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 March 31, 2000
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 May 15, 2000, 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 -
March 31, 2000 (unaudited) and June 30, 1999.................... 1
Consolidated Statements of Earnings -
Three months ended March 31, 2000 and 1999 and
Nine months ended March 31, 2000 and 1999 (unaudited)........... 2
Consolidated Statements of Changes in Stockholders' Equity -
Nine months ended March 31, 2000 (unaudited).................... 3
Consolidated Statements of Cash Flows - Nine months
ended March 31, 2000 and 1999 (unaudited)....................... 4
Notes to Consolidated Financial Statements.................... 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7-13
Part II. OTHER INFORMATION.................................................. 14
Index to Exhibits....................................................... 15
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
<TABLE>
Assets March 31, June 30,
- ------ 2000 1999
------------ -----------
<S> <C> <C>
(Unaudited)
Cash and amounts due from
depository institutions $ 2,765,496 3,933,658
Interest-bearing deposits 36,948,211 31,086,638
Total cash and cash equivalents 39,713,707 35,020,296
Investment securities, held to maturity (fair value:
March 31, 2000 - $19,828,906;
June 30, 1999 - $19,933,594) 19,989,221 19,994,152
Investment securities available for sale, at fair value 5,031,892 5,098,307
Mortgage-backed securities, held to maturity (fair value:
March 31, 2000 - $22,270,109;
June 30, 1999 - $15,938,491) 22,515,911 15,881,826
Loans receivable (net of allowance for loan losses:
March 31, 2000 - $371,813;
June 30, 1999 - $365,863) 49,927,553 48,914,195
Loans receivable, held for sale 198,515 435,150
Real estate owned, net 0 276,372
Stock in Federal Home Loan Bank of Chicago 636,000 636,000
Office properties and equipment, net 2,448,737 2,594,050
Accrued interest receivable 715,327 611,966
Prepaid expenses and other assets 795,853 730,969
------------ -----------
Total assets $141,972,716 130,193,283
------------ -----------
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $132,069,002 120,224,584
Advance payments by borrowers for taxes and insurance 384,245 570,814
Other liabilities 395,028 402,356
------------ -----------
Total liabilities 132,848,275 121,197,754
------------ -----------
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 March 31, 2000 and June 30, 1999 3,640 3,640
Additional paid-in capital 3,274,654 3,271,315
Retained earnings - substantially restricted 5,831,146 5,685,591
Accumulated other comprehensive income, net of income taxes 35,723 80,030
Common stock awarded by Bank Incentive Plan (20,722) (45,047)
------------ -----------
Total stockholders' equity 9,124,441 8,995,529
------------ -----------
Total liabilities and stockholders' equity $141,972,716 130,193,283
------------ -----------
See accompanying notes to consolidated financial statements.
</TABLE>
-1-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest income:
Interest on loans $ 931,169 895,134 2,739,685 2,529,907
Interest on mortgage-backed securities 374,697 286,659 1,044,079 951,890
Interest on investment securities 347,917 296,586 1,038,296 908,512
Interest on interest-bearing deposits 490,327 329,376 1,420,670 1,077,348
Dividends on FHLB stock 11,069 8,812 33,512 27,437
--------- --------- --------- ---------
Total interest income 2,155,179 1,816,567 6,276,242 5,495,094
--------- --------- --------- ---------
Interest expense:
Interest on deposits 1,259,805 1,026,410 3,714,122 3,150,800
--------- --------- --------- ---------
Total interest expense 1,259,805 1,026,410 3,714,122 3,150,800
--------- --------- --------- ---------
Net interest income 895,374 790,157 2,562,120 2,344,294
--------- --------- --------- ---------
Non-interest income:
Loan fees and service charges 34,017 72,888 132,343 258,314
Commission income 15,406 29,008 49,416 90,394
Profit on sale of loans 5,893 12,799 33,088 39,290
Profit on sale of REO 1,108 0 3,360 9,903
Deposit related fees 124,815 135,510 376,051 399,913
Other income 19,160 51,580 58,223 125,580
--------- --------- --------- ---------
Total non-interest income 200,399 301,785 652,481 923,394
--------- --------- --------- ---------
Non-interest expense:
Staffing costs 489,408 492,742 1,466,465 1,500,836
