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, 1997
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 $24,360,946 and is based upon the last sales price as quoted on
the NASDAQ National Market for June 30, 1997.
As of June 30, 1997, the Registrant had 1,298,412 shares outstanding.
Revenues for the fiscal year ended June 30, 1997: $15,040,000.
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, 1997 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
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PART I
Item 1. Business....................................... 1
Item 2. Properties..................................... 34
Item 3. Legal Proceedings.............................. 34
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.. 35
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 offeringfor 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
35.6%, for the year ended June 30, 1997. At June 27, 1997, the Company had
approximately 450 stockholders of record of the 1,298,412 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 100 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, 1997 the Association had total assets of $234.8 million and
stockholders' equity of $28.5 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, 1997,
approximately $113.7 million or 89.4% 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, 1997, the Association's mortgage loans outstanding were $126.2 million,
of which $115.1 million were one- to four-
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family residential mortgage loans. Of the total loans outstanding at that date,
$113.0 million were ARMs and $14.2 were fixed-rate loans. At that same date,
commercial real estate loans totalled $9.8 million. At June 30, 1997, purchased
whole mortgage loans and participations totalled $113.7 million or 89.4% 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 .77% of total loans outstanding at June
30, 1997. There were no loans held for sale at June 30, 1997.
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.
2
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The following table sets forth as of June 30, 1997, the portions of the
Association's loan portfolio which had been purchased from others and originated
by the Association.
At June 30, 1997
Purchased (1) Originated Total
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
---------- ------- --------- ------ -------- -----
Mortgage Loans:
<S> <C> <C> <C> <C> <C> <C>
One-to four-family $103,542 81.43% $ 11,562 9.09% $115,109 0.52%
Multi-family 994 .78 253 0.20 1,247 0.98
Commercial real estate 8,799 6.92 1,025 0.81 9,824 7.73
---------- ------- --------- ------ -------- -----
Total mortgage loans 113,335 89.13 12,840 10.10 126,175 99.23
---------- ------- --------- ------ -------- -----
Other loans:
Home improvement -- -- 270 0.21 270 0.21
Loans on savings accounts -- -- 342 0.27 342 0.27
Other 372 0.29 -- -- 372 0.29
---------- ------- --------- ------ -------- -----
Total other loans 372 0.29 612 0.48 984 .77
---------- ------- --------- ------ -------- -----
Total gross loans $113,707 89.42% $13,452 10.58% $127,159 100.00%
========== ====== ========= ====== ======== =======
(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,
1997 1996 1995 1994 1993
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ -------
(Dollars In Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family $115,104 90.52% $97,017 90.67% $92,731 88.01% $80,055 85.67% $62,576 88.32%
Multi-family 1,247 0.98 1,367 1.27 4,401 4.18 4,708 5.04 2,728 3.85
Commercial real estate 9,824 7.73 7,643 7.15 7,102 6.74 7,411 7.93 4,238 5.98
------ -------- ------ -------- ------ -------- ------ -------- ------ -------
Total mortgage loans 126,175 99.23 106,027 99.09 104,234 98.93 92,174 98.64 69,542 98.15
OTHER LOANS:
HOME IMPROVEMENT 270 0.21 277 0.26 378 0.36 406 0.43 263 0.37
LOANS ON SAVINGS
ACCOUNTS 342 0.27 283 0.26 289 0.27 363 0.39 390 0.55
OTHER LOANS -- FHA
NON-MORTGAGE 372 0.29 415 0.39 459 0.44 502 0.54 661 0.93
------ -------- ------ -------- ------ -------- ------ -------- ------ -------
TOTAL OTHER LOANS 984 0.77 975 0.91 1,126 1.07 1,271 1.36 1,314 1.85
TOTAL LOANS
RECEIVABLE $127,159 100.00% $107,002 100.00 $105,360 100.00% $93,445 100.00% $70,856 100.00%
------ -------- ------ -------- ------ -------- ------ -------- ------ -------
ADD:
PREMIUM ON PURCHASED
LOANS $ 8 $ 8 $ 9 $ 11 $ 14
DEFERRED LOAN COSTS 27 26 31 29 17
LESS:
LOANS IN PROCESS 116 16 165 111 --
UNEARNED DISCOUNTS,
PREMIUMS AND DEFERRED
LOAN FEES, NET -- -- -- -- 5
ALLOWANCE FOR LOAN LOSSES 630 535 535 425 350
------ ------ ------ ------ ------
LOANS RECEIVABLE,NET $126,448 $106,485 $104,700 $92,949 $70,532
======= ======= ======= ====== ======
MORTGAGE-BACKED SECURITIES, NET:
FHLMC $ 950 1.37% $ 1,220 1.72% $ 1,470 2.11% $ 1,798 12.21% $ 2,925 16.90%
FHLMC ARM 245 .36 335 .47 507 .73 658 4.47 1,085 6.26
FNMA/GNMA ARM 16,458 23.86 19,529 27.46 25,062 36.07 600 4.08 761 4.40
FNMA/FHLMC REMIC 50,586 73.34 50,546 71.06 43,224 62.21 12,130 82.39 12,513 72.29
Total mortgage-backed ------ -------- ------ -------- ------ -------- ------ -------- ------ -------
securities 68,239 98.93 71,630 100.71 70,263 101.12 15,186 103.15 17,284 99.85
Net premiums & discounts (351) (.51) (779) (1.10) (1,044) (1.50) 3 0.02 26 .15
SFAS #115 Adjustment to
Fair Value 1,087 1.58 278 .39 263 .38 (467) (3.17) -- .00
Net mortgage-backed ------ -------- ------ -------- ------ -------- ------ -------- ------ -------
securities $68,975 100.00% $71,129 100.00% $69,482 100.00% $14,722 100.00% $17,310 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
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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,
1997 1996 1995
(in thousands)
Mortgage loans (gross):
At beginning of period $ 106,027 $104,234 $92,174
--------- -------- -------
Mortgage loans purchased:
One-to four-family 29,077 14,872 22,076
Multi-family 1,464 -- --
Commercial real estate 1,672 1,631 --
--------- -------- --------
Total mortgage loans purchased 32,213 16,503 22,076
--------- -------- --------
Mortgage loans originated:
One-to four-family 983 978 2,007
Multi-family -- -- --
Commercial real estate 319 -- --
---------- -------- --------
Total mortgage loans originated 1,302 978 2,007
Total mortgage loans purchased and
originated 33,515 17,481 24,083
--------- -------- --------
Transfer of mortgage loans to foreclosed REO 30 103 49
Principal repayments 13,337 15,585 11,974
--------- -------- --------
At end of period $126,175 $106,027 $104,234
======== ======== ========
Other loans:
At beginning of period $ 975 $ 1,126 $ 1,271
Other loans originated 449 307 425
Other loans purchased -- -- --
Principal repayments (440) (458) (570)
-------- -------- --------
At end of period $ 984 $ 975 $ 1,126
======== ======== ========
Mortgage-backed securities:
At beginning of period $ 71,129 $ 69,482 $ 14,722
Mortgage-backed securities purchased 17,000 11,023 55,041
Mortgage-backed securities sold (16,576) (3,501) --
Amortization and repayments (3,387) (5,890) (1,011)
SFAS #115 Adjustment to Fair Value 809 15 730
-------- -------- --------
At end of period $ 68,975 $ 71,129 $ 69,482
======== ======== ========
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LOAN AND MORTGAGE-BACKED SECURITIES BY CONTRACTUAL MATURITY
The following table shows the maturity of the Association's loan and mortgage-backed securities
portfolios at June 30, 1997. The table does not include prepayments or scheduled principal amortization.
Prepayments and scheduled principal amortization on loans and mortgage-backed securities totalled $17.2
million, $21.9 million, and $13.7 million for the years ended June 30, 1997, 1996 and 1995, respectively.
At June 30, 1997
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 $ 26 $ -- $ -- $ 344 $ 370 $ 62 $ 432
----------- ------ ----------- ------ ---------- ---------- -------
After 1 year:
1 to 3 years 1,116 -- 32 62 1,210 -- 1,210
3 to 5 years 1,314 28 -- 77 1,419 -- 1,419
5 to 10 years 2,701 -- 30 491 3,222 909 4,131
10 to 20 years 93,521 1,219 8,278 10 103,028 -- 103,028
over 20 years 16,426 -- 1,484 -- 17,910 68,004 85,914
----------- ------ ----------- ------ ---------- ---------- -------
Total due after 1 year 115,078 1,247 9,824 640 126,789 68,913 195,702
----------- ------ ----------- ------ ---------- ---------- -------
Total amounts due 115,104 1,247 9,824 984 127,159 68,975 196,134
----------- ------ ----------- ------ ---------- ---------- -------
Loans in process (116) -- -- -- (116) -- (116)
Unearned deferred loan fees 27 -- -- -- 27 -- 27
Allowance for loan losses (570) (6) (51) (3) (630) -- (630)
Premiums on purchased loans -- -- -- 8 8 -- 8
----------- ------ ----------- ------ ---------- ---------- -------
Loans receivable and
mortgage-backed
securities, net $ 114,445 $1,241 $ 9,773 $ 989 $ 126,448 $ 68,975 $195,423
=========== ====== =========== ====== ========== ========== ========
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The following table sets forth at June 30, 1997, the dollar amount of all loans and mortgage-backed
securities due after June 30, 1998, and whether such loans have fixed interest rates or adjustable interest
rates.
Due after June 30, 1998
Fixed Adjustable Total
(in thousands)
Mortgage loans: --------- ----------- ----------
<S> <C> <C> <C>
One-to four-family $ 8,325 $107,124 $115,449
Multi-family 174 1,072 1,246
Commercial real estate 5,304 4,520 9,824
Other loans 12 258 270
--------- ----------- ----------
Total loans receivable 13,815 112,974 126,789
Mortgage-backed securities 909 68,004 68,913
Total loans receivable and --------- --------- ---------
mortgage-backed securities $14,724 $180,978 $195,702
======= ======== ========
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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, 1997, purchased mortgage loans totalled $113.7 million, or 89.4%, of
the gross loan portfolio. Approximately $91.9 million or 81% 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 139 one- to four-family loans with principal balances
that exceeded $250,000 at June 30, 1997. The largest of such loans had an
outstanding balance of $1.6 million. All such loans are current.
