SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996
Commission File No. 0-21482
MBLA FINANCIAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 43-1637679
(State of Incorporation) (IRS Employer I.D. No.)
101 Vine Street, Macon, Missouri 63552
(Address of principal executive office)
(816) 385-2122
(registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
The registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subjected to such requirements for the past 90
days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not considered herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of the Form 10-KSB
or any amendment to this Form 10-KSB. __________ .
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of
the registrant is $18,087,400 and is based upon the last sales price as quoted
on the NASDAQ National Market for June 30, 1996.
As of June 30, 1996, the Registrant had 1,365,111 shares outstanding.
Revenues for the fiscal year ended June 30, 1996: $13,421,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended June
30, 1996 are incorporated by reference into Part II of this Form 10-KSB.
The Proxy Statement for the Third Annual Meeting of Stockholders is
incorporated by reference into Part III of this Form 10-KSB.
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INDEX
PAGE
PART I ----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . 34
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Additional Item. Executive Officers of the Registrant . . . . . . 35
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . 35
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 35
Item 7. Financial Statements and Supplementary Data . . . . 35
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . 35
PART III
Item 9. Directors and Executive Officers of the Registrant 36
Item 10. Executive Compensation . . . . . . . . . . . . . . 36
Item 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . 36
Item 12. Certain Relationships and Related Transactions. . . 36
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . 37
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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PART I
Item 1. Business.
On June 24, 1993, MBLA Financial Corporation (the "Company") closed its
public offering for 1,725,000 shares of its common stock and acquired Macon
Building and Loan Association, Macon, Missouri (the "Association" or "Macon")
as a part of the Association's conversion from a mutual to a stock state
chartered savings and loan association. The Company was incorporated under
Delaware law on February 23, 1993. The Company is a savings and loan holding
company and is subject to regulation by the Office of Thrift Supervision (the
"OTS"), the Federal Deposit Insurance Corporation (the "FDIC") and the
Securities and Exchange Commission (the "SEC"). Currently, the Company does
not transact any material business other than through the Association.
Approximately 50% of the net conversion proceeds amounting to $8.2 million
which was retained by the Company was principally invested in deposits with
the Association and a $685,000 loan to the Association's Employee Stock
Ownership Plan ("ESOP") in order to fund the ESOP's purchase of stock in the
Association's conversion. The Company paid dividends of $ .40 per share,
representing a dividend payout ratio of 41.2%, for the year ended June 30,
1996. At June 27, 1996, the Company had approximately 450 stockholders of
record of the 1,365,111 shares of common stock outstanding. This does not
reflect the number of persons or entities who may hold their stock in nominee
or "street" name through brokerage firms.
The Association has operated for over 111 years and was originally
organized in 1885 as a Missouri-chartered building and loan association.
The Association converted to a Federal chartered savings & loan effective June
1, 1995. The Association is a member of the Federal Home Loan Bank (the
"FHLB") System and its deposit accounts are insured up to applicable limits by
the FDIC. At June 30, 1996 the Association had total assets of $201.0 million
and stockholders' equity of $28.1 million.
The Association offers a variety of financial services to meet the needs
of the communities it serves. The Association's principal business has been
and continues to be attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations,
primarily in one- to four-family residential mortgage loans through purchases
and originations. To a lesser extent, the Association invests in U.S.
government federal agency securities and mortgage-backed and related
securities, interest-earning deposits, commercial and multi-family real
estate loans and consumer loans. The Association's revenues are derived
principally from interest on its mortgage loan and mortgage-backed and related
securities portfolios and earnings on its investment securities. The
Association's primary sources of funds are deposits and principal and interest
payments on loans and mortgage-backed and related securities. The
Association's primary expense is interest paid on deposits.
Market Area
The Association currently operates out of its main office in Macon and
one branch office located in Moberly, Missouri. The Association's deposit
gathering base is concentrated in Macon and Randolph Counties in Missouri.
Due to the low demand for loans in the Association's primary market area, at
June 30, 1996, approximately $90.0 million or 84.1% of the Association's total
loan portfolio consisted of loans purchased from selected mortgage banking
companies and financial institutions secured by properties located primarily
in Columbia, Missouri and to a lesser extent, other cities in central
Missouri.
Lending Activities
Loan Portfolio Composition. The Association's loan portfolio
composition consists primarily of conventional adjustable-rate and fixed-rate
first mortgage loans secured by one- to four-family residences. The
Association also makes multi-family and commercial real estate mortgage loans,
and consumer loans. At June 30, 1996, the Association's mortgage loans
outstanding were $106.0 million, of which $97.0 million were one- to four-
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family residential mortgage loans. Of the total loans outstanding at that
date, $92.7 million were ARMs and $14.3 were fixed-rate loans. At that same
date, commercial real estate loans totalled $7.6 million. At June 30, 1996,
purchased whole mortgage loans and participations totalled $94.1 million or
87.9% of the Association's loan portfolio. These loans were purchased without
recourse and are serviced by the sellers.
Other loans held by the Association, which primarily consisted of consumer
loans, totalled $1.0 million or .91% of total loans outstanding at June 30,
1996. There were no loans held for sale at June 30, 1996.
Loan Purchases and Originations. The Association purchases and
originates loans, which are secured by first mortgages on owner- occupied one-
to four-family residences and commercial real estate located primarily in
Columbia, Missouri and to a lesser extent, other cities in central Missouri.
The Association has purchased and originated primarily ARM loans and to a
lesser extent 15 and 20 year fixed-rate mortgage loans the amount of which is
dependent upon relative customer demand as well as current and expected future
levels of interest rates. The Association has historically had a low demand
for loans in its primary market area and thus purchases loans, primarily one-
to four-family ARM loans from selected mortgage banking companies and
financial institutions. The Association utilizes the same underwriting
standards for loan purchases as it uses for the loans it originates. The
servicing rights on substantially all of the loans purchased by the
Association are retained by the loan originator.
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The following table sets forth as of June 30, 1996, the portions of the
Association's loan portfolio which had been purchased from others and
originated by the Association.
At June 30, 1996
Purchased (1) Originated Total
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
------ ------- ------ ------- ------ -------
Mortgage Loans:
One-to four-family $ 85,947 80.32% $ 11,070 10.35% $ 97,017 90.67%
Multi-family 1,043 .97 324 0.30 1,367 1.27
Commercial real estate 6,737 6.30 906 0.85 7,643 7.15
------ ------- ------ ------- ------ -------
Total mortgage loans 93,727 87.59 12,300 11.50 106,027 99.09
Other loans:
Home improvement -- -- 277 0.26 277 0.26
Loans on savings accounts -- -- 283 0.26 283 0.26
Other 415 0.39 -- -- 415 0.39
------ ------- ------ ------- ------ -------
Total other loans 415 0.39 560 0.52 975 .91
------ ------- ------ ------- ------ -------
Total gross loans $94,142 87.98% $12,860 12.02% $107,002 100.00%
(1) Includes both purchased whole loans and loan participations.
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<TABLE>
The following table sets forth the composition of the Association's mortgage and other loan portfolios and
mortgage-backed securities portfolio in dollar amounts and in percentages at the dates indicated.
At June 30,
1996 1995 1994 1993 1992
Percent of Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars In Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family $97,017 90.67% $92,731 88.01% $80,055 85.67% $62,576 88.32% $63,710 90.18%
Multi-family 1,367 1.27 4,401 4.18 4,708 5.04 2,728 3.85 1,895 2.68
Commercial real estate 7,643 7.15 7,102 6.74 7,411 7.93 4,238 5.98 4,413 6.25
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total mortgage loans 106,027 99.09 104,234 98.93 92,174 98.64 69,542 98.15 70,018 99.11
Other loans:
Home improvement 277 0.26 378 0.36 406 0.43 263 0.37 229 0.32
Loans on savings accounts 283 0.26 289 0.27 363 0.39 390 0.55 336 0.48
Other loans -- FHA
Non-mortgage 415 0.39 459 0.44 502 0.54 661 0.93 61 0.09
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total other loans 975 .91 1,126 1.07 1,271 1.36 1,314 1.85 626 0.89
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total loans receivable $107,002 100.00% $105,360 100.00% $93,445 100.00% $70,856 100.00% $70,644 100.00%
Add:
Premium on purchased loans $ 8 $ 9 $ 11 $ 14 $ --
Deferred loan costs 26 31 29 17 --
Less:
Loans in process 16 165 111 -- --
Unearned discounts, premiums
and deferred loan fees, net -- -- -- 5 7
Allowance for loan losses 535 535 425 350 100
------ ------ ------ ------ ------
Loans receivable, Net $106,485 $104,700 $92,949 $70,532 $70,537
Mortgage-backed securities, net:
FHLMC $ 1,220 1.72% $ 1,470 2.11% $ 1,798 12.21% $ 2,925 16.90% $ 3,917 41.91%
FHLMC ARM 335 .47 507 .73 658 4.47 1,085 6.26 1,474 15.77
FNMA/GNMA ARM 19,529 27.46 25,062 36.07 600 4.08 761 4.40 970 10.38
FNMA/FHLMC REMIC 50,546 71.06 43,224 62.21 12,130 82.39 12,513 72.29 2,980 31.88
Total mortgage-backed ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
securities 71,630 100.71 70,263 101.12 15,186 103.15 17,284 99.85 9,341 99.94
Net premiums and
discounts (779) (1.10) (1,044) (1.50) 3 0.02 26 .15 6 0.06
SFAS #115 Adjustment
to Fair Value 278 .39 263 .38 (467) (3.17)
Net mortgage-backed ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
securities $71,129 100.00% $69,482 100.00% $14,722 100.00% $17,310 100.00% $9,347 100.00%
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The following table sets forth the Association's mortgage loan purchases and
originations, other loans and mortgage-backed securities purchased, sales and
principal repayments for the periods indicated:
Year ended June 30,
1996 1995 1994
------ ------ ------
(in thousands)
Mortgage loans (gross):
At beginning of period $104,234 $ 92,174 $ 69,542
Mortgage loans purchased: ------ ------ ------
One-to four-family 14,872 22,076 32,263
Multi-family -- -- --
Commercial real estate 1,631 -- 3,628
------ ------ ------
Total mortgage loans purchased 16,503 22,076 35,891
Mortgage loans originated:
One-to four-family 978 2,007 2,723
Multi-family -- -- --
Commercial real estate -- -- 67
------ ------ ------
Total mortgage loans originated 978 2,007 2,790
------ ------ ------
Total mortgage loans purchased and originated 17,481 24,083 38,681
Transfer of mortgage loans to foreclosed REO 103 49 10
Principal repayments 15,585 12,072 16,039
------ ------ ------
At end of period $106,027 $104,234 $ 92,174
Other loans:
At beginning of period $ 1,126 $ 1,271 $ 1,314
Other loans originated 307 425 560
Other loans purchased -- -- --
Principal repayments (458) (570) (603)
------ ------ ------
At end of period $ 975 $ 1,126 $ 1,271
Mortgage-backed securities:
At beginning of period $ 69,482 $ 14,722 $ 17,310
Mortgage-backed securities purchased 11,023 55,041 8,494
Mortgage-backed securities sold (3,501) -- --
Amortization and repayments (5,890) (1,011) (10,615)
SFAS #115 Adjustment to Fair Value 15 730 (467)
------ ------ ------
At end of period $ 71,129 $ 69,482 $ 14,722
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Loan and Mortgage-backed Securities by Contractual Maturity
<TABLE>
The following table shows the maturity of the Association's loan and mortgage-backed securities
portfolios at June 30, 1996. The table does not include prepayments or scheduled principal amortization.
Prepayments and scheduled principal amortization on loans and mortgage-backed securities totalled $21.9
million, $13.7 million, and $27.3 million for the years ended June 30, 1996, 1995 and 1994, respectively.
At June 30, 1996
Mortgage Loans Totals
------------------------------------ ------------------------------------------
(In Thousands)
Total Mortgage-
One-to- Multi- Commercial Other Loans Backed
Four-Family Family Real Estate Loans Receivable Securities Total
----------- ------ ----------- ----- ---------- ---------- -------
Amounts due:
<S> <C> <C> <C> <C> <C> <C> <C>
Within 1 year $ 12 $ 7 $ -- $ 294 $ 313 $ -- $ 313
After 1 year:
1 to 3 years 448 -- -- 27 475 122 597
3 to 5 years 840 -- 43 182 1,065 -- 1,065
5 to 10 years 5,241 89 36 462 5,828 280 6,108
10 to 20 years 61,647 1,271 6,375 10 69,303 1,756 71,059
over 20 years 28,829 -- 1,189 -- 30,018 68,971 98,989
----------- ------ ----------- ----- ---------- ---------- -------
Total due after 1 year 97,005 1,360 7,643 681 106,689 71,129 177,818
----------- ------ ----------- ----- ---------- ---------- -------
Total amounts due 97,017 1,367 7,643 975 107,002 71,129 178,131
Loans in process (16) -- -- -- (16) -- (16)
Unearned deferred loan fees 26 -- -- -- 26 -- 26
Allowance for loan losses (485) (7) (38) (5) (535) -- (535)
Premiums on purchased loans -- -- -- 8 8 -- 8
Loans receivable and
mortgage-backed ----------- ------ ----------- ----- ---------- ---------- -------
securities, net $ 96,542 $ 1,360 $ 7,605 $ 978 $ 106,485 $ 71,129 $177,614
</TABLE>
The following table sets forth at June 30, 1996, the dollar amount of all
loans and mortgage-backed securities due after June 30, 1997, and whether such
loans have fixed interest rates or adjustable interest rates.
Due after June 30, 1997
Fixed Adjustable Total
(in thousands)
------- ---------- -------
Mortgage loans:
One-to four-family $10,169 $86,811 $96,980
Multi-family 250 1,118 1,368
Commercial real estate 3,554 4,504 8,058
Other loans 283 -- 283
------- ---------- -------
Total loans receivable 14,256 92,433 106,689
Mortgage-backed securities 1,220 69,909 71,129
Total loans receivable and ------- ---------- --------
mortgage-backed securities $ 15,476 $162,342 $177,818
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Purchased Loans. Due to low loan demand in its primary market area, the
Association has historically purchased a significant amount of mortgage
loans, substantially all of which have been ARM loans, including one- to four-
family, commercial real estate and multi-family. The Association purchases
both whole mortgage loans, and to a lesser extent, participation interests of
less than 100 percent from selected mortgage banking companies and financial
institutions. At June 30, 1996, purchased mortgage loans totalled $94.1
million, or 87.9%, of the gross loan portfolio. Approximately $90.0 million
or 95% of the loans purchased by the Association are from thrift institutions
located in Fulton and Columbia, Missouri and a mortgage banking company
located in Columbia, Boone County, Missouri. The Association has done
business with these institutions for over ten years. Substantially all of the
purchased loans are first mortgage loans and are secured by one- to four-
family residential properties consisting of single family homes. The
Association has occasionally purchased commercial real estate loans. The
Association does not issue forward commitments to purchase loans.
The vast majority of one- to four-family residential mortgage loans
purchased by the Association are secured by properties that serve as the
primary residence of the borrower. As part of management's strategy to reduce
the Association's vulnerability to interest rate risk, substantially all of
the loans purchased have been ARM loans. Although the terms of the purchased
ARM loans vary, all provide for qualification of the borrowers at the fully
indexed rate. The Association does not purchase delinquent loans or any loan
that has ever shown a history of late mortgage payments.
One- to Four-Family Mortgage Lending. The Association's primary lending
activity is the purchase and origination of first mortgage loans secured by
one- to four-family residences. Typically, such residences are single-family
homes that serve as the primary residence of the owner. The Association
generally purchases and originates one- to four-family residential mortgage
loans in amounts up to 95% of the lesser of the appraised value or selling
price of the mortgaged property. Loans purchased or originated in amounts
over 80% of the lesser of the appraised value or selling price of the
mortgaged property, other than loans to facilitate the sale of real estate
acquired through foreclosure, must be owner-occupied and private mortgage
insurance must be provided by the borrower on the amount in excess of
80%. The Association had 37 one- to four-family loans with principal balances
that exceeded $250,000 at June 30, 1996. The largest of such loans had an
outstanding balance of $1.0 million. All such loans are current.
At June 30, 1996, the purchased one- to four-family loans were being
serviced by approximately 15 companies. Substantially all of these loans are
being serviced by two servicers who service approximately $90.0 million or
approximately 95% of Macon's purchased loans. Servicers generally receive
a fee of 25 to 38 basis points on all loans serviced. The Association has
experienced low levels of delinquencies and losses from its purchased one- to
four-family mortgage loans. At June 30, 1996, loans totalling $663,000, or
.60% of the Association's portfolio were 90 days or more delinquent.
Loan originations are generally obtained from existing or past customers,
members of the local community, and realtors within the Association's lending
area. The Association offers both fixed-rate and ARM loans. Mortgage loans
originated and held by the Association in its portfolio generally include due-
on-sale clauses which provide the Association with the contractual right to
deem the loan immediately due and payable in the event that the borrower
transfers ownership of the property without the Association's consent.
The Association offers fixed-rate mortgage loans with a 15-year and
20-year term that are underwritten by the Association on terms consistent with
prevailing secondary mortgage market standards. The Association's current
policy is to retain such loans in its portfolio.
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At June 30, 1996, 90.7% of total loans consisted of one- to four-family
residential loans, of which 92.8% were ARM loans. Borrower demand for ARMs
versus fixed-rate mortgage loans is a function of the level of interest rates,
the expectations of changes in the level of interest rates and the difference
between the interest rates and loan fees offered for fixed-rate mortgage loans
and loan fees for ARMs. The relative amount of fixed-rate mortgage loans and
ARMs that can be originated at any time is largely determined by the demand
for each in a competitive environment. The Association currently offers ARM
loans, which adjust annually. The Association's ARM loans may carry an
initial interest rate which is slightly less than the fully-indexed rate for
the loan. The initial discounted rate is determined by the Association in
accordance with market and competitive factors. The ARM loans currently being
purchased and originated by the Association adjust by a maximum of 1% to 2%
per adjustment and have a lifetime cap of 4% to 6% over the initial interest
rate. ARM loans are originated for a term of up to 30 years.
Commercial Real Estate/Multi-Family Lending. The Association also
purchases and originates loans secured by commercial real estate and
multi-family dwelling units (more than four units) primarily secured by
apartments and professional office buildings. At June 30, 1996, $9.01 million
of the Association's total loan portfolio was invested in loans, secured by
commercial real estate and multi-family dwelling units, located primarily in
central Missouri. Multi-family real estate loans are generally originated at
80% or less of the appraised value of the property or selling price, whichever
is less, and are generally originated on an adjustable rate basis for one to
three year terms with the principal amortized on a basis of up to 25 years.
The commercial real estate and multi-family ARM loans currently being
purchased and originated by the Association adjust, by a maximum of 1% to 2%,
per adjustment and have a lifetime cap of 4% to 6% over the initial interest
rate.
The Association originates permanent loans on commercial real estate up
to 80% of the appraised value. These loans generally have repayment schedules
based upon a 10 to 25 year constant payment amortization and are currently
originated with an interest rate that floats and is indexed to the Eleventh
District FHLB Cost of Funds.
Of primary concern in commercial real estate and multi-family lending is
the feasibility and cash flow potential of the project and the borrower's
creditworthiness. Loans secured by income properties are generally larger and
involve greater risks than one- to four- family residential mortgage loans
because payments on loans secured by income properties are often dependent on
successful operation or management of the properties. As a result, repayment
of such loans may be subject to a greater extent than one- to four-family real
estate loans to adverse conditions in the real estate market or the economy.
Consumer and Other Loans. The Association also offers consumer loans to
existing customers in the form of share loans, home improvement loans and
automobile loans. These loans totalled $.56 million or .52% of total loans
receivable at June 30, 1996. Federal regulations permit savings associations
to make secured and unsecured loans up to 35% of an institution's assets. In
addition, a savings association has lending authority above the 35% category
for certain consumer loans, such as home equity loans, property improvement
loans, and loans secured by savings accounts.
In connection with consumer loan applications, the Association receives
the borrower's income statement and reviews a credit bureau report. In
addition, the relationship of the loan to the value of the collateral is
considered. All automobile loan applications are reviewed and approved by the
Association's President. The Association reviews the credit report of the
borrower as well as the value of the unit which secured the loan.
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Under state and federal regulations, savings associations are permitted
to make secured or unsecured loans for commercial, corporate, business or
agricultural purposes, including the issuance of letters of credit secured by
real estate, business equipment, inventories, accounts receivable and cash
equivalents. The aggregate amount of such loans outstanding may not exceed
15% of such institution's assets. The Association does not make unsecured
commercial loans unless they are government insured.
Loan Approval Authority and Underwriting. All mortgage loans purchased
and originated by the Association must have the approval of the Executive
Committee. The Executive Committee meets as needed. One- to four-family
residential mortgage loans are generally underwritten according to the
Association's written loan underwriting guidelines. For all loans originated
by the Association, upon receipt of a completed loan application from a
prospective borrower, a credit report is ordered, income and certain other
information is verified and, if necessary, additional financial information is
requested. An appraisal of the real estate intended to secure the proposed
loan is required which currently is performed by an independent appraiser
designated and approved by the Association. It is the Association's policy to
obtain abstracts certified by licensed abstract officers and title companies
or title insurance on all real estate first mortgage loans. Borrowers must
also obtain hazard and flood insurance (for loans on property located in a
flood zone) prior to closing the loan. For all loans, borrowers are required
to advance funds on a monthly basis together with each payment of principal
and interest to an escrow account from which the Association makes
disbursements for items such as real estate taxes and hazard insurance
premiums. For other loans, the escrow of such funds is at the borrower's
option.
