611,966
Prepaid expenses and other assets 716,900 730,969
------------ ------------
Total assets $142,039,248 130,193,283
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $131,785,246 120,224,584
Advance payments by borrowers for
taxes and insurance 895,701 570,814
Other liabilities 359,384 402,356
------------ ------------
Total liabilities 133,040,331 121,197,754
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value:
authorized 1,000,000 shares; none
outstanding -- --
Common stock, $.01 par value:
authorized 5,000,000
shares; issued and outstanding
363,975 shares at September 30, 1999
and June 30, 1999 3,640 3,640
Additional paid-in capital 3,271,315 3,271,315
Retained earnings - substantially
restricted 5,706,486 5,685,591
Accumulated other comprehensive
income, net of income taxes 54,415 80,030
Common stock awarded by Bank
Incentive Plan (36,939) (45,047)
------------ ------------
Total stockholders' equity 8,998,917 8,995,529
------------ ------------
Total liabilities and stockholders'
equity $142,039,248 130,193,283
============ ============
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended
September 30,
1999 1998
---------------------------------
(Unaudited)
Interest income:
Interest on loans $896,398 799,127
Interest on mortgage-backed
securities 285,810 343,604
Interest on investment securities 345,559 309,208
Interest on interest-bearing
deposits 467,322 389,235
Dividends on FHLB stock 10,420 9,251
----------- ----------
Total interest income 2,005,509 1,850,425
----------- ----------
Interest expense:
Interest on deposits 1,185,824 1,059,775
----------- ----------
Total interest expense 1,185,824 1,059,775
----------- ----------
Net interest income 819,685 790,650
----------- ----------
Non-interest income:
Loan fees and service charges 49,352 97,412
Commission income 19,921 42,221
Profit on sale of loans 13,354 17,054
Profit on sale of real estate
owned 808 12,278
Deposit related fees 127,705 142,267
Other income 19,810 34,882
----------- ----------
Total non-interest income 230,950 346,114
----------- ----------
Non-interest expense:
Staffing costs 494,065 489,208
Advertising 34,640 19,400
Occupancy and equipment expenses 183,233 123,614
Data processing 40,134 63,634
Federal deposit insurance premiums 16,265 15,326
Other 209,694 209,571
----------- ----------
Total non-interest expense 978,031 920,753
----------- ----------
Income before income taxes 72,604 216,011
Income tax provision 24,411 73,454
----------- ----------
Net income $48,193 142,557
=========== ==========
Earnings per share (basic) $0.13 0.39
=========== ==========
Earnings per share (diluted) $0.13 0.39
=========== ==========
Dividends declared per common share $0.075 0.075
=========== ==========
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Accumulated Common
Additional Other stock
Common Paid-in Retained Comprehensive awarded
Stock Capital Earnings Income by BIP Total
-------- --------- --------- ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $3,640 3,271,315 5,685,591 80,030 (45,047) 8,995,529
-------- --------- --------- -------- ------- ---------
Comprehensive Income:
Net income 48,193 48,193
Other comprehensive
income, net of tax:
Unrealized holding loss
during the period (25,615) (25,615)
--------- -------- ---------
Total comprehensive income 48,193 (25,615) 22,578
Amortization of award of
BIP stock 8,108 8,108
Dividends declared on
common stock $0.075
per share) (27,298) (27,298)
-------- --------- --------- -------- ------- ---------
Balance at September 30, 1999 $3,640 3,271,315 5,706,486 54,415 (36,939) 8,998,917
======== ========= ========= ======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
September 30,
1999 1998
---------------------------------
Cash flows from operating activities:
Net income $48,193 142,557
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 75,814 39,461
Amortization of premiums and discounts
on securities (3,799) 3,440
Amortization of cost of stock benefit
plan 8,108 8,109
Profit on sale of real estate owned (808) (12,278)
Proceeds from sale of loans held for
sale 1,195,200 1,833,675
Origination of loans held for sale (1,128,750) (1,404,225)
Profit on sale of loans (13,354) (17,054)
Increase in accrued interest receivable (120,099) (14,684)
Decrease in accrued interest payable (832) (1,858)