At June 30, 1997, the purchased one- to four-family loans were being
serviced by approximately 14 companies. Substantially all of these loans are
being serviced by two servicers who service approximately $107.7 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, 1997, loans totalling $577,000, or .45% 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, 1997, 90.5% of total loans consisted of one- to four-family
residential 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, 1997, $11.1 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 $.61 million or .48% of total loans
receivable at June 30, 1997. 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, 1997, net mortgage-backed and related
securities aggregated $69.0 million, or 29.37% of total assets of which $68.0
million were adjustable-rate and $1.0 million were fixed-rate. All securities in
the mortgage-backed and related securities portfolio at June 30, 1997, 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, 1997 ranging from 5.95% to 9.00% with a weighted average yield of 7.06%
at June 30, 1997. At June 30, 1996, mortgage-backed securities totalled $71.1
million or 35.38% of total assets.
Mortgage related securities at June 30, 1997, 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, 1997, the Association owned REMICs
with an amortized cost of $50.2 million and a market value of $51.0 million and
a weighted average yield of 7.11%. The REMICs that the Association owned at June
30, 1997 are long-term with an average estimated life of ten to fourteen
9
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<PAGE>
years and range in original principal amount from $.6 million to $10.0 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 $113.7 million in purchased loans and participations
at June 30, 1997. 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
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<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, 1997, the Association had total classified assets of
$1,257,788 of which $776,927 were classified as substandard and $366,117 were
classified as doubtful. Special mention assets totalled $114,744 at June 30,
1996.
11
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<PAGE>
DELINQUENT LOANS.
At June 30, 1997, 1996 and 1995, delinquent loans in the Association's portfolio
were as follows:
At June 30, 1997 At June 30, 1996
60-90 Days 90 Days or More 60-90 Days 90 Days or More
Number Principal NumberPrincipal NumberPrincipal NumberPrincipal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in Thousands)
One-to four-family 8 $ 115 11 $ 577 6 $ 122 13 $ 663
Multi-family -- -- -- -- -- -- -- --
Commercial real
estate -- -- -- -- -- -- -- --
----- -------- ----- -------- ----- -------- ----- --------
Total mortgage loans 8 $ 115 11 $ 577 6 $ 122 13 $ 663
===== ======== ===== ======== ===== ======== ===== ========
Delinquent loans to
total gross loans 0.09% 0.46% 0.11% 0.62%
At June 30, 1995
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 11 $ 299 7 $ 424
Multi-family -- -- -- --
Commercial real estate -- -- -- --
----- -------- ----- --------
Total mortgage loans 11 $ 299 7 $ 424
===== ======== ===== ========
Delinquent loans to total gross loans 0.28% 0.40%
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, 1997, the Association had no restructured loans within
the meaning of FASB Statement 15.
At June 30,
1997 1996 1995
-------------- ------------- -------------
(Dollars in thousands)
Non-accrual mortgage loans $ 577 $ 663 $ 424
Non-accrual other loans -- -- --
-------------- ------------- -------------
Total non-performing loans 577 663 424
============== ============= =============
Total foreclosed real estate,
net of related reserves -- 23 --
-------------- ------------- -------------
Total non-performing assets (1) $ 577 $ 686 $ 424
============== ============= =============
Non-performing loans to total loans 0.46% 0.62% 0.41%
Total non-performing assets to total 0.25% 0.34% 0.22%
(1) All non-performing assets at June 30, 1997 were included in classified
assets at that date.
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<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,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
Balance at beginning of period $ 535 $ 535 $ 425 $ 350 $ 100
Provision for loan losses 95 -- 115 75 250
Charge-offs -- -- (5) -- --
Recoveries -- -- -- -- --
------ ------ ------ ------ ------
Balance at end of period $ 630 $ 535 $ 535 $ 425 $ 350
====== ====== ====== ====== ======
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 109.19% 80.69% 126.16% 185.39% 87.94%
Ratio of allowance for loan losses
to total non-performing assets at
the end of period 109.19% 77.99% 126.16% 183.39% 87.94%
Ratio of allowance for loan losses
to total loans receivable at
the end of period 0.50% 0.50% 0.51% 0.46% 0.50%
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<TABLE>
The following table sets forth the Association's general allowance for loan losses by type of loan for the
period indicated.
At June 30,
1997 1996 1995
Percentage Percentage Percentage
of loans in of loans in of loans in
Category to Category to Category to
Total Total Total
Outstanding Outstanding Outstanding
Amount Loans Amount Loans Amount Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
General Allowances Allocated to:
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 570 90.48% $ 485 90.65% $ 470 87.85%
Multi-family 6 .95 7 1.31 23 4.30
Commercial real estate 51 8.10 38 7.11 37 6.92
Other loans:
Home improvement 1 0.16 2 0.37 2 0.37
Loans on savings -- -- -- -- -- --
Consumer 2 0.31 3 0.56 3 0.56
------ ----------- ------ ----------- ------ -----------
Total general allowance $ 630 100.00% $ 535 100.00% $ 535 100.00%
====== =========== ====== =========== ====== ===========
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</TABLE>
<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, 1997, the Association had investment securities with a
fair value of $106.2 million as shown in the following table.
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<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,
1997 1996 1995
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 1,184 1,184 672 672 55 55
Certificates of deposit 3,265 3,265 -- -- 99 99
Passbook Savings 35 35 39 39 736 736
--------- ------ --------- ------ --------- ------
Total interest-earning
deposits 4,484 4,484 4,811 4,811 2,390 2,390
Investment securities:
U.S. Government and federal
agency obligations 26,971 27,039 12,471 12,437 14,553 14,604
FHLB Stock 5,652 5,652 4,256 4,256 4,091 4,091
Mortgage-backed securities 67,889 68,975 70,852 71,129 69,219 69,482
--------- ------ --------- ------ --------- ------
Total $104,996$106,150 $ 92,390 $92,633 $ 90,253 $90,567
======== ======= ======== ====== ======== ======
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<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, 1997.
At June 30, 1997
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations $4,991 5.607% $5,993 6.046% $ -- -- $ -- -- $10,984 5.847%
FHLB Debentures 1,000 5.750% -- -- 15,055 7.800% -- -- 16,055 7.672%
----- ------ ----- ----- ----- ----- ----- ----- ----- -----
Total $5,991 5.631% $5,993 6.046% $15,055 7.800% $ -- -- $27,039 6.931%
===== ====== ===== ====== ====== ===== ===== ===== ====== ======
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, 1997, 1996 and 1995 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,
1997 1996 1995
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $113,387 $8,254 7.28% $104,044 $7,322 7.04% $101,913 $7,039 6.91%
Interest-earning deposits 4,000 197 4.93 6,340 270 4.26 2,172 85 3.91
Investment securities and
FHLB stock 27,142 1,860 6.85 16,615 1,040 6.26 17,442 896 5.14
Mortgage-backed securities 69,330 4,729 6.82 69,328 4,768 6.88 43,713 3,170 7.25
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Total interest-earning
assets 213,859 15,040 7.03 196,327 13,400 6.83 165,240 11,190 6.77
Non-interest earning assets 2,484 2,127 2,028
--------- ---------- ----------
Total assets $216,343 $198,454 $167,268
======== ======== ========
Liabilities:
Interest-bearing liabilities:
Passbook accounts $ 6,815 $ 170 2.49 $ 7,506 $ 244 3.25 $ 8,731 $ 259 2.97
Certificates and money
market 85,670 4,937 5.76 78,522 4,434 5.65 78,063 3,816 4.89
FHLB Advances 94,327 5,329 5.65 81,025 4,911 6.06 50,536 3,145 6.22
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Total Interest-bearing
liabilities 186,812 10,436 5.59 167,053 9,589 5.74 137,330 7,220 5.26
------ -------- --------
Non-interest bearing
liabilities 1,896 2,661 1,366
---------- --------- ----------
Total liabilities 188,708 169,714 138,696
Stockholders' equity 27,635 28,740 28,572
--------- --------- ----------
Total liabilities and
Stockholders' Equity $216,343 $198,454 $167,268
======== ======== ========
Net interest income/
interest rate spread (1) $4,604 1.44% $3,811 1.09% $ 3,970 1.51%
====== ===== ====== ===== ======= =====
Net interest margin/net
earning assets (2) 2.15% 1.94% 2.40%
===== ===== =====
Ratio of interest-earning
assets to interest-bearing
liabilities 114.48% 117.52% 120.32%
======= ======= =======
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,
1997 1996 1995
---- ---- ----
(In thousands)
Deposits.................................... $ 24,207 $ 9,691 $ 9,915
Withdrawals................................. 12,245 11,057 15,677
------ ------ ------
Withdrawals in excess of deposits........... 11,962 (1,366) (5,762)
Interest credited on deposits .............. 3,281 2,920 2,544
-------- -------- -------
Total increase (decrease) in deposits....... $15,243 $ (1,554) $(3,218)
======= ======== =======
At June 30, 1997, the Association had deposit accounts in the amounts of
$100,000 or more maturing as follows:
One month through three months.............. $ 979
Three through six months.................... 1,876
Six through 12 months....................... 5,231
Over 12 months.............................. 2,966
---------
Total..................................... $ 11,052
=========
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<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,
1997 1996 1995
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 $6,299 6.18% 3.00% $7,575 8.74% 3.00% $7,816 9.18% 3.00%
Certificate accounts:
Within one year 70,030 68.69 5.79 47,923 55.26 5.53 42,705 50.14 5.31
One year to three years 18,133 17.78 5.87 22,056 25.43 5.89 25,952 30.47 5.69
Over three years 1,449 1.42 5.79 3,233 3.73 6.21 3,207 3.76 6.56
Individual retirement
accounts 6,048 5.93 5.86 5,929 6.84 5.93 5,482 6.44 5.63
------ -------- ------- ------ -------- ------- ------ -------- -------
Total Certificates 95,660 93.82 79,141 91.26 77,346 90.82
------- ----- ------ ----- ------ -----
Total deposits $101,959 100.00% $ 86,716 100.00% $85,162 100.00%
======= ====== ====== ====== ====== ======
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</TABLE>
<PAGE>
<PAGE>
<TABLE>
The following table presents, by various rate categories, the amount of certificate accounts outstanding at
June 30, 1997, 1996 and 1995 and the periods to maturity of the certificate accounts at June 30, 1997.