The Association uses the same underwriting standards for loans it
purchases as loans it originates. The Association generally requires income
and deposit verification of each borrower at the time of origination of the
loan. All loans must be documented, including an appraisal that substantiates
the value of the subject property at the time of origination of the loan.
Agreements to purchase loans include provisions allowing the Association to
review all documentation to ensure compliance with the Association's
underwriting standards and the right to inspect or appraise the properties
within 90 to 120 days after purchase and to put back to the seller or
substitute loans that do not comply with the Association's underwriting
standards. In addition, the Association or its custodian obtains the original
signed promissory notes after endorsement to the Association and currently
requires that each mortgage or deed of trust be assigned to the Association.
Furthermore, the Association generally has the right to sell a purchased loan
back to the seller for a period of six months to one year, depending on which
company the loan was purchased from, as a result of any material misstatement
of the seller or breach by the seller of any material warranty regarding the
loan. The servicing agreement generally provides that the Association may
terminate the servicing agreement if (i) the seller-servicer, in the sole
opinion of the Association, fails to perform its obligations under the
agreement; (ii) the seller-servicer becomes insolvent or bankrupt or is placed
in conservatorship or receivership; or (iii) the seller-servicer assigns or
attempts to assign its rights and obligations under the agreement, without
written consent of the Association. The Board of Directors ratifies all loans
and participations approved by the Executive Committee.
Mortgage-Backed Securities. The Company also invests in mortgage-backed
and related securities. At June 30, 1996, net mortgage-backed and related
securities aggregated $71.1 million, or 35.38% of total assets of which $69.9
million were adjustable-rate and $1.2 million were fixed-rate. All securities
in the mortgage-backed and related securities portfolio at June 30, 1996, were
insured or guaranteed by either the FNMA, GNMA or the FHLMC. All of the
mortgage-backed and related securities in the portfolio have coupon rates as
of June 30, 1996 ranging from 5.87% to 9.01% with a weighted average yield of
6.78% at June 30, 1996. At June 30, 1995, mortgage-backed securities totalled
$69.5 million or 35.22% of total assets.
Mortgage related securities at June 30, 1996, consisted of Real Estate
Mortgage Investment Conduits ("REMICs"). REMICs are securities derived by
reallocating cash flows from mortgage pass-through securities or from pools
of mortgage loans held by a trust. At June 30, 1996, the Association owned
REMICs with an amortized cost of $49.8 million and a market value of $49.8
million and a weighted average yield of 6.70%. The REMICs that the
Association owned at June 30, 1996 are long-term with an average estimated
life of ten to fourteen
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years and range in original principal amount from $.06 million to $5.3
million. Management considers REMIC investments to be advantageous since they
offer yields above those available for investments of comparable credit
quality and duration and qualify as thrift investments under the QTL Test.
Under OTS guidelines, certain REMICs are considered high risk because
principal payments are distributed on a lower priority basis to these tranches
(the support tranches) of the REMICs than the higher priority, planned
amortization tranches. In addition, the actual terms to maturity of the
support tranches may be more volatile than those of standard mortgage
securities. The REMICs acquired by the Association are not interest only or
principal only or residual interests. The Association has limited REMIC
purchases to those that are adjustable rate and not classified as high risk
under the Federal Financial Institutions Examination Counsel high-risk test.
Therefore, the Association believes that the risk associated with the REMICs
in its portfolio is significantly reduced.
Non-Performing and Problem Assets
Collection Procedures. With respect to originated mortgage loans, the
Association's collection procedures include sending a past due notice after 10
days and a late notice after payment is 30 days past due. In the event that
payment is not received, letters are sent or phone calls are made to the
borrower. When contact is made with the borrower at any time prior to
foreclosure, the Association will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. Generally,
foreclosure notices are sent when a loan is over 60 days delinquent.
The Association had $94.1 million in purchased loans and participations
at June 30, 1996. The sellers retained servicing on substantially all of such
purchased loans. The Association has no recourse against the seller on whole
mortgage loans and loan participations purchased. The Association receives
monthly reports from the loan servicers which it uses to closely monitor its
purchased mortgage loan and loan participation portfolio. On purchased loans,
the Association uses the servicer to commence foreclosure proceedings.
The collection procedures are similar to those for the Association's own
loans except that the first late notice is sent when the loan becomes 15 days
delinquent.
Uncollectible interest on loans that are contractually past due 90 days
or more is charged off or an allowance is established based on management's
periodic evaluation unless the obligation is well secured and in the process
of collection. The allowance is established by a charge to interest income
equal to all interest previously accrued.
Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality as "substandard", "doubtful" or "loss" assets. An
asset is considered "substandard" if it is inadequately protected by the
paying capacity and net worth of the obligor or the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of
the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full" "highly questionable and improbable," on the basis of currently existing
facts, conditions, and values. Assets classified as "loss" are those
considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not
warranted. Assets which do not currently expose the insured institution to a
sufficient degree of risk to warrant classification in one of the
aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated "special mention" by management.
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for
losses in an amount deemed prudent by management. General allowances
represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
insured institution
10
<PAGE>
<PAGE>
classifies problem assets as "loss", it is required to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount. The Association regularly reviews the assets in
its portfolio to determine whether any assets require
classification in accordance with applicable regulations.
As of June 30, 1996, the Association had total classified assets of
$1,375,938 of which $822,423 were classified as substandard and $408,080 were
classified as doubtful. Special mention assets totalled $145,435 at June 30,
1996.
11
<PAGE>
<PAGE>
Delinquent Loans.
<TABLE>
At June 30, 1996, 1995 and 1994, delinquent loans in the Association's portfolio were as follows:
At June 30, 1996 At June 30, 1995
60-90 Days 90 Days or More 60-90 Days 90 Days or More
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family 6 $ 122 13 $ 663 11 $ 299 7 $ 424
Multi-family -- -- -- -- -- -- -- --
Commercial real estate -- -- -- -- -- -- -- --
----- -------- ----- -------- ----- -------- ----- --------
Total mortgage loans 6 $ 122 13 $ 663 11 $ 299 7 $ 424
Delinquent loans to
total gross loans 0.11% 0.62% 0.28% 0.40%
</TABLE>
At June 30, 1994
60-90 Days 90 Days or More
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
----- -------- ----- --------
One- to four-family 15 $ 366 5 $ 229
Multi-family -- -- -- --
Commercial real estate -- -- -- --
----- -------- ----- --------
Total mortgage loans 15 $ 366 5 $ 229
Delinquent loans to total gross loans 0.39% 0.25%
Non-Performing Assets. The following table sets forth information regarding
delinquent loans and real estate owned by the Association at the dates
indicated. At June 30, 1996, the Association had no restructured loans within
the meaning of FASB Statement 15.
At June 30,
1996 1995 1994
------ ------ ------
(Dollars in thousands)
[S] [C] [C] [C]
Non-accrual mortgage loans $ 663 $ 424 $ 229
Non-accrual other loans -- -- --
Total non-performing loans 663 424 229
Total foreclosed real estate,
net of related reserves 23 -- 3
------ ------ ------
Total non-performing assets (1) $ 686 $ 424 $ 232
Non-performing loans to total loans 0.62% 0.41% 0.25%
Total non-performing assets to total assets 0.34% 0.22% 0.18%
(1) All non-performing assets at June 30, 1996 were included in classified
assets at that date.
12
<PAGE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS.
The Association provides valuation allowances for estimated losses from
uncollectible loans. Management's periodic evaluation of the adequacy of the
allowance for loan losses is based on loss experience, known and inherent risk
in the portfolio, prevailing market conditions, and management's judgement as
to their collectibility. The allowance for loan losses is increased by
charges to earnings and decreased by charge-offs (net of recoveries).
The following table sets forth the Association's allowance for loan losses at
the dates indicated:
At or For the Year
Ended June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
------ ------ ------ ------ ------
Balance at beginning of period $ 535 $ 425 $ 350 $ 100 $ 100
Provision for loan losses -- 115 75 250 --
Charge-offs -- (5) -- -- --
Recoveries -- -- -- -- --
Balance at end of period $ 535 $ 535 $ 425 $ 350 $ 100
Ratio of net charge-offs during
the period to average loans
outstanding during the period -- -- -- -- --
Ratio of allowance for loan losses
to non-performing loans at
end of period 80.69% 126.16% 185.39% 87.94% 24.21%
Ratio of allowance for loan losses
to total non-performing assets at
the end of period 77.99% 126.16% 183.39% 87.94% 22.42%
Ratio of allowance for loan losses
to total loans receivable at
the end of period 0.50% 0.51% 0.46% 0.50% 0.14%
13
<PAGE>
<PAGE>
The following table sets forth the Association's general allowance for
loan losses by type of loan for the period indicated.
At June 30,
1996 1995
Percentage Percentage
of loans in of loans in
Category to Category to
Total Total
Outstanding Outstanding
Amount Loans Amount Loans
------ ------ ------ ------
(Dollars in thousands)
General Allowances Allocated to:
Mortgage loans:
One- to four-family $ 485 90.65% $ 470 87.85%
Multi-family 7 1.31 23 4.30
Commercial real estate 38 7.11 37 6.92
Other loans:
Home improvement 2 0.37 2 0.37
Loans on savings -- -- -- --
Consumer 3 0.56 3 0.56
------ ------ ------ ------
Total general allowances $ 535 100.00% $ 535 100.00%
14
<PAGE>
<PAGE>
Investment Activities
The investment policy of the Association, which is established by the
Board of Directors and implemented by the Asset/Liability Committee, is
designed primarily to provide and maintain liquidity, to generate a favorable
return on investments without incurring undue interest rate and credit risk,
and to complement the Association's lending activities. Investments generally
are made with the intent to hold them to maturity. Savings institutions have
the authority to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain
bankers acceptances, repurchase agreements and loans on federal funds.
Subject to various restrictions, savings institutions may also invest a
portion of their assets in commercial paper, corporate debt securities and
asset-backed securities. At June 30, 1996, the Association had investment
securities with a fair value of $92.6 million as shown in the following table.
15
<PAGE>
<PAGE>
INVESTMENT ACTIVITIES:
The following table sets forth certain information regarding the amortized
cost and fair values of the Company's investment
securities portfolio at the dates indicated.
At June 30,
1996 1995 1994
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------ ----- ------ ----- ------ -----
(In thousands)
Interest-earning deposits:
FHLB daily time $ 4,100 $4,100 $ 1,500 $1,500 $ -- $ --
FHLB demand deposit 672 672 55 55 581 581
Certificates of deposit -- -- 99 99 2,853 2,853
Passbook Savings 39 39 736 736 165 165
------ ----- ------ ----- ------ -----
Total interest-earning
deposits 4,811 4,811 2,390 2,390 3,599 3,599
Investment securities:
U.S. Government and
federal agency
obligations 12,471 12,437 14,553 14,604 15,463 15,294
FHLB Stock 4,256 4,256 4,091 4,091 1,024 1,024
Mortgage-backed
securities 70,852 71,129 69,219 69,482 15,189 14,722
------ ----- ------ ----- ------ -----
Total $92,390 $92,633 $90,253 $90,567 $35,275 $34,639
16
<PAGE>
<PAGE>
<TABLE>
The table below sets forth certain information regarding the carrying value, weighted average yields and
maturities of the Company's investment securities at June 30, 1996.
At June 30, 1996
After One After Five
One Year Through Through After Total Investment
or less Five Years 10 Years 10 Years Securities
----------------- ----------------- ----------------- ----------------- ---------------
Annualized Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Weighted Weighted
Fair Average Fair Average Fair Average Fair Average Fair Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. Government
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
obligations $4,518 6.430% $5,422 5.670% $ -- $ -- $ -- $ -- $9,940 6.020%
FNMA Note 505 7.660% -- -- -- -- 505 7.660%
FHLB Debentures 997 6.409% 995 5.750% -- -- -- -- 1,992 6.079%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total $6,020 6.530% $6,417 5.682% $ -- $ -- $ -- $ -- $12,437 6.096%
17
</TABLE>
PAGE
<PAGE>
<TABLE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's consolidated statement of
financial condition at June 30, 1996, 1995 and 1994 and reflects the average yield on assets and average
cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from monthly balances. Management does not believe that the use of month-end balances
instead of average daily balances has caused any material difference in the information presented. The
yields and costs include fees which are considered adjustments to yields. Average balances include
nonaccruing loans.
Year Ended June 30,
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $104,044 $7,322 7.04% $101,913 $7,039 6.91% $ 78,929 $ 5,852 7.41%
Interest-earning
deposits 6,340 270 4.26 2,172 85 3.91 9,559 398 4.16
Investment securities
and FHLB stock 16,615 1,040 6.26 17,442 896 5.14 15,456 679 4.39
Mortgage-backed
securities 69,328 4,768 6.88 43,713 3,170 7.25 16,605 878 5.29
Total interest-earning
assets 196,327 13,400 6.83 165,240 11,190 6.77 120,549 7,807 6.48
Non-interest earning
assets 2,127 2,028 3,000
------- ------- -------
Total assets $198,454 $167,268 $123,549
Liabilities:
Interest-bearing liabilities:
Passbook accounts $ 7,506 $ 244 3.25 $ 8,731 $ 259 2.97 $ 11,018 $ 317 2.88
Certificates and money
market 78,522 4,434 5.65 78,063 3,816 4.89 77,938 3,601 4.62
FHLB Advances 81,025 4,911 6.06 50,536 3,145 6.22 3,200 179 5.59
Total Interest-bearing
liabilities 167,053 9,589 5.74 137,330 7,220 5.26 92,156 4,097 4.45
Non-interest bearing
liabilities 2,661 1,366 1,112
------- ------- -------
Total liabilities 169,714 138,696 93,268
Stockholders' equity 28,740 28,572 30,281
------- ------- -------
Total liabilities and
Stockholders' Equity $198,454 $167,268 $123,549
Net interest income/interest
rate spread (1) $3,811 1.09% $3,970 1.51% $ 3,710 2.03%
Net interest margin/net
earning assets (2) 1.94% 2.40% 3.08%
Ratio of interest-earning
assets to interest-bearing
liabilities 117.52% 120.32% 130.81%
1) Interest rate spread represents the difference between the average on interest-earning assets and the
average cost of interest-bearing liabilities.
2) Net interest margin represents net income before the provision for loan losses divided by average
interest-earning assets.
18
</TABLE>
<PAGE>
<PAGE>
Sources of Funds
The Association's primary sources of funds are deposits, repayments on loans
and mortgage-backed and related securities. The Association offers a variety
of deposit accounts having a range of interest rates and terms. The
Association's deposits principally consist of fixed-term certificates, regular
passbook accounts, and IRAs. The Association does not offer transaction
accounts. The flow of deposits is influenced significantly by general
economic conditions, the restructuring of the thrift industry, changes in
money market and other prevailing interest rates and competition. The
Association's deposits are typically obtained from the area in which its
offices are located. The Association relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits. The Association has no brokered deposits.
The Association seeks to maintain a high level of stable core deposits by
advertising. The volume of passbook accounts has been increasing because of
the low interest rate environment. When pricing deposits, consideration is
given to local competition, the Association's gap position, U.S. Treasury
rates and the need for funds. Management's strategy is to price at or just
below the median competition, contingent upon the need for funds, and to
stratify the pricing system to attract deposits and maintain a
controlled gap position. At the present time, in order to manage its gap
position, the Association has offered a more attractive rate on longer term
certificates of deposit.
The following table presents the deposit activity of the Association for the
periods indicated.
Year Ended June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Deposits . . . . . . . . . . $ 9,691 $ 9,915 $16,939
Withdrawals. . . . . . . . . 11,057 15,677 22,268
Withdrawals in excess of
deposits . . . . . . . . . (1,366) (5,762) (5,329)
Interest credited on deposits 2,920 2,544 2,433
Total increase/(decrease) ------ ------ ------
in deposits . . . . . . . $ 1,554 $(3,218) $(2,896)
At June 30, 1996, the Association had deposit accounts in the amounts of
$100,000 or more maturing as follows:
One month through three months . . . . . $ 300
Three through six months . . . . . . . . 847
Six through 12 months. . . . . . . . . . 1,634
Over 12 months . . . . . . . . . . . . . 1,051
------
Total. . . . . . . . . . . . . . . . . $ 3,832
19
PAGE
<PAGE>
<TABLE>
The following table sets forth the distribution of the Association's deposit accounts based on original
maturity at the dates indicated and the weighted average interest rates on each category of deposits
presented. Management does not believe that the use of period end balances instead of average daily balance
resulted in any difference in the information presented.
At June 30,
1996 1995 1994
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ----- ------ -------- ----- ------ -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 7,575 8.74% 3.00% $ 7,816 9.18% 3.00% $ 9,987 11.30% 2.90%
Money market accounts -- -- -- -- -- -- -- -- --
Certificate accounts:
Within one year 47,923 55.26 5.53 42,705 50.14 5.31 11,565 13.08 3.42
One year to three
years 22,056 25.43 5.89 25,952 30.47 5.69 50,799 57.48 4.50
Over three years 3,233 3.73 6.21 3,207 3.76 6.56 10,452 11.83 5.94
Individual retirement
accounts 5,929 6.84 5.93 5,482 6.44 5.63 5,577 6.31 4.55
------ -------- ----- ------ -------- ----- ------ -------- -----
Total Certificates 79,141 91.26 77,346 90.82 78,393 88.70
------ -------- ----- ------ -------- ----- ------ -------- -----
Total deposits $86,716 100.00% $85,162 100.00% $88,380 100.00 %
20
</TABLE>
PAGE
<PAGE>
<TABLE>
The following table presents, by various rate categories, the amount of certificate accounts outstanding at
June 30, 1996, 1995 and 1994 and the periods to maturity of the certificate accounts at June 30, 1996.
Period to Maturity from
At June 30, June 30, 1996
-------------------------- -----------------------------------------------
Within Two to
1996 1995 1994 One Year Three Years Thereafter Total
------ ------ ------ -------- ----------- ---------- -----
(in thousands)
Certificate accounts:
<S> <C> <C> <C> <C> <C> <C> <C>
0.00% to 2.99% $ -- $ -- $ -- $ -- $ -- $ -- $ --
3.00% to 3.99% 2 3,650 30,343 -- -- 2 2
4.00% to 4.99% 5,363 15,078 22,814 4,151 1,212 -- 5,363
5.00% to 5.99% 51,732 27,141 14,861 35,779 13,484 2,469 51,732
6.00% to 6.99% 20,303 28,260 2,210 10,412 9,564 327 20,303
7.00% to 7.99% 1,730 3,158 7,747 404 82 1,243 1,729
8.00% to 8.99% 11 59 418 11 -- 1 12
9.00% to 9.99% -- -- -- -- -- -- --
------ ------ ------ -------- ----------- ---------- -----
Total $79,141 $77,346 $78,393 $ 50,757 $ 24,342 $ 4,042 $79,141
21
</TABLE>
<PAGE>
<PAGE>
Borrowings
Deposits are the Association's primary source of funds. The
Association's policy has been to utilize borrowings only when necessary and
when they are a less costly source of funds or can be invested at a positive
rate of return. The Association may obtain advances from the FHLB-Des Moines
upon the security of its capital stock of the FHLB-Des Moines and certain of
its mortgage loans. The Association traditionally has not utilized FHLB-Des
Moines advances; however, at June 30, 1996, the Association had $85.1 million
outstanding advances from the FHLB-Des Moines.
Subsidiary Activities
MBL Financial Services. The Association has one wholly-owned subsidiary,
MBL Financial Services ("MBL") which was formed to offer various financial
services to its customers. MBL is engaged in offering credit life insurance,
discount brokerage services, mutual funds, unit investment trusts, and other
related securities. At June 30, 1996, MBL had total assets of $10,105.
Competition
The Association's competition for loans comes principally from savings
and loan associations, mortgage banking companies, and commercial banks. Its
most direct competition for deposits has historically come from commercial
banks and credit unions. The Association faces additional competition for
deposits from short-term money market funds and other corporate and government
securities funds. The Association also faces increased competition from other
financial institutions such as brokerage firms. Competition may also increase
as a result of the lifting of restrictions on the interstate operations of
financial institutions.
The Association is a community-oriented financial institution serving its
market area with a wide selection of residential loans and retail financial
services. Management considers the Association's reputation for financial
strength and customer service as its major competitive advantage in attracting
and retaining customers in its market area. The Association also believes it
benefits from its community orientation as well as its relatively high core
deposit base.
Personnel
As of June 30, 1996, the Association had 11 full-time employees and 2
part-time employees. The employees are not represented by a collective
bargaining unit, and the Association considers its relationship with its
employees to be excellent.
22
PAGE
<PAGE>
<TABLE>
Rate/Volume Analysis
The following table presents the extent of which changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities have affected the Association's interest income and
interest expense during the periods indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes
attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been allocated proportionately to the
changes due to volume and changes due to rate.