Decrease in deferred income on loans (881) (40,137)
Decrease in other assets 40,619 8,918
Increase (decrease) in other
liabilities (42,140) 83,263
----------- ----------
Net cash provided by operating activities 57,271 629,187
----------- ----------
Cash flows from investing activities:
Purchase of mortgage-backed
securities, held to maturity (10,007,275) (1,101,593)
Proceeds from repayments of
mortgage-backed securities,
held to maturity 1,344,215 1,610,184
Purchase of investment securities,
held to maturity (2,497,325) (2,500,000)
Proceeds from maturities of investment
securities, held to maturity 2,500,000 2,500,000
Loan disbursements (2,089,868) (6,686,783)
Loan repayments 2,251,047 2,775,741
Proceeds from sale of real estate owned 276,472 70,400
Property and equipment expenditures (45,506) (50,332)
----------- ----------
Net cash provided for investing
activities (8,268,240) (3,382,383)
----------- ----------
Cash flows from financing activities:
Deposit account receipts 110,823,035 97,231,646
Deposit account withdrawals (100,388,793) (95,318,756)
Interest credited to deposit accounts 1,126,420 1,001,396
Payment of dividends (27,298) (27,298)
Increase in advance payments by
borrowers for taxes
and insurance 324,887 279,838
----------- ----------
Net cash provided for financing
activities 11,858,251 3,166,826
----------- ----------
Increase in cash and cash equivalents 3,647,282 413,630
Cash and cash equivalents at beginning
of period 35,020,296 31,994,195
----------- ----------
Cash and cash equivalents at end of
period $38,667,578 32,407,825
=========== ==========
Cash paid during the period for:
Interest $1,186,656 1,061,633
Income taxes 0 0
=========== ==========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and therefore, do not include
information or footnotes necessary for fair presentation of financial condition,
results of operations and changes in financial position in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (which are normal and recurring in nature) necessary for a fair
presentation have been included. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the three months ended September 30, 1999 are not
necessarily indicative of the results which may be expected for the entire year.
Note B - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Midland Capital Holdings Corporation (the "Company") and its
wholly-owned subsidiary, Midland Federal Savings and Loan Association (the
"Association") and the Association's wholly-owned subsidiaries, Midland Service
Corporation, MS Insurance Agency, Inc. and Bridgeview Development Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Note C - Stock Conversion and Holding Company Reorganization
On June 30, 1993, the Association completed a conversion to the stock form of
organization with the sale of 345,000 shares of $.01 par value common stock at
$10.00 per share. On March 19, 1998, the Board of Directors of the Association
adopted a proposal to reorganize the Association into a holding company form of
organization in accordance with a Merger Agreement and Plan of Reorganization
(the "Reorganization"). The Reorganization was approved by the Association's
shareholders on July 15, 1998 and became effective on July 23, 1998. As a result
of the Reorganization, the Association became a wholly-owned subsidiary of
Midland Capital Holdings Corporation, a newly formed Delaware Corporation, and
each outstanding share of common stock of the Association became, by operation
of law, one share of common stock of Midland Capital Holdings Corporation.
Midland Capital Holdings Corporation operates as a unitary thrift holding
company.
Note D - Earnings Per Share
Earnings per share for the three month periods ended September 30, 1999 and 1998
were determined by dividing net income for the period by the weighted average
number of shares of common stock outstanding (see Exhibit 11 attached). Stock
options are regarded as common stock equivalents and are therefore considered in
diluted earnings per share calculations. Common stock equivalents are computed
using the treasury stock method.
Note E - Industry Segments
The Company operates principally in the thrift industry through its subsidiary
savings and loan. As such, substantially all of the Company's revenues, net
income, identifiable assets and capital expenditures are related to thrift
operations.