Period to Maturity from
At June 30, June 30, 1997
Within Two to
1997 1996 1995 One Year Three Years Thereafter Total
------ ------ ------ -------- ----------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.00% to 3.99% $ -- $ 2 $3,650 $ -- $ -- $ -- $ --
4.00% to 4.99% 1,277 5,363 15,078 1,277 -- -- 1,277
5.00% to 5.99% 59,634 51,732 27,141 41,924 15,627 2,083 59,634
6.00% to 6.99% 33,383 20,303 28,260 29,710 3,663 10 33,383
7.00% to 7.99% 1,365 1,730 3,158 85 1,280 -- 1,365
8.00% to 8.99% 1 11 59 -- 1 -- 1
------ ------ ------ -------- ----------- ---------- -------
Total $95,660 $79,141 $77,346 $ 72,99 $ 20,571 $ 2,093 $95,660
====== ====== ====== ======== =========== ========== =======
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</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.
At June 30, 1997, the Association had $102.9 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, 1997, MBL had total assets of $8,222.
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, 1997, the Association had 12 full-time employees and 3
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.
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<PAGE>
RATE/VOLUME ANALYSIS
<TABLE>
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, 1996 Year ended June 30, 1995 Year ended June 30, 1994
Compared to Year Compared to Year Compared to Year
ended June 30, 1997 ended June 30, 1996 ended June 30, 1995
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- ---- ------ ---- ---- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net $ 675 $ 257 $ 932 $ 149 $ 134 $ 283 $1,605 $(418) $1,187
Mortgage-backed securities -- (39) (39) 1,768 (170) 1,598 1,869 424 2,293
Interest-earning deposits (110) 37 (73) 176 9 185 (290) (23) (313)
Investment securities 714 106 820 (44) 188 144 93 124 217
------ ---- ---- ------ ---- ---- ------ ---- -----
Total interest-earning assets $1,279 $ 361 $1,640 $2,049 $ 161 $2,210 $3,277 $ 107 $3,384
====== ==== ==== ====== ==== ===== ====== ==== ======
Interest-bearing liabilities:
Deposits $ 359 $ 70 $ 429 $ (36) $ 639 $ 603 $ (99) $ 256 $ 157
FHLB Advances 766 (348) 418 1,849 (83) 1,766 2,944 23 2,967
------ ---- ---- ------ ---- ---- ------ ---- -----
Total interest-bearing
liabilities $1,125 $(278) $ 847 $1,813 $ 556 $2,369 $2,845 $ 279 $3,124
====== ==== ==== ====== ==== ===== ====== ==== ======
Net change in interest income $ 154 $ 639 $ 793 $ 236 $(395) $(159) $ 432 $(172) $ 260
====== ==== ==== ====== ==== ===== ====== ==== ======
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 publicinformation 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. Currently, the Association pays an insurance premium to the FDIC equal
to 0.063% of its total deposits.
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.
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, 1997 totalled
approximately $61,140.
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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 "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
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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, 1997:
Percent of
Adjusted
Amount Assets
(Dollars in Thousands)
TANGIBLE CAPITAL:
Regulatory requirement..................... $ 3,511 1.50 %
Actual capital............................ 26,194 11.16
------ -----
Excess.................................. $22,683 9.66%
====== ======
CORE CAPITAL:
Regulatory requirement.................... $ 7,022 3.00 %
Actual capital............................ 26,194 11.19
------ -----
Excess................................... $19,172 8.19%
======= ======
RISK-BASED CAPITAL:
Regulatory requirement.................... $ 6,765 8.00 %
Actual capital............................ 26,824 31.72
------ -----
Excess.................................. $20,059 23.72 %
====== =====
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
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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 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, 1997, 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.
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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, 1997, 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 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, 1997.
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
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evaluation. Management feels this rating will not have a material impact on the
Association. In addition, the Board has adopted a quarterly evaluation process
in its CRA program.
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, 1997 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 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
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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, 1997, the Association had
$ 5.7 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, 1997, dividends paid by the FHLB of
Des Moines to the Association totalled approximately $374,117.
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, 1997, 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, 1997.
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 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.
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BAD DEBT RESERVES. The Association's deduction is computed under the
experience method which essentially allows a deduction for actual charge-offs.
As of June 30, 1997, the Association's tax bad debt reserve was $5.0 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%. 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 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
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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.
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.
SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted by
the Company during the fiscal year ending June 30, 1997. This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans. These plans include all arrangements by which
employees receive shares of stock or other equity investments of the employer or
the employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods and services from
nonemployees.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," supersedes SFAS No. 122 and is
effective for all transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities
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based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
SFAS 128, "Earnings Per Share", will be adopted for the three months
ending December 31, 1997 as required by the statement. This statement revises
the method of computing "basic" and "diluted" earnings per share, which replaces
the current "primary" and "fully diluted" earnings per share. Basic earnings per
share does not include the effect of common stock equivalents such as stock
options, which were included in primary earnings per share. For the year ended
June 30, 1997, basic earnings per share would have been $1.10 and diluted
earnings per share would have been $1.04.
SFAS No. 130, "Reporting Comprehensive Income," will be adopted July 1,
1998. This statement provides accounting and reporting standards to report a
measure of all changes in equity of an enterprise that results from recognized
transactions and economic events of the period. The major component of
comprehensive income for the Company will be unrealized gains and losses on
certain investments in debt and equity securities.
Management believes adoption of SFAS Nos. 123, 125, 128, and 130 does
not have a material effect on the financial position or results of operations,
nor will adoption require additional capital resources.
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.
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.
34
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<PAGE>
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............... 37 Vice President, Chief Financial
Officer and Secretary
Elizabeth T. Fleming......... 62 Vice President and Senior Loan
Officer
Sarah Hartung................ 39 Vice President and Savings
Supervisor
Melinda Masten............... 38 Treasurer
(1) At June 30, 1997
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 1997 Annual Report to Stockholders on page 37 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, LLC appear in the Registrant's 1997 Annual Report to Stockholders on
pages 12 through 36 and are incorporated herein by reference.
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 28, 1997,
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.
35
<PAGE>
<PAGE>
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 28, 1997 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 28,
1997 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 28, 1997
at page 8.
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 1997 Annual
Report to Stockholders.
PAGE
----
Independent Auditors' Report ......................................... AR-36
Statements of Financial Condition
as of June 30, 1997 and 1996.......................................... AR-12
Consolidated Statements of Income for each of the
Years in the Three-Year Period Ended June 30, 1997.................... AR-13
Consolidated Statements of Stockholders' Equity for
each of the Years in the Three-Year PeriodEnded June 30, 1997......... AR-14
Consolidated Statements of Cash Flows for each of the Years
in the Three-Year Period Ended June 30, 1997.......................... 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:
36
<PAGE>
<PAGE>
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 1997 Annual Report to Stockholders
21.0 Proxy Statement for 1997 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
<PAGE>
<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 25, 1997 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 Officer September 25, 1997
- ----------------- and Director -------------------
John T. Neer
/s/ Charles L. Hutton Chairman of the Board of Directors September 25, 1997
- ---------------------- -------------------
Charles L. Hutton
/s/ Carl B. Barrows Vice Chairman of the September 25, 1997
- --------------------- Board of Directors -------------------
Carl B. Barrows
/s/ Truman L. Gehringer Vice President and Director September 25, 1997
- ------------------------ -------------------
Truman L. Gehringer
/s/ Richard C. Miller, Jr. Director September 25, 1997
- -------------------------- -------------------
Richard C. Miller, Jr.
/s/ Arnold L. Walter Director September 25, 1997
- --------------------- -------------------
Arnold L. Walter
/s/ Robert M. Wilhite Director September 25, 1997
- ---------------------- -------------------
Robert M. Wilhite
/s/ Melinda Masten Principal Accounting Officer September 25, 1997
- ------------------- -------------------
Melinda Masten
/s/ Clyde D. Smith Principal Financial Officer September 25, 1997
- ------------------- -------------------
Clyde D. Smith
38
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<PAGE>
EXHIBIT 11.0
COMPUTATION OF EARNINGS PER SHARE
<PAGE>
<PAGE>
EXHIBIT 11.0 COMPUTATION OF EARNINGS PER SHARE
Pro forma primary and fully diluted earnings per share for the year ended
June 30, 1997, were determined by dividing net income for the year by 1,379,868
and 1,381,742 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
1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
<PAGE>
MBLA Financial Corporation
FIFTH ANNUAL REPORT
MBLA '97
<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................................ 9
Notes to Consolidated Financial Statements....................... 17
Independent Auditors' Report..................................... 36
Corporate Information............................................ 37
<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, 1997, were $1,441,000 or $1.04 per share.
Our return on assets for the year ended June 30, 1997 was .67% with a return on
equity of 5.09%.
Our total assets as of June 30, 1997 were $234.8 million with loans receivable
of $126.4 million (an increase of $20.0 million) and deposits of $102.0 million.
Our stockholders' equity was $28.5 million or 12.15% of total assets. The
Association had regulatory capital ratios of tangible and core capital to assets
of 11.19% and risk-based capital of 31.65%. 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 1997. The Company's book value at June
30, 1997 was $21.98 per share, an increase of $1.42 per share. During 1997 the
Company repurchased 66,699 shares of its Common Stock for $1.423 million or an
average of $21.34 per share.
At June 30, 1997 non-performing assets were $577,000, a decrease of $109,000
from June 30, 1996. Loan loss reserves at June 30, 1997 were $630,000 or 109.19%
of non-performing loans.
e continue to look at ways to enhance shareholder value by increasing
profitability. We were pleased with results in 1997 and we look forward to a
profitable year in 1998.
Sincerely,
/s/ JOHN T. NEER
- -----------------
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, 1997.
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 securities and mortgage-backed and related 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 its cost 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 real estate acquired through
foreclosure and other operating expenses.