Year ended June 30, 1995 Year ended June 30, 1994 Year ended June 30, 1993
Compared to Compared to Compared to
Year ended June 30, 1996 Year ended June 30, 1995 Year ended June 30, 1994
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
Volume Rate Net Volume Rate Net Volume Rate Net
------ ------ ------ ------ ------ ------ ------ ------ ------
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net $ 149 $ 134 $ 283 $1,605 $ (418) $1,187 $ 710 $ (758) $ (48)
Mortgage-backed securities 1,768 (170) 1,598 1,869 424 2,293 208 (117) 91
Interest-earning deposits 176 9 185 (290) (23) (313) (124) (3) (127)
Investment securities (44) 188 144 93 124 217 88 (169) (81)
Total interest-earning ------ ------ ------ ------ ------ ------ ------ ------ ------
assets $2,049 $ 161 $2,210 $3,277 $ 107 $3,384 $ 882 $(1,047) $ (165)
Interest-bearing liabilities:
Deposits $ (36) $ 639 $ 603 $ (99) $ 256 $ 157 $ 287 $ (697) $ (984)
FHLB Advances 1,849 (83) 1,766 2,944 23 2,967 178 -- 178
Total interest-bearing ------ ------ ------ ------ ------ ------ ------ ------ ------
liabilities $1,813 $ 556 $2,369 $2,845 $ 279 $ 3,124 $ (109) $ (697) $ (806)
Net change in interest ------ ------ ------ ------ ------ ------ ------ ------ ------
income $ 236 $ (395) $ (159) $ 432 $ (172) $ 260 $ 991 $ (350) $ 641
23
</TABLE>
<PAGE>
<PAGE>
REGULATION
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Association. As of June 1, 1995, the
Association became a federally chartered stock savings association.
Therefore, the following discussion relates to the regulation of a federally
chartered savings association. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings association subsidiaries, should such
subsidiaries be formed, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Association and not for the benefit of
stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions,
provided the Association satisfies the Qualified Thrift Lender ("QTL") test.
If the Company acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company, and
the activities of the Company and any of its subsidiaries (other than the
Association or any other SAIF-insured savings association) would become
subject to restrictions applicable to bank holding companies unless such other
associations each also qualify as a QTL and were acquired in a supervisory
acquisition. See "-- Regulation of the Association -- Qualified Thrift Lender
Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one
state. However, such interstate acquisitions are permitted based on specific
state authorization or in a supervisory acquisition of a failing savings
association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may
acquire "control," as that term is defined in OTS regulations, of a federally
insured savings institution without giving at least 60 days written notice to
the OTS and providing the OTS an opportunity to disapprove the proposed
acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity
of the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
Subject to appropriate regulatory approvals, a bank holding company can
acquire control of a savings association, and if it controls a savings
association, merge or consolidate the assets and liabilities of the savings
association with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. Generally, federal savings
associations can acquire or be acquired by any insured depository
institution.
Federal Securities Law. The Company is subject to filing and reporting
requirements by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, company stock held by persons
who are affiliates (generally officers, directors and principal stockholders)
of the Company may not be resold without registration or unless sold in
accordance with certain resale restrictions. If the Company meets
24
<PAGE>
<PAGE>
specified current public information requirements, each affiliate of the
Company is able to sell in the public market, without registration, a limited
number of shares in any three-month period.
Regulation of the Association
General. As a federally chartered savings association insured by the
Savings Association Insurance Fund ("SAIF"), the Association is subject to
extensive regulation by the OTS and the Federal Deposit Insurance Corporation
("FDIC"). Lending activities and other investments must comply with
various federal statutory and regulatory requirements. The Association is
also subject to certain reserve requirements promulgated by the Federal
Reserve Board. Prior to June 1, 1995, the Association was a state chartered
savings association subject to extensive regulation by the State Savings and
Loan Commission of the State of Missouri.
The OTS, in conjunction with the FDIC, regularly examines the Association
and prepares reports for the consideration of the Association's Board of
Directors on any deficiencies that are found in the Association's operations.
The Association's relationship with its depositors and borrowers is also
regulated to a great extent by federal and state law, especially in such
matters as the ownership of savings accounts and the form and content of the
Association's mortgage documents.
The Association must file reports with the OTS and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions
such as mergers with or acquisitions of other savings institutions. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the
protection of the SAIF and depositors. The regulatory structure also gives
the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulations, whether by the OTS, the FDIC, or the Congress could have a
material adverse impact on the Company, the Association, and their operations.
Insurance of Deposit Accounts. The Association's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). The FDIC has the authority, should it
initiate proceedings to terminate an institution's deposit insurance, to
suspend the insurance of any such institution without tangible capital.
However, if a savings association has positive capital when it includes
qualifying intangible assets, the FDIC cannot suspend deposit insurance unless
capital declines materially, the institution fails to enter into and remain in
compliance with an approved capital plan or the institution is operating in an
unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of the Association is unaware of any practice, condition or
violation that might lead to termination of its deposit insurance.
Currently, the Association pays an insurance premium to the FDIC equal to
0.23% of its total deposits. In August, 1995, the FDIC announced that it will
lower the insurance premium for members of the Bank Insurance Fund ("BIF").
This reduction in insurance premiums for BIF members could place SAIF members,
primarily savings associations such as the Association, at a material
competitive disadvantage to BIF members and, for the reasons set forth below,
could have a material adverse effect on the results of operations and
financial condition of the Association in future periods.
The disparity in insurance premiums between those required for the
Association and BIF members could allow BIF members to attract and retain
deposits at a lower effective cost than that possible for the Association and
put competitive pressure on the Association to raise its interest rates paid
on deposits thus increasing its cost
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of funds and possibly reducing net interest income. The resultant competitive
disadvantage could result in the Association losing deposits to BIF members
who have a lower cost of funds and are therefore able to pay higher rates of
interest on deposits. Although the Association has other sources of funds,
these other sources may have higher costs than those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity have recently been proposed by the U.S. Congress, federal
regulators, industry lobbyists, and the Executive Branch. One plan that has
gained support of several sponsors would require all SAIF member institutions,
including the Association, to pay a one-time fee of up to 85 basis points on
the amount of deposits held by the member institution to recapitalize the
SAIF. If this proposal is enacted by Congress, the effect would be to
immediately reduce the capital of the SAIF-member institutions by the amount
of the fee, and such amount would be immediately charged to earnings, unless
the institutions are permitted to amortize the expense of the fee over a
period of years. Management of the Association is unable to predict whether
this proposal or any similar proposal will be enacted or whether ongoing SAIF
premiums will be reduced to a level equal to that of BIF premiums.
Examination Fees. In addition to federal deposit insurance premiums,
savings institutions like the Association are required by OTS regulations to
pay assessments to the OTS to fund the operations of the OTS. The general
assessment is paid on a semi-annual basis and is computed based on total
assets of the institution, including subsidiaries. The Association's OTS
assessment expense for the fiscal year ended June 30, 1996 totalled
approximately $56,777.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to
1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at
least 3% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
("PMSRs") valued at the lower of the maximum percentage established by the OTS
or the amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock, and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying
intangible assets.
The OTS leverage ratio regulation establishes a core capital ratio of at
least 3% for those savings associations in the strongest financial and
managerial condition based on the "CAMEL" rating system currently in use by
the OTS. Those savings associations receiving a CAMEL rating of "1", the best
possible rating on a scale of 1 to 5, are required to maintain a ratio of core
capital to adjusted total assets of 3%. All other savings associations are
required to maintain minimum core capital of at least 4% of total adjusted
assets, with a maximum core capital ratio requirement 5%. In determining the
required minimum core capital ratio, the OTS will assess the quality of risk
management and the level of risk in each savings association on a case-by-case
basis. The OTS did not indicate in the proposed regulation the standards it
will use in establishing the appropriate core capital requirement for savings
associations not rated "1" under the CAMEL rating system.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8.0% of risk-weighted assets. The portion of the
allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings association must
calculate its risk-weighted assets by multiplying each asset and off-balance
sheet item by various risk factors as determined by the OTS, which range from
0% for cash to 100% for delinquent loans, property acquired through
foreclosure, commercial loans and other assets.
On August 31, 1993, the OTS issued a final rule effective January 1,
1994, which sets forth the methodology for calculating an interest rate risk
("IRR") component which is added to the risk-based capital requirements for
OTS regulated thrift institutions. Under the final rule, savings associations
with a greater than
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"normal" level of interest rate exposure will be subject to a deduction from
total capital for purposes of calculating their risk-based capital
requirement. For more information on the final rule, see "-- Net Portfolio
Value."
The final rule also adjusts the risk-weighting for certain mortgage
derivative securities. Mortgage pass-through securities that are issued or
guaranteed by government-sponsored agencies are currently placed in the 20
percent risk-weight category under the OTS risk-based capital rule. At
present, however, stripped mortgage-related securities (i.e., interest-only
and principal-only securities) and mortgage derivatives with "residual
characteristics" that are created from these securities are placed in the 100
percent risk-weight category even though they have the same degree of credit
risk as the securities from which they are derived. The reason these mortgage
derivatives are risk-weighted at 100 percent is not because of their credit
risk but because they generally exhibit more price risk, or interest rate
risk, than the mortgage pass-through securities from which they are derived.
The addition of an interest rate risk component to the OTS's risk-based
capital framework removes the need for this risk-weighting disparity.
Mortgage derivatives, with the exception of the residual classes of
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs), should now be placed in the same credit risk category as
the securities from which they are derived. Accordingly, the final rule
amends the risk-based capital rule to place all high-quality mortgage-
derivatives, except for CMO and REMIC residuals, in the 20 percent risk-weight
category.
In addition, pursuant to legislation, the OTS must revise the risk-based
capital regulations to include a credit risk component and a nontraditional
activities component, the purpose of which will be to increase the minimum
capital requirements for savings associations with higher credit risks.
Another proposed rule would, among other things, clarify the regulatory
capital treatment of sales with recourse and the treatment of maturing capital
instruments for purposes of the capital regulations. These rules, if
finalized, would result in deviations from the existing regulatory capital
rules. The Association believes that its surplus capital is sufficient to
meet the proposed requirements.
As shown below, the Association's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of June 30, 1996:
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Regulatory requirement . . . . $ 3,013 1.50%
Actual capital . . . . . . . . 25,962 12.92
------ ------
Excess . . . . . . . . . . . $ 22,949 11.42%
Core Capital:
Regulatory requirement . . . . $ 6,025 3.00%
Actual capital . . . . . . . . 25,962 12.94
------ ------
Excess. . . . . . . . . . . . $ 19,937 9.94%
Risk-Based Capital:
Regulatory requirement . . . . $ 5,648 8.00%
Actual capital . . . . . . . . 26,497 37.58
------ ------
Excess . . . . . . . . . . . $ 20,849 29.58%
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Net Portfolio Value. In recent years, the Association has measured its
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates
formerly provided by the OTS. However, the OTS now requires the computation
of amounts by which the net present value of an institution's cash flows from
assets, liabilities, and off balance sheet items (the institution's net
portfolio value, or "NPV") would change in the event of a range of assumed
changes in market interest rates. The OTS also requires the computation of
estimated changes in net interest income over a four-quarter period. These
computations estimate the effect of an institution's NPV and net interest
income of instantaneous and permanent 1% to 4% increases and decreases in
market interest rates. In the Association's interest rate sensitive policy,
the Board of Directors has established a maximum decrease in net interest
income and maximum decreases in NPV given these instantaneous changes in
interest rates.
NPV is the difference between incoming and outgoing discounted cash flows
from assets, liabilities, and off-balance sheet contracts. An institution's
IRR is measured as the change to its NPV as a result of a hypothetical 200
basis point change in market interest rates. A resulting change in NPV of
more than 2% of the estimated market value of its assets will require the
institution to deduct from its capital 50% of that excess change.
Institutions, such as the Association, with less than $300 million in total
assets and a risk-based capital ratio in excess of 12% are exempt from filing
information with the OTS and are exempt from making a deduction from capital.
The rules provide that the OTS will calculate the IRR component quarterly for
each institution.
Prompt Corrective Action. Legislation requires the banking regulators to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Under the OTS final rule implementing the prompt corrective action provisions,
an institution shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio
(core or leverage capital to risk-weighted assets) of 8.0% or more, has a
leverage capital of 5.0% or more and is not subject to any order or final
capital directive to meet and maintain a specific capital level for any
capital measure, (ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, a Tier I risked-based ratio of 4.0% or more and
a leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of well capitalized, (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 6.0%, a Tier I
risk-based capital ratio that is less than 4.0% or a leverage capital ratio
that is less than 4.0% (3.0% in certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a leverage
capital ratio that is less than 3.0% and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less
than 2.0% In addition, under certain circumstances, a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Association to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under
its supervisory powers to prohibit the payment of dividends to the Company.
In addition, the Association may not declare or pay a cash dividend on its
capital stock if the effect thereof would be to reduce the regulatory capital
of the Association below the amount required for the liquidation account to be
established pursuant to the Association's Plan of Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of
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another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, based
primarily on an institution's capital level. An institution that exceeds all
fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 institution") and has not been advised by the OTS that
it is in need of more than the normal supervision can, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (i) 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (ii) 75% of its net
income over the most recent four quarter period. Any additional capital
distributions require prior regulatory approval. As of June 30, 1996, the
Association was a Tier 1 institution. In the event the Association's capital
fell below its fully phased-in requirement or the OTS notified it that it was
in need of more than normal supervision, the Association's ability to make
capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would
be undercapitalized (not meet any one of its minimum regulatory capital
requirements).
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If the Association
maintains an appropriate level of Qualified Thrift Investments (primarily
residential mortgages and related investments, including certain mortgage-
related securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Des Moines. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC
as qualifying QTIs. An association must be in compliance with the QTL test on
a monthly basis in nine out of every 12 months. As of June 30, 1996, the
Association was in compliance with its QTL requirement.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and
(iv) payment of dividends by the savings association shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings association ceases to be a QTL, it
must cease any activity and not retain any investment not permissible for a
national bank and immediately repay any outstanding FHLB advances (subject to
safety and soundness considerations).
Loans-to-One Borrower. Savings associations are subject to the same
limits as those applicable to national banks, which under current regulations
generally limit loans-to-one borrower to an amount equal to 15% of unimpaired
capital and unimpaired surplus calculated as the sum of the Association's core
and supplementary capital included in total capital, plus the balance of the
general valuation allowances for loan and lease losses not included in
supplementary capital, plus investments in subsidiaries that are not included
in calculating core capital, or $500,000, whichever is greater. An
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additional amount equal to 10% of unimpaired capital and unimpaired surplus
may be included if the loan is secured by readily marketable collateral
(generally, financial instruments, not real estate). Under this general
restriction, the Association did not exceed its loan to one borrower limit at
June 30, 1996.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
certain applications by such institution. Federal law requires public
disclosure of an institution's CRA rating and requires the OTS to provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
system. The Association received a "Needs Improving" rating as a result of
its last evaluation.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Association as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Association's
capital; collateral in specified amounts must usually be provided by
affiliates to receive loans from the Association. Affiliates of the
Association include the Company and any company which would be under common
control with the Association. In addition, a savings association may not lend
to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary.
The OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case-by-case basis.
The Association's authority to extend credit to its officers, directors,
and 10% shareholders, as well as to entities that such persons control is
currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act and
Regulation O promulgated by the Federal Reserve Board. Among other things,
these regulations require such loans to be made on terms substantially similar
to those offered to unaffiliated individuals, place limits on the amount of
loans the Association may make to such persons based, in part, on the
Association's capital position, and require certain approval procedures to be
followed. OTS regulations, with minor variation, apply Regulation O to
savings associations.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the required liquid asset ratio is 5%. The Association's
average monthly liquidity and short-term liquidity ratios for June 30, 1996
exceeded the applicable requirements.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term U.S. Government obligations) and long-term assets (e.g., U.S.
Government obligations of more than one and less than five years and state
agency obligations with a maximum remaining term of 24 months). The
regulations governing liquidity requirements include as liquid assets debt
securities hedged with forward commitments obtained from, or debt securities
subject
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to repurchase agreements with, members of the Association of Primary Dealers
in United States Government Securities or banks whose accounts are insured by
the FDIC, debt securities directly hedged with a short financial future
position, and debt securities that provide the holder with a right to redeem
the security at par value, regardless of the stated maturities of the
securities. The OTS is authorized to designate as liquid assets certain
mortgage-related securities with less than one year to maturity. Short-term
liquid assets currently must constitute at least 1% of an association's
average daily balance of net withdrawable deposit accounts and current
borrowings. Monetary penalties may be imposed upon associations for
violations of liquidity requirements. The Association has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Federal Home Loan Bank System. The Association is a member of the FHLB
of Des Moines, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors
of the FHLB.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Des Moines in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At June 30, 1996, the Association
had $ 4.3 million in FHLB stock, which was in compliance with this
requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community
investment and low- and moderate-income housing projects. These contributions
have adversely affected the level of FHLB dividends paid and could continue to
do so in the future. For the year ended June 30, 1996, dividends paid by the
FHLB of Des Moines to the Association totalled approximately $298,319.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy the liquidity requirements that are imposed by
the OTS. At June 30, 1996, the Association's was in compliance with the
Federal Reserve Board reserve requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all FHLB sources before borrowing from the Federal
Reserve System. The Association had no borrowings from the Federal Reserve
System at June 30, 1996.
Subject to appropriate regulatory approvals, a bank holding company can
acquire control of a savings association, and if it controls a savings
association, merge or consolidate the assets and liabilities of the savings
association with, or transfer assets and liabilities to, any subsidiary
bank which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. Generally, federal savings
associations can acquire or be acquired by any insured depository institution.
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FEDERAL AND STATE TAXATION
Federal Taxation
General. The Holding Company and the Association report their income on
a fiscal year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. Neither the Holding Company nor the Association have been
audited by the Internal Revenue Service during the past ten years. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Association.
Bad Debt Reserves. The Association's deduction with respect to
"qualifying loans," generally loans secured by certain interests in real
property, may be computed using a percentage based on the Association's actual
loss experience. The Association's deduction with respect to non-qualifying
loans must be computed under the experience method which essentially allows a
deduction for actual charge-offs. As of June 30, 1996, the Association's
tax bad debt reserve was $5.2 million.
Corporate Alternative Minimum Tax. For taxable years beginning after
December 31, 1986, the Internal Revenue Code (the "Code") imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method
is treated as a preference item for purposes of computing the AMTI. Only 90%
of AMTI can be offset by net operating losses. For taxable years beginning
after December 31, 1989, the adjustment to AMTI based on book income is an
amount equal to 75% of the amount by which a corporation's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986, and before January 1, 1992, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Association,
whether or not an Alternative Minimum Tax ("AMT") is paid. The Association
does not expect to be subject to the AMT.
Distributions. To the extent that (i) the Association's reserve for
losses on qualifying real property loans exceeds the amount that would have
been allowed under an experience method and (ii) the Association makes
"nondividend distributions" to the Holding Company that are considered to
result in distributions from the excess bad debt reserve or the supplemental
reserve for losses on loans ("Excess Distributions"), then an amount based on
the amount distributed will be included in the Association's taxable income.
Nondividend distributions include distributions in excess of the Association's
current and accumulated earnings and profits, distributions in redemption of
stock, and distributions in partial or complete liquidation. However,
dividends paid out of the Association's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not be considered
to result in a distribution from the Association's bad debt reserves. Thus,
any dividends to the Holding Company that would reduce amounts appropriated to
the Association's bad debt reserves and deducted for federal
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income tax purposes would create a tax liability for the Association.
The amount of additional taxable income created from an Excess
Distribution is an amount that when reduced by the tax attributable to the
income is equal to the amount of the distribution. Thus, if after the
Conversion, certain portions of the Association's accumulated tax bad debt
reserve are used for any purpose other than to absorb qualified bad debt
loans, such as for the payment of dividends or other distributions with
respect to the Association's capital stock (including distributions upon
redemption or liquidation), approximately one and one-half times
the amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state taxes).
The Association does not intend to pay dividends that would result in a
recapture of any portion of its bad debt reserves.
Earnings appropriated for bad debt reserves and deducted for federal
income tax purposes cannot be used by the Association to pay cash dividends to
the Holding Company without the payment of income taxes by the Association, at
the then current income tax rate on the amount deemed distributed, which would
include the amount of any federal income taxes attributable to the
distribution. Thus, any dividends to the Holding Company that would reduce
amounts appropriated to the Association's bad debt reserves and deducted for
federal income tax purposes could create a tax liability for the Association.
The Association does not intend to pay dividends that would result in a
recapture of its bad debt reserves.
State and Local Taxation
Missouri Taxation. The Association files, on a calendar year, a Missouri
savings and loan association/building and loan association tax return. This
tax on savings institutions is at the rate of 7% of net taxable income, which
is computed based on federal taxable income, subject to certain adjustments.
Significant adjustments to federal taxable income include any income from
state or political obligations, the bad debt provision, net bad debt
recoveries, the Missouri savings and loan tax and subtracting net bad debt
chargeoffs, and federal income tax.
