SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities and Exchange Act
of 1934
For the Quarter Ended March 31, 1997 Commission File No. 0-21482
MBLA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1637679
(State of Incorporation) (I.R.S. Employer Identification No.)
101 Vine Street
Macon, Missouri 63552
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (816) 385-2122
Indicate by check mark whether 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 subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 1,315,977 at May 1, 1997.
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
Part I. Financial Information
- --------------------------------
Item 1 Financial Statements Page
----
Consolidated Statements of Financial Condition as of
March 31, 1997 (unaudited) and June 30, 1996 . . . . . . . 2
Consolidated Statements of Operations for the Three Months
ended March 31, 1997 and 1996 and for the Nine Months ended
March 31, 1997 and 1996 (unaudited) . . . . . . . . . . . 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended March 31, 1997 and
1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 1997 and 1996 (unaudited). . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
Part II. Other Information
- ----------------------------
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . 18
Item 2 Changes in Securities . . . . . . . . . . . . . . . . 18
Item 3 Default upon Senior Securities . . . . . . . . . . . 18
Item 4 Submission of Matters to a Vote of Security Holders . 18
Item 5 Other Information . . . . . . . . . . . . . . . . . . 18
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 18
Signature Page. . . . . . . . . . . . . . . . . . . . . . . . . 19
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
March 31, June 30,
1997 1996
(unaudited)
ASSETS (In thousands)
-------- --------
Cash on hand and noninterest-earning deposits $481 $320
Interest-earning deposits in other institutions 4,032 4,811
Investment securities available-for-sale, at fair value 12,343 12,437
Mortgage-backed and related securities
available-for-sale, at fair value 69,543 71,129
Loans receivable, net 116,079 106,485
FHLB stock 5,652 4,256
Accrued interest receivable 1,306 1,152
Real estate owned - 23
Premises and equipment 256 284
Other assets 91 142
-------- --------
Total assets $209,783 $201,039
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $98,449 $86,716
Advances from Federal Home Loan Bank 81,926 85,086
Advances from borrowers for taxes and insurance 123 155
Income taxes payable 438 240
Dividends payable - 274
Accrued expenses and other liabilities 534 500
-------- --------
Total liabilities $181,470 $172,971
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 at March 31, 1997
and June 30, 1996 17 17
Additional paid-in capital 16,881 16,754
Retained earnings, substantially restricted 18,347 17,665
Less:
Treasury stock, at cost-422,109 shares at March 31,
1997 and 373,000 shares at June 30, 1996 (6,952) (5,924)
Common stock acquired by the ESOP (329) (390)
Common stock awarded by Association
Recognition and Retention Plan (196) (208)
Unrealized loss on securities available-for-sale,
net of applicable deferred income taxes 545 154
-------- --------
Total stockholders' equity $28,313 $28,068
-------- --------
Total liabilities and stockholders' equity $209,783 $201,039
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
(In thousands)
------ ------ ------ ------
Interest income:
Loans receivable $1,987 $1,835 $6,023 $5,428
Investment securities 279 253 1,356 770
Mortgage-backed and related securities 1,165 1,156 3,555 3,611
Other interest-earning assets 108 63 170 224
------ ------ ------ ------
Total interest income 3,539 3,307 11,104 10,033
Interest expense:
Deposits 1,324 1,180 3,726 3,504
Advances 1,187 1,158 3,988 3,758
------ ------ ------ ------
Total interest expense 2,511 2,338 7,714 7,262
Net interest income 1,028 969 3,390 2,771
Provision for loan losses 15 - 40 -
Net interest income after provision ------ ------ ------ ------
for loan losses 1,013 969 3,350 2,771
Noninterest income:
Committment fees - - - -
Other 5 13 11 19
------ ------ ------ ------
Total noninterest income 5 13 11 19
Noninterest expense:
Compensation and benefits 214 258 686 725
Occupancy and equipment 37 35 104 101
SAIF deposit insurance premiums 23 64 709 188
Net loss on sale of real estate owned 4 2 10 2
Net loss on sale of investments 59 - 59 -
Other 55 42 169 141
------ ------ ------ ------
Total noninterest expense 392 401 1,737 1,157
Income before income taxes 626 581 1,624 1,633
Income tax expense 255 221 625 624
------ ------ ------ ------
Net income $371 $360 $999 $1,009
Earnings per share:
Primary $0.27 $0.26 $0.72 $0.71
Fully diluted $0.27 $0.26 $0.72 $0.71
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain/(Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
(In thousands)
Nine Months Ended ----- ------- -------- -------- ------- -------- --------- ---------