As a result of increased loan demand, the Association's loan portfolio has
increased to $126.4 million at June 30, 1997 from $107.0 million at June 30,
1996. The Association increased its investment in mortgage-backed and other
investment securities in fiscal years 1997 and 1996. 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
2
<PAGE>
<PAGE>
during the period 1980 to 1994 and this trend is assumed to now be stabilized.
In contrast, the population of 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 operations of Macon are influenced significantly by local economic
conditions and by policies of financial institution regulatory agencies,
including 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 are affected by the interest rates at which
such financing may be offered. Historically, the Association has foregone growth
to maintain profitability.
The 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 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 88.85% of Macon's mortgage loan
portfolio as of June 30, 1997, 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. The Association's passbook 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.
The balance sheet structure poses a challenge of interest rate risk to the
management.
3
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<PAGE>
The Association's one year GAP at June 30, 1997, was a positive
6.94% or $16.3 million.
The Association's one year GAP is reflected in the following table:
Maturities
within
One Year
Assets: $143,544,000
Liabilities: 127,296,000
-----------
GAP: $ 16,248,000
===========
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, li quidity 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, 1997.
The Association's liquidity during the years ended June 30, 1997 and 1996 was
6.21% and 8.95%, respectively. The lower liquidity during the 1997 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 source of liquidity is short-term borrowing from the Federal Home
Loan Bank of Des Moines ("FHLB-Des Moines"); the Association has borrowed $102.9
million at June 30, 1997 for the purpose of funding the increased loan demand
and securities purchases.
4
PAGE
<PAGE>
The Association's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The levels of
these assets are the result of the Association's policy to maintain high
liquidity levels. At June 30, 1997, 1996, and 1995, cash and cash equivalents
totalled $4.7 million, $5.1 million and $2.6 million, respectively.
At June 30, 1997 the Association had $73.0 million in deposits due within one
year and $6.30 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 disproportio nately, by historical standards, to shorter
term certificates and passbook accounts, during a continuing low interest rate
environment. At June 30, 1997 the Association had outstanding loan commitments
to originate and purchase loans in the amount of $7.9 million.
During the years ended June 30, 1997 and 1996, the Association originated or
purchased real estate loans in the amounts of $33.5 million and $17.5 million,
respectively.
Other investing activities included the purchase of mortgage backed securities
and Collateralized Mortgage Obligations ("CMOs") which totalled $17.0 million
and $11.0 million for the years ended June 30, 1997 and 1996, respectively. The
Association also purchased U.S. Treasury and FHLB Agency Securities for the
years ended June 30, 1997 and 1996 in the amounts of $7.6 million, and $19.2
million.
Comparison of Operating Results for the Years Ended June 30, 1997 and 1996
Net Income. Net income for fiscal 1997 increased $48,000 from fiscal 1996. The
increase in net income primarily resulted from increased loan activity and
investments. During the period, interest rates in general decreased on
interest-earning assets and interest-bearing liabilities; net interest income
increased by $793,000.
In addition, non-interest expenses increased for deposit insurance.
Interest Income. Interest income increased $1.64 million or 12.2%, to $15.04
million for fiscal 1997 from $13.40 million for fiscal 1996. This increase
resulted from an increase in the interest on mortgage loans, investment and
related securities. Interest on loans increased by $932,000 or 12.73% to $8.3
million in fiscal 1997. The higher balanceof loans outstanding during fiscal
1997 reflects an increase in refinancing of purchased mortgage loans and a
continued volume of purchased loans. Total mortgage loans originated and
purchased during fiscal 1997 were $33.5 million compared to $17.5 million in
fiscal 1996. 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 1997 was $10.4 million as compared
to $9.6 million for fiscal 1996, an increase of $ .8 million, or 8.83%. The
increase resulted from an increase in borrowed money. The average cost of
deposits increased from 5.47% during fiscal 1996 to 5.52% for fiscal 1997. The
level of deposits increased $15.2 million or 17.58% to $102.0 million in fiscal
1997 over the fiscal 1996 level of $86.7 million. Due to current interest rates,
customers moved more funds into shorter-
5
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<PAGE>
term certificates of deposits. In addition, passbook accounts continued to
further deteriorate.
Net Interest Income. Net interest income for fiscal 1997 increased $793,000 or
20.8% over fiscal 1996. Net interest income increased 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.
Provision for Loan Losses. During fiscal 1997, the Association made a $95,000
additional provision for loan losses. The loan loss allowance was at $630,000 at
June 30, 1997. 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 1997 totalled $10,000 as compared to
$21,000 for fiscal 1996. Other income is not considered a significant part of
the overall income of the Association.
Other Expenses. Other expenses during fiscal 1997 were $2.09 million as compared
to $1.54 million for fiscal 1996. The increase of approximately $550,000 in
fiscal 1997 reflects an increase due to a one-time special insurance assessment
of $558,000.
Income Taxes. The provision for federal and state income taxes increased $88,000
to $986,000 in fiscal 1997 from $898,000 in fiscal 1996, primarily as a result
of lower earnings. The effective tax rate was 40.6% in fiscal 1997 as compared
to 39% in fiscal 1996.
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 in creased 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 in- creased 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 33.00%. 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.
6
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<PAGE>
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 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.
Capital Requirements
At June 30, 1997, 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,
depending on the price paid for the shares repurchased. Stock repurchases would
also reduce the company's capital ratio to assets.
7
<PAGE>
<PAGE>
CAPITAL LEVELS AS OF JUNE 30, 1997
(Thousands of Dollars)
Tangible Core Risk-Based
-------- ------ ----------
Required $ 3,511 $ 7,022 $ 6,765
Actual 26,194 26,194 26,824
SUMMARY OF HISTORICAL NET INCOME
(Thousands of Dollars)
Year Net Income
---- ----------
1997 $1,441
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
(Dollars in Millions)
Loans Originated
Year and Purchased
---- -------------
1997 $33,515
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,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
Selected Financial Data:
Total assets $234,823 $201,039 $197,252 $129,211 $122,537
Loans receivable, net 126,448 106,485 104,700 92,949 70,532
Interest-earning deposits 4,484 4,811 2,390 3,599 7,888
Investment securities (3) 27,039 12,437 14,604 15,294 9,853
Mortgage-backed securities, net(3) 68,975 71,129 69,482 14,722 17,310
Foreclosed real estate -- 23 -- 3 --
Deposits 101,959 86,716 85,162 88,380 91,275
Federal Home Loan Bank Advances 102,870 85,086 81,787 10,475 --
Earnings per Share -- Primary 1.04 .97 .96 .72 .57
Dividends per Share .40 .40 .40 .40 N/A
Stockholders' Equity (1) (2) (3) 28,536 28,067 29,088 28,697 30,361
Selected Operating Data:
Interest Income $ 15,040 $13,400 $11,190 $ 7,807 $ 7,971
Interest expense on deposits and
borrowed funds 10,436 9,589 7,220 4,097 4,902
------ ------ ------ ------ ------
Net interest income 4,604 3,811 3,970 3,710 3,069
Less provision for loan losses 95 -- 115 75 250
------ ------ ------ ------ ------
Net interest income after provision
for loan losses 4,509 3,811 3,855 3,635 2,819
Non-interest income:
Loan origination fees -- -- -- 5 12
Net gain on sale of investment securities -- 10 -- -- --
Other 10 11 14 19 24
------ ------ ------ ------ ------
Total non-interest income 10 21 14 24 36
------ ------ ------ ------ ------
Non-interest expense:
Compensation and benefits 927 991 878 981 576
Office occupancy and equipment 81 80 99 86 56
Federal deposit insurance premiums 740 252 240 244 218
Loss (gain) from foreclosed real
estate activities 10 14 6 (1) 61
Net loss on sale of investment securities 59 -- -- -- --
Data processing 56 52 58 57 53
Other 219 152 203 274 150
------ ------ ------ ------ ------
Total non-interest expense 2,092 1,541 1,484 1,641 1,114
------ ------ ------ ------ ------
Income before income taxes 2,427 2,291 2,385 2,018 1,741
Income tax expense (2) 986 898 933 787 729
------ ------ ------ ------ ------
Net income $ 1,441 $ 1,393 $ 1,452 $ 1,231 $ 1,012
====== ====== ====== ====== ======
(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>
<TABLE>
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
YEAR ENDED JUNE 30, 1997 YEAR ENDED JUNE 30, 1996
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 $3,504 $4,061 $3,539 $3,936 $15,040 $3,354 $3,372 $3,307 $3,367 $13,400
Interest expense 2,418 2,785 2,511 2,722 10,436 2,456 2,468 2,338 2,327 9,589
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net interest income before
provision for loan losses 1,086 1,276 1,028 1,214 4,604 898 904 969 1,040 3,811
Provision for loan losses 20 5 15 55 95 -- -- -- -- --
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net interest income after
provision for loan losses 1,066 1,271 1,013 1,159 4,509 898 904 969 1,040 3,811
Gain (loss) on sale of assets -- -- (59) -- (59) -- -- 10 -- 10
Income (loss) from real
estate operation -- -- -- -- -- -- -- -- -- --
Other income -- 5 5 -- 10 4 2 3 2 11
Non-interest expense 925 419 333 356 2,033 348 408 401 384 1,541
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Income (loss) before tax 141 857 626 803 2,427 554 498 581 658 2,291
Income tax expense 35 335 255 361 986 206 197 221 274 898
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Net income (loss) $106 $ 522 $ 371 $ 442 $1,441 $348 $301 $360 $384 $1,393
==== ===== ====== ====== ====== ====== ====== ====== ==== ======
Earnings per share-primary .08 .37 .27 .32 1.04 0.24 0.21 0.26 0.26 0.97
Earnings per share --
fully diluted .08 .37 .27 .32 1.04 0.24 0.21 0.26 0.26 0.97
(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: 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Return on average assets 0.67% 0.70% 0.87% 1.00% 0.91%
Return on average retained earnings 7.93 8.08 8.79 7.71 6.28
Average retained earnings to average assets 8.40 8.68 9.88 12.93 14.42
Retained earnings to total assets 7.89 8.79 8.52 12.33 24.78
Interest rate spread during period 1.44 1.09 1.51 2.03 2.13
Net interest margin 2.15 1.94 2.40 3.08 2.81
Operating expenses to average assets .97 0.78 0.89 1.33 1.00
Net interest income to operating expenses 220.13 247.31 267.47 226.01 275.64
Non-performing loans (1) to total loans .46 0.62 0.41 0.25 0.56
Non-performing assets (2) to total assets .25 0.34 0.22 0.18 0.32
Allowance for loan losses to non-performing
loans (1) 109.19 80.69 126.16 185.39 87.94
Allowance for loan losses to non-performing
assets (2) 109.19 77.99 126.16 183.39 87.94
Allowance for loan losses to total loans .50 0.50 0.51 0.46 0.50
Average interest-earning assets to
average interest-bearing liabilities 114.48 117.52 120.32 130.81 115.15
Dividend Payout Ratio 38.5 41.2 43.1 55.6 N/A
Loan originations $1,460 $1,283 $2,432 $3,350 $1,367
Loan purchases $2,213$16,503$22,706$35,891$14,622
Number of:
Deposit accounts 7,477 6,749 6,922 7,352 7,728
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,
----------------------------
1997 1996
-------- --------
(In thousands)
ASSETS
Cash on hand and noninterest-earning deposits $ 230 $ 320
Interest-earning deposits in other institutions 4,484 4,811
Investment securities (Note 2)
Securities available-for-sale, at fair value 27,039 12,437
Mortgage-backed securities (Note 3)
Securities available-for-sale, at fair value 68,975 71,129
Loans receivable, net (Notes 4 and 15) 126,448 106,485
Accrued interest receivable (Note 5) 1,595 1,152
Investment required by law --
Stock in Federal Home Loan Bank, at cost 5,652 4,256
Real estate owned -- 23
Premises and equipment (Note 6) 308 284
Other assets 92 142
---------- ----------
Total assets $ 234,823 $ 201,039
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 101,959 $ 86,716
Federal Home Loan Bank advances (Note 8) 102,870 85,086
Advances from borrowers for taxes and insurance 171 155
Income taxes payable (Note 10) 590 241
Accrued expenses and other liabilities 697 774
----------- -----------
Total liabilities 206,287 172,972
---------- ----------
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 1997 and 1,738,111 shares in 1996 17 17
Additional paid-in capital 16,944 16,754
Retained earnings, substantially restricted 18,535 17,665
Less:
Treasury stock, 439,699 shares in 1997,
373,000 shares in 1996, at cost (7,347) (5,924)
Unrealized gain(loss) on securities available-
for-sale,net of applicable deferred income taxes 727 153
Common stock acquired by the ESOP (Note 9) (282) (390)
Common stock awarded by Association Recognition
and Retention Plan (Note 9) (58) (208)
------------ -----------
Total stockholders' equity 28,536 28,067
----------- ----------
Total liabilities and stockholders' equity $ 234,823 $ 201,039
========== ==========
See accompanying notes to consolidated financial statements.