The Holding Company and the Association's subsidiary must file a Missouri
state income tax return annually. Missouri taxable income is defined as
taxable income for federal income tax purposes, subject to certain adjustments
including income from federal obligations and state and political subdivision
obligations. The tax on Missouri taxable income is 6.25%. Neither the
Holding Company nor the Association have been audited by the Missouri taxing
authorities during the past ten years.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Holding Company is exempted from Delaware corporate income tax
but is required to file an annual report with and pay an annual franchise tax
to the State of Delaware.
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Recent and Proposed Changes in Accounting Rules
The Financial Accounting Standards Board (the "FASB") recently adopted or
issued proposals and guidelines which may have a significant impact on the
accounting practices of commercial enterprises in general and financial
institutions in particular.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. This statement
encourages all entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies that
elect to remain with the existing accounting method are required to disclose
in a footnote to the financial statements pro forma net income and, if
presented, earnings per share, as if this statement had been adopted. The
accounting requirements of this statement are effective for transactions
entered into in fiscal years that begin after December 15, 1995; however,
companies are required to disclose information for awards granted in their
first fiscal year beginning after December 15, 1994. Management of the
Association does not expect SFAS No. 123 to have a material effect on the
consolidated financial statements.
In December 1994, the Accounting Standards Executive Committee issued SOP
94-6, "Disclosure of Certain Significant Risks and Uncertainties." This SOP
applies to financial statements prepared in conformity with GAAP by all
nongovernmental entities. The disclosure requirements in SOP 94-6 focus
primarily on risks and uncertainties that could significantly affect
the amounts reported in the financial statements in the near-term functioning
of the reporting entity. The risks and uncertainties discussed in SOP 94-6
stem from the nature of the entity's operations, from the necessary use of
estimates in the preparation of the entity's financial statements and from
significant concentrations in certain aspects of the entity's operations. SOP
94-6 is effective for financial statements issued for fiscal years ending
after December 15, 1995 and did not have a material impact on the financial
condition or results of operations of the Association.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association 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.
Item 2. Properties.
The Company is located and conducts its business at the Association's
office in Macon, located at 101 Vine Street in Macon, Missouri. The
Association also has a branch office at 801 North Morley in Moberly, Missouri.
See Note 6 to the "Notes to Consolidated Financial Statements" for the net
book value of the Association's premises and equipment in the Annual Report to
Stockholders.
34
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<PAGE>
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed
by management to be immaterial to the consolidated financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None applicable.
Additional Item. Executive Officers of the Registrant.
Name Age (1) Position Held With The Association
---- ------- ----------------------------------
Clyde D. Smith . . . . 36 Vice President, Chief Financial Officer
and Secretary
Elizabeth T. Fleming . 61 Vice President and Senior Loan Officer
Sarah Hartung. . . . . 38 Vice President and Savings Supervisor
Melinda Masten . . . . 37 Treasurer
(1) At June 30, 1996
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Corporate Information" in the
Registrant's 1996 Annual Report to Stockholders on page 35 and is incorporated
herein by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The above-captioned information appears under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1996 Annual Report to Stockholders on pages 2 through 7 and is
incorporated herein by reference.
Item 7. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of MBLA Financial Corporation and
its subsidiaries, together with the report thereon by Lockridge, Constant &
Conrad appear in the Registrant's 1996 Annual Report to Stockholders on pages
12 through 34 and are incorporated herein by reference.
Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
35
<PAGE>
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant.
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 29,
1996, at page 4. Information concerning Executive Officers who are not
directors is contained in Part I of this report pursuant to paragraph (b) of
Item 401 of Regulation S-K in reliance on Instruction G.
Item 10. Executive Compensation.
The information relating to executive compensation is incorporated herein
by reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on October 29, 1996 at page 7.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on October
29, 1996 at page 3.
Item 12. Certain Relationships and Related Transactions.
The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 29,
1996 at page 8.
36
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<PAGE>
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial Statements
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1996 Annual Report
to Stockholders.
PAGE
-----
Independent Auditors' Report . . . . . . . . . . . . . . . . AR-34
Statements of Financial Condition
as of June 30, 1996 and 1995 . . . . . . . . . . . . . . . . AR-12
Consolidated Statements of Income for each of the
Years in the Three-Year Period Ended June 30, 1996 . . . . . AR-13
Consolidated Statements of Stockholders' Equity for
each of the Years in the Three-Year Period
Ended June 30, 1996. . . . . . . . . . . . . . . . . . . . . AR-14
Consolidated Statements of Cash Flows for each of the Years
in the Three-Year Period Ended June 30, 1996 . . . . . . . . AR-15
Notes to Consolidated Financial Statements . . . . . . . . . AR-17
The remaining information appearing in the Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto:
Exhibits
(a) The following exhibits are filed as part of this report:
10.6 Form of Employment Agreement between MBLA Financial
Corporation, Macon Building and Loan Association Executive.
(Filed as an exhibit to the Form 10-K for fiscal year ending
June 30, 1993. Filed with the Securities and Exchange
Commission on September 24, 1993 and is herein incorporated by
reference.)
11.0 Computations of earnings per share (filed herewith)
13.0 1996 Annual Report to Stockholders
21.0 Proxy Statement for 1996 Annual Meeting
22.0 Subsidiary information is incorporated herein by reference to
"Part I -- Subsidiaries"
24.0 Consent of Lockridge, Constant and Conrad (filed herewith)
Reports on Form 8-K
No reports on form 8-K have been filed during the last quarter of the fiscal
year covered by this report.
37
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MBLA FINANCIAL CORPORATION
By: /s/ John T. Neer
-------------------
John T. Neer
DATED: September 12, 1996 President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
- ---- ----- ----
/s/John T. Neer President, Chief Executive September 12, 1996
- ----------------- Officer and Director
John T. Neer
/s/Charles L. Hutton Chairman of the September 12, 1996
- -------------------- Board of Directors
Charles L. Hutton
/s/Carl B. Barrows Vice Chairman of the September 12, 1996
- ------------------ Board of Directors
Carl B. Barrows
/s/Truman L. Gehringer Vice President and September 12, 1996
- ---------------------- Director
Truman L. Gehringer
/s/Richard C. Miller, Jr. Director September 12, 1996
- -------------------------
Richard C. Miller, Jr.
/s/Arnold L. Walter Director September 12, 1996
- -------------------
Arnold L. Walter
/s/Robert M. Wilhite Director September 12, 1996
- --------------------
Robert M. Wilhite
/s/Melinda Masten Principal Accounting Officer September 12, 1996
- -----------------
Melinda Masten
/s/Clyde D. Smith Principal Financial Officer September 12, 1996
- -----------------
Clyde D. Smith
38
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<PAGE>
Exhibit 11.0
Computation of Earnings Per Share
Exhibit 11.0 Computation of Earnings Per Share
- -------------------------------------------------
Pro forma primary and fully diluted earnings per share for the year ended
June 30, 1996, were determined by dividing net income for the year by
1,434,869 and 1,438,653 respectively, the weighted average number of shares of
common stock and common stock equivalents outstanding. Stock options are
regarded as common stock equivalents and are therefore considered in both
primary and fully diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method.
<PAGE>
<PAGE>
Exhibit 13.0
1996 Annual Report to Stockholders
MBLA Financial Corporation
Fourth Annual Report
MBLA '96
<PAGE>
<PAGE>
TABLE OF CONTENTS
President's Message . . . . . . . . . . . . . . . . . . . . 1
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 2
Consolidated Financial Statements . . . . . . . . . . . . . 12
Notes to Consolidated Financial Statements. . . . . . . . . 17
Independent Auditors' Report. . . . . . . . . . . . . . . . 34
Corporate Information . . . . . . . . . . . . . . . . . . . 35
<PAGE>
<PAGE>
PRESIDENT'S MESSAGE TO OUR STOCKHOLDERS:
MBLA Financial Corporation
is pleased to announce another
consecutive year of outstanding earnings.
Macon Building and Loan Association officially became a subsidiary of
MBLA Financial Corporation when the Association converted to stock form on
June 24, 1993. The Conversion to a stock form of organization began after 108
years as a mutual state-chartered savings and loan association.
We wish to thank our officers and employees for their hard work and
dedication during this past year, for our profitable year and our
"Outstanding" rating as one of the highest capitalized savings and loans
in the nation. (1)
Earnings for the year ended June 30, 1996, were $1,393,000 or $ .97 per
share. Our return on assets for the year ended June 30, 1996 was .70% with a
return on equity of 4.96%.
Our total assets as of June 30, 1996 were $201.0 million with loans
receivable of $107.0 million (an increase of $1.6 million) and deposits of
$86.7 million. Our stockholders' equity was $28.1 million or 13.98% of total
assets. The Association had regulatory capital ratios of tangible and core
capital to assets of 12.92% and risk-based capital of 37.53%. Our capital
percentages are among the highest of all banks and savings and loans in the
nation. (1)
The Company's stock closed year end at $23.50, which is 135% over the
initial offering price on June 24, 1993. In addition, the Company paid its
stockholders $ .40 per share dividend during fiscal 1996. The Company's book
value at June 30, 1996 was $20.56 per share, an increase of $1.12 per share.
During 1996 the Company repurchased 126,664 shares of its Common Stock for
$2.26 million or an average of $17.82 per share.
At June 30, 1996 non-performing assets were $686,000, an increase of
$262,000 from June 30, 1995. Loan loss reserves at June 30, 1996 were
$535,000 or 80.69% of non-performing loans.
We continue to look at ways to enhance shareholder value by increasing
profitability. We were pleased with our results in 1996 and we look forward
to a profitable year in 1997.
Sincerely,
John T. Neer
President and Chief Executive Officer
1. Source -- Sheshunoff Corp.
1
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<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation
General
MBLA Financial Corporation ("Company") is the savings and loan holding company
for Macon Building and Loan Association (the "Association" or "Macon"). Apart
from the operations of the Association, the Company did not engage in any
significant operations during the year ended June 30, 1996.
The business of the Association consists principally of attracting deposits
from the general public and using such deposits to purchase and originate
mortgage loans secured by one- to four- family residences. The servicing
rights on substantially all loans purchased by the Association are retained by
the sellers. In addition, the Association invests in U.S. government and
federal agency securitiesand mortgage-backed andrelated securities,
interest-earning deposits and commercial and multi-family real estate loans
and consumer loans. The Association's profitability depends primarily on its
net interest income which is the difference between the income it receives on
its loans and investment portfolio and itscost of funds, which consists of
interest paid on deposits and other borrowed funds. Net interest income is
also affected by the relative amounts of interest-earning assets and
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. To a lesser extent, the Association's
profitability is also affected by the level of other income and non-interest
expenses. Other income has not been significant. Other expenses consists of
compensation and benefits, occupancy related expenses, deposit insurance
premiums, losses on the sale of realestate acquired through foreclosure and
other operating expenses.
As a result of increased loan demand, the Association's loan portfolio has
increased to $107.0 million at June 30, 1996 from $105.4 million at June 30,
1995. The Association increased its investment in mortgage-backed and other
investment securities in fiscal years 1996 and 1995. While management cannot
predict the duration of the increase in economic activity or loan demand, the
Association will pursue other possible investment alternatives to help
diversify its portfolio while raising appropriate funds for these purposes.
The Association's operating strategies have been developed to respond to the
economic conditions prevailing in the Association's primary market area.
However, due to traditional low local loan demand, the Association has, for
over 32 years, purchased the majority of its loans from selected mortgage
banking companies and financial institutions located primarily in Columbia,
Boone County, Missouri, and to a lesser extent other cities in central
Missouri. The sellers retain servicing rights on the loans purchased by the
Association. By extending its lending market area and employing alternative
investment opportunities, such as mortgage-backed and investment securities,
the Association has attempted to limit, and believes it has been successful in
limiting, the impact of low local loan demand on its results of operations.
The economy of Boone County is primarily dependent on the service and
government industries. The education industry also plays an important role in
the economy of Boone County as three colleges and universities are located
there.
The population of Macon and Randolph Counties declined during the period 1980
to 1994 and this trend is assumed to now be stabilized. In contrast, the
population of
2
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<PAGE>
Boone County has grown faster than the state and national growth rates during
the last thirteen years, and the population of Boone County is expected to
continue to grow. Boone County's per capita income in 1996 was higher than the
income levels for Macon and Randolph Counties, but was still lower than the
state and national per capita income levels.
The Association has continued to maintain a high level of asset quality and
has remained profitable notwithstanding the decline in the local economy and
traditional low demand for mortgage loans in its market area. The
Association's deposits have continued to stabilize over the last five years to
$86.7 million at June 30, 1996.
The operations of Macon are influenced significantly by local economic
conditions and by policies of financial institution regulatory agencies,
including the State Director, the OTS and the FDIC. The Association's
cost of funds is influenced by interest rates on competing investments and
general market interest rates. Lend ing activities are affected by the demand
for financing of real estate and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered.
Historically, the Association has foregone growth to maintain profitability.
Macon has employed various strategies intended to minimize the adverse effect
of interest rate risk on future operations by providing a close match between
the interest rate sensitivity of its assets and liabilities and by expanding
its activities which are not directly dependent on interest rate spreads. The
Association's strategies are intended to stabilize net interest income for the
long-term by protecting its interest rate spread against changes in interest
rates.
The Board of Directors has appointed an Asset/Liability Committee comprised of
the President and the entire Board of Directors. It is the responsibility of
this committee to manage the interest rate sensitivity of the Association's
balance sheet in order to minimize large fluctuations in the net income of the
Association. The Association utilizes Adjustable Rate Mortgages ("ARMs") to
provide repricing opportunities more closely matched within the time frames in
which its deposits are repriced. The committee is charged with the
responsibility to manage interest rate risk while remaining sensitive to the
Board's directive that credit risk not be substituted for interest rate risk.
As a result of these efforts, approximately 87.00% of Macon's mortgage loan
portfolio as of June 30, 1996, consisted of ARMs, including ARMs secured by
commercial real estate.
The difference between the amount of interest-earning assets and interest-
bearing liabilities to be repriced during a specific time period is referred
to as the "GAP position." The amounts of assets or liabilities which mature
or reprice during a particular period are determined in accordance with the
contractual terms of the asset or liability but are not adjusted for loan
amortization. Adjustable rate loans and mortgage-backed securities are
adjusted for scheduled repayments and prepayments based on assumptions
provided by the Des Moines District of the Office of Thrift Supervision
("OTS"). The Association's passbook accounts and money market accounts
generally are subject to immediate withdrawal and are included in the three
months or less category on the Association's one year GAP projection. The GAP
position of the Association's assets and liabilities could vary substantially
if different assumptions were used.
3
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<PAGE>
The balance sheet structure poses a challenge of interest rate risk to the
management. The Association's one year GAP at June 30, 1996, was a positive
5.85% or $11.6 million. A negative one year GAP is defined to be the excess
of interest-bearing liabilites over interest-earning assets that mature or
reprice in one year. Generally, during a period of rising interest rates, a
negative gap within a given period of time would adversely affect net interest
income, while a positive gap within a given period of time would result in an
increase in net interest income; during a period of falling interest rates, a
negative gap within a given period of time would result in an increase in net
interest income while a positive gap within a given period of time would have
the opposite effect. Many factors affect the one-year GAP position which are
beyond the control of the Association such as regulatory policy changes and
customer reactions to interest rate changes. However, Macon feels that its
asset/liability management enables it, in part, to avoid large swings in the
profitability of the Association.
Effect of Inflation and Changing Prices
The Financial Statements and related data presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations
of Macon is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
does inflation. Interest rates do not necessarily move the same direction or
to the same extent as the price of goods and services. However, long-term
mortgage rates, which are influenced by inflationary expectations, have a
significant impact on the types of loans originated. For example, ARMs are
more acceptable to the borrowing public during times of higher interest rates
and are originated to be retained for the loan portfolio by Macon. In the
current interest rate environment, liquidity and the maturity structure of
Macon's assets and liabilities are critical to the maintenance of acceptable
performance levels.
Liquidity and Capital Resources
For regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable savings. The minimum level of liquidity required
by regulation was 5.00% at June 30, 1996.
The Association's liquidity during the years ended June 30, 1996 and 1995 was
8.95% and 16.96%, respectively. The lower liquidity during the 1996 period is
attributed primarily to the increase in investment securities and a general
growth in economic activity.
The Association's liquidity increased after its conversion to stock form due
to the significant increase in equity capital. Earnings may not increase
commensurate to the rate of increase in equity. As a result, there could be a
significant decrease in the rate of return on equity (net income divided by
average equity).
The Association's principal sources of liquidity are deposit accounts, loan
payments and prepayments from borrowers and interest and dividends on
investments. A potential source of liquidity is short-term borrowing from the
Federal Home Loan Bank of Des Moines ("FHLB-Des Moines"); the Association has
borrowed $85.1 million at June 30, 1996 for the purpose of funding the
increased loan demand and securities purchases.
The Association's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-
4
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<PAGE>
term investments. The levels of these assets are the result of the
Association's policy to maintain high liquidity levels. At June 30, 1996,
1995, and 1994, cash and cash equivalents totalled $5.1 million, $2.6 million
and $1.0 million, respectively.
At June 30, 1996 the Association had $50.8 million in deposits due within one
year and $7.58 million in other deposits without specific maturity dates.
Management estimates substantially all of the deposits will be retained or
replaced by new deposits, although it expects that maturing certificates of
deposits will shift disproportionately, by historical standards, to shorter
term certificates and passbook accounts, during a continuing low interest rate
environment. At June 30, 1996 the Association had outstanding loan
commitments to originate and purchase loans in the amount of $4.9 million.
During the years ended June 30, 1996 and 1995, the Association originated or
purchased real estate loans in the amounts of $17.5 million and $24.1 million,
respectively.
Other investing activities included the purchase of mortgage backed securities
and Collateralized Mortgage Obligations ("CMOs") totalled $11.0 million and
$55.0 million for the years ended June 30, 1996 and 1995, respectively. The
Association also purchased U.S. Treasury and FHLB Agency Securities for the
years ended June 30, 1996 and 1995 in the amounts of $7.6 million, and $19.2
million.
Comparison of Operating Results for the Years Ended June 30, 1996 and 1995
Net Income. Net income for fiscal 1996 decreased $59,000 from fiscal 1995.
The decrease in net income primarily resulted from an increase in non-interest
expense. During the period, interest rates in general increased on interest-
earning assets and interest-bearing liabilities; however, net interest income
decreased by $159,000. In addition, non-interest expenses increased for
compensation and benefits and deposit insurance.
Interest Income. Interest income increased $2.21 million or 19.7%, to $13.40
million for fiscal 1996 from $11.19 million for fiscal 1995. This increase
resulted from an increase in the interest on mortgage loans, investment and
related securities. Interest on loans increased by $283,000 or 4.02% to $7.3
million in fiscal 1996. The higher balance of loans outstanding during fiscal
1996 reflects an increase in refinancing of purchased mortgage loans and a
continued volume of purchased loans. Total mortgage loans originated and
purchased during fiscal 1996 were $17.5 million compared to $24.1 million in
fiscal 1995. Management believes that this trend of increased mortgage
lending activity for the Association's portfolio will continue based on
continued higher loan activity and the Association's desire to originate
adjustable rate mortgages. During this period, the Association continued
investing in mortgage-backed and other related securities in order to obtain
higher interest rates than what were provided by short-term liquid
investments. The Association will continue to purchase adjustable rate
mortgage loans when available.
Interest Expense. Interest expense for fiscal 1996 was $9.6 million as
compared to $7.2 million for fiscal 1995, an increase of $2.4 million, or
3-3.00%. The increase resulted from an increase in higher interest rates.
The average cost of deposits increased from 4.70% during fiscal 1995 to 5.47%
for fiscal 1996. The level of deposits increased $1.6 million or 1.88% to
$86.7 million in fiscal 1996 over the fiscal 1995 level of $85.2 million.
Due to current interest rates, customers moved more funds into shorter-term
certificates of deposits. In addition, passbook accounts continued to further
deteriorate.
Net Interest Income. Net interest income for fiscal 1996 decreased $159,000
or 4.0% over fiscal 1995. The decrease primarily resulted from an increase in
the interest ratio
5
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<PAGE>
during fiscal 1996. Net interest income decreased during this period, due to
an increase in mortgage loan interest income. This was a result of the
increase in refinancing due to lower interest rates and increased purchased
loans and mortgage-backed and related securities. In addition, there was a
reduction in the Association's cost of deposits from declining interest rates.
Provision for Loan Losses. During fiscal 1996, the Association made no
additional provision for loan losses. The loan loss allowance was at $535,000
at June 30, 1996. The Association historically experienced low loan losses.
However, the Association's policy requires that a loan loss provision be equal
to 1/2 of 1% of outstanding mortgage loans.
Other Income. Other income for fiscal 1996 totalled $21,000 as compared to
$14,000 for fiscal 1995. Other income is not considered a significant part of
the overall income of the Association.
Other Expenses. Other expenses during fiscal 1996 were $1.54 million as
compared to $1.48 million for fiscal 1995. The increase of approximately
$60,000 in fiscal 1996 reflects an increase due to an increase in compensation
and benefits offset somewhat by a decrease of $51,000 in other expenses.