March 31, 1996
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Balance at June 30, 1995 $17 $16,615 $16,806 ($3,667) ($524) ($357) 198 $29,088
Additions (deductions) for
the nine months ended
March 31, 1996:
Net income - - 1,009 - - - - 1,009
Compensation expense
related to ESOP - 80 - - - - - 80
Reduction of ESOP
obligation - - - - 75 - - 75
Amortization of RRP'S - - - - - 12 - 12
Dividends on unallocated
ESOP shares - - 10 - - - - 10
Deferred tax on RRP - 14 - - - - - 14
Purchase of treasury stock
(120,037 shares) - - - (2,099) - - - (2,099)
Dividends declared - - (280) - - - - (280)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $267,000 - - - - - - 456 456
----- ------- -------- -------- ------- -------- --------- ---------
Balance, March 31, 1996 $17 $16,709 $17,545 ($5,766) ($449) ($345) $654 $28,365
===== ======= ======== ======== ======= ======== ========= =========
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders
(Unaudited)
Unrealized
Gain/(Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
(In thousands)
Nine Months Ended ----- ------- -------- -------- ------- -------- --------- ---------
March 31, 1997
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Balance at June 30, 1996 $17 $16,754 $17,665 ($5,924) ($390) ($208) 154 $28,068
Additions (deductions) for
the nine months ended
March 31, 1997:
Net income - - 999 - - - - 999
Compensation expense
related to ESOP - 91 - - - - - 91
Reduction of ESOP
obligation - - - - 61 - - 61
Amortization of RRP'S - - - - - 12 - 12
Dividends on unallocated
ESOP shares - - 8 - - - - 8
Deferred tax on RRP - 36 - - - - - 36
Purchase of Treasury stock
(49,109 shares) - - - (1,028) - - - (1,028)
Dividends declared - - (268) - - - - (268)
Stock options retired - - (57) - - - - (57)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $230,000 - - - - - - 391 391
----- ------- -------- -------- ------- -------- --------- ---------
Balance, March 31, 1997 $17 $16,881 $18,347 ($6,952) ($329) ($196) $545 $28,313
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
1997 1996
(In thousands)
------ ------
Cash flow from operating activities:
Net income $999 $1,009
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 40 -
Net loss (gain) on sale of real estate owned 10 (2)
Net loss on sale of investments 59 -
Depreciation 32 33
Amortization of premiums and discounts (54) (58)
Excess of fair value over cost of ESOP unallocated
shares 91 80
Amortization of RRP 12 12
Deferred tax on RRP 36 15
FHLB stock dividend - (82)
Decrease (increase) in interest receivable (154) (24)
Decrease (increase) in other assets 50 47
Increase (decrease) in income tax payable (32) 75
Increase (decrease) in other liabilities 36 90
------ ------
Net cash provided by operating activities $1,125 $1,195
------ ------
Cash flow from investing activities:
Loans purchased (16,318) (10,353)
(Increase) decrease in loans, net 6,653 10,587
Proceeds from maturities of available-for-sale
investment securities 30,019 7,674
Purchase of available-for-sale investment securities (29,904) (5,488)
Principal collected on repayments and maturities of
available-for-sale mortgage-backed and related
securities 2,666 4,749
Sale of available-for-sale mortgage-backed and
related securities 16,517 3,502
Purchase of available-for-sale mortgage-backed and
related securities (17,000) (6,023)
Purchase of FHLB stock (1,396) -
Proceeds from the sale of real estate owned 43 51
Purchase of equipment and office building improvem (4) (6)
------ ------
Net cash provided (used) by investing activities ($8,724) $4,693
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposits 11,733 2,131
Net increase (decrease) in advances from borrowers (32) (77)
Proceeds from FHLB advances 28,000 -
Principal payments on FHLB advances (31,160) (3,649)
Dividends paid (534) (568)
Purchase of treasury stock (1,029) (2,100)
Stock options retired (58) -
Unearned ESOP compensation decrease 61 75
------ ------
Net cash provided (used) by financing activities $6,981 ($4,188)
------ ------
Increase (decrease) in cash and cash equivalents ($618) $1,700
Cash and cash equivalents at beginning of period 5,131 2,631
------ ------
Cash and cash equivalents at end of period $4,513 $4,331
====== ======
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Nine Months Ended
March 31,
1997 1996
(In thousands)
------ ------
Supplemental cash flow disclosures:
Cash paid for:
Interest $5,312 $4,386
Income Taxes $518 $527
Noncash activity:
Loans transferred to real estate owned $30 $103
See accompanying Notes to Unaudited Consolidated Financial Statements
7
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles
(GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) necessary for
a fair presentation have been included. The results of operations and
other data for the three and nine month periods ended March 31, 1997 are
not necessarily indicative of results that may be expected for the entire
fiscal year ending June 30, 1997.