-5-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note F - Effect of New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), entitled "Accounting for Derivative Instruments and Hedging
Activities", which is effective for fiscal years beginning after June 15, 1999.
SFAS 133 requires all derivatives to be recorded on the balance sheet at fair
value. It also establishes "special accounting" for hedges of changes in the
fair value of assets, liabilities, or firm commitments (fair value hedges),
hedges of the variable cash flows of forecasted transactions (cash flow hedges),
and hedges of foreign currency exposures of net investments in foreign
operations. To the extent the hedge is considered highly effective, both the
change in the fair value of the derivative and the change in the fair value of
the hedged item are recognized (offset) in earnings in the same period. Changes
in fair value of derivatives that do not meet the criteria of one of these three
hedge categories are included in income.
In September 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), entitled "Accounting for Derivative Instruments in Hedging
Activities - Deferral of the Effective Date of FASB Statements no. 133". SFAS
137 defers the effective date of SFAS 133 from years beginning after June 15,
1999 to all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management does not believe that adoption of SFAS 133 will have a material
impact on the Company's consolidated financial condition or results of
operations.
The foregoing does not constitute a comprehensive summary of all material
changes or development affecting the manner in which the Company keeps its books
and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
-6-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Midland Capital Holdings Corporation (the "Company") is a Delaware corporation
which was organized in 1998 by Midland Federal Savings and Loan Association (the
"Association" or "Midland Federal") for the purpose of becoming a thrift
institution holding company. The Company and the Association are headquartered
in Bridgeview, Illinois. The Association began operations in 1914 as a
state-chartered mutual savings institution. In 1982, the Association became a
federal mutual savings and loan association. On June 30, 1993, the Association
completed a conversion to the stock form of organization. In that conversion,
the Association issued 345,000 shares of common stock, raising net proceeds of
approximately $3.1 million. On July 23, 1998, the Association became a
wholly-owned subsidiary of the Company by reorganizing the Association into a
holding company form of organization. Each outstanding share of common stock of
the Association became one share of common stock of the Company.
The principal asset of the Company is the outstanding stock of the Association.
The Company presently has no separate operations and its business consists only
of the business of the Association and its subsidiaries. All references to the
Company, unless otherwise indicated, at or before July 23, 1998 refer to the
Association. Midland Federal has been principally engaged in the business of
attracting deposits from the general public and using such deposits to originate
residential mortgage loans, and to a lesser extent, consumer, multi-family and
other loans in its primary market area. The Association also has made
substantial investments in mortgage-backed securities, investment securities and
liquid assets. Midland Federal also operates a wholly owned subsidiary, Midland
Service Corporation that owns and operates MS Insurance Agency, Inc., a full
service retail insurance agency.
The Association's primary market area consists of Southwest Chicago, and the
southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Justice, Burbank, Chicago Ridge, Lockport, Orland Park and Lemont. The
Company serves these communities through its main office in Bridgeview, two
branch banking offices in southwest Chicago and a third branch banking office in
Homer Township, Illinois. The Association's deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At
September 30, 1999, Midland Federal's capital ratios exceeded all of its
regulatory capital requirements with both tangible and core capital ratios of
6.18% and a risk-based capital ratio of 20.11%.
Forward Looking Statements
When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties, including but not limited to changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, all or some of which could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made and
are subject to the above-stated qualifications in any event.
-7-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
The Company wishes to advise readers that the factors listed above could affect
the Company's financial performance and could cause the Company's actual results
for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the Year 2000 ("Y2K") issue and
has developed an implementation plan to address the issue. The Company is also
in contact with vendors and providers of critical systems to determine their
progress in bringing such systems into Year 2000 compliance.
In addition, the Company converted its on-line customer account data processing
systems to a new national data service provider. At that time the Company also
installed new, Year 2000 compliant, computer hardware at each of its offices. In
October 1998, the Company's data center also replaced its existing mainframe
computers with new, Year 2000 compliant, computer mainframes in order to prepare
for the Y2K century date change. The Company's data center has also completed
necessary renovations to their system software and has tested their computer
hardware, software and data communication systems for Year 2000 compliance.