Income Taxes. The provision for federal and state income taxes decreased
$35,000 to $898,000 in fiscal 1996 from $933,000 in fiscal 1995, primarily as
a result of lower earnings. The effective tax rate was 39% in fiscal 1996 as
compared to 39% in fiscal 1994.
Comparison of Operating Results for the Years Ended June 30, 1995 and 1994
Net Income. During the period, interest rates in general increased on
interest-costing liabilities and somewhat slower on interest-bearing assets.
However, net income for fiscal 1995 increased $221,000 over fiscal 1994. The
increase in net income in 1995 primarily reflects increased activity in
investments and mortgage loan activity. The Association maintained its
liquidity level from the prior year even with increased activity. The
increase in interest on investments, a decrease in compensation and a decrease
in federal insurance premium was offset somewhat by higher cost of
interest-costing liabilities.
Interest Expense. Interest expense for fiscal 1995 increased approximately
76% to $7.2 million from $4.1 million in fiscal 1994. This increase resulted
from higher interest rates paid on deposits and interest paid on Federal Home
Loan Bank advances. The level of deposits decreased by $3.2 million from
fiscal 1994 to fiscal 1995 represent ing a decrease of 3.6%. The average cost
of deposits increased from 4.40% in fiscal 1994 to 4.70% in 1995.
Net Interest Income. Net interest income for fiscal 1995 increased $260,000,
or 7.0% over fiscal 1994. The net interest margin declined to 2.40% in fiscal
1995 versus 3.08% in fiscal 1994. Although net interest margin decreased, net
interest income increased due to a "leveraging of capital" program implemented
by the Association. The Association borrowed funds from the Federal Home Loan
Bank and invested those funds in interest-earning assets with net interest
margins less than those typically earned on mortgage loans. During 1995
maturing deposits repriced at higher interest rates that were prevalent during
this period. Interest income on interest-earning assets increased but was
offset by an increase in interest costing liabilities over fiscal 1994.
Provision for Loan Losses. A $115,000 provision for loan losses in fiscal
1995 was recorded by the Association as compared to $75,000 for loan losses in
fiscal 1994. The Association maintains its allowance for loan losses at .50%
of outstanding mortgage loans and considers this to be adequate to provide for
potential losses. There can be no assurance that further additions will not be
made to the allow ance and that such losses will not exceed the estimated
amounts. Losses on the sale of real estate owned
6
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<PAGE>
acquired through foreclosure totalled $6,000 for fiscal 1995.
Other Income. Other income for fiscal 1995 totalled $14,000 as compared to
$24,000 for fiscal 1994. Other income is not considered a significant
part of the overall income of the Association.
Other Expenses. Other expenses during fiscal 1995 were $1.48 million as
compared to $1.64 million for fiscal 1994. The decrease of approximately
$157,000 in fiscal 1995 reflects a decrease due to decreases in compensa
tion and benefits and a decrease in federal insurance premium.
Income Taxes. The provision for federal and state income taxes increased
from $787,000 or 18.6% for fiscal 1994 to $-933,000 in fiscal 1995. The
increase in the level of federal and state income tax is due to the increase
in pre-tax income in 1995. The effective tax rate was approximately 39.1% for
1995 and 39.0% for 1994.
Capital Requirements
At June 30, 1996, the Association exceeded each of its capital requirements.
The decrease in capital levels are attributed to the Association's continued
effort to leverage its capital. This was mentioned in the"Liquidity and
Capital Resources" section of Management's Discussion and Analysis. See
"Capital Levels" graph which sets forth in terms of percentages the OTS
tangible, leverage and risk-based capital requirements for the Association.
Effect of Stock Repurchase
The effect of the Company's stock repurchases resulting in ownership of
Treasury stock, would be reflected in a possible increase in earnings per
share and the possibility of an increase in book value of the remaining shares
outstanding. Stock repurchases would also reduce the company's capital ratio
to assets.
7
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<PAGE>
CAPITAL LEVELS AS OF JUNE 30, 1996
(Thousands of Dollars)
Required Actual
-------- --------
Tangible $ 3,013 $25,995
Core 6,025 25,995
Risk-Based 5,648 26,530
SUMMARY OF HISTORICAL NET INCOME
(Thousands of Dollars)
Fiscal Year Ending Net Income
- ------------------ ----------
1996 $ 1,393
1995 1,452
1994 1,231
1993 1,012
1992 1,246
1991 1,303
1990 1,233
1989 1,298
1988 1,310
1987 978
1986 851
1985 803
SUMMARY OF HISTORICAL LOAN ACTIVITY
(Millions)
Loans Originated
Year and Purchased
----- -------------
1996 $ 17,788
1995 24,508
1994 39,241
1993 15,989
1992 15,223
1991 10,069
1990 8,965
8
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
At or for the Year Ended June 30,
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Thousands)
Selected Financial Data:
Total assets $201,039 $197,252 $129,211 $122,537 $109,074
Loans receivable, net 106,485 104,700 92,949 70,532 70,537
Interest-earning deposits 4,811 2,390 3,599 7,888 10,635
Investment securities (3) 12,437 14,604 15,294 9,853 17,201
Mortgage-backed securities,net(3) 71,129 69,482 14,722 17,310 9,347
Foreclosed real estate 23 -- 3 -- 33
Deposits 86,716 85,162 88,380 91,275 93,950
Federal Home Loan Bank Advances 85,086 81,787 10,475 -- --
Earnings per Share -- Primary .97 .96 .72 .57 N/A
Dividends per Share .40 .40 .40 N/A N/A
Stockholders' Equity (1) (2) (3) 28,067 29,088 28,697 30,361 14,314
Selected Operating Data:
Interest Income $ 13,400 $ 11,190 $ 7,807 $ 7,971 $ 9,100
Interest expense on deposits
and borrowed funds 9,589 7,220 4,097 4,902 6,073
------ ------ ------ ------ ------
Net interest income 3,811 3,970 3,710 3,069 3,027
Less provision for loan losses -- 115 75 250 --
Net interest income after ------ ------ ------ ------ ------
provision for loan losses 3,811 3,855 3,635 2,819 3,027
Non-interest income:
Loan origination fees -- -- 5 12 12
Gain on sale of investment securities 10 -- -- -- --
Other 11 14 19 24 23
------ ------ ------ ------ ------
Total non-interest income 21 14 24 36 35
Non-interest expense:
Compensation and benefits 991 878 981 576 506
Office occupancy and equipment 80 99 86 56 51
Federal deposit insurance premiums 252 240 244 218 244
Loss (gain) from foreclosed real
estate activities 14 6 (1) 61 60
Data processing 52 58 57 53 52
Other 152 203 274 150 122
------ ------ ------ ------ ------
Total non-interest expense 1,541 1,484 1,641 1,114 1,035
Income before income taxes 2,291 2,385 2,018 1,741 2,027
Income tax expense (2) 898 933 787 729 781
------ ------ ------ ------ ------
Net income $ 1,393 $ 1,452 $ 1,231 $ 1,012 $ 1,246
(1) The Association may not pay dividends to the Company on its stock if its
regulatory capital would thereby be reduced below (i) the aggregate amount
then required for the liquidation account, or (ii) the amount of its
regulatory capital requirements.
(2) Stockholders' equity and income tax expense have been restated to reflect
the adoption of FAS 109 during fiscal year ended June 30, 1993.
(3) Investment securities, mortgage-backed securities and stockholders' equity
have been adjusted to reflect the adoption of FAS 115 during fiscal year
ended June 30, 1994.
9
PAGE
<PAGE>
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
Year Ended June 30, 1996 Year Ended June 30, 1995
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $3,354 $3,372 $3,307 $3,367 $13,400 $2,095 $2,482 $3,269 $3,344 $11,190
Interest expense 2,456 2,468 2,338 2,327 9,589 1,150 1,475 2,236 2,359 7,220
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net interest income
before provision for
loan losses 898 904 969 1,040 3,811 945 1,007 1,033 985 3,970
Provision for loan losses -- -- -- -- -- 20 60 35 -- 115
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net interest income after
provision for loan
losses 898 904 969 1,040 3,811 925 947 998 985 3,855
Gain (loss) on sale
of assets -- -- 10 -- 10 -- -- -- -- --
Income (loss) from real
estate operation -- -- -- -- -- -- -- -- -- --
Other income 4 2 3 2 11 5 2 5 2 14
Non-interest expense 348 408 401 384 1,541 401 321 364 398 1,484
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Income (loss) before tax 554 498 581 658 2,291 529 628 639 589 2,385
Income tax expense 206 197 221 274 898 206 257 249 221 933
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net income (loss) $348 $301 $360 $384 $1,393 $323 $371 $390 $368 $1,452
Earnings per share --
primary 0.24 0.21 0.26 0.26 0.97 0.21 0.24 0.26 0.25 0.96
Earnings per share --
fully diluted 0.24 0.21 0.26 0.26 0.97 0.21 0.24 0.26 0.25 0.96
(Dollars in thousands)
10
</TABLE>
<PAGE>
<PAGE>
SELECTED FINANCIAL RATIOS
At or for the Year Ended June 30,
(Dollars in thousands)
SELECTED FINANCIAL RATIOS AND OTHER DATA: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Return on average assets 0.70% 0.87% 1.00% 0.91% 1.18%
Return on average retained earnings 8.08 8.79 7.71 6.28 9.25
Average retained earnings to average assets 8.68 9.88 12.93 14.42 12.71
Retained earnings to total assets 8.79 8.52 12.33 24.78 13.29
Interest rate spread during period 1.09 1.51 2.03 2.13 2.02
Net interest margin 1.94 2.40 3.08 2.81 2.82
Operating expenses to average assets .78 0.89 1.33 1.00 0.95
Net interest income to operating expenses 247.31 267.47 226.01 275.64 292.50
Non-performing loans (1) to total loans 0.62 0.41 0.25 0.56 0.59
Non-performing assets (2) to total assets 0.34 0.22 0.18 0.32 0.41
Allowance for loan losses to
non-performing loans (1) 80.69 126.16 185.39 87.94 24.21
Allowance for loan losses to
non-performing assets (2) 77.99 126.16 183.39 87.94 22.42
Allowance for loan losses to total loans 0.50 0.51 0.46 0.50 0.14
Average interest-earning assets to
average interest-bearing liabilities 117.52 120.32 130.81 115.15 114.07
Dividend Payout Ratio 41.2 43.1 55.6 N/A N/A
Loan originations $1,283 $2,432 $3,350 $1,367 $1,620
Loan purchases $16,503 22,706 35,891 14,622 13,603
Number of:
Deposit accounts 6,749 6,922 7,352 7,728 8,092
Full-service customer service facilities 2 2 2 2 2
(Dollars in thousands)
(1) Non-performing loans consist of loans delinquent 90 days or more.
(2) Includes non-performing loans and real estate acquired through
foreclosure.
See accompanying notes to consolidated financial statements.
11
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
1996 1995
------ ------
(In thousands)
ASSETS
Cash on hand and noninterest-earning deposits $ 320 $ 340
Interest-earning deposits in other institutions 4,811 2,291
Certificates of deposit -- 99
Investment securities (Note 2)
Securities available-for-sale, at fair value 12,437 14,604
Mortgage-backed securities (Note 3)
Securities available-for-sale, at fair value 71,129 69,482
Loans receivable, net (Notes 4 and 14) 106,485 104,700
Accrued interest receivable (Note 5) 1,152 1,140
Investment required by law -- Stock in Federal Home
Loan Bank, at cost 4,256 4,091
Real estate owned 23 --
Premises and equipment (Note 6) 284 313
Other assets 142 192
------ ------
Total assets $201,039 $197,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 86,716 $ 85,162
Federal Home Loan Bank advances (Note 8) 85,086 81,787
Advances from borrowers for taxes and insurance 155 197
Income taxes payable (Note 10) 241 189
Accrued expenses and other liabilities 774 829
Total liabilities 172,972 168,164
Commitments and contingencies (Note 13)
Preferred stock, $.01 par value; authorized 500,000
shares; none outstanding -- --
Common stock $.01 par value; authorized 2,500,000 shares,
issued 1,738,111 shares in 1996 and 1,738,111 shares
in 1995 17 17
Additional paid-in capital 16,754 16,615
Retained earnings, substantially restricted 17,665 16,806
Less:
Treasury stock, 373,000 shares in 1996, 246,336 shares
in 1995, at cost (5,924) (3,667)
Unrealized gain (loss) on securities available-for-sale,
net of applicable deferred income taxes 153 198
Common stock acquired by the ESOP (Note 10) (390) (524)
Common stock awarded by Association Recognition
and Retention Plan (Note 10) (208) (357)
------ ------
Total stockholders' equity 28,067 29,088
------ ------
Total liabilities and stockholders' equity $201,039 $197,252
See accompanying notes to consolidated financial statements.
12
<PAGE>
<PAGE>
For The Three Years Ended June 30, 1996
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30
1996 1995 1994
------ ------ ------
(In thousands)
Interest income:
Loans receivable (Note 4) $ 7,322 $ 7,039 $ 5,852
Investment securities and FHLB stock 1,040 896 679
Mortgage-backed and related securities 4,768 3,170 878
Other interest-earning assets 270 85 398
------ ------ ------
Total interest income 13,400 11,190 7,807
Interest expense:
Deposits (Note 7) 4,678 4,075 3,918
Federal Home Loan Bank advances 4,911 3,145 179
Total interest expense 9,589 7,220 4,097
Net interest income 3,811 3,970 3,710
Provision for loan losses (Note 4) - 115 75
Net interest income after provision for
loan losses 3,811 3,855 3,635
Noninterest income:
Commitment fees -- -- 5
Other (Note 13) 21 14 19
Total noninterest income 21 14 24
Noninterest expense:
Compensation and benefits (Notes 9 and 10) 991 878 981
Occupancy and equipment (Note 6) 80 99 86
SAIF deposit insurance premiums 252 240 244
Loss (gain) on sale of real estate owned 14 6 (1)
Other (Note 13) 204 261 331
Total noninterest expense 1,541 1,484 1,641
Income before income taxes 2,291 2,385 2,018
Income tax expense (Note 11) 898 933 787
Net income $ 1,393 $ 1,452 $ 1,231
Earnings per share -- primary $ .97 $ .96 $ .72
Earnings per share -- fully diluted $ .97 $ .96 $ .72
See accompanying notes to consolidated financial statements.
13
PAGE
<PAGE>
For the Three Years Ended June 30, 1996
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Three Years Ended June 30, 1996
(In Thousands)
Unrealized
Gain (Loss)
on
Securities
Available-
for-Sale,
Net of Common Common
Additional Applicable Stock Stock
Common Paid-In Retained Treasury Deferred Acquired Awarded
Stock Capital Earnings Stock Income Taxes by ESOP by RRP Total
------ ------- -------- -------- ------------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 17 $16,393 $ 15,326 $ -- $ -- $ (685) $ (690) $30,361
Additions (deductions) for the
year ended June 30, 1994:
Net income -- -- 1,231 -- -- -- -- 1,231
Stock options exercised -- 1 -- -- -- -- -- 1
Dividends declared ($.40 per
share) -- -- (626) -- -- -- -- (626)
Compensation expense related
to ESOP -- 28 -- -- -- -- -- 28
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 97 -- 97
Amortization of executive
stock plan -- -- -- -- -- -- 184 184
Purchase of treasury stock
(146,915 shares) -- -- -- (2,178) -- -- -- (2,178)
Unrealized loss on securities
available-for-sale, net of
deferred income tax
of $235,000 -- -- -- -- (401) -- -- (401)
------ ------- -------- -------- ------------ ------- ------ ------
Balance, June 30, 1994 17 16,422 15,931 (2,178) (401) (588) (506) 28,697
Additions (deductions) for the
year ended June 30, 1995:
Net income -- -- 1,452 -- -- -- -- 1,452
Stock options exercised -- 129 -- -- -- -- -- 129
Dividends declared
($.40 per share) -- -- (577) -- -- -- -- (577)
Compensation expense related
to ESOP -- 30 -- -- -- -- -- 30
Deferred tax on RRP -- 34 -- -- -- -- -- 34
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 64 -- 64
Amortization of executive
stock plan -- -- -- -- -- -- 149 149
Purchase of treasury stock
(99,421 shares) -- -- -- (1,489) -- -- -- (1,489)
Change in unrealized gain
(loss) on securities available-
for-sale, net of deferred
income tax of $349,000 -- -- -- -- 599 -- -- 599
------ ------- -------- -------- ------------ ------- ------ ------
Balance, June 30, 1995 17 16,615 16,806 (3,667) 198 (524) (357) 29,088
Additions (deductions) for the
year ended June 30, 1996:
Net income -- -- 1,393 -- -- -- -- 1,393
Dividends declared ($.40
per share) -- -- (534) -- -- -- -- (534)
Compensation expense related
to ESOP -- 120 -- -- -- -- -- 120
Deferred tax on RRP -- 19 -- -- -- -- -- 19
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 134 -- 134
Amortization of executive
stock plan -- -- -- -- -- -- 149 149
Purchase of treasury stock
(126,664 shares) -- -- -- (2,257) -- -- -- (2,257)
Change in unrealized gain (loss)
on securities available-for-sale,
net of deferred income tax of
$26,000 -- -- -- -- (45) -- -- (45)
------ ------- -------- -------- ------------ ------- ------ ------
Balance, June 30, 1996 $ 17 $16,754 $ 17,665 $ (5,924) $ 153 $ (390) $ (208) $28,067
See accompanying notes to consolidated financial statements.
14
</TABLE>
PAGE
<PAGE>
For The Three Years Ended June 30, 1996
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended June 30,
1996 1995 1994
------ ------ ------
(In Thousands)
Cash flows from operating activities:
Net income $ 1,393 $ 1,452 $ 1,231
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses -- 115 75
Net loss (gain) on sale of real estate owned 14 6 (1)
Gain on sale of mortgage-backed securities (10) -- --
Depreciation 42 62 52
Amortization of premiums and discounts (79) (67) 29
Amortization of RRP 87 184 335
FHLB stock dividend (82) -- --
Decrease (increase) in interest receivable (12) (434) (83)
Decrease (increase) in other assets 35 (81) 13
Increase (decrease) in income tax payable 77 (29) (253)
Increase (decrease) in other liabilities 7 (567) (53)
Excess of fair value over cost of ESOP
unallocated shares 121 30 27
Deferred tax on RRP 19 34 --
------ ------ ------
Net cash provided by operating activities 1,612 705 1,372
Cash flows from investing activities:
Loans purchased (16,503) (22,076) (35,891)
Loans sold -- 4,159 --
(Increase) decrease in loans, net 14,613 5,994 13,404
Proceeds from maturities of investment
securities and certificates of deposit 9,669 19,827 20,945
Proceeds from sale of mortgage-backed
securities 3,510 -- --
Purchase of investment securities,
certificates of deposit, and FHLB stock (7,556) (19,192) (23,399)
Principal collected on repayments and
maturities of mortgage-backed and
related securities 5,955 1,057 10,597
Purchase of mortgage-backed and related
securities (11,007) (55,041) (8,494)
Proceeds from the sale of real estate owned 66 46 8
Purchase of equipment (13) (56) (99)
------ ------ ------
Net cash used by investing activities (1,266) (65,282) (22,929)
See accompanying notes to consolidated financial statements.
15
<PAGE>
<PAGE>
For the Three Years Ended June 30, 1996
CONSOLIDATED STATEMENTS OF CASH FLOW
(continued)
Years Ended June 30,
1996 1995 1994
------ ------ ------
(In Thousands)
Cash flows from financing activities:
Net proceeds from the sale of common stock $ -- $ 129 $ 2
Purchase of treasury stock (2,257) (1,489) (1,510)
Purchase of Recognition and Retention Plan Stock -- -- --
Purchase of ESOP Plan Stock -- -- --
Net increase (decrease) in deposits 1,553 (3,217) (2,896)
Net increase (decrease) in advances from
borrowers for taxes and insurance (42) (8) (44)
Dividends paid (534) (603) (303)
Proceeds from FHLB advances 7,000 71,500 10,576
Principal payments on FHLB advances (3,701) (188) (101)
Unearned ESOP compensation decrease 135 63 97
------ ------ ------
Net cash provided by financing activities 2,154 66,187 5,821
Increase (decrease) in cash and cash equivalents 2,500 1,610 (15,736)
Cash and cash equivalents at beginning of period 2,631 1,021 16,757
------ ------ ------
Cash and cash equivalents at end of period $ 5,131 $ 2,631 $ 1,021
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1,757 $ 1,498 $ 1,480
Income taxes $ 802 $ 894 $ 909
Noncash activity:
Loans transferred to real estate owned $ 103 $ 49 $ 10
Loans to facilitate sales of real estate owned $ -- $ -- $ --
See accompanying notes to consolidated financial statements.
16
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
MBLA Financial Corporation (the "Company") is a Delaware corporation
incorporated February 23, 1993, for the purpose of being the savings and loan
holding company for Macon Building and Loan Association, F.A. (the
"Association"). On June 24, 1993, the Association converted from a mutual to
a stock form of ownership, and the Company completed its initial public
offering, and, with a portion of the net proceeds acquired all of the issued
and outstanding capital stock of the Association (the "Conversion"). The
Association provides financial services to individuals and corporate
customers, and is subject to competition from other financial institutions.