12
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30
1997 1996 1995
-------- -------- --------
(In thousands)
Interest income:
Loans receivable (Note 4) $ 8,254 $ 7,322 $ 7,039
Investment securities and FHLB stock 1,860 1,040 896
Mortgage-backed and related securities 4,729 4,768 3,170
Other interest-earning assets 197 270 85
--------- ------- --------
Total interest income 15,040 13,400 11,190
-------- ------- -------
Interest expense:
Deposits (Note 7) 5,107 4,678 4,075
Federal Home Loan Bank advances 5,329 4,911 3,145
-------- ------- -------
Total interest expense 10,436 9,589 7,220
-------- ------- -------
Net interest income 4,604 3,811 3,970
Provision for loan losses (Note 4) 95 - 115
--------- --------- -------
Net interest income after provision
for loan losses 4,509 3,811 3,855
--------- ------- -------
Noninterest income:
Other (Note 12) 10 21 14
--------- ------- -------
Total noninterest income 10 21 14
--------- ------- -------
Noninterest expense:
Compensation and benefits (Note 9) 927 991 878
Occupancy and equipment (Note 6) 81 80 99
SAIF deposit insurance premiums 740 252 240
Loss (gain) on sale of real estate owned 10 14 6
Net loss on sale of mortgage-backed securities 59 -- --
Other (Note 12) 275 204 261
--------- -------- -------
Total noninterest expense 2,092 1,541 1,484
--------- ------- -------
Income before income taxes 2,427 2,291 2,385
Income tax expense (Note 10) 986 898 933
--------- -------- --------
Net income $ 1,441 $ 1,393 $ 1,452
======== ======= =======
Earnings per share -- primary $ 1.04 $ .97 $ .96
Earnings per share -- fully diluted $ 1.04 $ .97 $ .96
See accompanying notes to consolidated financial statements.
13
PAGE
<PAGE>
<TABLE>
For the Three Years Ended June 30, 1997
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 30, 1997
(IN THOUSANDS)
Unrealized
Gain (Loss) on
Securities
Available-
for-Sale,
Net of
Applicable Common Common
Additional Deferred Stock Stock
Common Paid-In Retained Treasury Income Acquired Awarded
Stock Capital Earnings Stock Taxes by ESOP by RRP Total
------ ------- -------- -------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 $26,000 -- -- -- -- (45) -- -- (45)
------- ------- -------- ------- ------- ------- ------- ------
Balance, June 30, 1996 17 16,754 17,665 (5,924) 153 (390) (208) 28,067
------- ------- ------- ------- ------- -------- ------- --------
Additions (deductions)
for the year ended
June 30, 1997:
Net income -- -- 1,441 -- -- -- -- 1,441
Stock options retired -- -- (58) -- -- -- -- (58)
Dividends declared($.40 per
share) -- -- (513) -- -- -- -- (513)
Compensation expense
related to ESOP -- 119 -- -- -- -- -- 119
Deferred tax on RRP -- 71 -- -- -- -- -- 71
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 108 -- 108
Amortization of executive
stock plan -- -- -- -- -- -- 150 150
Purchase of treasury stock
(66,699 shares) -- -- -- (1,423) -- -- -- (1,423)
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income tax
of $337,000 -- -- -- -- 574 -- -- 574
------- ------- -------- ------- ------- ------- ------- ------
Balance, June 30, 1997 $ 17 $ 16,944 $18,535 $(7,347) $ 727 $ (282) $ (58)$ 28,536
======= ======== ======= ======= ======= ======= ====== ========
See accompanying notes to consolidated financial statements.
14
</TABLE>
<PAGE>
<PAGE>
For the Three Years Ended June 30, 1997
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended June 30,
---------------------------------------
1997 1996 1995
------ ------ ------
(In Thousands)
Cash flows from operating activities:
Net income $ 1,441 $ 1,393 $ 1,452
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for loan losses 95 -- 115
Net loss (gain) on sale of real estate
owned 10 14 6
(Gain) loss on sale of mortgage-backed
securities 59 (10) --
Depreciation 45 42 62
Amortization of premiums and discounts (58) (79) (67)
Amortization of RRP 38 87 184
FHLB stock dividend -- (82) --
Decrease(increase) in interest receivable (443) (12) (434)
Decrease (increase) in other assets 42 35 (81)
Increase (decrease) in income tax payable 13 77 (29)
Increase (decrease) in other liabilities 33 7 (567)
Excess of fair value over cost of ESOP
unallocated shares 118 121 30
Deferred tax on RRP 72 19 34
--------- ----------- ----------
Net cash provided by operating activities 1,465 1,612 705
--------- ---------- ----------
Cash flows from investing activities:
Loans purchased (32,213) (16,503) (22,076)
Loans sold -- -- 4,159
(Increase) decreasein loans, net 12,126 14,613 5,994
Proceeds from maturities of investment
securities and certificates of deposit 31,927 9,669 19,827
Proceeds from sale of mortgage-backed
securities 16,516 3,510 --
Purchase of investment securities,
certificates of deposit, and FHLB stock (47,799) (7,556) (19,192)
Principal collected on repayments and
maturities of mortgage-backed and
related securities 3,431 5,955 1,057
Purchase of mortgage-backed and
related securities (17,000) (11,007) (55,041)
Proceeds from the sale of real
estate owned 42 66 46
Purchase of equipment (69) (13) (56)
--------- --------- ---------
Net cash used by investing activities (33,039) (1,266) (65,282)
-------- -------- --------
See accompanying notes to consolidated financial statements.
15
<PAGE>
<PAGE>
For the Three Years Ended June 30, 1997
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
Years Ended June 30,
1997 1996 1995
------ ------ ------
(In Thousands)
Cash flows from financing activities:
Net proceeds from the sale of common stock $ -- $ -- $ 129
Purchase of treasury stock (1,423) (2,257) (1,489)
Net increase (decrease) in deposits 15,243 1,553 (3,217)
Stock options retired (58) -- --
Net increase(decrease) in advances from
borrowers for taxes and insurance 15 (42) (8)
Dividends paid (513) (534) (603)
Proceeds from FHLB advances 18,000 7,000 71,500
Principal payments on FHLB advances (215) (3,701) (188)
Unearned ESOP compensation decrease 108 135 63
-------- -------- -------
Net cash provided by financing activities 31,157 2,154 66,187
-------- -------- --------
Increase (decrease) in cash and cash
equivalents (417) 2,500 1,610
Cash and cash equivalents at beginning
of period 5,131 2,631 1,021
--------- --------- ---------
Cash and cash equivalents at end of period $ 4,714 $ 5,131 $ 2,631
========= ======== ========
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1,800 $ 1,757 $ 1,498
========= ======== ========
Income taxes $ 903 $ 802 $ 894
========= ======== ========
Noncash activity:
Loans transferred to real estate owned $ 30 $ 103 $ 49
========== ======== ========
See accompanying notes to consolidated financial statements.
16
<PAGE>
<PAGE>
June 30, 1997 and 1996
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 $4.7 million and $5.1 million at June 30, 1997 and
1996, 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. 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, 1997 and 1996, 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, 1997 and 1996
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.