Advertising 23,232 17,559 90,369 54,208
Occupancy and equipment expenses 180,640 152,349 541,742 387,334
Data processing 49,422 47,405 130,374 157,489
Federal deposit insurance premiums 6,914 16,709 40,729 47,524
Provision for loss on REO 0 0 0 1,528
Other 200,342 191,554 602,032 599,076
--------- --------- --------- ---------
Total non-interest expense 949,958 918,318 2,871,711 2,747,995
--------- --------- --------- ---------
Income before income taxes 145,815 173,624 342,890 519,693
Income tax provision 49,200 59,043 115,440 177,228
---------- --------- --------- ---------
Net income $ 96,615 114,581 227,450 342,465
---------- --------- --------- ---------
Earnings per share (basic) $ 0.27 0.31 .62 .94
---------- --------- --------- ---------
Earnings per share (diluted) $ 0.26 0.31 .62 .93
---------- --------- --------- ---------
Dividends declared per common share $ 0.075 0.075 0.225 0.225
---------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
<TABLE>
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 227,450 227,450
Other comprehensive
income, net of tax:
Unrealized holding loss
during the period (44,307) (44,307)
------- ------- -------
Total comprehensive income 227,450 (44,307) 183,143
Tax benefit related to
employee stock plan 3,339 3,339
Amoritzation of award of
BIP stock 24,325 24,325
Dividends declared on
common stock ($0.225
per share) (81,895) (81,895)
----- --------- --------- ------- ------ ---------
Balance at March 31, 2000 $3,640 3,274,654 5,831,146 35,723 (20,722) 9,124,441
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended
March 31,
2000 1999
- ---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 227,450 342,465
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 231,443 127,450
Amortization of premiums and discounts on securities (31,518) 4,999
Amortization of cost of stock benefit plan 24,325 24,326
Profit on sale of real estate owned (3,360) (9,903)
Provision for loss on real estate owned 0 1,528
Proceeds from sale of loans held for sale 2,974,000 4,158,025
Origination of loans held for sale (2,737,365) (3,805,025)
Profit on sale of loans (33,088) (39,290)
(Increase) decrease in accrued interest receivable (103,361) 11,339
Increase in accrued interest payable 6,985 3,601
Decrease in deferred income on loans (5,205) (108,567)
Increase in other assets (8,971) (586,509)
Decrease in other liabilities (10,974) (11,586)
------------- -----------
Net cash provided by operating activities 530,361 112,853
------------- -----------
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 3,398,796 4,888,227
Purchase of investment securities, held to maturity (7,489,875) (7,499,375)
Proceeds from maturities of investment securities,
held to maturity 7,500,000 7,500,000
Purchase of Federal Home Loan Bank stock 0 (17,800)
Loan disbursements (6,440,720) (19,455,588)
Loan repayments 5,435,828 8,944,574
Proceeds from sale of real estate owned 276,472 153,525
Property and equipment expenditures (86,130) (353,913)
-------------- -----------
Net cash provided for investing activities (7,412,904) (6,941,943)
-------------- -----------
Cash flows from financing activities:
Deposit receipts 323,178,251 284,720,430
Deposit withdrawals (314,853,203) (281,504,909)
Interest credited to deposit accounts 3,519,370 2,973,883
Payment of dividends (81,895) (81,895)
Decrease in advance payments by borrowers
for taxes and insurance (186,569) (181,175)
-------------- -----------
Net cash provided for financing activities 11,575,954 5,926,334
-------------- -----------
Increase (decrease) in cash and cash equivalents 4,693,411 (902,756)
Cash and cash equivalents at beginning of period 35,020,296 31,994,195
-------------- -----------
Cash and cash equivalents at end of period $ 39,713,707 31,091,439
-------------- -----------
Cash paid during period for interest $ 3,707,137 3,147,199
Cash paid during period for income taxes 20,000 120,260
</TABLE>
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 and nine months ended
March 31, 2000 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 and nine month periods ended March
31, 2000 and 1999 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
March 31, 2000, Midland Federal's capital ratios exceeded all of its regulatory
capital requirements with both tangible and core capital ratios of 6.23% and a
risk-based capital ratio of 19.98%.