The Association is also subject to the regulations of certain Federal agencies
and undergoes periodic examination by those regulatory authorities.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts
of the Company, and its wholly-owned subsidiary, Macon Building and Loan
Association, F.A., and MBL Financial Services, Inc., the Association's wholly
owned subsidiary. All significant intercompany transactions and balances are
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the statement of financial condition and revenues and expenses for the year.
Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change relate to
the determination of the allowance for losses on loans and the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for losses on
loans and foreclosed real estate, management obtains independent appraisals
for significant properties. While management uses available information to
recognize losses on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic conditions.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Association's allowances for losses on loans
and foreclosed real estate. Such agencies may require the Association to
recognize additions to the allowances based on their judgements about
information available to them at the time of their examination.
Cash Equivalents
Cash equivalents of $5.1 million and $2.6 million at June 30, 1996 and
1995, respectively, consist of cash on hand and funds due from banks. For
purposes of the statements of cash flows, the Association considers all
highly liquid debt instruments with original maturities when purchased of
three months or less to be cash equivalents.
Investment Securities
Investment securities that are held for short-term resale are classified
as trading securities and are carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and are carried at cost, adjusted for amortization of premium
and accretion of discounts using methods approximating the interest
method. Other marketable securities are classified as available-for-sale and
are carried at fair value. Realized and unrealized gains and losses on
trading securities are included in net income. Unrealized gains and losses,
net of tax, on securities available-for-sale are recognized as direct
increases or decreases in stockholders' equity. Cost of securities sold is
determined using the specific identification method.
Mortgage-Backed and Related Securities
Mortgage-backed securities represent participating interest in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are classified as available for sale
and are carried at fair value. Premiums and discounts are amortized using
methods approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. The Company
evaluates mortgage-backed securities on a monthly basis to monitor prepayments
and the resulting effects on yields and valuations. The Company has not sold
any mortgage-backed securities as a result of this monitoring activity.
Management considers the concentration of credit risk to be minimal on
mortgage-backed securities because all such securities are guaranteed as to
timely payment of principal and interest by FNMA, FMLMC or GNMA. Should any
be sold, gains and losses are recognized based on the specific-identification
method. All sales are made without recourse.
At June 30, 1996 and 1995, the Company had no outstanding commitments to
sell loans or securities. Equity securities that are nonmarketable are
carried at cost. Nonmarketable equity securities held by the Association
consist of their patronage equity in the Financial Information Trust (a
computer service bureau) and stock in the Federal Home Loan Bank. The
Association, as a member of the Federal Home Loan Bank system, is required to
maintain an investment in capital stock of the Federal Home Loan Bank in an
amount based on its outstanding loans and advances.
17
<PAGE>
<PAGE>
June 30, 1996 and 1995
The Association sold its interest in the Financial Information Trust in 1996.
No ready market exists for the Bank stock and they have no quoted market
value. For reporting purposes, these investments are assumed to have a market
value equal to cost.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan origination fees and costs.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgement, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
Loan Origination Fees, Commitment Fees, and Related Costs
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized as an adjustment to interest income using the
interest method over the contractual life of the loans, adjusted for
prepayments.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosures
are initially recorded at the estimated fair value less estimated selling
costs at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to the holding
of property are expensed.
Valuations are periodically performed by management, and losses are
charged to operations if the carrying value of a property exceeds its
estimated net realizable value.
All foreclosed real estate owned is held for sale.
Income Taxes
The Company files a consolidated federal income tax return with the
Association. The provision for federal and state taxes on income is based on
earnings reported in the financial statements. Deferred income taxes arise
from temporary differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities.
An asset and liability approach is used for financial accounting and
reporting of income taxes which, among other things, requires the Company to
take into account changes in the tax rates when valuing the deferred income
tax accounts recorded on the balance sheet. A deferred tax liability or asset
is recognized for the estimated future tax effects attributable to temporary
differences and loss carryforwards. Temporary differences include differences
between financial statement income and tax return income which are expected to
reverse in future periods as well as differences between the tax bases of
assets and liabilities and their amounts for financial reporting which are
also expected to be settled in future periods. To the extent a deferred tax
asset is established which is not realizable, a valuation allowance shall be
established against such asset.
Premises and Equipment
Land is carried at cost. Buildings, furniture, fixtures, and equipment
are carried at cost, less accumulated depreciation and amortization.
Buildings and furniture, fixtures, and equipment are depreciated using
straight-line and accelerated methods over the estimated useful lives of the
assets.
Earnings Per Share
Primary and fully diluted earnings per share for the year ended June 30,
1996, were determined by dividing net income for the year by 1,434,869 and
1,438,653 respectively, the weighted average number of shares of common stock
and common stock equivalents outstanding.
Primary and fully diluted earnings per share for the year ended June 30,
1995, were determined by dividing net income for the year by 1,517,340 and
1,517,447 respectively, the weighted average number of shares of common stock
and common stock equivalentsoutstanding.
Stock options are regarded as common stock equivalents and are therefore
considered in both primary and fully diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method.
18
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 2: INVESTMENT SECURITIES
Securities available-for-sale consist of the following:
June 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
U.S. Government and
federal agencies $ 12,471 $ 23 $ (57) $ 12,437
June 30, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
U.S. Government and
federal agencies $ 14,553 $ 79 $ (28) $ 14,604
The following is a summary of maturities of investment securities
available-for-sale as of June 30:
1996 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
(In thousands)
Amounts maturing in:
One year or less $ 6,002 $ 6,020 $ 9,551 $ 9,53
After one year through five years 6,469 6,417 5,002 5,070
--------- ------- --------- -------
$12,471 $12,437 $14,553 $14,604
There were no sales of investment securities during the years ended June 30,
1996, 1995, or 1994.
U.S. Government and federal agency securities with fair value of $4,450,500
were pledged to collateralized short-term loans from the Federal Home Loan
Bank of $85,086,000 at June 30, 1996. (See Note 8)
19
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 3: MORTGAGE-BACKED AND RELATED SECURITIES
June 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
FHLMC certificates $ 1,193 $ 27 $ -- $ 1,220
FHLMC-ARM certificates 343 2 -- 345
FNMA-ARM certificates 420 -- (20) 400
GNMA-ARM certificates 19,145 170 -- 19,315
FNMA-REMIC 18,977 185 (310) 18,852
FHLMC-REMIC 30,774 388 (165) 30,997
--------- ---------- ---------- -------
$70,852 $ 772 $ (495) $ 71,129
June 30, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
FHLMC certificates $ 1,438 $ 68 $ -- $ 1,506
FHLMC-ARM certificates 519 -- (4) 515
FNMA-ARM certificates 505 -- (26) 479
GNMA ARM certificates 24,602 542 -- 25,144
FNMA-REMIC 14,849 108 (297) 14,660
FHLMC-REMIC 27,306 154 (282) 27,178
--------- ---------- ---------- -------
$ 69,219 $ 872 $ (609) $ 69,482
The amortized cost and fair value of mortgage-backed securities by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
June 30, 1996 June 30, 1995
Available-for-Sale Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
(In thousands)
Due in one year or less $ -- $ -- $ -- $ --
Due after one year through five years 119 122 120 124
Due after five years through ten years 277 280 -- --
Due after ten years 70,456 70,727 69,099 69,358
--------- ------- --------- -------
$70,852 $71,129 $69,219 $69,482
Mortgage-backed and related securities with a fair value of $58,545,000 were
pledged to collateralized short-term loans from the Federal Home Loan Bank of
$85,086,000 at June 30, 1996. (See Note 8)
Gross proceeds from the sales of mortgage-backed and related securities were
$3,510,000 for the year ended June 30, 1996. Gross realized gains were
$10,000. There were no realized losses.
20
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<PAGE>
June 30, 1996 and 1995
NOTE 4: LOANS RECEIVABLE
Loans receivable are summarized as follows:
1996 1995
------ ------
(In thousands)
Mortgage loans:
One- to four-family $ 97,017 $ 92,731
Multi-family 1,367 4,401
Commercial real estate 7,643 7,102
------ ------
Total mortgage loans 106,027 104,234
Other loans:
Home improvement 277 378
Loans on savings accounts 283 289
Other loans - FHA Non-mortgage 415 459
------ ------
Total other loans 975 1,126
------ ------
Total loans receivable 107,002 105,360
Add:
Premium on purchased loans 8 9
Deferred loan costs 26 31
Less:
Loans in process 16 165
Allowance for loan losses 535 535
------ ------
Loans receivable, net $106,485 $104,700
At June 30, 1996, the Association's loan portfolio consisted of $14,255,000
of fixed rate loans and $92,747,000 of variable rate loans. The fixed rate
loans had a weighted average term to maturity of 9.3 years and a weighted
average interest rate of 8.57%. The variable rate loans had a weighted
average term to maturity of 18.3 years and a weighted average interest rate of
6.78%. The Association is required to maintain qualifying collateral for the
Federal Home Loan Bank of Des Moines (the "Bank") representing 150 percent of
current Bank credit. (See Note 8) At June 30, 1996, the Association met this
requirement. Qualifying collateral is defined as fully disbursed, whole first
mortgage loans on improved residential property or securities representing a
whole interest in such mortgages. The mortgages must not be past due more
than 60 days. Loans pledged at June 30, 1996 total $32.7 million. They must
not be otherwise pledged or encumbered as security for other indebtedness, and
the documents must be in the physical possession or control of the
Association. The documents that govern the determination of the qualifying
mortgage collateral are the (a) Federal Home Loan Bank of Des Moines's Credit
Policy Statement, dated April 1, 1994, and (b) the Agreement for Advances,
Pledge and Security Agreement between the Association and the Federal Home
Loan Bank of Des Moines, dated April 14, 1989.
Activity in the allowance for loan losses is summarized as follows:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Balance at beginning of period $ 535 $ 425 $ 350
Provision charged to income -- 115 75
Charge-offs and recoveries, net -- (5) --
------ ------ ------
Balance at end of period $ 535 $ 535 $ 425
Nonaccrual and renegotiated loans for which interest has been reduced totaled
approximately $663,000 and $-0- at June 30, 1996 and 1995, respectively.
Interest income foregone on these loans is insignificant.
The Association is not committed to lend additional funds to debtors whose
loans have been modified.
21
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<PAGE>
June 30, 1996 and 1995
NOTE 5: ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
1996 1995
------ ------
(In thousands)
Investment securities $ 164 $ 203
Mortgage-backed and related securities 320 350
Loans receivable 668 587
------ ------
$1,152 $1,140
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
1996 1995
------ ------
(In thousands)
Cost:
Land $ 37 $ 37
Buildings 465 461
Furniture, fixtures and equipment 416 407
------ ------
918 905
Less accumulated depreciation and amortization (634) (592)
------ ------
$ 284 $ 313
Depreciation expense for the years ended June 30, 1996, 1995, and 1994 was
$42,000, $62,000 and $52,000, respectively.
NOTE 7: DEPOSITS
Deposits are summarized as follows:
1996 1995
Weighted Weighted
Average Average
Rate Amount % Rate Amount %
---- ------ ---- ---- ------ ----
(In Thousands)
Passbook savings 3.00% $ 7,575 8.74 3.00% $7,816 9.18
Certificates of deposit:
3.00% to 3.99% 3.00% 2 -- 3.76% 3,650 4.29
4.00% to 4.99% 4.51% 5,363 6.18 4.51% 15,078 17.70
5.00% to 5.99% 5.51% 51,732 59.66 5.30% 27,141 31.87
6.00% to 6.99% 6.34% 20,303 23.41 6.29% 28,260 33.18
7.00% to 7.99% 7.08% 1,730 2.00 7.14% 3,158 3.71
8.00% to 8.99% 8.00% 11 .01 8.00% 59 .07
---- ------ ---- ---- ------ ----
5.69% 79,141 91.26 5.51% 77,346 90.82
5.45% $86,716 100.00 5.28%$85,162 100.00
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $7.5 million and $6.5 million at
June 30, 1996 and 1995, respectively.
22
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<PAGE>
June 30, 1996 and 1995
NOTE 7: DEPOSITS (Continued)
Scheduled maturities of certificates of deposit are as follows:
Year Ending June 30, 1996
1997 1998 1999 2000 2001 Thereafter
------ ------ ------ ------ ------ ----------
(In thousands)
3.00% to 3.99% $ -- $ -- $ -- $ -- $ -- $ 2
4.00% to 4.99% 4,151 1,212 -- -- -- --
5.00% to 5.99% 35,779 9,482 4,002 1,774 695 --
6.00% to 6.99% 10,412 7,462 2,102 317 10 --
7.00% to 7.99% 404 82 -- 1,243 -- --
8.00% to 8.99% 11 -- -- 1 -- --
------ ------ ------ ------ ------ ----------
$50,757 $18,238 $6,104 $3,335 $ 705 $ 2
Year Ending June 30, 1995
1997 1998 1999 2000 2001 Thereafter
------ ------ ------ ------ ------ ----------
(In thousands)
3.00% to 3.99% $ 3,643 $ -- $ -- $ 5 $ -- $ 2
4.00% to 4.99% 9,600 4,270 1,208 -- -- --
5.00% to 5.99% 18,424 5,508 2,593 616 -- --
6.00% to 6.99% 11,270 8,694 6,289 1,885 122 --
7.00% to 7.99% 1,480 404 80 -- 1,194 --
8.00% to 8.99% 48 10 -- -- 1 --
------ ------ ------ ------ ------ ----------
$44,465 $18,886 $10,170 $2,506 $1,317 $ 2
Interest expense on deposits is summarized as follows:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Passbook $ 229 $ 259 $ 317
Certificates of deposit and money market demand 4,154 3,598 3,439
Certificates of deposit $100,000 or more 295 218 162
------ ------ ------
$4,678 $4,075 $ 3,918
23
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<PAGE>
June 30, 1996 and 1995
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Advances consist of the following:
June 30,
Maturity Interest 1996 1995
Date Rate ------ ------
-------- -------- (In thousands)
07-25-95 6.06% $ - $ 2,000
07-31-95 6.10% - 13,000
09-28-95 6.06% - 12,000
10-24-95 6.06% - 9,000
12-22-95 6.02% - 4,000
01-03-96 6.65% - 500
09-20-96 5.43% 12,000 -
10-24-96 5.47% 7,000 7,000
10-24-96 5.47% 9,000 -
10-24-96 5.45% 2,000 -
10-24-96 5.45% 1,000 -
11-07-96 5.43% 13,000 -
12-20-96 7.12% 8,000 8,000
04-25-97 5.45% 5,000 5,000
06-16-97 5.45% 10,000 10,000
07-18-97 5.40% 2,000 -
12-22-97 8.18% - 7,000
02-09-98 5.17% 7,000 -
05-18-98 5.45% 5,000 -
------ ------
Total short-term advances 81,000 77,500
11-18-08 6.17% 700 733
11-24-08 6.30% 1,435 1,503
11-28-08 6.28% 1,406 1,479
12-05-08 6.24% 242 254
12-30-08 6.19% 303 318
------ ------
Total long-term advances 4,086 4,287
------ ------
Total advances $ 85,086 $ 81,787
See Notes 2, 3, and 4 of the financial statements for collateral securing this
indebtedness.
Advances at June 30, 1996, have maturity dates as follows:
06-30-97 $ 67,215
06-30-98 14,231
06-30-99 247
06-30-00 264
06-30-01 284
Thereafter 2,845
------
$ 85,086
The maximum amount of Federal Home Loan Bank advances outstanding at any month
end during the years ended June 30, 1996 and 1995 was $85,103 and $81,803
respectively. Advances maturing December 20, 1996 and all long-term advances
are fixed rates. The remaining advance rates adjust monthly.
24
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS
Stock Option Plans
In conjunction with the Conversion, (Note 18), the Company adopted an
incentive stock option plan for the benefit of the officers and employees of
the Company and its affiliates and a director's stock option plan for the
benefit of outside directors of the Company. The number of shares of common
stock authorized under the Employees' Plan is 103,674, equal to 6% of the
total number of shares issued in the Conversion. For the year ended June 30,
1993, 103,674 options were granted at $10.00 per share. No options were
granted subsequently. Options granted under the Incentive Plan become
exercisable in seven annual installments with the first installment
exercisable on the date of grant, June 24, 1993. The term of the options
issued under the Employees' Plan expires ten years from the date of grant, or
within one year from the date of death, disability or retirement of
the optionee.
The number of shares of common stock authorized under the Directors' Plan
is 68,826 equal to 4% of the total number of shares issued in the Conversion.
For the year ended June 30, 1993, stock options to purchase 58,993 shares
were granted at a price of $10.00 per share and are exercisable immediately.
No options were granted subsequently. The term of the options issued under
the Director's Plan expires ten years from the date of grant, or three years
from the date of death, disability or retirement of the optionee.
The following table summarizes information relating to the number of shares
under option.
Employee Director
Plan Plan Total
-------- -------- -------
Outstanding at June 30, 1993 103,674 58,993 162,667
Exercised (173) - (173)
-------- -------- -------
Outstanding at June 30, 1994 103,501 58,993 162,494
Exercised (12,938) - (12,938)
-------- -------- -------
Outstanding at June 30, 1995 90,563 58,993 149,556
Exercised - - -
-------- -------- -------
Outstanding at June 30, 1996 90,563 58,993 149,556
Employee Stock Ownership Plan
In conjunction with the Conversion, the Association formed an Employee
Stock Ownership Plan ("ESOP"). The ESOP covers substantially all employees
with more than one year of employment and who have attained the age of 21.
The ESOP borrowed $685,000 from the Company and purchased 68,500 common shares
issued in the Conversion. The loan is payable over a period of 10 years with
an interest rate of 4 percent. The Association makes scheduled discretionary
cash contributions to the ESOP sufficient to service the amount borrowed.
Shares are released for allocation to participants based upon the ratio
of the current year's debt service to the sum of total principal and interest
payments over the life of the loan. Released shares are allocated among ESOP
participants on the basis of compensation in the year of allocation. Dividends
paid on allocated and unallocated shares are added to participant accounts.
The Company accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and
shares pledged as collateral are reported as unearned ESOP shares, a reduction
of stockholder's equity. As shares are released from collateral, the
Association records compensation expense in an amount equal to the fair value
of the shares, and the shares become outstanding for earnings-per-share (EPS)
computations. Compensation expense is also recognized for Company dividends
on unallocated shares paid or added to participant accounts. ESOP
compensation expense was $275,000 and $115,000 for the years ended June 30,
1996 and 1995 respectively. The ESOP shares as of June 30, 1996 were as
follows:
Allocated shares 22,911
Shares released for allocation 5,971
Unreleased shares 38,982
Total ESOP shares 67,864
Fair value of unreleased shares
at June 30, 1996 $916,000
25
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS
(Continued)
Association Recognition and Retention Plan
In conjunction with the Conversion, the Company formed an Association
Recognition and Retention Plan ("RRP"), which was authorized to acquire 4% of
the shares of common stock in the Conversion. The total shares authorized
were awarded to directors and to employees in key management positions in
order to provide them with a proprietary interest in the Company in a manner
designed to encourage such employees to remain with the Company.
The Association contributed funds to the RRP plan to enable it to acquire
the shares of common stock required to fund the RRP (69,000 shares). For the
year ended June 30, 1993, there were 64,308 shares awarded. No shares were
awarded subsequently. Awards under the RRP Plan become vested at a rate of
25% per year.
The $690,000 contributed to the RRP is being amortized to compensation
expense as the plan participants become vested in those shares. For the
years ended June 30, 1996 and 1995, the Association recognized compensation
expense of $87,000 and $184,000 respectively for the RRP plan.
The unamortized cost, which is comparable to deferred compensation, is
reflected as a reduction of stockholders' equity.
Outside Directors' Retirement Plan
In conjunction with the Conversion, the Association adopted an outside
director's retirement plan to be effective after the Conversion. Under this
plan an outside director who has served as a director for at least 15 years at
the time of retirement will be eligible to receive a benefit equal to 50% of
the annual directors fee for five years. In addition, a director's heirs are
eligible to receive 1/2 of the benefit due to the director.
The Outside Directors' Retirement Plan is unfunded. All benefits will be
payable from the Association's current assets.
The Association estimated the future cost of the Outside Directors
Retirement Plan and accrues current compensation expense. The Association
estimated the cost based on an assumed retirement age of 75 and an assumption
that all directors would have at least 15 years service at the time of
retirement. The estimated cost is being amortized into compensation expense
over a 14 year period. This is the estimated average number of years to
retirement plus the five year benefit period for the existing board members.
This amortization resulted in expense of approximately $8,000 for the years
ended June 30, 1995 and 1994.
NOTE 10: INCOME TAXES
As discussed in Note 1, the Company uses the asset and liability method
of accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities.
A deferred tax asset is to be recognized for the bad debt reserve
established for financial reporting purposes and requires a deferred tax
liability to be recorded for increases in the tax bad debt reserve since
January 1, 1988, the effective date of certain changes made by the Tax Reform
Act of 1986 to the calculation of savings institutions' bad debt deduction.
Accordingly, retained earnings at June 30, 1995, include approximately
$4,174,000 for which no deferred federal income tax liability has been
recognized.