PROVISIONS OF LOSSES ON LOANS AND INTEREST RECEIVABLE
- -----------------------------------------------------
Provision for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for losses,
relative to the risks in the loan portfolio. The estimate is based on reviews of
the portfolio, including assessment of the carrying value of the loans to the
estimated net realizable value of the related underlying collateral, considering
past loss experience, current economic conditions and such other factors which,
in the opinion of management, deserve current recognition. The Association is
subject to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of those
examinations, the various regulatory agencies periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to recognize changes to the allowance based on their judgements
about information available to them at the time of their examination.
Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management believes
collectibility of the interest is not probable. Management's assessment of
collectibility is primarily based on a comparison of the estimated value of
underlying collateral to the related loan and accrued interest receivable
balances.
The Association adopted Statements of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosures," on July 1, 1995. SFAS No. 114, as amended by SFAS No. 118, defines
the recognition criteria for loan impairment and the measurement methods for
certain impaired loans and loans for which terms have been modified in
troubled-debt restructurings (a restructured loan). Specifically, a loan is
considered impaired when it is probable a creditor will be unable to collect all
amounts due - both principal and interest according to the contractual terms of
the loan agreement. When measuring impairment, the expected future cash flows of
an impaired loan are required to be discounted at the loan's effective interest
rate. Alternatively, impairment can be measured by reference to an observable
market price, if one exists, or the fair value of the collateral for a
collateral- dependent loan.
Regardless of the historical measurement method used, SFAS No. 114 requires
a creditor to measure impairment based on the fair value of the collateral when
the creditor determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement.
The Association applies the recognition criteria of SFAS No. 114 to
multifamily real estate loans, commercial real estate loans and restructured
loans. Smaller balance, homogeneous loans, including one-to-four family
residential and construction loans and consumer loans, are collectively
evaluated for impairment. SFAS No. 118 amended SFAS No. 114 to allow a creditor
to use existing methods for recognizing interest income on impaired loans. The
Association has elected to continue to use its existing nonaccrual methods for
recognizing interest on impaired loans. The adoption of SFAS No. 114 and SFAS
No. 118 resulted in no adjustment to the allowance for loan losses and did not
affect the Association's policies regarding charge-offs or recoveries.
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.
18
<PAGE>
<PAGE>
June 30, 1997 and 1996
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,
1997 were determined by dividing net income for the year by 1,379,868 and
1,381,742 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,
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.
NOTE 2: INVESTMENT SECURITIES
- -----------------------------------------------------
Securities available-for-sale consist of the following:
June 30, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
U.S. Government and federal agencies $26,971 $ 76 $ (8) $27,039
======== ======== ======== ========
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
======== ======== ======== ========
19
PAGE
<PAGE>
June 30, 1997 and 1996
The following is a summary of maturities of investment securities
available-for-sale as of June 30:
June 30, 1997
-----------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
(In thousands)
Amounts maturing in:
One year or less $ 5,991 $ 5,991 $ 6,002 $ 6,020
After one year through five years 5,980 5,993 6,469 6,417
After five years through ten years 15,000 15,05 - -
--------- -------- -------- --------
$ 26,971 $ 27,039 $ 12,471 $ 12,437
======== ======== ======== ========
There were no sales of investment securities during the years ended June
30, 1997, 1996, or 1995.
U.S. Government and federal agency securities with fair value of
$19,546,500 were pledged to collateralized short-term loans from the Federal
Home Loan Bank of $102,870,000 at June 30, 1997. (See Note 8.) Additionally,
$1,506,400 of U.S. Government Securities were pledged to collateralize customer
deposit accounts of $1,369,600.
NOTE 3: MORTGAGE-BACKED AND RELATED SECURITIES
June 30, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
FHLMC-REMIC $40,051 $ 765 $ -- $40,816
GNMA ARM certificates 16,099 244 -- 16,343
FNMA-REMIC 10,169 79 (27) 10,221
FHLMC certificates 929 42 -- 971
FNMA-ARM certificates 390 -- (20) 370
FHLMC-ARM certificates 251 3 -- 254
------- -------- -------- -------
$67,889 $1,133 $ (47) $68,975
======= ====== ====== =======
June 30, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(In thousands)
FHLMC-REMIC $30,774 $ 388 $ (165) $ 30,997
GNMA-ARM certificates 19,145 170 -- 19,315
FNMA-REMIC 18,977 185 (310) 18,852
FHLMC certificates 1,193 27 -- 1,220
FNMA-ARM certificates 420 -- (20) 400
FHLMC-ARM certificates 343 2 -- 345
------- ------- -------- --------
$70,852 $ 772 $ (495) $ 71,129
======= ======= ======= ========
20
<PAGE>
<PAGE>
June 30, 1997 and 1996
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, 1997 June 30, 1996
Available-for-Sale Available-for-Sale
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- ---------
(In thousands)
Due in one year or less $ 62 $ 63 $ -- $ --
Due after one year through five years -- -- 119 122
Due after five years through ten years 867 909 277 280
Due after ten years 66,960 68,003 70,456 70,727
------- ------- ------- -------
$67,889 $68,975 $70,852 $71,129
======= ======= ======= =======
Mortgage-backed and related securities with a fair value of $56,058,000
were pledged to collateralized short-term loans from the Federal Home Loan Bank
of $102,870,000 at June 30, 1997. (See Note 8)
Gross proceeds from the sales of mortgage-backed and related securities
were $16,517,000 for the year ended June 30, 1997. Gross realized gains were
$228,000 and gross realized losses were $287,000.
NOTE 4: LOANS RECEIVABLE
Loans receivable are summarized as follows:
1997 1996
------- -------
(In thousands)
Mortgage loans:
One- to four-family $115,104 $ 97,017
Multi-family 1,247 1,367
Commercial real estate 9,824 7,643
-------- --------
Total mortgage loans 126,175 106,027
-------- --------
Other loans:
Home improvement 270 277
Loans on savings accounts 342 283
Other loans - FHA Non-mortgage 372 415
-------- --------
Total other loans 984 975
-------- --------
Total loans receivable 127,159 107,002
Add:
Premium on purchased loans 8 8
Deferred loan costs 27 26
Less:
Loans in process 116 16
Allowance for loan losses 630 535
-------- --------
Loans receivable, net $126,448 $106,485
======== ========
At June 30, 1997, the Association's loan portfolio consisted of $14,184,000
of fixed rate loans and $112,975,000 of variable rate loans. The fixed rate
loans had a weighted average term to maturity of 9.5 years and a weighted
average interest rate of 8.54%. The variable rate loans had a weighted average
term to maturity of 17.6 years and a weighted average interest rate of 7.14%.
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, 1997, 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, 1997 total $42.7 million.
21
PAGE
<PAGE>
June 30, 1997 and 1996
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,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Balance at beginning of period $535 $535 $425
Provision charged to income 95 -- 115
Charge-offs and recoveries,
net -- -- (5)
---- ---- ----
Balance at end of period $630 $535 $535
==== ==== ====
Nonaccrual and renegotiated loans for which interest has been reduced
totaled approximately $577,000 and $663,000 at June 30, 1997 and 1996,
respectively. Interest that would have been recognized on nonaccrual loans under
their original terms but for which an allowance has been established amounted to
$39,000 and $28,000 at June 30, 1997 and 1996, respectively. The amount that was
included in income on such loans was $7,000 and $11,000 for the years ended June
30, 1997 and 1996, respectively.
The Association is not committed to lend additional funds to debtors whose
loans have been modified.
NOTE 5: ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
1997 1996
------ ------
(In thousands)
Investment securities $ 408 $ 164
Mortgage-backed and related
securities 337 320
Loans receivable 850 668
------ ------
$1,595 $1,152
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
1997 1996
------ ------
(In thousands)
Cost:
Land $ 37 $ 37
Buildings 471 465
Furniture, fixtures and
equipment 478 416
---- ----
986 918
Less accumulated depreciation
and amortization (678) (634)
---- -----
$308 $ 284
==== =====
Depreciation expense for the years ended June 30, 1997, 1996, and 1995 was
$45,000, $42,000, and $62,000, respectively.
22
PAGE
<PAGE>
June 30, 1997 and 1996
NOTE 7: DEPOSITS
Deposits are summarized as follows:
1997 1996
------------------------ -------------------------
Weighted Weighted
Average Average
Rate Amount % Rate Amount %
------ ------ ----- ------- ------ -----
(In Thousands)
Passbook
savings 3.00% 6,299 6.18 3.00% $ 7,575 8.74
----- ------- ------ ----- -------- ----
Certificates
of deposit:
3.00% to 3.99% -- -- -- 3.00% 2 --
4.00% to 4.99% 4.86% 1,277 1.25 4.51% 5,363 6.18
5.00% to 5.99% 5.62% 59,634 58.49 5.51% 51,732 59.66
6.00% to 6.99% 6.13% 33,383 32.74 6.34% 20,303 23.41
7.00% to 7.99% 7.04% 1,365 1.34 7.08% 1,730 2.00
8.00% to 8.99% 8.00% 1 -- 8.00% 11 .01
----- ------- ------ ----- -------- ------
6.33% 95,660 93.82 5.69% 79,141 91.26
----- ------- ------ ----- -------- -----
5.78% $101,959 100.00 5.45% $86,716 100.00
==== ======== ====== ==== ======= ======
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $11.1 and $7.5 million at June 30,
1997 and 1996, respectively.