These tests were successfully completed and the Company's data center has
certified that all of its data processing systems are Y2K ready.
The Company has completed the renovation or replacement of all of its mission
critical computer systems. In addition to the testing performed by its data
center, discussed above, the Company has successfully completed its own testing
of all of its mission critical data processing, communication and computer
systems, which testing has demonstrated that these systems are ready to operate
with accuracy beyond the Year 2000. These systems include all of the computer
and information systems that maintain information about the Company's customers,
accounts, balances and transactions. The Company does not anticipate problems
resulting from its tested systems. In the event of a service interruption the
Company has formulated a contingency plan that will ensure minimal interruption
of service to its customers. For some systems, contingency plans consist of
using spreadsheet software or reverting to manual systems until system problems
can be corrected.
Since the commencement of the Y2K project in September 1998, the Company
incurred approximately $125,000 in costs associated with required system
changes, which costs were expensed as they were incurred. As part of its Y2K
plan the Company also made additional capital expenditures for computer and
related equipment in the approximate amount of $225,000 which expenditures are
being amortized over the useful life of the equipment purchased. All of these
costs were required to convert the Company's existing on-line data processing
systems to its new data service provider. The Company does not expect
significant increases in future data processing costs related to Y2K compliance.
-8-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION
During the quarter ended September 30, 1999, total assets of the Company
increased by $11.8 million to $142.0 million from $130.2 million at June 30,
1999. Net loans receivable and loans available for sale decreased $226,000 to
$49.1 million at September 30, 1999 as loan repayments of $2.2 million and loan
sales of $1.2 million more than offset loan disbursements of $3.2 million. The
balance of mortgage-backed securities increased by $8.7 million to $24.5 million
as a result of purchases of mortgage-backed securities in the amount of $10.0
million, which exceeded repayments of mortgage-backed securities in the amount
of $1.3 million during the quarter ended September 30, 1999. The increase in
mortgage-backed securities was primarily funded by an increase in deposits in
the amount of $11.6 million to $131.8 million at September 30, 1999. The balance
of investment securities remained relatively unchanged at $25.1 million during
the quarter ended September 30, 1999. The weighted average remaining maturity of
the Company's investment securities portfolio at September 30, 1999 was 2.0
years.
The balance of cash and cash equivalents increased by $3.6 million to $38.7
million at September 30, 1999 as a result of an increase in deposit balances and
reduced loan demand during the quarter ended September 30, 1999. As discussed
above, deposits for the quarter ended September 30, 1999 increased $11.6 million
as deposit activity of $110.8 million and interest credited to deposits in the
amount of $1.1 million exceeded withdrawal activity of $100.4 million. The net
increase in savings deposits is attributed to a $10.6 million increase in
certificate of deposit accounts, a $617,000 increase in transaction deposits
including money market accounts and a $310,000 increase in passbook accounts.
The net increase in savings deposits is primarily attributed to aggressive
pricing and promotion of certificate of deposit rates at the Company's new
branch banking office in Homer Township, Illinois.
Stockholders' equity for the quarter ended September 30, 1999 remained stable at
$9.0 million as a result of earnings in the amount of $48,000 and an $8,000
reduction in the unamortized cost of the Association's Bank Incentive Plan
offset by a $26,000 market adjustment from securities available for sale, net of
income taxes, and dividends paid on common stock in the amount of $27,000.