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.
FINANCIAL CONDITION
During the nine months ended March 31, 2000, 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 increased $777,000 to
$50.1 million at March 31, 2000 as loan disbursements of $9.2 million more than
offset loan repayments of $5.4 million and loan sales of $3.0 million. The
Company purchased $10.0 million of fixed rate, 5 year balloon, mortgage-backed
securities during the nine months ended March 31, 2000, which purchases more
than offset repayments of mortgage-backed securities totaling $3.4 million
during the period. The balance of cash and cash equivalents increased by $4.7
million to $39.7 million at March 31, 2000. The $6.6 million increase in
mortgage-backed securities as well as the $4.7 million increase in cash and cash
equivalents was primarily funded by an increase in deposits in the amount of
$11.8 million to $132.1 million at March 31, 2000. The balance of investment
securities remained relatively unchanged at $25.0 million during the nine months
ended March 31, 2000. The weighted average remaining maturity of the Company's
investment securities portfolio at March 31, 2000 was 1.9 years.
As discussed above, deposits for the nine months ended March 31, 2000
increased $11.8 million as deposit activity of $323.2 million and interest
credited to deposits in the amount of $3.5 million exceeded withdrawal activity
of $314.9 million. The net increase in savings deposits is attributed to an $8.4
million increase in certificate of deposit accounts, a $2.9 million increase in
money market accounts and a $1.1 million increase in transaction deposits offset
by a $590,000 decrease 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.
Total stockholders' equity for the nine months ended March 31, 2000
increased by $129,000 to $9.1 million primarily as a result of earnings in the
amount of $227,000 and a $24,000 reduction in the unamortized cost of the
Association's Bank Incentive Plan offset by a $44,000 market adjustment from
securities available for sale, net of income taxes, and dividends paid on common
stock in the amount of $82,000.
RESULTS OF OPERATIONS
The Company had net income of $97,000 for the quarter ended March 31, 2000
compared to net income of $115,000 for the quarter ended March 31, 1999. The
decline in net income in the current quarter is the result of a $101,000
decrease in non-interest income and a $32,000 increase in non-interest expense
offset by a $105,000 increase in net interest income and a $10,000 decrease in
income taxes.
For the nine months ended March 31, 2000 the Company had net income of
$227,000 compared to net income of $342,000 for the nine months ended March 31,
1999. The decline in net income in the current nine month period is the result
of a $271,000 decrease in non-interest income and a $124,000 increase in
non-interest expense offset by a $218,000 increase in net interest income and a
$62,000 decrease in income taxes. For a discussion on the decrease in
non-interest income and the increase in non-interest expense that occurred in
both the three and nine month periods ended March 31, 2000, see "Non-Interest
Income" and "Non-Interest Expense."
-8-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS (continued)
The increase in net-interest income in both the three and nine month
periods ended March 31, 2000 was primarily the result of an increase in the
average balance of interest earning assets in both periods. For the three months
ended March 31, 2000 the average balance of interest earning assets increased
$18.2 million to $134.3 million from $116.1 million during the same period last
year, and for the nine months ended March 31, 2000, the average balance of
interest earning assets increased $18.4 million to $132.9 million from $114.5
million in the prior year period. The increase in the average balance of
interest earning assets in both the three and nine months ended March 31, 2000
was funded by an increase in deposit liabilities that occurred between the
current and the prior year periods.
The increases in the average balance of interest earning assets in both the
three and nine month periods ended March 31, 2000 offset decreases in net
interest margin and interest rate spread that also occurred in both periods. Net
interest margin and interest rate spread decreased to 2.67% and 2.58%,
respectively for the three months ended March 31, 2000 from 2.72% and 2.65%,
respectively, for the three months ended March 31, 1999. For the nine months
ended March 31, 2000, net interest margin and interest rate spread decreased to
2.57% and 2.50%, respectively, compared to 2.73% and 2.64%, respectively, in the
prior year nine month period. The declines in net interest margin and interest
rate spread that occurred in both the three and nine month periods ended March
31, 2000, compared with the prior year periods, were attributed to a higher
percentage of certificates of deposit and money market accounts within the
Company's total deposit liabilities which resulted in higher funding costs on
total deposits.