The unaudited consolidated financial statements include the amounts of
MBLA Financial Corporation (the "Holding Company") and its wholly-owned
subsidiary, Macon Building and Loan Association, (the "Association"), and
the Association's wholly-owned subsidiary, MBL Financial Services, for
the three months ended March 31, 1997 and the nine months ended March 31,
1997. The consolidated financial statements for the prior periods
include accounts of the Holding Company and its subsidiaries. Material
intercompany accounts and transactions have been eliminated in
consolidation.
(2) Conversion to Stock Ownership
The Board of Directors of the Association, on December 10, 1992,
unanimously adopted a Plan of Conversion pursuant to which the
Association converted from a state chartered mutual savings and loan
association to a state chartered stock savings and loan association, with
the concurrent formation of the Holding Company. The Holding Company, on
June 24, 1993, sold 1,725,000 shares of common stock at $10.00 per share
to depositors, borrowers from and employees of the Association during the
subscription offering. The proceeds from the conversion, after
recognizing conversion expenses and underwriting costs of approximately
$840,000, were $16,410,000 and are recorded as common stock and
additional paid in capital on the accompanying unaudited consolidated
statement of financial condition. The Holding Company utilized
approximately $8,205,000 of the net proceeds to purchase all of the
capital stock of the Association.
The Association has established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the conversion. The ESOP
borrowed $685,000 from the Holding Company and purchased 68,500 common
shares issued in the conversion. The Association is making the scheduled
discretionary cash contributions to the ESOP sufficient to service the
amount borrowed. To date, the Association has made payments of $432,000
($356,000 in principal) to the Holding Company. The $329,000 ESOP
obligation ($685,000 in stock issued by the Holding Company on June 30,
1993 less the principal payments made by the Association) is reflected in
the accompanying consolidated financial statements as a charge to
unearned compensation and a credit to common stock and paid-in capital.
The unamortized balance of unearned compensation is shown as a deduction
of stockholders' equity. The unpaid balance of the ESOP loan is
eliminated in consolidation.
The Association has established several Recognition and Retention Plans
("RRP's") which purchased in the aggregate 69,000 shares of common stock
in the conversion. The Association contributed $690,000 to fund the
purchase of the RRP shares. All but 9,384 shares were awarded to
directors and officers and are designed to be earned over varying
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annual rates, depending upon the individual's position in the
Association. The aggregate purchase price of these shares will be
amortized as compensation expense over the participants' vesting period.
The unamortized cost is reflected as a reduction of stockholders' equity.
The Holding Company has adopted stock option plans for the benefit of
directors, officers, and other key employees of the Association. The
number of shares of common stock reserved for issuance under the stock
option plans was equal to 10% of the total number of common shares issued
pursuant to the Association's conversion to the stock form of ownership.
The option exercise price was $10.00 as of the date of the option grant,
and the maximum option term cannot exceed ten years. The stock options
awarded to directors may be exercised at any time after grant.
The stock options awarded to officers and other key employees are
exercisable on a cumulative basis in equal installments over varying time
periods, depending upon the officer's or employee's position with the
Association. At June 24, 1993, 172,500 stock options were issued with
9,833 reserved for future use and 162,667 granted. As of March 31, 1997,
22,944 options had been exercised, leaving a total of 139,723 which had
not been exercised.
(3) Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common
stock, common stock equivalents outstanding, shares held by the RRP plans
and allocated ESOP shares. Unallocated ESOP shares are not used in
either primary or fully diluted earnings per share calculations. 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.
(4) Stock Repurchase Program
On November 15, 1996, MBLA Financial Corporation announced it was
extending its previously announced common stock repurchase program.