RESULTS OF OPERATIONS
The Company had net income of $48,000 for the quarter ended September 30, 1999
compared to net income of $143,000 for the quarter ended September 30, 1998. The
decline in net income in the current quarter is the result of a $115,000
decrease in non-interest income and a $57,000 increase in non-interest expense
offset by a $29,000 increase in net interest income and a $49,000 decrease in
income taxes. For a discussion on the decrease in non-interest income and
increase in non-interest expense, respectively, see "Non-Interest Income" and
"Non-Interest Expense." The $29,000 increase in net interest income was
primarily the result of an increase in the average balance of interest earning
assets, which offset decreases in both net interest margin and interest rate
spread. The average balance of interest earning assets increased $18.4 million
to $131.3 million for the quarter ended September 30, 1999 from $112.9 million
during the same period last year. Net interest margin and interest rate spread
decreased to 2.50% and 2.43%, respectively, from 2.80% and 2.67%, respectively,
for the quarter ended September 30, 1999. The decline in both net interest
margin and interest rate spread was attributed to lower short-term interest
rates, a reduction in yield in the Company's loan portfolio primarily as a
result of refinancing activity at lower mortgage interest rates as well as an
increase of the percentage of the Company's assets consisting of securities and
deposits.
-9-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income
Interest income increased $155,000, or 8.4%, for the quarter ended September 30,
1999 as compared to the same period last year. An $18.4 million increase in the
average balance of interest earning assets, discussed above, was partially
offset by a decrease in the average yield earned on interest earning assets to
6.11% for the quarter ended September 30, 1999 compared to 6.56% for the quarter
ended September 30, 1998.
Interest on loans receivable increased $97,000, or 12.2%, for the quarter ended
September 30, 1999 from the comparable quarter in 1998. The increase in interest
income was attributed to an increase in the average outstanding balance of net
loans receivable to $49.4 million for the quarter ended September 30, 1999 from
$41.8 million for the quarter ended September 30, 1998. The increase in the
average outstanding balance of net loans receivable is primarily attributed to
the positive impact of lower interest rates on aggregate loan demand between the
two periods. The increase in the average outstanding balance of net loans
receivable offset a decrease in the average yield earned on loans receivable to
7.26% for the quarter ended September 30, 1999 from 7.64% for the quarter ended
September 30, 1998.
Interest on mortgage-backed securities decreased $58,000, or 16.8%, for the
quarter ended September 30, 1999 from the comparable quarter in 1998. The
decrease in interest income is attributed to a decline in the average balance of
mortgage-backed securities as well as a reduction in the average yield earned on
mortgage-backed securities in the quarter ended September 30, 1999 as compared
with the same period last year. For the quarter ended September 30, 1999, the
average balance of mortgage-backed securities declined $2.6 million to $18.0
million from $20.6 million in the prior year quarter. However, the Company made
a significant additional investment in mortgage-backed securities just prior to
the end of the quarter. The average yield earned on mortgage-backed securities
also decreased to 6.34% for the quarter ended September 30, 1999 from 6.67% for
the quarter ended September 30, 1998.
Interest earned on investment securities increased $36,000, or 11.8%, for the
quarter ended September 30, 1999 from the quarter ended September 30, 1998. The
increase in interest income is attributed to a $3.8 million increase in the
average balance of investment securities to $25.0 million for the quarter ended
September 30, 1999 from $21.2 million during the same period last year. The
increase in the average balance of investment securities offsets a decline in
the average yield earned on investment securities to 5.53% for the quarter ended
September 30, 1999 from 5.83% for the quarter ended September 30, 1998.
Interest earned on interest bearing deposits increased $78,000, or 20.1%, for
the quarter ended September 30, 1999 from the same quarter in 1998. The increase
in interest income on interest bearing deposits is attributed to a $9.5 million
increase in the average outstanding balance of interest bearing deposits to
$38.2 million for the quarter ended September 30, 1999 compared to $28.7 million
for the quarter ended September 30, 1998. The increase in the average balance of
interest bearing deposits during the quarter ended September 30, 1999 is
primarily the result of increased deposit balances, as discussed above, and
reduced loan demand as a result of higher market interest rates. The increase in
the average balance of interest bearing deposits was partially offset by a
decrease in the average yield earned on interest bearing deposits to 4.88% for
the quarter ended September 30, 1999 from 5.43% for the quarter ended September
30, 1998.