The ratio of average interest earning assets to average interest bearing
liabilities decreased slightly in both the three and nine month periods ended
March 31, 2000 to 110.09% and 109.57%, respectively, from 110.65% and 110.78%,
respectively, in the prior year periods.
Interest Income
Interest income increased $339,000, or 18.6%, for the quarter ended March
31, 2000 from the comparable year earlier period. The increase in interest
income was primarily the result of an $18.2 million increase in the average
outstanding balance of interest earning assets, discussed above, as well as an
increase in the average yield earned on interest earning assets to 6.42% for the
quarter ended March 31, 2000 compared to 6.26% in the year earlier period.
For the nine months ended March 31, 2000 interest income increased $781,000
or 14.2% from the 1999 period. The increase in interest income for the current
nine month period was the result of an $18.4 million increase in the average
outstanding balance of interest earning assets, discussed above, offset by a
decrease in the average yield earned on interest earning assets to 6.29% from
6.40% in the 1999 period.
Interest on loans receivable increased $36,000, or 4.0%, in the quarter
ended March 31, 2000, compared with the prior year quarter, as a result of an
increase in the average outstanding balance of net loans receivable to $50.2
million from $48.6 million in the 1999 quarter. The average yield earned on net
loans receivable also increased to 7.42% for the quarter ended March 31, 2000
from 7.37% for the prior year quarter.
-9-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest on mortgage-backed securities increased $88,000, or 30.7%, for the
quarter ended March 31, 2000 from the year earlier period. The increase in
interest income was the result of a $5.3 million increase in the average
outstanding balance of mortgage-backed securities to $22.9 million for the
quarter ended March 31, 2000 from $17.6 million for the comparable prior year
period. The average yield earned on mortgage-backed securities also increased to
6.54% from 6.51% in the 1999 quarter.
Interest earned on investment securities increased $51,000, or 17.3%, for
the quarter ended March 31, 2000 from the prior year period due to a $3.8
million increase in the average outstanding balance of investment securities to
$25.0 million from $21.2 million in the 1999 quarter. The increase in the
average outstanding balance of investment securities offset a decline in the
average yield earned on investment securities to 5.57% for the quarter ended
March 31, 2000 from 5.60% in the year earlier period.
Interest earned on interest bearing deposits increased $161,000, or 48.9%,
for the quarter ended March 31, 2000 from the year earlier period. The increase
in interest income was the result of an increase in both the average outstanding
balance of interest bearing deposits as well as the average yield earned on
interest bearing deposits. For the quarter ended March 31, 2000, the average
outstanding balance of interest bearing deposits increased $7.4 million to $35.5
million from $28.1 million in the 1999 quarter and the average yield earned on
interest bearing deposits increased to 5.52% from 4.69% in the year earlier
period.
For the nine months ended March 31, 2000 interest on loans receivable
increased $210,000 from the comparable prior year period. The increase in
interest income was due to a $4.8 million increase in the average outstanding
balance of loans receivable to $49.9 million from $45.1 million for the nine
months ended March 31, 1999. The $4.8 million increase in the average
outstanding balance of loans receivable offset a decrease in the average yield
earned on loans receivable to 7.32% for the nine months ended March 31, 2000
from 7.48% in the prior year period. The growth in the Company's loan portfolio
is attributed to direct marketing of the Company's loan products.
For the nine months ended March 31, 2000 interest earned on mortgage backed
securities increased $92,000 to $1.0 million. The primary factor for the
increase in interest income was a $2.4 million increase in the average
outstanding balance of mortgage-backed securities to $21.6 million for the nine
months ended March 31, 2000 from $19.2 million for the comparable prior year
period. The increase in the average outstanding balance of mortgage-backed
securities offset a decline in the average yield earned on mortgage-backed
securities to 6.44% for the nine months ended March 31, 2000 from 6.62% in the
1999 period.