Under the extended program, the company is seeking to repurchase up to an
additional 15% (200,844) of its outstanding common shares. As of May 1,
1997, MBLA Financial Corporation has repurchased a total of 422,134
shares of its common stock.
(5) Commitments and Contingencies
Commitments to originate and purchase mortgage loans of $2.392 million
(of which $1.276 million are adjustable-rate commitments) at March 31,
1997, represent amounts which the Association plans to fund within the
normal commitment period of sixty to ninety days. As of March 31, 1997,
the Association had a commitment to purchase a 7.80% $15 million
quarterly callable FHLB Bond due October 22, 2004. This purchase will be
funded with a $15 million 1-month Libor advance from the FHLB which can
be paid-off if bond is called. The Association had no commitments
outstanding to sell mortgage loans, mortgage-backed securities, CMOs or
investment securities at March 31, 1997.
(6) Reclassifications
None.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
MBLA Financial Corporation was organized, as a Delaware corporation, in
February 1993 at the direction of the Association's Board of Directors to
acquire all of the capital stock that the Association issued upon its
conversion from the mutual to stock form of ownership. The business of the
Holding Company consists primarily of the business of the Association. There
are no current arrangements, understandings or agreements to expand its
business activities or make any business acquisitions.
Macon Building and Loan Association, originally founded in 1885, is a
Missouri chartered stock savings and loan association headquartered in Macon,
Missouri. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (the "FDIC"). The Association serves
Macon and Randolph Counties, Missouri. The Association conducts business
through its main office and one branch office in Moberly, Missouri.
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. To a lesser extent, the Association invests in U.S.
government and federal agency securitiesand mortgage-backed and related
securities, interest-earning deposits and commercial and multi-family real
estate loans and consumer loans.
The Association's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its loans and investment portfolio, and its cost of funds, consisting of the
interest paid on its deposits and also interest paid on FHLB advances. The
Association's operating expenses consist primarily of employee compensation,
occupancy expenses, FDIC insurance premiums and other general and
administrative expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies, and
actions of regulatory authorities.
The Association's operating strategies have been developed to respond to
the economic conditions prevailing in the Association's primary market area.
Macon's deposits are generated primarily from customers located in the
Association's primary market area. However, due to low loan demand, the
Association has, for over 30 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, the
Kansas City, St. Louis and Springfield areas. 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 related securities and other investment securities, the
Association has attempted to limit, and believes it has been successful in
limiting, the impact of these economic conditions on its results of
operations.
The economy of Boone County is primarily dependent on the services 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.
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The Association has continued to maintain a high level of asset quality
and has remained profitable notwithstanding the decline in the local economy
and low demand for mortgage loans in its market area.
The operations of Macon Building and Loan Association are influenced
significantly by local economic conditions and by policies of the OTS and the
FDIC. The Association's cost of funds is influenced by interest rates on
competing investments and general market interest rates. Lending activities
are affected by the demand for financing of real estate and other types of
loans, which in turn is affected by the interest rates at which such financing
may be offered.
Liquidity and Capital Resources
The Holding Company and Association's most liquid assets are cash, due
from banks and interest-earning deposits. The levels of these assets are
dependent on the Association's lending, investing, operating, and deposit
activities during any given period. At March 31, 1997, cash, due from banks
and interest-earning deposits totalled $4.513 million.
The Association's primary sources of funds are deposits, advances from
the FHLB, proceeds from principal and interest payments on loans, proceeds
from principal and interest paymentson mortgage-backed and related securities,
and proceeds from the maturing of investment securities. While maturity and
scheduled amortization of loans and investment securities are predictable
sources of funds, deposit inflows and mortgage prepayments are greatly
influenced by local conditions, general interest rates and regulatory changes.
The Association is required to maintain minimum levels of liquid assets
as defined by OTS regulations. Liquid assets consist of cash, due from banks,
interest-earning deposits, short and intermediate term U.S. Government and
government agency securities. This requirement, which periodically varies
depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short term borrowings. The current required
liquidity ratio is 5%. The Association historically has maintained a level of
liquid assets in excess of this regulatory requirement. The Association's
liquidity ratios were 10.35% and 10.41% at March 31, 1997 and 1996,
respectively. Liquidity management for the Association is both a daily and
long term function of the Association's management strategy. In the event
that the Association should require funds beyond its ability to generate
internally, additional sources of funds are available through the use of
Federal Home Loan Bank advances and reverse repurchase agreements.