The Company and the Association file consolidated federal income tax
returns on a fiscal year ended June 30 basis. In accordance with the Tax
Sharing Agreement, the Association agrees to remit its prorata share of the
total consolidated tax liability, calculated as if it were filing a separate
return for the year, to the Company on a quarterly basis. There were no
significant intercompany tax receivable/payable balances at June 30, 1996.
Income tax expenses for the periods then ended is summarized as follows:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Federal:
Current $ 744 $ 807 $ 819
Deferred 59 26 (109)
State:
Current 91 108 105
Deferred 4 (8) (28)
------ ------ ------
$ 898 $ 933 $ 787
26
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 10: INCOME TAXES (Continued)
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rates of 34 percent to income before income taxes as a
result of the following:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Expected income tax expense at federal tax rate $ 779 $ 811 $ 686
State income tax, net of federal tax benefit 63 66 51
Nondeductible loan loss provision - 39 26
Compensation expense for employee stock plans 48 23 26
Other 8 (6) (2)
Total income tax expense $ 898 $ 933 $ 787
Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities that give rise to significant portions of the
deferred tax liability relate to the following:
1996 1995
------ ------
(In thousands)
Income tax basis of FHLB stock versus carrying value $ 139 $ 111
Deferred loan fees 10 12
Tax bad-debt reserve 74 79
Unrealized gain on investments 90 116
------ ------
Gross deferred tax liabilities 313 318
SFAS 106 deferred tax asset (Note 10) (13) (10)
RRP expense deferred for tax (112) (137)
State deferred tax benefit for bad debts (37) (37)
------ ------
Gross deferred tax assets (162) (184)
------ ------
Net deferred tax liability (asset) 151 134
Federal tax payable 31 4
State tax payable 59 51
Net current tax liability 90 55
------ ------
Total income tax payable $ 241 $ 189
Deferred tax expense results from temporary differences between the financial
statement carrying amounts and tax basis of existing assets and liabilities.
The sources and tax effects of these temporary differences are as follows:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
FHLB stock dividends $ 28 $ - $ -
Deferred loan fees (2) 1 6
Tax bad debt reserve (5) - 3
Post retirement benefits - SFAS 106 (3) (3) (3)
State bad debt - (14) (6)
RRP expense deferred for tax 26 - (137)
Tax benefit of RRP plan 19 34 -
------ ------ ------
Total deferred tax expense $ 63 $ 18 $ (137)
27
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 11: FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF
1989 (FIRREA)
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became
effective on December 19, 1992. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and regulatory
environment for insured depository institutions, including reductions in
insurance coverage for certain kinds of deposits, increased supervision by the
federal regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls, accounting,
and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including the requirement to file a
capital plan with their primary federal regulator, prohibitions on the payment
of dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may
be imposed on the institution either by its primary federal regulator, the
Office of Thrift Supervision (OTS), or by the Federal Deposit Insurance
Corporation (FDIC), including requirements to raise additional capital, sell
assets, or sell the entire institution. Once an institution becomes
"critically undercapitalized," it must generally be placed in receivership or
conservatorship within 90 days.
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum-capital requirements went into effect on December 7,
1989. In addition to the capital requirements, FIRREA includes provisions for
changes in the federal regulatory structure for institutions, including a new
deposit insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to non-investment-grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets needed to qualify as a savings institution. The
regulations require institutions to have minimum regulatory tangible capital
equal to 1.5 percent of total assets, 3 percent core capital ratio, and
risk-based capital ratio of 8%.
The following is a reconciliation of GAAP capital to regulatory capital of
Macon Building and Loan Association:
June 30, 1996
Tangible Core Risk-Based
Capital Capital Capital
(In thousands)
% of % of % of
Assets Assets Assets
Amount (1) Amount (1) Amount (1)
------ ------ ------ ------ ------ ------
GAAP capital, as adjusted $26,115 13.00% $26,115 13.00% $26,115 36.99%
Additional capital items:
General valuation allowances-
limited (153) (.08) (153) (.08) 382 .54%
Regulatory capital-computed 25,962 12.92% 25,962 12.92% 26,497 37.53%
Minimum-capital requirement 3,013 1.50% 6,025 3.00% 5,648 8.00%
------ ------ ------ ------ ------ ------
Regulatory Capital-excess $22,949 11.42% $19,937 9.92% $32,145 29.53%
(1) Tangible and core capital levels are shown as a percentage of total
adjusted assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
28
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<PAGE>
June 30, 1996 and 1995
NOTE 12: OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense amounts are summarized as follows:
June 30,
1996 1995 1994
------ ------ ------
(In thousands)
Other non-interest income:
Loan late charges $ 4 $ 4 $ 6
Other 17 10 13
------ ------ ------
$ 21 $ 14 $ 19
Other non-interest expense:
Advertising and promotion $ 8 $ 20 $ 18
Data processing 52 58 57
Professional fees 39 48 89
Printing, postage and supplies 28 17 22
Telephone 9 9 10
Foreclosed real estate expenses 5 4 5
Other 63 105 130
------ ------ ------
$ 204 $ 261 $ 331
NOTE 13: COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Association had outstanding firm commitments to originate or purchase
loans as follows:
June 30, 1996 June 30, 1995
Fixed- Variable- Fixed- Variable-
Rate Rate Total Rate Rate Total
----- -------- ----- ----- -------- -----
(In thousands)
First-mortgage loans $ 641 $ 4,323 $ 4,964 $ 60 $ 200 $ 260
The Association is, from time to time, a party to certain lawsuits arising in
the ordinary course of its business. The Association believes that none of
these lawsuits would, if adversely determined, have a material adverse effect
on its financial condition or results of operations.
29
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 14: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
position. The contract of those instruments reflect the extent of the
Association's involvement in particular classes of financial instruments.
The Association's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit, is represented by the contractual amount of those instruments. The
Association uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
Contract Amount
June 30,
1996 1995
------ ------
(In thousands)
Financial instruments, the
contract amounts of which
represent credit risk:
Commitments to extend credit $4,964 $ 260
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some commitments can expire without
being drawn upon the total commitment amounts do not necessarily represent
future cash requirements. The Association evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it
is deemed necessary by the Association upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies
but may include residential and income-producing commercial properties. The
loan commitments at June 30, 1996, were at a fixed rate of 8.50% for 15 years
on $641,000 and variable rates of 6.75% to 7.50% on $4,323,000.
The Association invests funds in other financial institutions in the form
of certificates of deposit, none of which exceed the insured limit of
$100,000. In addition, the Association maintains cash accounts at the
Federal Home Loan Bank and two local banks. Balances reflected on the local
banks' statements exceed the $100,000 insurance limit by varying amounts on a
daily basis. The Association controls this risk by monitoring the financial
condition of the local banks. The Federal Home Loan Bank is an
instrumentality of the U.S. Government.
NOTE 15: SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Association's business activity is with customers located
within the State of Missouri. As of June 30, 1996 and 1995, the Association's
loans receivable included approximately $90.0 million and $86.0 million,
respectively of loans originated or purchased in the Columbia, Missouri area.
A substantial part of these loans are on 1 to 4 family residences. Included
is approximately $6.5 million and $6.8 million of commercial loans,
respectively.
NOTE 16: RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company or its subsidiary
were loan customers. A summary of aggregate related party loan activity, for
loans aggregating $60,000 or more to any one related party is as follows:
June 30,
1996 1995
------ ------
Beginning balance $204,196 $ 62,715
New loans 115,000 150,000
Repayments 61,376 8,519
------ ------
Ending balance $257,820 $204,196
30
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<PAGE>
June 30, 1996 and 1995
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statement of financial condition, as of June 30, 1996
and 1995 and condensed statements of earnings and cash flows for the years
then ended for MBLA Financial Corporation should be read in conjunction with
the consolidated financial statements and the notes thereto.
June 30,
1996 1995
------ ------
(In thousands)
ASSETS
Cash on hand and noninterest earning deposits $ 3 $ 45
Interest-earning deposits in other institutions 639 735
Investment securities - 2,565
Accrued interest receivable - 18
Dividend receivable 1,200 -
Investment in subsidiary 11,946 11,746
ESOP loan receivable 390 525
------ ------
Total assets $14,178 $15,634
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable $ (5) $ (11)
Dividends payable 274 329
Accrued expenses 10 -
------ ------
Total liabilities 279 318
STOCKHOLDERS' EQUITY
Common stock 17 17
Additional paid in capital 16,524 16,524
Retained earnings 3,282 2,443
Less:
Treasury stock (5,924) (3,667)
Unrealized loss on investments - (1)
------ ------
Total Stockholders' Equity 13,899 15,316
------ ------
Total liabilities and stockholders' equity $14,178 $15,634
31
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
Statement of Income
Year Ended June 30,
1996 1995
------ ------
(In thousands)
Interest income:
Investment securities $ 8 $ 151
Other interest-earning assets 73 10
ESOP loan 19 23
------ ------
100 184
Income from investment in subsidiary 1,399 1,389
Noninterest expense:
Other (110) (83)
------ ------
Income before income taxes 1,389 1,490
Income tax (expense) recovery 4 (38)
------ ------
Net income $1,393 $1,452
Statement of Cash Flows
Year Ended June 30,
1996 1995
------ ------
(In thousands)
Cash flows from operating activities:
Net income $1,393 $1,452
Equity in earnings of subsidiary (1,399) (1,389)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of premiums and discounts (2) (34)
(Increase) decrease in interest receivable 17 25
Decrease in income tax payable 5 -
Increase (decrease) in other liabilities (46) (636)
------ ------
Net cash provided (used) by operating activities (32) (582)
Cash flows from investing activities:
Proceeds from maturities of investment securities
and certificates of deposit 2,570 13,170
Purchase of investment securities and certificates
of deposit - (10,141)
(Increase) decrease in loans receivable ESOP 135 63
------ ------
Net cash provided (used) in investing activities 2,705 3,092
Cash flows from financing activities:
Net proceeds from sale of common stock - 129
Purchase of treasury stock (2,257) (1,489)
Dividends paid (554) (625)
------ ------
Net cash provided (used) by financing activities (2,811) (1,985)
Increase (decrease) in cash and cash equivalents (138) 525
Cash and cash equivalents at beginning of period 780 255
------ ------
Cash and cash equivalents at end of period $ 642 $ 780
32
<PAGE>
<PAGE>
June 30, 1996 and 1995
NOTE 18: FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following table presents the carrying amounts and fair values of the
company's financial instruments at June 30, 1996 and 1995. FASB Statement No.
107, Disclosures About Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
June 30, 1996
Carrying Fair
Amount Value
------ -----
(In thousands)
Nontrading instruments:
Cash and cash equivalents $ 5,131 $ 5,131
Investment securities and mortgage-backed
securities $ 83,566 $ 83,566
Loans, net $106,485 $106,564
Accrued interest receivable $ 1,152 $ 1,152
FHLB stock $ 4,256 $ 4,256
Deposit liabilities $(86,716) $(87,125)
Debt-FHLB advances $(85,086) $(84,598)
Other liabilities $ (1,170) $ (1,170)
June 30, 1995
Carrying Fair
Amount Value
------ -----
(In thousands)
Nontrading instruments:
Cash and cash equivalents $ 2,631 $ 2,631
Certificates of deposit $ 99 $ 99
Investment securities and mortgage-backed
securities $ 84,086 $ 84,086
Loans, net $104,700 $104,448
Accrued interest receivable $ 1,140 $ 1,140
FHLB stock $ 4,091 $ 4,091
Deposit liabilities $(85,162) $(85,210)
Debt-FHLB advances $(81,787) $(81,950)
Other liabilities $ (1,215) $ (1,215)
The carrying amounts in the tables are included in the statement of
financial position under the indicated captions, except for advances from
borrowers for taxes and insurance, income taxes payable and accrued expenses
and other liabilities which have been combined into other liabilities.
Estimation of Fair Values
The following notes summarized the major methods and assumptions used in
estimating the fair values of financial institutions.
Short-term financial instruments are valued at their carrying amounts
included in the statement of financial position, which are reasonable
estimates of fair value due to the relatively short period to maturity of the
instruments. This approach applies to cash and cash equivalents, accrued
receivables, and certain other liabilities.
Loans are valued on the basis of estimated future receipts of principal
and interest, discounted at various rates. Future cash flows of loans are
estimated based on their maturities and weighted average rates and are
discounted at current rates offered for similar loan terms to new borrowers.
Investment securities are valued at quoted market prices if available.
For unquoted securities, the reported fair value is estimated by the Company
on the basis of financial and other information.
Fair value of demand deposits and deposits with no defined maturity is
taken to be the amount payable on demand at the reporting date. The fair
value of fixed-maturity deposits is estimated using rates currently offered
for deposits of similar remaining maturities. The intangible value of
long-term relationships with depositors is not taken into account in
estimating the fair values disclosed.
Rates currently available to the Company for Federal Home Loan Bank
advances with similar terms and remaining maturities are used to estimate the
fair value of existing borrowings as the present value of expected cash flows.
Advances which have maturities within one year or rates which adjust monthly
are valued at the carrying amount.
NOTE 19: RISK OF SPECIAL INSURANCE ASSESSMENT RELATING TO THE
RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
Congress has proposed a plan to recapitalize the SAIF which would require
savings institutions with SAIF insured deposits to pay a one time special
assessment. The proposed assessment would be based on a 65-cent to 80-cent
per $100 of deposits on a date that will be specified by the bill. (The final
date and rate have not yet been finalized pending passage of a successful
budget bill.) This proposed assessment would result in a charge of
approximately $565,000 to $690,000 to noninterest expense. Accordingly, this
proposed assessment would significantly increase noninterest expense and
adversely affect the Association's operations. No provision for this proposed
assessment has been made in the accompanying financial statements.
Conversely, at such time as the SAIF is adequately recapitalized, the
Association's future deposit premiums could significantly decrease from the 23
cents per $100 of deposits currently paid.
33
<PAGE>
<PAGE>
LOCKRIDGE, CONSTANT & CONRAD, LLC
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MBLA Financial Corporation
Macon, Missouri
We have audited the accompanying consolidated statements of financial
condition of MBLA Financial Corporation and Subsidiary as of June 30, 1996 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
MBLA Financial Corporation and Subsidiary as of June 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1996, in conformity with generally
accepted accounting principles.
/s/LOCKRIDGE, CONSTANT & CONRAD, LLC
- ------------------------------------
Lockridge, Constant & Conrad, LLC
August 1, 1996
Chillicothe, Missouri
34
<PAGE>
<PAGE>
GENERAL INFORMATION FOR STOCKHOLDERS
MBLA FINANCIAL CORPORATION
101 Vine Street -- Macon, Missouri 63552
Telephone: (816) 385-2122
801 North Morley --Moberly, Missouri 65270
Telephone: (816) 263-6831
Transfer Agency and Registrar
Boatmen's Trust Company
510 Locust Street
Post Office Box 14737
St. Louis, MO 63178-4737
(314) 466-3000
General Counsel
Hadley Grimm
105 N. Rollins Suite C
Macon, MO 63552
(816) 385-2115
Shareholder and General Inquiries
Clyde D. Smith
Vice President and Chief Financial Officer
101 Vine Street
Macon, MO 63552
(816) 385-2122
Annual Meeting
The Annual Meeting of MBLA Financial Corporation Stockholders will be
held a the office of Macon Building & Loan Association, 101 Vine Street,
Macon, Missouri, on Tuesday, October 29, 1996 at 4:30 p.m. A formal notice of
the Meeting, together with a proxy statement and a proxy form, will be mailed
to shareholders.
Stock Listing
MBLA Financial Corporation stock is traded on the over-the-counter market
under the NASDAQ symbol of MBLF and can be found listed in the following
newspapers under the noted abbreviations:
Wall Street Journal: MBLA USA Today: MBLA
The following table sets forth market price information for the common stock
of the Company for the periods indicated and dividend payments for each semi-
annual period as indicated. There is no assurance that the Company will
continue to pay dividends due to future changes in economic conditions and
future interest rates.
Quarter Ended High Low Dividends
- ------------- ---- ---- ---------
September 30, 1993 $14.50 $12.50 N/A
December 30, 1993 $15.75 $14.25 $.20
March 31, 1994 $15.25 $14.00 N/A
June 30, 1994 $15.75 $14.75 $.20
September 30, 1994 $16.00 $15.00 N/A
December 30, 1994 $15.00 $14.25 $.20
March 31, 1995 $15.25 $14.00 N/A
June 30, 1995 $15.25 $13.50 $.20
September 30, 1995 $17.50 $14.375 N/A
December 30, 1995 $19.50 $16.75 $.20
March 31, 1996 $21.00 $19.25 N/A
June 30, 1996 $26.00 $20.625 $.20
Annual and Other Reports
Additional copies of this Annual Report to shareholders, and copies of the
Company's most recent Form 10-KSB may be obtained without charge from the
Company.
35
<PAGE>
<PAGE>
Exhibit 21.0
Proxy Statement for 1996 Annual Meeting
PROXY STATEMENT
MBLA FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 29, 1996
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION
101 VINE STREET
MACON, MISSOURI 63552
(816) 385-2122
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 29, 1996
GENERAL
This proxy statement is being furnished to stockholders of MBLA Financial
Corporation ("MBLA" or the "Company") in connection with the solicitation by
the Board of Directors of the Company (the "Board" or the "Board of
Directors") of proxies to be used at the Annual Meeting of Stockholders (the
"Meeting") to be held on October 29, 1996, at 4:30 p.m. Central Time, at the
Company's offices at 101 Vine Street, Macon, Missouri 63552 and at any
adjournments thereof. The 1996 Annual Report to Stockholders, including the
consolidated financial statements for the fiscal year ended June 30, 1996
accompanies this proxy statement, which is first being mailed to stockholders
of record on or about September 30, 1996.
Regardless of the number of shares of common stock owned, it is important
that a majority of the shares outstanding be represented in person or by proxy
at the Meeting to ensure the presence of a quorum for the transaction of
business. Stockholders are requested to vote by completing the enclosed
proxy card and returning it signed and dated in the enclosed postage-paid
envelope. Stockholders are urged to indicate their vote in the spaces
provided on the proxy card. Proxies solicited by the Board of Directors of
MBLA will be voted in accordance with the directions given therein. Where no
instructions are indicated, signed proxies will be voted FOR the specific
proposals presented in this proxy statement.
Other than the matters listed in the accompanying Notice of Annual
Meeting of Stockholders, the Board of Directors knows of no matters that will
be presented for consideration at the Meeting. Execution of a proxy, however,
confers on the designated proxy holders the discretionary authority to vote
the shares in accordance with their best judgement on such other business, if
any, that may properly come before the Meeting or any adjournments thereof.
VOTING AND REVOCABILITY OF PROXIES
A proxy may be revoked at any time prior to its exercise by the filing of
a written notice of revocation with the Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Meeting and voting in person. However, if you are a stockholder
whose shares are not registered in your own name, you will need appropriate
documentation from your stockholder of record to vote in person at the
Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Boatmen's
Trust Co. will assist the Company in soliciting proxies for the Meeting and
will be paid a fee of $1,200 plus out-of-pocket expenses. Proxies may also be
solicited personally or by telephone or telegraph by directors, officers, and
regular employees of the Company and Macon Building and Loan Association, F.A.
(the "Association"), without additional compensation therefor. The Company
will also request persons, firms, and corporations holding shares in their
names, or in the name of their nominees, which are beneficially owned by
others, to send proxy material to and obtain proxies from such beneficial
owners, and will reimburse such holders for their reasonable expenses in doing
so.
<PAGE>
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The securities which may be voted at the Meeting consist of shares of
common stock of the Company (the "Common Stock"), with each share entitling
the holder thereof to one vote on each matter to be considered at the Meeting,
except as described below. There is no cumulative voting for the election
of directors.
The close of business on September 20, 1996 has been fixed by the Board
of Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of, and to vote at, the Meeting and
any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 1,359,811 shares.
As provided in the Company's Certificate of Incorporation, record holders
of Common Stock who beneficially own in excess of 10% of the outstanding
shares of Common Stock (the "Limit") are not entitled to any vote in respect
of the shares held in excess of the Limit. A person or entity is deemed to
beneficially own shares owned by an affiliate of, as well as persons acting in
concert with, such person or entity. The Company's Certificate of
Incorporation authorizes the Board of Directors (i) to make all determinations
necessary to implement and apply the Limit, including determining whether
persons or entities are acting in concert, and (ii) to demand that any person
who is reasonably believed to beneficially own stock in excess of the Limit to
supply information to the Company to enable the Board to implement and apply
the Limit.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote at the
meeting (after subtracting any shares in excess of the Limit pursuant to the
Company's Certificate of Incorporation) is necessary to constitute a quorum at
the Meeting. In the event there are insufficient votes for a quorum or to
approve or ratify any proposal at the time of the Meeting, the Meeting may be
adjourned in order to permit the further solicitation of proxies.
As to the election of directors, the proxy card being provided by the
Board of Directors enables a shareholder of record to vote "FOR" the election
of the nominees proposed by the Board, or to "WITHHOLD AUTHORITY" to vote for
one or more of the nominees being proposed. Under Delaware law and the
Company's Bylaws, directors are elected by a plurality of votes cast without
regard to either (i) broker non-votes or (ii) proxies as to which authority to
vote for one or more of the nominees being proposed is withheld. The proposal
for the ratification of Lockridge, Constant and Conrad as independent
accountants for the Company for the fiscal year ending June 30, 1997 requires
the affirmative vote of a majority of the votes cast on such proposal without
regard to broker non-votes and abstentions.