-10-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Expense
Interest expense increased $126,000, or 11.9%, for the quarter ended September
30, 1999 compared with the prior year quarter. The increase in interest expense
is primarily attributable to an $18.1 million increase in the average balance of
interest costing deposits to $119.6 million for the quarter ended September 30,
1999 from $101.5 million in the quarter ended September 30, 1998. The increase
in the average balance of interest costing deposits is primarily the result of
aggressive pricing and promotion of certificates of deposit at the Association's
Homer Township banking facility, which opened for business in April 1999. The
increase in the average balance of interest costing deposits was partially
offset by a decrease in the average yield paid on interest costing deposits to
3.96% for the quarter ended September 30, 1999 from 4.18% for the quarter ended
September 30, 1998.
Provisions for Losses on Loans
The Company maintains an allowance for loan losses based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, past loan
loss experience, adverse situations that may affect borrowers' ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The Company made no provisions for loan losses out of income
in either period based upon the absence of any specific asset quality problems,
the current level of general loan loss reserves and management's assessment of
the inherent risks in the loan portfolio. Non-performing loans, net of specific
reserves, decreased to $383,000 at September 30, 1999 and consisted of $333,000
in four single family residential mortgage loans, $37,000 in one multi-family
residential mortgage loan and $13,000 in non-mortgage loans. General loan loss
reserves totaled $189,000 or 49.21% of net non-performing loans at September 30,
1999. At September 30, 1999, the Company was aware of no regulatory directives
or suggestions that the Association make additional provisions for losses on
loans. Although the Company believes its allowance for loan losses is at a level
that it considers to be adequate to provide for potential losses, there can be
no assurance that such losses will not exceed the estimated amounts.
Non-Interest Income
Non-interest income decreased $115,000 to $231,000 for the quarter ended
September 30, 1999 from $346,000 for the quarter ended September 30, 1998. The
decrease in non-interest income was due primarily to a $48,000 decrease in loan
fees and service charges, a combined $23,000 decrease in rental revenue and
profit from real estate owned operations and sales, a $22,000 decrease in
commission income and a $15,000 decrease in deposit related fees. The decrease
in loan fees and service charges is primarily attributed to a decrease in loan
origination activity from the prior year period as a result of higher long-term
interest rates as compared with the prior year period. The decrease in
commission income is the result of a $24,000 reduction in commissions on the
sale of annuity products as higher long-term interest rates also dampened demand
for annuity products. The decrease in deposit related fees is primarily
attributed to reduced overdraft activity within the Association's demand deposit
account base.
Non-Interest Expense
Non-interest expense increased $57,000 to $978,000 in the quarter ended
September 30, 1999 compared to $921,000 in the 1998 quarter. The increase in
non-interest expense in the current quarter is primarily the result of a $60,000
increase in office occupancy and equipment expenses, a $15,000 increase in
advertising expense and a $5,000 increase in staffing costs. Both the increases
in office occupancy and advertising expenses were the result of the operations
of the Company's new full service branch banking facility in Homer Township,
Illinois, which opened for business in April 1999.
-11-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
These increases in non-interest expense were offset by a $23,000 decrease in
data processing fees as a result of the elimination of a $27,000 de-conversion
fee incurred during the quarter ended September 30, 1998. Other non-interest
expense remained stable at $210,000 for the quarters ended September 30, 1999
and 1998 as a $43,000 increase in other operating expenses was offset by a
$20,000 decrease in legal expense, a $20,000 decrease in real estate owned
expenses and a $3,000 decrease in computer software and support expense.
Income Taxes
Income taxes decreased $49,000 to $24,000 in the quarter ended September 30,
1999 from $73,000 for same period last year. The decreased income tax provision
was due primarily to the decrease in operating income in the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits, loan and mortgage backed
securities repayments, proceeds from the maturities of investment securities and
other funds provided by operations. In addition, the Association may borrow
funds from the Federal Home Loan Bank ("FHLB") of Chicago. The Company maintains
investments in liquid assets based upon management's assessment of (i) the
Company's need for funds, (ii) expected deposit flows, (iii) the yields
available on short-term liquid assets and (iv) the objectives of the Company's
asset/liability management program. The Office of Thrift Supervision ("OTS")
requires members of the FHLB system to maintain minimum levels of liquid assets.