The primary investment activity of the Association is the origination and
purchase of mortgage loans. During the three months ended March 31, 1997 and
1996, the Association originated and purchased mortgage loans in the aggregate
amount of $2.632 million and $6.276 million, respectively. Another investment
activity of the Association is the investment of funds in U.S. Treasury
securities, agency bonds, mortgage-backed securities, collateralized mortgage
obligations and FHLB overnight funds. During periods when the Association's
loan demand is limited, the Association may purchase short-term investment
securities to obtain a higher yield than otherwise available.
At March 31, 1997, the Association had outstanding loan commitments to
originate and purchase $2.392 million of loans. The Association believes that
it will have sufficient funds available to meet all of these commitments. At
March 31, 1997, the Association had no outstanding commitments to sell
mortgage loans, mortage-backed and related securities, or any other investment
securities. Should the Association need to, the Board of Directors has
authorized management to obtain additional short-term advances from the
Federal Home Loan Bank of Des Moines to fund loan purchases. At March 31,
1997, certificates of deposit which are scheduled to mature in one year
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or less from March 31, 1997, totalled $69.676 million. Management believes
that a significant portion of these funds will remain with the Association.
At March 31, 1997, the Association exceeded each of the three OTS capital
requirements. The Association's ratios were: 12.92% tangible capital ratio;
12.92% core capital ratio; and 36.14% risk-based capital ratio. These
regulatory capital ratio requirements at March 31, 1997 were 1.5%, 3.0%, and
8.0%, respectively.
Changes in Financial Condition
Total assets increased $8.744 million to $209.783 million at March 31,
1997 from $201.039 million at June 30, 1996. Cash due from banks and
interest-earning deposits decreased $618,000 to $4.513 million. Loans
receivable increased $9.594 million to $116.079 million at March 31, 1997 from
$106.485 million at June 30, 1996. Mortgage-backed and related securities
decreased $1.586 million to $69.543 million at March 31, 1997. Investment
securities decreased $94,000 to $12.343 million at March 31, 1997. FHLB stock
increased $1.396 million to $5.652 million at March 31, 1997.
Deposits increased $11.733 million or 13.53% from $86.716 million at
June 30, 1996 to $98.449 million at March 31, 1997. The average cost of
deposits increased from 5.46% at June 30, 1996 to 5.58% at March 31, 1997.
Advances from the Federal Home Loan Bank of Des Moines decreased $3.160
million to $81.926 million at March 31, 1997 from $85.086 million at June 30,
1996. The average cost of advances decreased from 5.61% at June 30, 1996 to
5.47% at March 31, 1997.
Stockholders' equity increased $245,000 or 0.87% to $28.313 million at
March 31, 1997, from $28.068 million at June 30, 1996. MBLA Financial
Corporation's capital to assets ratio was 13.50% as of March 31, 1997 as
compared to 13.96% at June 30, 1996.
Interest Rate Sensitivity
Macon Building and Loan Association 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 Association utilizes ARMs to provide repricing opportunities more
closely matched within the time frames in which its deposits are repriced.
Management 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 88.52% of Macon Building and Loan Association's mortgage loan
portfolio as of March 31, 1997, consisted of ARMs, including ARM loans secured
by commercial real estate. Approximately 87.18% of all ARMs, or 77.17% of all
loans, are adjustable in one, two, or three years from March 31, 1996.
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FASB 115
MBLA Financial Corporation and Macon and Building and Loan Association
have adopted and implemented FASB 115 which requires investments in equity
securities that have readily determinable fair values and all investments in
debt securities be classified as either: (1) held-to-maturity, (2) trading
securities or (3) available-for-sale.
During the fourth quarter of fiscal year ended June 30, 1994, MBLA
Financial Corporation and Macon Building and Loan Association classified all
securities as available-for-sale with all investments reported at fair value
with unrealized holding gains and losses excluded from earnings and reported
as a separate component of shareholders' equity. At March 31, 1997, the
effect on stockholders' equity was an addition of $545,000 net of deferred
income taxes as compared to an addition of $154,000 at June 30,1996 net of
deferred income taxes.
