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 December 31, 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 February 14, 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 -
December 31, 1999 (unaudited) and June 30,1999.................. 1
Consolidated Statements of Earnings -
Three months ended December 31, 1999 and 1998 and
Six months ended December 31, 1999 and 1998 (unaudited)......... 2
Consolidated Statements of Changes in Stockholders' Equity -
Six months ended December 31, 1999 (unaudited).................. 3
Consolidated Statements of Cash Flows - Six months
ended December 31, 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.......................... 7-13
Part II. OTHER INFORMATION.................................................. 14
Index to Exhibits....................................................... 15
<PAGE>
CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I ~ FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
Assets December 31, June 30,
1999 1999
____________ ___________
(Unaudited)
<S> <C> <C>
Cash and amounts due from
depository institutions $ 5,198,035 3,933,658
Interest-bearing deposits 32,465,241 31,086,638
Total cash and cash equivalents 37,663,276 35,020,296
Investment securities, held to maturity (fair value:
December 31, 1999 - $19,836,719;
June 30, 1999 - $19,933,594) 19,991,644 19,994,152
Investment securities available for sale, at fair value 4,986,918 5,098,307
Mortgage-backed securities, held to maturity (fair value:
December 31, 1999 - $23,278,308;
June 30, 1999 - $15,938,491) 23,462,275 15,881,826
Loans receivable (net of allowance for loan losses:
December 31, 1999 - $371,363;
June 30, 1999 - $365,863) 49,729,874 48,914,195
Loans receivable, held for sale 220,850 435,150
Real estate owned, net 0 276,372
Stock in Federal Home Loan Bank of Chicago 636,000 636,000
Office properties and equipment, net 2,500,368 2,594,050
Accrued interest receivable 628,995 611,966
Prepaid expenses and other assets 679,886 730,969
Total assets $140,500,086 130,193,283
Liabilities and Stockholders' Equity
Liabilities:
Deposits $130,498,179 120,224,584
Advance payments by borrowers for taxes and insurance 650,181 570,814
Other liabilities 334,254 402,356
Total liabilities 131,482,614 121,197,754
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 December 31, 1998 and June 30, 1999 3,640 3,640
Additional paid-in capital 3,274,654 3,271,315
Retained earnings - substantially restricted 5,761,830 5,685,591
Accumulated other comprehensive income, net of income taxes 6,178 80,030
Common stock awarded by Bank Incentive Plan (28,830) (45,047)
Total stockholders' equity 9,017,472 8,995,529
Total liabilities and stockholders' equity $140,500,086 130,193,283
See accompanying notes to consolidated financial statements.
</TABLE>
-1-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
_________ _________ _________ _________
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 912,119 835,645 1,808,517 1,634,773
Interest on mortgage-backed securities 383,572 321,627 669,381 665,231
Interest on investment securities 344,820 302,718 690,379 611,926
Interest on interest-bearing deposits 463,021 358,738 930,343 747,972
Dividends on FHLB stock 12,023 9,374 22,443 18,625
Total interest income 2,115,555 1,828,102 4,121,063 3,678,527
Interest expense:
Interest on deposits 1,268,494 1,064,614 2,454,317 2,124,389
Total interest expense 1,268,494 1,064,614 2,454,317 2,124,389
Net interest income 847,061 763,488 1,666,746 1,554,138
Non-interest income:
Loan fees and service charges 48,973 88,013 98,325 185,426
Commission income 14,090 19,165 34,011 61,386
Profit on sale of loans 13,841 9,438 27,195 26,491
Profit (loss) on sale of REO 1,444 (2,375) 2,252 9,903
Deposit related fees 123,532 122,136 251,236 264,403
Other income 19,253 39,117 39,063 73,999
Total non-interest income 221,133 275,494 452,082 621,608
Non-interest expense:
Staffing costs 482,992 518,887 977,056 1,008,095
Advertising 32,498 17,249 67,137 36,650
Occupancy and equipment expenses 177,869 111,371 361,102 234,984
Data processing 40,819 46,450 80,953 110,084
Federal deposit insurance premiums 17,549 15,489 33,815 30,815
Provision for loss on REO 0 1,528 0 1,528
Other 191,996 197,950 401,690 407,521
Total non-interest expense 943,723 908,924 1,921,753 1,829,677
Income before income taxes 124,471 130,058 197,075 346,069
Income tax provision 41,829 44,731 66,240 118,185
Net income $ 82,642 85,327 130,835 227,884
Earnings per share (basic) $ 0.23 0.24 .36 .63