OTS regulations currently require the Association to maintain an average daily
balance of liquid assets equal to at least 4% of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. At September 30, 1999, the Association's regulatory liquidity ratio was
63.9%. At such date, the Company had commitments to originate $1.3 million in
loans, to sell $369,000 in loans, no commitments to purchase loans and no
commitments to either purchase or sell securities.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificate of deposits and deposit withdrawals,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. The Company considers its liquidity and capital reserves
sufficient to meet its outstanding short and long-term needs. The Company
expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.
At September 30, 1999, the Association had tangible and core capital of $8.8
million, or 6.2% of adjusted total assets, which was approximately $6.7 million
and $3.1 million above the minimum requirements in effect on that date of 1.5%
and 3.0%, respectively, of adjusted total assets.
At September 30, 1999, the Association had total capital of $9.0 million
(including $8.8 million in core capital) and risk-weighted assets of $44.6
million, or total capital of 20.1% of risk-weighted assets. This amount was $5.4
million above the 8.0% requirement in effect on that date.
-12-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Association is a party to legal proceedings wherein it
enforces its security interest or is a defendant to certain lawsuits arising out
of the ordinary course of its business. Neither the Company nor the Association
believes that it is a party to any legal proceedings that, if adversely
determined, would have a material adverse effect on its financial condition at
this time.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index.
(b) No reports on Form 8-K were filed the quarter ended September 30, 1999
-13-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11 Computation of Per Share Earnings
27 Financial Data Table
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIDLAND CAPITAL HOLDINGS CORPORATION
Registrant
DATE: November 12, 1999 By: /s/ Paul Zogas
--------------------------------
Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: November 12, 1999 By: /s/ Charles Zogas
--------------------------------
Charles Zogas
Executive Vice President and
Chief Operating Officer
MIDLAND CAPITAL HOLDINGS CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three months ended
September 30, 1999
------------------
Net Income $48,193
=======
Weighted average common shares outstanding
for basic computation 363,975
=======
Basic earnings per share $ 0.13
=======
Weighted average common shares outstanding
for basic computation 363,975
Common stock equivalents due to dilutive effect of
stock options 3,777
-------
Weighted average common shares and equivalents
Outstanding for diluted computation 367,752
=======
Diluted earnings per share $ 0.13
=======
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS LEGEND CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR THE
QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 3,263,235
<INT-BEARING-DEPOSITS> 35,404,343
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,059,735
<INVESTMENTS-CARRYING> 44,539,923
<INVESTMENTS-MARKET> 44,428,684
<LOANS> 49,490,730
<ALLOWANCE> 367,425
<TOTAL-ASSETS> 142,039,248
<DEPOSITS> 131,785,246
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,255,085
<LONG-TERM> 0
3,640
0
<COMMON> 0
<OTHER-SE> 8,995,277
<TOTAL-LIABILITIES-AND-EQUITY> 142,039,248
<INTEREST-LOAN> 896,398
<INTEREST-INVEST> 1,109,111
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,005,509
<INTEREST-DEPOSIT> 1,185,824
<INTEREST-EXPENSE> 1,185,824
<INTEREST-INCOME-NET> 819,685
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 978,031
<INCOME-PRETAX> 72,604
<INCOME-PRE-EXTRAORDINARY> 72,604
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,193
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 2.50
<LOANS-NON> 533,404
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 365,863
<CHARGE-OFFS> 0
<RECOVERIES> 1,562
<ALLOWANCE-CLOSE> 367,425
<ALLOWANCE-DOMESTIC> 178,753
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 188,672
</TABLE>