Asset Quality
The Holding Company and the Association regularly review interest earning
assets to determine proper valuation. Management's monitoring of the asset
portfolio includes reviews of historical loss experience, known and inherent
risks in the portfolio, the value of any underlying collateral, prospective
economic conditions and the regulatory environment. The Association's
non-accrual mortgage loans delinquent more than 90 days decreased $149,000
from $663,000 at June 30, 1996 to $514,000 at March 31, 1997.
The table on the following page sets forth information regarding the
Association's non-accrual loans and foreclosed real estate at the dates
indicated. The Association discontinues accruing interest on delinquent loans
no later than ninety days past due, at which time all accrued but uncollected
interest is reversed. At December 31, 1996, the Association has no
restructured loans within the meaning of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 15.
13
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION
Asset Quality
March 31, December September June March 31,
1997 1996 1996 1996 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Non-accrual mortgage loans
delinquent more than 90 days $514 $532 $405 $663 $593
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
Total non-performing loans 514 532 405 663 593
Real estate owned and in-
substance foreclosed loans
net of related allowance 0 15 30 23 50
------ ------ ------ ------ ------
Total non-performing assets $514 $547 $435 $686 $643
Non-performing loans to
total loans 0.44% 0.48% 0.37% 0.62% 0.62%
Non-performing assets to
total assets 0.25% 0.26% 0.19% 0.34% 0.33%
Allowance for loan losses
to non-performing loans 111.87% 105.26% 137.04% 80.69% 90.22%
14
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<PAGE>
Results of Operations
Comparison of quarterly results in this section are between the three
month periods ended March 31, 1997, and March 31, 1996 and between the nine
month periods then ended.
General
Net income for the third quarter ended March 31, 1997 was $371,000, an
increase of $11,000 or 3.06% over the $360,000 net income for the third
quarter ended March 31, 1996. Earnings per share for the quarter ended March
31, 1997 were 27 cents per share as compared to 26 cents per share for the
quarter ended March 31, 1996. Net income for the nine months ended March 31,
1997 was $999,000, a decrease of $10,000 or 0.99% of the $1.009 million net
income for the same period ended March 31, 1996. Earnings per share for the nine
month period ended March 31, 1997 were 72 cents per share as compared to 71
cents per share for the nine months ended March 31, 1996.
Net income for the nine months ended March 31, 1997 was reduced by the
one-time special assessment paid by institutions whose deposit accounts are
insured by the Savings Association Insurance Fund (SAIF). The special
assessment reduced pre-tax consolidated earnings for the nine months ended
March 31, 1997 by approximately $558,000. Based on an estimated effective
tax rate of 37%, the after-tax charge was approximately $352,000.
Interest Income
Interest income increased $232,000 or 7.02% to $3.539 million for the
quarter ended March 31, 1997 from $3.07 million for the quarter ended March
31, 1996. Interest income for the nine months ended March 31, 1997 increased
$1.071 million or 10.67% to $11.104 million over the same period ended March
31, 1996.
Interest on mortgage loans increased $152,000 and $595,000 for the three
and nine month periods ended March 31, 1997 over the same periods ended March
31, 1996. Interest on investment securities increased $26,000 and $586,000
for the three and nine month periods ended March 31, 1997 over the same
periods ended March 31, 1996. The increase in interest income for the nine
months is attributable to the purchase of an 8% FHLB quarterly callable bond
due March 26, 2004. This was funded with a FHLB one-month Libor advance with
the same maturity that could be paid-off on any quarterly call date. The bond
was called December 26, 1996 and the advance was paid-off on the same date.
Interest on mortgage-backed and related securities increased $9,000 for the
three months ended March 31, 1997 and decreased $56,000 for the nine months
ended March 31, 1997 as compared to the same periods ended March 31, 1996.
Interest Expense
Interest expense for the quarter ended March 31, 1997 was $2.511 million
as compared to $2.338 million for the quarter ended March 31, 1996, an
increase of $173,000 or 7.40%. Interest expense on deposits increased
$144,000 to $1.324 million at March 31, 1997 from $1.180 million at March 31,
1996. Interest expense on advances increased $29,000 to $1.187 million at
March 31, 1997 from $1.158 million at March 31, 1996.