Earnings per share (diluted) $ 0.22 0.23 .36 .62
Dividends declared per common share $ 0.075 0.075 0.15 0.15
</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>
<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 130,835 130,835
Other comprehensive
income, net of tax:
Unrealized holding loss
during the period (73,852) (73,852)
_______ _______ _______
Total comprehensive income 130,835 (73,852) 56,983
Tax benefit related to
employee stock plan 3,339 3,339
Amoritzation of award of
BIP stock 16,217 16,217
Dividends declared on
common stock ($0.15
per share) (54,596) (54,596)
_____ _________ _________ _______ ______ _________
Balance at
December 31, 1999 $3,640 3,274,654 5,761,830 6,178 (28,830) 9,017,472
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Unaudited) Six Months Ended
December 31,
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 130,835 227,884
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 152,774 79,420
Amortization of premiums and discounts on securities (17,459) 4,638
Amortization of cost of stock benefit plan 16,217 16,217
Profit on sale of real estate owned (2,252) (9,903)
Provision for loss on real estate owned 0 1,528
Proceeds from sale of loans held for sale 2,519,800 3,216,475
Origination of loans held for sale (2,305,500) (3,047,825)
Profit on sale of loans (27,196) (26,491)
Decrease in accrued interest receivable 17,029 11,420
Increase in accrued interest payable 1,934 2,844
Decrease in deferred income on loans (8,731) (73,332)
(Increase) decrease in other assets 85,603 (125,677)
Increase (decrease) in other liabilities (70,036) 211,961
Net cash provided by operating activities 493,018 489,159
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 2,440,312 3,073,390
Purchase of investment securities, held to maturity (4,994,025) (4,999,800)
Proceeds from maturities of investment securities,
held to maturity 5,000,000 5,000,000
Purchase of Federal Home Loan Bank stock 0 (17,800)
Loan disbursements (4,473,447) (13,662,091)
Loan repayments 3,668,651 5,804,641
Proceeds from sale of real estate owned 276,472 153,525
Property and equipment expenditures (59,092) (273,847)
Net cash provided for investing activities (8,148,404) (6,023,575)
Cash flows from financing activities:
Deposit receipts 212,883,144 193,917,682
Deposit withdrawals (204,936,047) (189,781,894)
Interest credited to deposit accounts 2,326,498 2,002,046
Payment of dividends (54,596) (54,596)
Increase in advance payments by borrowers
for taxes and insurance 79,367 58,473
Net cash provided by financing activities 10,298,366 6,141,711
Increase in cash and cash equivalents 2,642,980 607,295
Cash and cash equivalents at beginning of period 35,020,296 31,994,195
Cash and cash equivalents at end of period $ 37,663,276 32,601,490
Cash paid during period for interest $ 2,452,383 2,121,545
Cash paid during period for income taxes 0 102,260
</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 six months ended December 31,
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 and six month periods ended December 31,
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
December 31, 1999, Midland Federal's capital ratios exceeded all of its
regulatory capital requirements with both tangible and core capital ratios of
6.28% and a risk-based capital ratio of 20.52%.
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 six months ended December 31, 1999, total assets of the Company
increased by $10.3 million to $140.5 million from $130.2 million at June 30,
1999. Net loans receivable and loans available for sale increased $601,000 to
$50.0 million at December 31, 1999 as loan disbursements of $6.8 million more
than offset loan repayments of $3.7 million and loan sales of $2.5 million. The
balance of mortgage-backed securities increased by $7.6 million to $23.5 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 $2.4 million during the six months ended December 31, 1999. The balance of
cash and cash equivalents increased by $2.6 million to $37.7 million at December
31, 1999. The increase in mortgage-backed securities as well as the increase in
cash and cash equivalents was primarily funded by an increase in deposits in the
amount of $10.3 million to $130.4 million at December 31, 1999. The balance of
investment securities remained relatively unchanged at $25.0 million during the
six months ended December 31, 1999. The weighted average remaining maturity of
the Company's investment securities portfolio at December 31, 1999 was 2.0
years.