Scheduled maturities of certificates of deposit are as follows:
Year Ending June 30, 1997
-------------------------------------------------
1998 1999 2000 2001 2002 Thereafter
------ ------ ------ ------ ------ ----------
(In thousands)
3.00% to 3.99% $ -- $ -- $ -- $ -- $ -- $ --
4.00% to 4.99% 1,277 -- -- -- -- --
5.00% to 5.99% 41,924 11,415 4,212 1,787 296 --
6.00% to 6.99% 29,710 3,339 324 10 -- --
7.00% to 7.99% 85 -- 1,280 -- -- --
8.00% to 8.99% -- -- 1 -- -- --
------- ------ ------ ------- ------- -------
$72,996 $14,754 $ 5,817 $ 1,797 $ 296 $ --
======= ======= ======= ======= ======= ========
Year Ending June 30, 1996
-------------------------------------------------
1996 1997 1998 1999 2000 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
======= ======= ======= ======= ======= ======
23
<PAGE>
<PAGE>
June 30, 1997 and 1996
Interest expense on deposits is summarized as follows:
Years Ended
June 30,
1997 1996 1995
------- ------- ------
(In thousands)
Passbook $ 205 $ 229 $ 259
Certificates of
deposit and money
market demand 4,462 4,154 3,598
Certificates of deposit
$100,000 or more 440 295 218
------- ------- -------
$5,107 $4,678 $4,075
====== ====== ======
24
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Advances consist of the following:
June 30,
-----------------
Maturity Interest 1997 1996
Date Rate ------- ------
-------- -------- (In thousands)
09-20-96 5.43% -- 12,000
10-24-96 5.47% -- 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
04-25-97 5.45% -- 5,000
06-16-97 5.45% -- 10,000
07-18-97 5.61% 2,000 2,000
11-07-97 5.66% 12,000 --
12-19-97 5.73% 8,000 --
02-09-98 5.17% 7,000 7,000
05-18-98 5.64% 5,000 5,000
05-26-98 5.59% 14,000 --
07-02-98 5.55% 4,000 --
03-19-99 5.66% 5,000 --
06-26-99 5.64% 12,000 --
09-13-99 5.78% 15,000 --
04-23-02 5.65% 15,000 --
--------- --------
Total short-term advances 99,000 81,000
--------- ------
11-18-08 6.17% 664 700
11-24-08 6.30% 1,362 1,435
11-28-08 6.28% 1,329 1,406
12-05-08 6.24% 229 242
12-30-08 6.19% 286 303
--------- ---------
Total long-term advances 3,870 4,086
--------- ---------
Total advances $102,870 $ 85,086
======== ========
See Notes 2, 3, and 4 of the financial statements for collateral securing
this indebtedness.
Advances at June 30, 1997, have maturity dates as follows:
06-30-98 $ 48,230
06-30-99 21,247
06-30-00 15,265
06-30-01 283
06-30-02 15,304
Thereafter 2,541
--------
$102,870
========
The maximum amount of Federal Home Loan Bank advances outstanding at any
month end during the years ended June 30, 1997 and 1996 was $113,016,000 and
$85,103,000 respectively.
Advances maturing December 19, 1997 and February 9, 1998, and all long-term
advances are fixed rates. The remaining advance rates adjust monthly.
25
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS
Stock Option Plans
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 Company
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for the stock option
plans. There was no difference on net income between this method and the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123), since there were
no stock option issued during the three years ended June 30, 1977. Under SFAS
No. 123, compensation cost is determined based on the fair market value at the
grant dates for awards under those plans.
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.
A summary of the status of the Company's two fixed stock option plans as of June
30, 1995, 1996 and 1997 and changes during the years ending on those dates is
presented below:
1995 1996 1997
---------------- ------------ -------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------- -------- ------ ------- ------ ------
Outstanding at beginning of year 162,494 $ 10 149,556 $ 10 149,556 $ 10
Granted - - -
Exercised (12,938) 10 - -
Retired - - (9,833) 10
------- ------- -------
Outstanding at end of year 149,556 10 149,556 10 139,723 10
======= ======= =======
Options exercisable at year-end 119,181 129,181 129,348
Weighted-average fair value of
options granted during the year $ N/A $ N/A $ N/A
The following table summarizes information about fixed stock options outstanding
at June 30, 1997:
Weighted- Number Exer-
Number Average Weighted- cisable Weighted
Range of at Remaining Average at Average
Exercise June 30, Contractual Exercise June 30, Exercise
Prices 1997 Life Price 1997 Price
- -------- -------- ----------- --------- -------- ---------
All at $10 139,723 6.0 years $10 129,348 $10
26
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS
(Continued)
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
$240,000, $275,000 and $115,000 for the years ended June 30, 1997, 1996 and 1995
respectively.
The ESOP shares as of June 30, 1997 were as follows:
Allocated shares 33,300
Shares released for allocation 4,690
Unreleased shares 28,202
--------
Total ESOP shares 66,192
========
Fair value of unreleased shares
at June 30, 1997 $663,000
========
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, 1997, 1996 and 1995, the Association recognized compensation
expense of $37,000, $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, 1997 and 1996.
NOTE 10: INCOME TAXES
- -----------------------------------------------------
As discussed in Note 1, the Company uses the 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, 1997, 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
27
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 10: INCOME TAXES (Continued)
- -----------------------------------------------------
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, 1997.
Income tax expense for the periods then ended is summarized as follows:
June 30,
1997 1996 1995
------- ------- -------
(In thousands)
Federal:
Current $763 $744 $807
Deferred 109 59 26
State:
Current 111 91 108
Deferred 3 4 (8)
----- ------ ------
$986 $898 $933
==== ==== ====
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,
1997 1996 1995
------- ------- -------
(In thousands)
Expected income tax expense at federal tax rate $825 $779 $811
State income tax, net of federal tax benefit 75 63 66
Nondeductible loan loss provision 32 -- 39
Compensation expense for employee stock plans 41 48 23
Other 13 8 (6)
----- ----- ----
Total income tax expense $986 $898 $933
==== ==== ====
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:
1997 1996
---- ----
(In thousands)
Income tax basis of FHLB stock versus carrying value $ 139 $ 139
Deferred loan fees 11 10
Tax bad-debt reserve -- 74
Unrealized gain on investments 427 90
----- -----
Gross deferred tax liabilities 577 313
----- -----
SFAS 106 deferred tax asset (Note 9) (16) (13)
RRP expense deferred for tax (66) (112)
State deferred tax benefit for bad debts (44) (37)
------ ------
Gross deferred tax assets (126) (162)
----- -----
Net deferred tax liability(asset) 451 151
----- -----
Federal tax payable 74 31
State tax payable 65 59
------ ------
Net current tax liability 139 90
------ ------
Total income tax payable $ 590 $ 241
===== =====
28
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 10: INCOME TAXES (Continued)
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,
1997 1996 1995
------- ------- --------
(In thousands)
FHLB stock dividends $ -- $ 28 $ -
Deferred loan fees 1 (2) 1
Tax bad debt reserve -- (5) -
Post retirement
benefits - SFAS 106 (3) (3) (3)
State bad debt (7) - (14)
RRP expense deferred
for tax 48 26 -
Tax benefit of RRP plan 73 19 34
----- ---- ----
Total deferred tax
expense $112 $ 63 $ 18
==== ==== ====
NOTE 11: REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(OTS). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the Association and
the consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines involving quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined), and
tangible capital to adjusted total assets (as defined). As discussed in greater
detail below, as of June 30, 1997, the Association does meet all of the capital
adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS, the
Association was categorized as well-capitalized under the regulatory framework
for prompt corrective action. To be categorized as well-capitalized, the
Association must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Association's prompt corrective action category.
29
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 11: REGULATORY MATTERS (Continued)
For Capital Adequacy Purposes
and to be Well-Capitalized
under the
Prompt Corrective Action
Actual Provisions
----------------------------------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(dollars in (dollars in
thousands) thousands)
As of June 30, 1997
Total Risk-
Based Capital
(to Risk-
Weighted
Assets) $26,824 31.7% $ 8,456 10.0%
Tier I Capital
(to Risk-
Weighted
Assets) $26,194 31.0% $ 5,074 6.0%
Tier I Capital
(to Adjusted
Total Assets) $26,194 11.2% $14,044 6.0%
Tangible
Capital (to
Adjusted
Total Assets) $26,194 11.2% $11,703 5.0%
As of June 30, 1996
Total Risk-
Based Capital
(to Risk-
Weighted
Assets) $26,530 37.6% $ 7,061 10.0%
Tier I Capital
(to Risk-
Weighted
Assets) $25,995 36.8% $ 4,236 6.0%
Tier I Capital
(to Adjusted
Total Assets) $25,995 12.9% $12,051 6.0%
Tangible
Capital (to
Adjusted
Total
Assets) $25,995 12.9% $10,042 5.0%
30
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 12: OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense amounts are summarized as follows:
June 30,
1997 1996 1995
------- ------- -------
(In thousands)
Other non-interest income:
Loan late charges $ 4 $ 4 $ 4
Other 6 17 10
---- ---- ----
$ 10 $ 21 $ 14
==== ==== ====
Other non-interest expense:
Advertising and promotion $ 40 $ 8 $ 20
Data processing 56 52 58
Professional fees 59 39 48
Printing, postage and
supplies 27 28 17
Telephone 12 9 9
Foreclosed real estate
expenses -- 5 4
Other 81 63 105
----- ----- ----
$275 $204 $261
==== ==== ====
NOTE 13: COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Association had outstanding firm commitments to originate or purchase loans
as follows:
June 30, 1997 June 30, 1996
----------------------- ------------------------
Fixed- Variable- Fixed- Variable-
Rate Rate Total Rate Rate Total
(In thousands)
First-mortgage
loans $ 355 $7,593 $7,948 $ 641 $4,323 $4,964
====== ====== ====== ====== ====== ======
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.
31
<PAGE>
<PAGE>
June 30, 1997 and 1996
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,
--------
1997 1996
---- ----
(In thousands)
Financial instruments, the contract amounts of
which represent credit risk:
Commitments to extend credit $7,948 $4,964
====== ======
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, 1997, were at fixed rates of 7.875% to 8.125% for 15 to
30 years on $355,000 and variable rates of 6.75% to 8.25% on $7,593,000.