If a shareholder is a participant in the Association's Employee Stock
Ownership Plan ("ESOP"), the proxy card represents a voting instruction to the
trustees of the ESOP as to the number of shares in the participant's plan
account. Each participant in the ESOP may direct the trustees as to the
manner in which shares of Common Stock allocated to the participant's plan
account are to be voted. Unallocated shares of Common Stock held by the ESOP
and allocates shares for which no voting instructions are received will be
voted by the trustees in the same proportion as shares for which the trustees
have received voting instructions.
Proxies solicited hereby will be returned to the Board and will be
tabulated by personnel appointed by the Board and Boatmen's Trust employees.
The Securities Exchange Act of 1934 ("Exchange Act") requires that any
person who acquires the beneficial ownership of more than 5% of the Common
Stock of the Company notify the Securities and Exchange Commission ("SEC") and
the Company. Based upon such reports provided to the Company, the following
table sets forth, as of the Record Date, certain information as to those
persons who were beneficial owners of more than 5% of the outstanding shares
of Common Stock.
2
<PAGE>
<PAGE>
Percent
Name and Address of Number of Shares and Nature of Common Stock
Beneficial Owner of Beneficial Ownership Outstanding
- ------------------- --------------------------- -----------
Mary Kathryn Drake 156,250 11.49%
2104 Dornoch
League City, Texas
John T. Neer 105,485 6.99%
403 North Wentz
Macon, Missouri
FILING OF BENEFICIAL OWNERSHIP REPORTS
The Common Stock is registered pursuant to Section 12(g) of the Exchange
Act. The officers and directors of the Company and beneficial owners of
greater than 10% of the Common Stock ("10% beneficial owners") are required to
file reports on Forms 3, 4, and 5 with the SEC disclosing changes in
beneficial ownership of the Common Stock. Based on the Company's review of
such ownership reports, no officer, director, or 10% beneficial owner of the
Company failed to file such ownership reports on a timely basis for the fiscal
year ending June 30, 1996. In addition, the Company is not aware of any
additional 13D filings or filings of Forms 3, 4 or 5 by Mary Kathryn Drake.
PROPOSAL 1. ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the number of directors of the Company
is set at seven (7) unless otherwise designated by the Board. Each of the
seven members of the Board of Directors of the Company also presently serves
as a director of the Association and its wholly owned subsidiary, MBL
Financial Services ("MBL"). Directors are elected for staggered terms of
three years each, with a term of office of only one of the three classes of
directors expiring each year. Directors serve until their successors are
elected and qualified.
The three nominees for 3-year terms to expire in 1999 proposed for
election at the Meeting are Messrs. Hutton, Gehringer and Neer. All nominees
named are presently directors of the Company. No person being nominated as a
director is being proposed for election pursuant to any agreement or
understanding between such person and the Company.
In the event that any such nominee is unable to serve or declines to
serve for any reason, it is intended that proxies will be voted for the
election of the balance of those nominees named and for such other persons as
may be designated by the present Board of Directors. The Board of Directors
has no reason to believe that any of the persons named will be unable or
unwilling to serve. Unless authority to vote for the directors is withheld,
it is intended that the shares represented by the enclosed proxy card, if
executed and returned, will be voted FOR the election of all nominees proposed
by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL
NOMINEES NAMED IN THIS PROXY STATEMENT.
3
PAGE
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<TABLE>
The following table sets forth, as of the Record Date, the names of the nominees and continuing
directors including their ages, a brief description of their recent business experience, including present
occupations and employment, certain directorships held by each, the year in which each became a director,
the year in which their term as director of the Company expires, and the amount of Common Stock and the
percent thereof beneficially owned by each and all directors and executive officers as a group.
Shares of
Name and Principal Occupation Expiration Common Stock Ownership
at Present and for the Past Director of Term as Beneficially As a Percent
Five Years Age (1) Since(2) Director Owned(3) of Class
- ----------------------------- -------- -------- ---------- ------------ ------------
Nominees
- --------
<S> <C> <C> <C> <C> <C>
Charles L. Hutton 78 1964 1996 44,525 (4)(5) 2.95
Chairman of the Board of the
Company and the Association
Truman L. Gehringer 73 1966 1996 15,806 (6) 1.05
Former Vice President of the
Company and the Association
John T. Neer 47 1985 1996 105,485 (7) 6.99
President and Chief Executive
Officer of the Company and the Association
Continuing Directors
- --------------------
Arnold L. Walter 71 1978 1997 44,525 (4)(5) 2.95
Owner, Walter's Service Garage
Carl B. Barrows 76 1973 1997 23,352 (4)(5) 1.55
Vice Chairman of the Board of
the Company and the Association
Robert M. Wilhite 58 1973 1998 39,282 (4)(5) 2.60
Dentist
Richard C. Miller, Jr. 59 1974 1998 40,722 (4)(5) 2.70
Owner, Miller Rexall Drug Store
Stock Beneficial Ownership of all 428,926 (8)(9)10) 28.41
Directors and executive officers
as a group (11 persons) and unallocated
ESOP stock voted by the ESOP trustee
_______________________________________
(1) As of June 30, 1996.
(2) Includes years of service as a director of the Association.
(3) Each person or relative of such person whose shares are included herein, exercises sole (or shared
with spouse, relative, or affiliate) voting or dispositive power as to the shares reported.
(4) Includes 9,833 shares subject to options at $10.00 per share that may be acquired by each outside
director under the MBLA Financial Corporation 1993 Stock Option Plan for Outside Directors (the
"Directors' Option Plan").
(5) Includes 1,173 shares awarded to each outside director under the Macon Building and Loan
Association, F.A. Recognition and Retention Plan and Trust for Outside Directors ("DRP").
(6) Includes 2,346 shares with respect to Mr. Gehringer awarded under the DRP. Includes options to
purchase 9,833 shares at $14.625 awarded under the Directors' Option Plan.
4
</TABLE>
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(footnotes from previous page)
(7) Includes 5,124 shares awarded under the Macon Building and Loan
Association, F.A. Recognition and Retention Plan and Trust for Officers
and Employees ("RRP"). Includes 60,375 shares with respect to which
shares may be acquired through the exercise of stock options under the
MBLA Financial Corporation 1993 Incentive Stock Option Plan "Incentive
Option Plan").
(8) Includes 58,998 shares subject to options under the Directors' Option
Plan, 90,563 shares with respect to all current executive officers
which may be acquired through the exercise of stock options granted
under the Incentive Option Plan, and 16,080 shares awarded to directors
and executive officers under the DRP and the RRP.
(9) Mr. Hutton serves as trustee of the Employee Stock Ownership Plan
("ESOP") which holds 69,816 shares of common stock for the benefit of
Association employees. Such stock will be allocated to ESOP
participants as the ESOP debt is repaid over the next 4 year period.
As of the Record Date, 22,256 shares have been allocated to ESOP
participants for which such participants may direct the ESOP trustee as
to voting. The remaining 47,560 unallocated shares, and allocated
shares for which no timely voting direction is received by the ESOP
Trustee, will be voted by the trustee in accordance with the
instructions received on allocated shares, subject to the trustee's
fiduciary duty under the Employee Retirement Income Security Act of
1974, as amended. Mr. Hutton disclaims beneficial ownership of all
69,816 shares held by the ESOP.
(10) Includes 47,560 shares unallocated for the ESOP which are voted by Mr.
Hutton, who serves as trustee for the ESOP.
Nominations for Directors
Only persons who are nominated in accordance with the procedures set forth
in the Company's Bylaws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Company
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors (ii) by any
stockholder of the Company entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in Section 6(c)
of the Bylaws. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made by timely notice in writing to the
Secretary of the Company. To be timely, a stockholder's notice shall be
delivered or mailed to and received at the principal executive offices of the
Company not less than ninety (90) days prior to the date of the meeting;
provided, however, that in the event that less than one hundred (100) days
notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made.
Such stockholder's notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required
pursuant to the Exchange Act (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (ii) as to the stockholder giving the notice, (x) the name and
address, as they appear on the Company's books, of such stockholder and (y)
the class and number of shares of the Company's capital stock that are
beneficially owned by such stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Company that information
required to be set forth in a stockholder's notice of nomination which
pertains to the nominee.
The officer of the Company or other person presiding at the meeting shall,
if the facts so warrant, determine that a nomination was not made in
accordance with the provisions of the Bylaws and, if such person shall so
determine, such person shall so declare to the meeting and the defective
nomination shall be disregarded.
Meetings of the Board and Committees of the Board
The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. The Board of Directors meets as
needed. During fiscal 1996, the Board of Directors of the Company held seven
meetings. All of the directors of the Company attended at least 75% in the
aggregate of the total number
5
<PAGE>
<PAGE>
of the Company's board meetings held and committee meetings on which such
director served during fiscal 1996. The Board of Directors of the Company
maintains committees, the nature and composition of which are described below.
The Audit Committee of the Company consists of Lester Hutton, Ben Barrows,
Richard Miller, Robert Wilhite and Clyde Smith. This committee meets
quarterly and engages an independent audit firm, approves internal audit
schedules, and reviews internal audit reports. The audit committee met four
times in fiscal 1996.
The Company's Nominating Committee for the 1996 Annual Meeting consists of
Messrs. Wilhite, Miller, and Walter. The Committee considers and recommends
the nominees for director to stand for election at the Company's Annual
Meeting of stockholders. The Nominating Committee met one time in fiscal
1996.
The Investment Committee consists of Directors Gehringer, Walter, Miller and
Neer and Clyde Smith, the Chief Financial Officer and Vice President. The
Committee reviews investment opportunities and new products for investment
purposes and to manage cash flow needs, monitors changes in value of the
investment portfolio, and reviews and adjusts lending rates. The Investment
Committee met three times in fiscal 1996.
Directors' Compensation
Directors' Fees. Directors of the Company do not receive any fees or
retainer for serving on the Company's Board. All directors of the Association
receive a fee of $600 for each meeting held. Members of the Association's
Executive Committee, Audit Committee, and Investment Committee receive $25 per
meeting for serving on these Committees. Directors receive no additional fees
as directors of the service corporation.
Directors' Consultation and Retirement Plan. The purpose of the Plan is to
provide retirement benefits to Directors of Macon Building and Loan
Association (the "Association") who have provided expertise in enabling the
Association to experience successful growth and development, so as to ensure
that the Association will have their continued services to assist the
Association in the conduct of its affairs.
Within thirty (30) days of a Participant's Termination Date, a Participant
who has agreed to provide Consulting Services shall be designated a Consulting
Director, and such Consulting Director shall be paid the portion of an annual
Retirement Benefit based on years of service, in equal monthly installments
for the number of months equal to the lesser of (1) the number months such
Participant has agreed to provide Consulting Services as a Consulting
Director, or (2) five (5) years. At the expiration of the period for which
the Participant is entitled to benefits under this paragraph, his or her
status as a Consulting Director shall cease.
Other. Directors who are not also employees of the Company or the
Association also participate in the Director's Option Plan and the DRP.
6
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table shows, for the fiscal years
ending June 30, 1996, 1995, and 1994, the cash compensation paid by the
Association, as well as certain other compensation paid or accrued for those
years, to the Chief Executive Officer of the Company and the Association. No
other executive officer of the Company or the Association received salary and
bonus in excess of $100,000 in fiscal 1996.
Annual Compensation Long Term Compensation
Awards
Name and Other Annual All Other
Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
(1) (2) (3)
- ------------------ ---- -------- ------- ------------- ------------
John T. Neer 1996 $127,200 $ --- --- $30,000
President, Chief 1995 $122,200 $ --- --- $30,000
Executive Officer, 1994 $117,000 $ --- --- $24,000
and Director
(1) Includes fees as director of the Association.
(2) Does not include perquisites for the fiscal years ended June 30, 1996,
1995 and 1994 which did not exceed the lesser of $50,000 or 10% of salary
and bonus.
(3) Includes 3,000 and 3,000 shares of common stock allocated under the ESOP
during the fiscal year ended June 30, 1996 and 1995 respectively. As of
June 30, 1996 and 1995, the value of such shares was $70,500 and $43,500
respectively.
Employment Agreement. The Association and the Company have entered into
an employment agreement with Mr. John T. Neer. The employment agreement
provides for a three-year term. Commencing on the first anniversary date and
continuing each anniversary date thereafter, the agreement may be extended for
an additional year so that the remaining term shall be three years if the
Board of Directors, after conducting performance evaluations, votes to extend
the agreement. The agreement provides that the base salary for Mr. Neer is
$120,000. In addition to the base salary, the agreement provides for, among
other things, disability pay, participation in stock benefit plans, and other
fringe benefits. The agreement provides for termination by the Association
for cause at any time. In the event the Association chooses to terminate Mr.
Neer's employment for reasons other than for cause or in the event of Mr.
Neer's resignation upon (i) the failure to re-elect or nominate Mr. Neer to
his current offices or board membership, (ii) a material change in the
executive's functions, duties, or responsibilities, or relocation of his
principal place of employment, (iii) a liquidation, dissolution,
consolidation, reorganization, or merger in which the Association is not the
resulting entity, or (iv) a breach of the agreement by the Association if
termination, voluntary or involuntary, occurs following a hostile change in
control of the Association, Mr. Neer or, in the event of death, his
beneficiary, would be entitled to a severance payment equal to three times his
average annual compensation over the past three years of employment with the
Association. The Association would also continue the executive's life,
health, accident, and disability coverage for the remaining unexpired term of
the agreement. A hostile change in control is defined to mean a change in
control of which the Board of Directors of the Association has not approved or
recommended to shareholders. A change in control is generally defined to mean
the acquisition by a person or group of persons having beneficial ownership of
20% or more of the Association's or Company's Common Stock during the term of
the agreement or a tender offer for 20% of the Common Stock or exchange offer,
merger, or other form of business combination, sale of assets, or an election
of directors which result in a change of a majority of the Board of Directors.
Payments under the employment agreement in the event of a change in
control may constitute an excess parachute payment under Section 280G of the
Code resulting in the imposition of an excise tax on the recipient and denial
of a deduction to the Association for all amounts in excess of the executive's
average annual compensation for the five tax years preceding the change in
control. The agreement provides that benefits payable to the executive under
a change in control will be reduced to an amount that would not constitute an
excess parachute payment (as that term is defined in Section 280G of the Code)
if the reduced amount is greater than the non-reduced amount less payments of
any excise tax.
7
PAGE
<PAGE>
Stock Option Plan. The following table provides certain information with
respect to the number of shares of Common Stock represented by outstanding
stock options held by John T. Neer as of June 30, 1996 under the Company's
Incentive Stock Option Plan. Also reported are the value for "in-the-money"
options which represent the positive spread between the exercise price of any
such existing stock options and the year-end price of the Common Stock. No
options were granted to or exercised by Mr. Neer in 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Options/SAR Values
Number of Value of Unexercised
Unexercised In-the-money
Shares Acquired Value Options/SARs at Options/SARs at
Name on Exercise(#) Realized Fiscal Year End(#) Fiscal Year End($)(1)
Exercisable/ Exercisable/
Unexercisable Unexercisable
- ---- ----------- -------- ------------- -------------
John T. Neer --- --- 40,000/20,375 $540,000/$275,062
(1) The exercise price of the option is $10.00. As of June 30, 1996, the
closing price of the Common Stock, as reported on the Nasdaq National
Market, was $23.50.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Association had no "interlocking" relationships existing on or after
July 1, 1994 in which (i) any executive officer is a member of the
Association's Board of Directors, or where (ii) any executive officer
is a member of the compensation committee of another entity, one of whose
executive officers is a member of the Association's Board of Directors. The
Association, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. The
loans have been made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with the Association's other
customers, and do not involve more than the normal risk of collectibility, nor
present other unfavorable features. All loans by the Association to its
directors and executive officers are subject to OTS regulations restricting
loans and other transactions with affiliated persons of the Association. The
Association's affiliates must qualify for loans on terms and conditions
comparable to those for similar transactions with non-affiliates.
Furthermore, loans to an affiliate must be approved in advance by a
disinterested majority of the Board of Directors or be within other guidelines
established as a result of OTS regulations.
8
<PAGE>
<PAGE>
PROPOSAL 2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended June 30, 1996
were Lockridge, Constant and Conrad. The Company's Board of Directors has
reappointed Lockridge, Constant and Conrad to continue as independent auditors
for the Association and the Company for the year ending June 30, 1997, subject
to ratification of such appointment by the stockholders.
Representatives of Lockridge, Constant and Conrad will be present at the
Meeting. They will be given an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
stockholders present at the Meeting.
Unless marked to the contrary, the shares represented by the enclosed Proxy,
if executed and returned, will be voted for ratification of the appointment of
Lockridge, Constant and Conrad as the independent auditors of the Association
and the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF LOCKRIDGE, CONSTANT AND CONRAD AS THE INDEPENDENT AUDITORS
OF THE ASSOCIATION AND THE COMPANY.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement and proxy relating to
the Annual Meeting of Stockholders to be held in 1997, a stockholder proposal
must be received by the Secretary of the Company at the address set forth on
the first page of this Proxy Statement, not later than June 2, 1997. Any such
proposal will be subject to the proxy solicitation rules of the Exchange Act
and the procedures contained in the Company's bylaws.
OTHER MATTERS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the accompanying Notice
of Annual Meeting of Stockholders. If, however, other matters are properly
brought before the Meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgement.
Whether or not you intend to be present at the Meeting, you are urged to
return your proxy promptly. If you are present at the Meeting and wish to
vote your shares in person, your proxy may be revoked by voting at the
Meeting.
A copy of the Form 10-KSB (without exhibits) for the year ended June 30,
1996, as filed with the Securities and Exchange Commission, will be furnished
without charge to stockholders of record upon written request to MBLA
Financial Corporation, Mr. John T. Neer, President, 101 Vine Street, Macon,
Missouri 63552.
By Order of the Board of Directors
/s/ CLYDE D. SMITH
------------------
Clyde D. Smith
Secretary
Macon, Missouri
September 30, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
MBLA FINANCIAL CORPORATION
101 VINE STREET MACON, MISSOURI 63552 (816) 385-2122
- ------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" all of the propositions listed
below.
The undersigned hereby appoints the Board of Directors of MBLA Financial
Corporation ("Company"), or its designee, with full powers of substitution, to
act as attorneys and proxies for the undersigned, to vote all shares of Common
Stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Stockholders ("Meeting"), at Macon Building & Loan Assn., 101 Vine
Street, Macon, Missouri, on October 29, 1996, at 4:30 p.m. and at any and all
adjournments thereof, as follows:
VOTE FOR VOTE WITHHELD
1. The election as a director of
all nominees listed below each [ ] [ ]
for 3 year terms
(except as marked below to the contrary).
LESTER HUTTON
TRUMAN GEHRINGER
JOHN T. NEER
INSTRUCTIONS: To withhold your vote for any individual nominee,
insert that nominee's name on the line provided to the right. _______________
FOR AGAINST ABSTAIN
2. The ratification of the appointment of
Lockridge, Constant and Conrad as auditors
of the Company for the 1997 fiscal year. [ ] [ ] [ ]
3. In their discretion, such attorneys and proxies are authorized to vote on
any other business that may properly come before the Meeting or any
adjournments thereof.
<PAGE>
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or at any
adjournments thereof, and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, the
power of said attorneys and proxies shall be deemed terminated and of no
further force and effect.
The undersigned may also revoke this proxy by filing a subsequently dated
proxy or by notifying the Secretary of the Company of his or her decision to
terminate this proxy.
The undersigned acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of the Meeting, a Proxy Statement dated October 29,
1996 and an Annual Report to Stockholders.
Dated:___________________________________________________ , 1996.
[ ] Please check here if you plan to attend the Meeting.
__________________________ __________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
*** PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. ***
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
<PAGE>
<PAGE>
Exhibit 24.0
Consent of Lockridge, Constant and Conrad
LOCKRIDGE, CONSTANT & CONRAD, LLC
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MLBA Financial Corporation
Macon, Missouri
We consent to the incorporation by reference in this annual report
(Form 10-KSB) of MBLA Financial Corporation of our report dated August 1,
1996, included in the 1996 Annual Report to Shareholders of MBLA Financial
Corporation.
/s/LOCKRIDGE, CONSTANT & CONRAD, LLC
- -------------------------------------
Lockridge, Constant & Conrad, LLC
September 12, 1996
Chillicothe, Missouri
<PAGE>
<PAGE>
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 320
<INT-BEARING-DEPOSITS> 4811
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<TOTAL-ASSETS> 201039
<DEPOSITS> 86716
<SHORT-TERM> 81000
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0
0
<COMMON> 17
<OTHER-SE> 28050
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<INTEREST-DEPOSIT> 4678
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<EXPENSE-OTHER> 1520
<INCOME-PRETAX> 2291
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<NET-INCOME> 1393
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<YIELD-ACTUAL> 6.83
<LOANS-NON> 663
<LOANS-PAST> 663
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 535
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 535
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</TABLE>