As discussed above, deposits for the six months ended December 31, 1999
increased $10.3 million as deposit activity of $212.9 million and interest
credited to deposits in the amount of $2.3 million exceeded withdrawal activity
of $204.9 million. The net increase in savings deposits is attributed to a $10.6
million increase in certificate of deposit accounts and a $1.2 million increase
in transaction deposits including money market accounts offset by a $1.5 million
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 six months ended December 31, 1999 increased
by $22,000 to $9.0 million primarily as a result of earnings in the amount of
$131,000 and a $16,000 reduction in the unamortized cost of the Association's
Bank Incentive Plan offset by a $74,000 market adjustment from securities
available for sale, net of income taxes, and dividends paid on common stock in
the amount of $54,000.
RESULTS OF OPERATIONS
The Company had net income of $83,000 for the quarter ended December 31, 1999
compared to net income of $85,000 for the quarter ended December 31, 1998. The
decline in net income in the current quarter is the result of a $54,000 decrease
in non-interest income and a $35,000 increase in non-interest expense offset by
an $84,000 increase in net interest income and a $3,000 decrease in income
taxes.
For the six months ended December 31, 1999 the Company had net income of
$131,000 compared to net income of $228,000 for the six months ended December
31, 1998. The decline in net income in the current six month period is the
result of a $170,000 decrease in non-interest income and a $92,000 increase in
non-interest expense offset by a $113,000 increase in net interest income and a
$52,000 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 six month periods ended December 31, 1999, 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 six month periods
ended December 31, 1999 was primarily the result of an increase in the average
balance of interest earning assets in both periods. For the three months ended
December 31, 1999 the average balance of interest earning assets increased $18.6
million to $133.1 million from $114.5 million during the same period last year,
and for the six months ended December 31, 1999, the average balance of interest
earning assets increased $18.5 million to $132.2 million from $113.7 million in
the prior year period. The increase in the average balance of interest earning
assets in both the three and six months ended December 31, 1999 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 six month periods ended December 31, 1999 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 2.55% and 2.50%,
respectively for the three months ended December 31, 1999 from 2.67% and 2.60%,
respectively, for the three months ended December 31, 1999. For the six months
ended December 31, 1999 net interest margin and interest rate spread decreased
to 2.52% and 2.46%, respectively, compared to 2.73% and 2.64%, respectively, in
the prior year six month period. The declines in net interest margin and
interest rate spread that occurred in both the three and six month periods ended
December 31, 1999, compared with the prior year periods, were attributed to
lower yields in the Company's loan and securities portfolios as well as a higher
percentage of certificate of deposits within the Company's deposit liability
mix.
The ratio of average interest earning assets to average interest bearing
liabilities also decreased in both the three and six month periods ended
December 31, 1999 to 108.86% and 110.43%, respectively, from 109.31% and
110.85%, respectively, in the prior year periods.
Interest Income
Interest income increased $287,000, or 15.7%, for the quarter ended December 31,
1999 from the comparable year earlier period. The increase in interest income
was primarily the result of an $18.6 million increase in the average outstanding
balance of interest earning assets, discussed above, which was partially offset
by a decrease in the average yield earned on interest earning assets to 6.36%
for the quarter ended December 31, 1999 compared to 6.39% in the year earlier
period.
For the six months ended December 31, 1999 interest income increased $442,000 or
12.0% from the 1998 period. The increase in interest income for the current six
month period was the result of an $18.5 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 6.23% from
6.47% in the 1998 period.
Interest on loans receivable increased $76,000, or 9.2%, in the quarter ended
December 31, 1999, compared with the prior year quarter, as a result of an
increase in the average outstanding balance of net loans receivable to $50.1
million from $45.0 million in the 1998 quarter. The increase in the average
outstanding balance of net loans receivable offset a decrease in the average
yield earned on net loans receivable to 7.28% for the quarter ended December 31,
1999 from 7.43% for the prior year quarter. The decline in the average yield
earned on net loans receivable was primarily the result of lending activity that
occurred at lower market interest rates between the current and prior year
periods.
-9-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest on mortgage-backed securities increased $62,000, or 19.3%, for the
quarter ended December 31, 1999 from the year earlier period. The increase in
interest income was the result of a $4.5 million increase in the average
outstanding balance of mortgage-backed securities to $23.8 million for the
quarter ended December 31, 1999 from $19.3 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 6.45% from 6.67% in the 1998 quarter.
Interest earned on investment securities increased $42,000, or 13.9%, for the
quarter ended December 31, 1999 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 1998 quarter. The increase in the average
outstanding balance of investment securities offset a decline in the average
yield earned on investment securities to 5.51% for the quarter ended December
31, 1999 from 5.70% in the year earlier period.