15
<PAGE>
<PAGE>
Interest expense for the nine months ended March 31, 1997 was $7.714
million as compared to $7.262 million for the nine months ended March 31,
1996, an increase of $452,000 or 6.22%. Interest expense on deposits
increased $222,000 for the nine months ended March 31, 1997 to $3.726 million,
an increase of 6.34%. Interest expense on advances increased $230,000 from
$3.758 million at March 31, 1996 to $3.988 million at March 31, 1997, an
increase of 6.12%. The increase on interest expense on advances is
attributable to the one-month Libor financing obtained on the 8% FHLB bond
discussed under Interest Income. The average cost of funds which includes
both interest paid on deposits and interest paid on advances, increased from
5.53% at March 31, 1996 to 5.54% at March 31, 1997.
Net Interest Income
Net interest income before provisions for loan losses was $1.028 million
for the quarter ended March 31, 1997 as compared to $969,000 for the quarter
ended March 31, 1996, an increase of$59,000 or 6.09%. Net interest income
before provision for loan losses was $3.390 million for the nine months ended
March 31, 1997 as compared to $2.771 million for the nine months ended March
31, 1996, an increase of $619,000 or 22.34%.
Noninterest Income
Other income for the quarter ended March 31, 1997 was $5,000 as compared
to $13,000 for the same quarter of the previous year. Other income for the
nine months ended March 31, 1997 was $11,000 as compared to $19,000 for the
nine months ended March 31, 1996. Other income is not considered a
significant part of the overall income of the company.
Noninterest Expense
Noninterest expense for the quarter ended March 31, 1997 decreased $9,000
to $392,000, a decrease of 2.24% as compared to $401,000 for the quarter ended
March 31, 1996. Noninterest expense for the nine months ended March 31, 1997
increased $580,000 to $1.737 million, an increase of 50.13% as compared to
$1.157 million for the nine months ended March 31, 1996. The increase in
noninterest expense for the nine months ended March 31, 1997 is due to the
one-time special assessment paid by institutions whose deposit accounts are
insured by the SAIF. The special assessment was approximately $558,000.
Provision for Loan Losses
At March 31, 1997, the provision for loan losses general loan valuation
allowance is $575,000. For the three months ended March 31, 1997, provision
for loan losses was increased $15,000 as compared to no increase during the
same quarter ended March 31, 1996. For the nine months ended March 31, 1997,
provision for loan losses was increased $40,000 as compared to no increase
during the same period ended March 31, 1996. The Association has a policy of
maintaining a general loan valuation allowance of one-half of one percent of
outstanding loans.
16
<PAGE>
<PAGE>
Income Tax
The provision for federal and state income taxes increased $34,000 to
$255,000 for the quarter ended March 31, 1997 as compared to $221,000 for the
quarter ended March 31, 1996. The provision for federal and state income
taxes increased $1,000 to $625,000 for the nine months ended March 31, 1997 as
compared to $624,000 for the same period ended March 31, 1996.
17
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Part II -- Other Information
Item 1 Legal Proceedings
The Holding Company and the Association are not involved in any
pending legal proceedings other than legal proceedings incident to
the business of the Holding Company and theAssociation, which
involve amounts in the aggregate which managementbelieves are
immaterial to the financial condition and results of operations
of the HoldingCompany and the Association.
Item 2 Changes in Securities
Not applicable.
Item 3 Default upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11. Statement re: Computation of Per Share Earnings
Quarter Ended
Mar. 31, 1997
-------------
1. Net income $ 371,000
=============
2. Weighted average common shares outstanding 1,296,915
3. Common stock equivalents due to dilutive effect
of stock options 73,026
4. Total weighted average common shares and -------------
equivalents outstanding for primary earnings
per share computation 1,369,941
=============
5. Primary earnings per share $ 0.27
=============
6. Weighted average common shares outstanding 1,369,941
7. Additional dilutive shares using the higher
of the end of period market value versus average
market value for the period utilizing the
treasury stock method regarding stock options 2,104
-------------
8. Total weighted average common shares and equivalents
outstanding for fully diluted earnings per share
computation 1,372,045
=============
9. Fully diluted earnings per share $ 0.27
(b) There were no reports filed on Form 8-K.
18
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused thisreport to be signed on its behalf by the
undersigned thereunto duly authorized.
MBLA Financial Corporation
--------------------------
(Registrant)
Dated May 1, 1997 /s/ John T. Neer
-----------------
John T. Neer
President and Chief Executive Officer
(Duly Authorized Officer)
Dated May 1, 1997 /s/ Clyde D. Smith
-------------------
Clyde D. Smith
Vice President and Chief Financial
Officer
(Principal Financial Officer)
19
<PAGE>
<PAGE>
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