For the nine months ended March 31, 2000 interest earned on investment
securities increased $130,000 to $1.0 million. The primary factor for the
increase in interest income was a $3.8 million increase in the average
outstanding balance of investment securities to $25.0 million for the nine
months ended March 31, 2000 from $21.2 million for the prior year period. The
increase in the average outstanding balance of investment securities was offset
by a decrease the average yield earned on investment securities to 5.53% for the
nine months ended March 31, 2000 from 5.71% in the comparable prior year period.
The decrease in the average yield on the Association's investment securities was
the result of lower reinvestment yields, in the aggregate, on maturing
investment securities with the same original terms to maturity.
-10-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
For the nine months ended March 31, 2000 interest earned on interest
bearing deposits increased $343,000 to $1.4 million from $1.1 million for the
year earlier period. The increase in interest income is primarily attributed to
a $7.4 million increase in the average outstanding balance of interest bearing
deposits to $35.8 million for the current nine month period from $28.4 million
for the year earlier period. The average yield earned on interest bearing
deposits also increased to 5.31% for the nine months ended March 31, 2000 from
5.05% in the year earlier period. The Company has historically maintained a
relatively high level of cash equivalents and other short term investments in an
attempt to control interest rate risk.
Interest Expense
Interest expense increased $233,000, or 22.7%, for the quarter ended March
31, 2000 compared to the prior year quarter. The increase in interest expense
was the result of a $17.1 million increase in the average balance of interest
costing deposits to $122.0 million in the current year period from $104.9
million in the prior year period. The average yield paid on interest costing
deposits also increased to 4.13% in the current year period from 3.91% in the
1999 quarter.
For the nine months ended March 31, 2000 interest expense increased
$563,000, or 17.9%, from the prior year period. This increase in interest
expense was the result of a $17.9 million increase in the average outstanding
balance of interest costing deposits to $121.3 million for the current period
from $103.4 million for the year earlier period. The average yield paid on
interest costing deposits also increased slightly to 4.08% for current year
period from 4.07% in the prior year period.
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 from $223,000 at June 30, 1999 to $162,000 at March 31, 2000
and consisted of $85,000 in two single family residential mortgage loans,
$38,000 in one multi-family residential mortgage loan and $39,000 in
non-mortgage loans. At March 31, 2000, general loan loss reserves totaled
$173,000, which amount was .74% of total loans and 107.21% of net non-performing
loans. At March 31, 2000, 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.
-11-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Non-Interest Income
Non-interest income decreased $101,000 to $200,000 for the quarter ended
March 31, 2000 from $302,000 for the prior year quarter. The decrease in
non-interest income was due primarily to a $39,000 decrease in loan fees and
service charges and a combined $23,000 decrease in rental revenue and profit
from real estate owned operations and sales. Other factors contributing to the
decrease in non-interest income were a $14,000 decrease in commission income, an
$11,000 decrease in deposit related fees and a $7,000 decrease in profit on the
sale of loans, all compared with the prior year period. The decrease in loan
fees and service charges was attributed to a decline in loan origination
activity caused by higher market interest rates.
For the nine months ended March 31, 2000 non-interest income decreased
$271,000 to $652,000 from $923,000 in the year earlier period. The decrease in
non-interest income in the current nine month period is primarily the result of
a $126,000 decrease in loan fees and service charges and a combined $65,000
decrease in rental revenue and profit from real estate owned operations and
sales. A $41,000 decrease in commission income and a $24,000 decrease in deposit
related fees also contributed to the decrease in non-interest income in the
current nine month period compared with the prior year period.
Non-Interest Expense
Non-interest expense increased $32,000 to $950,000 in the quarter ended
March 31, 2000 compared to $918,000 in the 1999 quarter. The increase in
non-interest expense in the current quarter is primarily the result of a $28,000
increase in office occupancy and equipment expenses, an $8,000 in increase in
other operating expenses and a $6,000 increase in advertising expense. These
increases in non-interest expense were offset by a $10,000 decrease in federal
deposit insurance premiums and a $3,000 decrease in staffing costs, compared
with the prior year period.
For the nine months ended March 31, 2000 non-interest expense increased
$124,000 to $2.9 million, compared with the prior year period. The primary
factors for the increase in non-interest expense in the current nine month
period were a $154,000 increase in occupancy and equipment expense and a $36,000
increase in advertising expenses, offset by a $34,000 decrease in staffing
costs, a $27,000 decrease in data processing fees and a $7,000 decrease in
federal deposit insurance premiums, compared with the prior year period.