Interest earned on interest bearing deposits increased $104,000, or 29.1%, for
the quarter ended December 31, 1999 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 December 31, 1999, the average
outstanding balance of interest bearing deposits increased $5.1 million to $33.6
million from $28.5 million in the 1998 quarter and the average yield earned on
interest bearing deposits increased to 5.51% from 5.04% in the year earlier
period.
For the six months ended December 31, 1999 interest on loans receivable
increased $174,000 from the comparable prior year period. The increase in
interest income was due to a $6.3 million increase in the average outstanding
balance of loans receivable to $49.7 million from $43.4 million for the six
months ended December 31, 1998. The $6.3 million increase in the average
outstanding balance of loans receivable offset a decrease in the average yield
earned on loans receivable to 7.27% for the six months ended December 31, 1999
from 7.54% 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 six months ended December 31, 1999 interest earned on mortgage backed
securities increased $4,000 to $669,000. The primary factor for the increase in
interest income was a $951,000 increase in the average outstanding balance of
mortgage-backed securities to $20.9 million for the six months ended December
31, 1999 from $19.9 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 6.40% for
the six months ended December 31, 1999 from 6.67% in the 1998 period.
For the six months ended December 31, 1999 interest earned on investment
securities increased $78,000 to $690,000 from $612,000 for the six months ended
December 31, 1998. 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 six months ended December 31, 1999 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 5.51% for the six months ended December 31,
1999 from 5.76% 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 on maturing investment securities with the same original
terms to maturity.
-10-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
For the six months ended December 31, 1999 interest earned on interest bearing
deposits increased $182,000 to $930,000 from $748,000 for the year earlier
period. The increase in interest income is primarily attributed to a $7.3
million increase in the average outstanding balance of interest bearing deposits
to $35.9 million for the current six month period from $28.6 million for the
year earlier period. The increase in the average outstanding balance of interest
bearing deposits more than offset a decrease in the average yield earned on
interest bearing deposits to 5.20% for the six months ended December 31, 1999
from 5.24% 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 $204,000, or 19.2%, for the quarter ended December
31, 1999 compared to the prior year quarter. The increase in interest expense
was the result of an $18.6 million increase in the average balance of interest
costing deposits to $122.3 million in the current year period from $103.7
million in the prior year period. The average yield paid on interest costing
deposits also increased slightly to 4.15% in the current year period from 4.11%
in the 1998 quarter.
For the six months ended December 31, 1999 interest expense increased $330,000,
or 15.5%, from the prior year period. This increase in interest expense was the
result of an $18.4 million increase in the average outstanding balance of
interest costing deposits to $121.0 million for the current period from $102.6
million for the year earlier period. The increase in the average outstanding
balance of interest costing deposits was offset by a decrease in the average
yield paid on interest costing deposits to 4.06% for current year period from
4.14% 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 to $108,000 at December 31, 1999 and consisted of $57,000 in
one single family residential mortgage loan, $38,000 in one multi-family
residential mortgage loan and $13,000 in non-mortgage loans. At December 31,
1999, general loan loss reserves totaled $184,000, which amount was .74% of
total loans and 170.94% of net non-performing loans. At December 31, 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.
-11-
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Non-Interest Income
Non-interest income decreased $54,000 to $221,000 for the quarter ended December
31, 1999 from $275,000 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,
a combined $16,000 decrease in rental revenue and profit from real estate owned
operations and sales and a $5,000 decrease in commission income offset by a
$4,000 increase in profit on the sale of loans. 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 six months ended December 31, 1999 non-interest income decreased
$170,000 to $452,000 from $622,000 in the year earlier period. The decrease in
non-interest income in the current six month period is primarily the result of
an $87,000 decrease in loan fees and service charges, a combined $39,000
decrease in rental revenue and profit from real estate owned operations and
sales, a $27,000 decrease in commission income and a $13,000 decrease in deposit
related fees compared with the prior year period.
Non-Interest Expense
Non-interest expense increased $35,000 to $944,000 in the quarter ended December
31, 1999 compared to $909,000 in the 1998 quarter. The increase in non-interest
expense in the current quarter is primarily the result of a $66,000 increase in
office occupancy and equipment expenses and a $15,000 increase in advertising
expense. These increases in non-interest expense were offset by a $36,000
decrease in staffing costs, a $6,000 decrease in data processing fees and a
$6,000 decrease in other operating expenses.