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, 1997 and 1996, the Association's
loans receivable included approximately $91.2 million and $90.0 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 $8.9 million and $6.5 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,
1997 1996
-------- --------
Beginning balance $257,820 $204,196
New loans 15,000 115,000
Repayments 11,592 61,376
-------- --------
Ending balance $261,228 $257,820
======== ========
32
PAGE
<PAGE>
June 30, 1997 and 1996
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statement of financial condition, as of June 30,
1997 and 1996 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,
1997 1996
------ ------
(In thousands)
ASSETS
Cash on hand and noninterest earning
deposits $ 1 $ 3
Interest-earning deposits in other
institutions 1,600 639
Dividend receivable -- 1,200
Investment in subsidiary 26,921 26,114
ESOP loan receivable 282 390
-------- --------
Total assets $ 28,804 $ 28,346
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable $ (4) $ (4)
Dividends payable 260 274
Accrued expenses 12 9
------- --------
Total liabilities 268 279
------- ---------
STOCKHOLDERS' EQUITY
Common stock 17 17
Additional paid in capital 16,944 16,754
Retained earnings 18,535 17,665
Less:
Treasury stock (7,347) (5,924)
Unrealized gain (loss) on securities, net of
taxes 727 153
ESOP obligation (282) (390)
RRP incentive plan (58) (208)
--------- ---------
Total Stockholders' Equity 28,536 28,067
-------- --------
Total liabilities and
stockholders' equity $28,804 $28,346
======= =======
33
<PAGE>
<PAGE>
June 30, 1997 and 1996
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
Statement of Income
Years Ended June 30,
1997 1996
------ ------
(In thousands)
Interest income:
Investment securities $ 39 $ 8
Other interest-earning assets 20 73
ESOP loan 14 19
------ ------
73 100
Income from investment in subsidiary 1,471 1,399
Noninterest expense:
Other (101) (110)
------- -------
Income before income taxes 1,443 1,389
Income tax (expense) recovery (2) 4
------- -------
Net income $1,441 $1,393
====== ======
Statement of Cash Flows
Years Ended June 30,
1997 1996
------ ------
(In thousands)
Cash flows from operating activities:
Net income $1,441 $1,393
Equity in earnings of subsidiary 229 (1,399)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization of premiums and discounts -- (2)
(Increase) decrease in interest receivable (1) 17
Decrease in dividend receivable 1,200 --
Decrease in income tax payable 2 5
Increase (decrease) in other liabilities (11) (46)
------ ------
Net cash provided (used) by operating activities 2,860 (32)
------ ------
Cash flows from investing activities:
Proceeds from maturities of investment securities and
certificates of deposit 927 2,570
Purchase of investment securities and certificates
of deposit (927) -
(Increase) decrease in loans receivable ESOP 108 135
------ ------
Net cash provided (used) in investing activities 108 2,705
------ ------
Cash flows from financing activities:
Stock options retired (58) -
Purchase of treasury stock (1,423) (2,257)
Dividends paid (528) (554)
------ ------
Net cash provided (used) by financing activities (2,009) (2,811)
------ ------
Increase (decrease) in cash and cash equivalents 959 (138)
Cash and cash equivalents at beginning of period 642 780
------ -------
Cash and cash equivalents at end of period $1,601 $ 642
====== ======
Dividends paid by subsidiary to parent $1,180 $1,700
====== ======
34
<PAGE>
<PAGE>
June 30, 1997 and 1996
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, 1997 and 1996. 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, 1997
--------------------
Carrying Fair
Amount Value
-------- -----
(In thousands)
Nontrading instruments:
Cash and cash equivalents $ 4,714 $ 4,714
Investment securities and mortgage-backed securities $ 96,014 $ 96,014
Loans, net $ 126,448 $ 127,436
Accrued interest receivable $ 1,595 $ 1,595
FHLB stock $ 5,652 $ 5,652
Deposit liabilities $ (101,959) $ (102,171)
Debt-FHLB advances $ (102,870) $ (102,735)
Other liabilities $ (1,458) $ (1,458)
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)
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 summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
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 and reduced by the loan loss allowance.
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.
35
<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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/S/ LOCKRIDGE, CONSTANT & CONRAD, LLC
- -------------------------------------
Lockridge, Constant & Conrad, LLC
July 31, 1997
Chillicothe, Missouri
36
<PAGE>
<PAGE>
ANNUAL MEETING
THE ANNUAL MEETING OF MBLA FINANCIAL CORPORATION STOCKHOLDERS WILL BE HELD
AT THE OFFICE OF MACON BUILDING & LOAN ASSOCIATION, 101 VINE STREET,
MACON, MISSOURI, ON TUESDDAY, OCTOBER 28, 1997 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.
GENERAL INFORMATION FOR STOCKHOLDERS
MBLA FINANCIAL CORPORATION
101 Vine Street--Macon, Missouri 63552 801 North Morley -- Moberly,
Missouri 65270
Telephone: (816) 385-2122 Telephone: (816) 263-6231
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 456-0596
SHAREHOLDER AND GENERAL INQUIRIES
Clyde D. Smith
Vice President and
Chief Financial Officer
101 Vine Street
GENERAL COUNSEL Macon, MO 63552
Hadley Grimm (816) 385-2122
105 N. Rollins Suite C
Macon, MO 63552
(816) 385-2115
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, 1994 $16.00 $15.00 N/A
December 30, 1994 $15.00 $14.25 $ .20
March 30, 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
September 30, 1996 $23.25 $21.25 N/A
December 30, 1996 $22.25 $19.00 $ .20
March 31, 1997 $20.625 $19.25 N/A
June 30, 1997 $25.25 $19.875 $ .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.
37
<PAGE>
<PAGE>
MBLA FINANCIAL
CORPORATION
101 Vine Street
Macon, MO 63552
<PAGE>
<PAGE>
Exhibit 21.0
Proxy Statement for 1997 Annual Meeting
<PAGE>
<PAGE>
PROXY STATEMENT
MBLA FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 28, 1997
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION
101 VINE STREET
MACON, MISSOURI 63552
(816) 385-2122
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 28, 1997
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 28, 1997, 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
1997 Annual Report to Stockholders, including the consolidated financial
statements for the fiscal year ended June 30, 1997 accompanies this proxy
statement, which is first being mailed to stockholders of record on or about
September 30, 1997.
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, Registrar and
Transfer 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 19, 1997 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 1,269,318 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, 1998 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 12.03%
2104 Dornoch
League City, Texas
John T. Neer 106,179 7.81%
405 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, 1997.
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 two nominees for 3-year terms to expire in 2000 proposed for election at the
Meeting are Messrs. Barrows and Walter. 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>
<PAGE>
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.
Name and Principal Shares of
Occupation at Present Expiration Common Stock Ownership
and for the Past Director of Term as Beneficially As a Percent
Five Years Age(1) Since(2) Director Owned(3) of Class
- ---------------- ------ -------- -------- ------------ --------
Nominees
- ---------
Arnold L. Walter 72 1978 1997 44,525 (2)(3) 3.40
Owner, Walter's Service Garage
Carl B. Barrows 77 1973 1997 23,352 (3)(4) 1.79
Vice Chairman of the Board of
the Company and the Association
Continuing Directors
- ---------------------
Charles L. Hutton 79 1964 1999 44,525 (2)(3) 3.40
Chairman of the Board of the
Company and the Association
Truman L. Gehringer 74 1966 1999 5,973 (4) .46
Former Vice President of the
Company and the Association
John T. Neer 48 1985 1999 106,179 (5) 7.81
President and Chief Executive
Officer of the Company and the
Association
Robert M. Wilhite 59 1973 1998 39,322 (2)(3) 3.00
Dentist
Richard C. Miller, Jr. 60 1974 1998 40,722 (2)(3)(4) 3.11
Owner, Miller Rexall Drug Store
Stock Beneficial Ownership of all 408,128 (6)(7)(8) 28.25
Directors and executive officers
as a group (11 persons) and unallocated
ESOP stock voted by the ESOP trustee
(1)As of June 30, 1997.
(2)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.
(3)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").
(4)Includes 1,173 shares with respect to Mr. Gehringer awarded under the DRP.
4
<PAGE>
<PAGE>
(footnotes from previous page)
- ------------------------------
(5)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").
(6)Includes 49,165 shares subject to options under the Directors' Option Plan,
89,865 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 5,865 shares awarded to directors and executive officers
under the DRP and the RRP.
(7)Mr. Hutton serves as trustee of the Employee Stock Ownership Plan ("ESOP")
which holds 67,126 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 3 year period. As of the Record Date, 27,390
shares have been allocated to ESOP participants for which such participants
may direct the ESOP trustee as to voting. The remaining 39,736 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 67,127 shares
held by the ESOP.
(8)Includes 39,736 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 1997, the Board of Directors of the Company held seven meetings.
All of the directors of the Company attended at least 90% in the aggregate of
the total number
5
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of the Company's board meetings held and committee meetings on which such
director served during fiscal 1997. 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
1997.
The Company's Nominating Committee for the 1997 Annual Meeting consists of
Messrs. Hutton, Gehringer, Neer and Wilhite. 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
1997.
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 six times in fiscal 1997.
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, 1997 and 1996, 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
$100,000 in fiscal 1997.
Long Term
Annual Compensation Compensation Awards
Name and Principal Other Annual All Other
Position Year Salary($)(1) Bonus($) Compensation Compensation
($)(2) ($)(3)
- ----------------- ---- ------------ ---------- ------------ -------------
John T. Neer 1997 $127,200 $ --- --- $30,000
President, Chief 1996 $127,200$ --- --- $30,000
Executive Officer,
and Director
(1) Includes fees as director of the Association.
(2) Does not include perquisites for the fiscal years ended June 30, 1997, 1996
and 1995 which did not exceed the lesser of $50,000.
(3) Includes 3,000 and 3,000 shares of common stock allocated under the ESOP
during the fiscal year ended June 30, 1997 and 1996 respectively. As of
June 30, 1997 and 1996, the value of such shares was $70,500 and $70,500
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
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<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, 1997 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 1997.
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 --- --- 50,000/10,375 $675,000/$140,062
(1) The exercise price of the option is $10.00. As of June 30, 1997, 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
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<PAGE>
PROPOSAL 2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended June 30, 1997 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, 1998, 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 1998, 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 1, 1998. 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, 1997,
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
9
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<PAGE>
Macon, Missouri
September 30, 1997
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>
EXHIBIT 24.0
CONSENT OF LOCKRIDGE, CONSTANT AND CONRAD
<PAGE>
<PAGE>
LOCKRIDGE, CONSTANT AND CONRAD, LLC
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MBLA 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 July 31, 1997,
included in the 1997 Annual Report to Shareholders of MBLA Financial
Corporation.
September 24, 1997
Chillicothe, Missouri
<PAGE>
<PAGE>
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