Both the increases in office occupancy and advertising expenses in the
three and nine month periods ended March 31, 2000 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. The decrease in
data processing fees in the nine month period ended March 31, 2000 was the
result of the elimination of a $38,000 de-conversion fee incurred in the prior
year period when the Company converted its on-line data processing systems to
another service provider.
Income Taxes
Income taxes decreased to $49,000 in the quarter ended March 31, 2000 from
$59,000 for the prior year quarter. For the nine months ended March 31, 2000
income taxes decreased to $115,000 compared to $177,000 in the prior year
period. The decreased income tax provision was due primarily to the decrease in
operating income in both periods as compared to the prior year periods.
-12-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
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 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 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 March 31, 2000, the
Association's regulatory liquidity ratio was 58.9%. The Company had outstanding
commitments to originate $1.9 million in loans and to sell $199,000 in loans at
March 31, 2000.
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. At March 31, 2000 the Association had $56.5 million of
certificates of deposit maturing in one year or less. 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 March 31, 2000 the Association had tangible and core capital of $8.9
million, or 6.2% of adjusted total assets, which was approximately $6.7 million
and $4.6 million above the minimum requirements in effect on that date of 1.5%
and 3.0%, respectively, of adjusted total assets.
At March 31, 2000 the Association had total capital of $9.0 million
(including $8.9 million in core capital) and risk-weighted assets of $45.3
million, or total capital of 20.0% of risk-weighted assets. This amount was $5.4
million above the 8.0% requirement in effect on that date.
-13-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
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 which, 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) Computation of earnings per share (Exhibit 11 filed herewith).
(b)Financial data schedule (Exhibit 27 filed herewith).
(c) No reports on Form 8-K were filed this quarter.
-14-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ---------- -----------------
11 Computation of Per Share Earnings
27 Financial Data Table
-15-
<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: May 15, 2000 BY: /s/ Paul Zogas
-------------------------------------
Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: May 15, 2000 BY: /s/ Charles Zogas
-------------------------------------
Charles Zogas
Executive Vice President and
Chief Operating Officer
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 96,615 $114,581 $227,450 $342,465
Weighted average common shares
outstanding for basic computation 363,975 363,975 363,975 363,975
Basic earnings per share $ 0.27 $ 0.31 $ .62 $ .94
Weighted average common shares
outstanding for basic computation 363,975 363,975 363,975 363,975
Common stock equivalents due to
dilutive effect of stock options 2,203 4,406 3,276 4,730
Weighted average common shares and
equivalents outstanding for
diluted computation 366,178 368,381 367,251 368,705
Diluted earnings per share $ 0.26 $ 0.31 $ 0.62 $ 0.93
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS LEGEND CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR
THE NINE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,765,496
<INT-BEARING-DEPOSITS> 36,948,211
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,031,892
<INVESTMENTS-CARRYING> 42,505,132
<INVESTMENTS-MARKET> 42,099,015
<LOANS> 50,497,881
<ALLOWANCE> 371,813
<TOTAL-ASSETS> 141,972,716
<DEPOSITS> 132,069,002
<SHORT-TERM> 0
<LIABILITIES-OTHER> 779,273
<LONG-TERM> 0
<COMMON> 3,640
0
0
<OTHER-SE> 9,120,801
<TOTAL-LIABILITIES-AND-EQUITY> 141,972,716
<INTEREST-LOAN> 2,739,685
<INTEREST-INVEST> 3,536,557
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,276,242
<INTEREST-DEPOSIT> 3,714,122
<INTEREST-EXPENSE> 3,714,122
<INTEREST-INCOME-NET> 2,562,120
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,871,711
<INCOME-PRETAX> 342,890
<INCOME-PRE-EXTRAORDINARY> 342,890
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,450
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 2.57
<LOANS-NON> 334,910
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 365,863
<CHARGE-OFFS> 0
<RECOVERIES> 5,950
<ALLOWANCE-CLOSE> 371,813
<ALLOWANCE-DOMESTIC> 198,591
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 173,222
</TABLE>