For the six months ended December 31, 1999 non-interest expense increased
$92,000 to $1.9 million from $1.8 million in the prior year period. The primary
factors for the increase in non-interest expense in the current six month period
were a $126,000 increase in occupancy and equipment expense and a $30,000
increase in advertising expenses, offset by a $31,000 decrease in staffing
costs, a $29,000 decrease in data processing fees and a $6,000 decrease in other
operating expenses, compared with the prior year period.
Both the increases in office occupancy and advertising expenses in the three and
six month periods ended December 31, 1999 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 both current year periods was the result of the elimination
of a $38,000 de-conversion fee incurred in the quarter ended December 31, 1998
when the Company converted its on-line data processing systems to another
service provider.
Income Taxes
Income taxes decreased to $42,000 in the quarter ended December 31, 1999 from
$45,000 for the prior year quarter. For the six months ended December 31, 1999
income taxes decreased to $66,000 compared to $118,000 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 December 31, 1999, the Association's regulatory
liquidity ratio was 53.1%. The Company had outstanding commitments to originate
$1.2 million in loans and to sell $221,000 in loans at December 31, 1999.
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 December 31, 1999 the Association had $58.5 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 December 31, 1999 the Association had tangible and core capital of $8.8
million, or 6.3% 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 December 31, 1999 the Association had total capital of $9.0 million
(including $8.8 million in core capital) and risk-weighted assets of $44.0
million, or total capital of 20.5% of risk-weighted assets. This amount was $5.5
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 On October 20, 1999
the shareholders held their annual meeting to consider and act upon the election
of Mr. Michael J. Kukanza and Mr. Richard Taylor to serve as directors for terms
of three years and the ratification of the appointment of Cobitz, VandenBerg &
Fennessy as auditors for the Company for the fiscal year ending June 30, 2000.
Both of the foregoing items were approved by the shareholders at the meeting by
the following vote totals based upon 363,975 shares outstanding and entitled to
vote at the meeting.
I. Election of Directors - 337,164 shares voted, as follows:
Michael J. Kukanza: 337,164 votes FOR; -0- votes withheld.
Richard Taylor: 337,164 votes FOR; -0- votes withheld.
II. Ratification of the appointment of Cobitz, VandenBerg & Fennessy as auditors
for the Company for the fiscal year ending June 30, 2000 (Compass) 337,164
shares voted, as follows:
FOR: 337,164
AGAINST: -0-
ABSTAIN: -0-
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: February 14, 2000 BY: /s/ Paul Zogas
-------------------------------------
Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: February 14, 2000 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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income $ 82,642 $ 85,327 $130,835 $227,884
======== ======== ======== ========
Weighted average common shares
outstanding for basic computation 363,975 363,975 363,975 363,975
======== ======== ======== ========
Basic earnings per share $ 0.23 $ 0.24 $ .36 $ .63
======== ======== ======== ========
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 3,598 4,539 3,689 4,870
-------- -------- -------- --------
Weighted average common shares and
equivalents outstanding for
diluted computation 367,573 368,514 367,664 368,845
======== ======== ======== ========
Diluted earnings per share $ 0.22 $ 0.23 $ 0.36 $ 0.62
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS LEGEND CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR THE
SIX MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 001061234
<NAME> Midland Capital Holdings Corporation
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,198,035
<INT-BEARING-DEPOSITS> 32,465,241
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,986,918
<INVESTMENTS-CARRYING> 43,453,919
<INVESTMENTS-MARKET> 43,115,027
<LOANS> 50,322,087
<ALLOWANCE> 371,363
<TOTAL-ASSETS> 140,500,086
<DEPOSITS> 130,498,179
<SHORT-TERM> 0
<LIABILITIES-OTHER> 984,435
<LONG-TERM> 0
3,640
0
<COMMON> 0
<OTHER-SE> 9,013,832
<TOTAL-LIABILITIES-AND-EQUITY> 140,500,086
<INTEREST-LOAN> 1,808,517
<INTEREST-INVEST> 2,312,546
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,121,063
<INTEREST-DEPOSIT> 2,454,317
<INTEREST-EXPENSE> 2,454,317
<INTEREST-INCOME-NET> 1,666,746
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,921,753
<INCOME-PRETAX> 197,075
<INCOME-PRE-EXTRAORDINARY> 197,075
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,835
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 2.52
<LOANS-NON> 268,312
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 365,863
<CHARGE-OFFS> 0
<RECOVERIES> 5,500
<ALLOWANCE-CLOSE> 371,363
<ALLOWANCE-DOMESTIC> 187,272
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 184,091
</TABLE>
