SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
FOR THE QUARTER ENDED SEPTEMBER 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) (I.R.S. EMPLOYER IDENTIFICATION NO.)
101 VINE STREET
MACON, Missouri 63552
--------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (660) 385-2122
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 1,267,268 at October 29, 1997.
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1 Financial Statements Page
----
Consolidated Statements of Financial Condition as of September
30, 1997 (unaudited) and June 30, 1997........................ 2
Consolidated Statements of Operations for the Three Months
ended September 30, 1997 and 1996 (unaudited)............... 3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months ended September 30, 1997 and
1996 (unaudited)............................................ 4
Consolidated Statements of Cash Flows for the Three Months
ended September 30, 1997 and 1996 (unaudited)............... 6
Notes to Unaudited Consolidated Financial Statements........ 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings........................................... 17
Item 2 Changes in Securities....................................... 17
Item 3 Default upon Senior Securities.............................. 17
Item 4 Submission of Matters to a Vote of Security Holders......... 17
Item 5 Other Information........................................... 17
Item 6 Exhibits and Reports on Form 8-K............................ 17
Signature Page.......................................................... 18
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
September 30, June 30,
1997 1997
(unaudited)
ASSETS (In thousands)
------ ------
Cash on hand and noninterest-earning deposits $335 $230
Interest-earning deposits in other institutions 6,388 4,484
Investment securities available-for-sale, at fair value 12,506 27,039
Mortgage-backed and related securities
available-for-sale, at fair value 68,133 68,975
Loans receivable, net 129,229 126,448
FHLB stock 5,652 5,652
Accrued interest receivable 1,385 1,595
Real estate owned - -
Premises and equipment 302 308
Other assets 86 92
------ ------
Total assets $224,013 $234,823
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $104,305 $101,959
Advances from Federal Home Loan Bank 89,814 102,870
Advances from borrowers for taxes and insurance 209 171
Income taxes payable 893 590
Accrued expenses and other liabilities 445 697
------ ------
Total liabilities $195,666 $206,287
======= =======
Preferred stock, $.01 par value;
authorized 500,000 shares; none outstanding $ - $ -
Common stock, $.01 par value; authorized 2,500,000
shares, issued 1,738,111 shares at September 30, 1997
and June 30, 1997 17 17
Additional paid-in capital 16,995 16,944
Retained earnings, substantially restricted 19,031 18,535
Less:
Treasury stock, at cost - 469,843 shares at September
30, 1997 and 439,699 shares at June 30, 1997 (8,061) (7,347)
Common stock acquired by the ESOP (282) (282)
Common stock awarded by Association
Recognition and Retention Plan (58) (58)
Unrealized loss on securities available-for-sale,
net of applicable deferred income taxes 705 727
Total stockholders' equity $28,347 $28,536
------ ------
Total liabilities and stockholders' equity $224,013 $234,823
======= =======
See accompanying Notes to Unaudited Consolidated Financial Statements
2
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,
1997 1996
(In thousands)
Interest income: ------ ------
Loans receivable $2,374 $1,964
Investment securities 349 310
Mortgage-backed and related securities 1,202 1,204
Other interest-earning assets 66 26
------ ------
Total interest income 3,991 3,504
Interest expense:
Deposits 1,464 1,175
Advances 1,334 1,243
------ ------
Total interest expense 2,798 2,418
Net interest income 1,193 1,086
Provision for loan losses 15 20
Net interest income after provision
for loan losses 1,178 1,066
Noninterest income:
Committment fees 1 -
Other 3 1
------ ------
Total noninterest income 4 1
Noninterest expense:
Compensation and benefits 231 234
Occupancy and equipment 34 32
SAIF deposit insurance premiums 29 622
Net loss on sale of real estate owned - (2)
Other 47 40
------ ------
Total noninterest expense 341 926
Income before income taxes 841 141
Income tax expense 336 35
------ ------
Net income $505 $106
====== ======
Earnings per share:
Primary $0.38 $0.08
Fully diluted $0.38 $0.08
See accompanying Notes to Unaudited Consolidated Financial Statements
3
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earning Stock by ESOP by RRP Taxes Total
(In thousands)
------ ------- ------- -------- ------- -------- ------- -------
Three Months Ended
September 30, 1996
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, $17 $16,754 $17,665 ($5,924) ($390) ($208) $154 $28,068
Additions (deductions) for
the nine months ended
September 30, 1996:
Net income - - 106 - - - - 106
Compensation expense
related to ESOP - 36 - - - - - 36
Purchase of treasury
stock (11,150 shares) - - - (240) - - - (240)
Unrealized gain (loss)
on securities available-
for-sale, net of deferred
income tax of $10,000 - - - - - - 16 16
------ ------- ------- -------- ------- -------- ------- -------
Balance, September 30,
1996 $17 $16,790 $17,771 ($6,164) ($390) ($208) $170 $27,986
====== ======= ======= ======== ======= ======== ======= =======
See accompanying Notes to Unaudited Consolidated Financial Statements
4
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
(In thousands)
------ ------- ------- -------- ------- -------- ------- -------
Three Months Ended
September 30, 1997
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,1997 $17 $16,944 $18,535 ($7,347) ($282) ($58) $727 $28,536
Additions (deductions) for
the nine months ended
September 30, 1997:
Net income - - 505 - - - - 505
Compensation expense
related to ESOP - 33 - - - - - 33
Deferred tax on RRP - 18 - - - - - 18
Purchase of Treasury
stock (30,144 shares) - - - (714) - - - (714)
Stock options retired - - (9) - - - - (9)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $13,000 - - - - - - (22) (22)
------ ------- ------- -------- ------- -------- ------- -------
Balance, September
30, 1997 $17 $16,995 $19,031 ($8,061) ($282) ($58) $705 $28,347
====== ======= ======= ======== ======= ======== ======= =======
See accompanying Notes to Unaudited Consolidated Financial Statements
5
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
1997 1996
(In thousands)
Cash flow from operating activities: ------ ------
Net income $505 $106
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 15 20
Net gain on sale of real estate owned - (2)
Net loss on disposal of fixed assets 2 -
Depreciation 11 11
Amortization of premiums and discounts (11) (20)
Excess of fair value over cost of ESOP unallocated shares 33 35
Deferred tax on RRP 18 -
Decrease (increase) in interest receivable 210 (95)
Decrease (increase) in other assets 6 9
Increase (decrease) in income tax payable 316 (232)
Increase (decrease) in other liabilities 8 698
------ ------
Net cash provided by operating activities $1,113 $530
------ ------
Cash flow from investing activities:
Loans purchased and originated (6,936) (10,089)
(Increase) decrease in loans, net 4,141 5,578
Proceeds from maturities of available-for-sale 16,686 1,510
Purchase of available-for-sale investment securities (2,183) (26,907)
Principal collected on repayments and maturities of
available-for-sale mortgage-backed and related securities 850 857
Purchase of FHLB stock - (1,347)
Proceeds from the sale of real estate owned - 25
Purchase of equipment and office building improvements (7) -
------ ------
Net cash provided (used) by investing activities $12,551 ($30,373)
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposits 2,346 (766)
Net increase (decrease) in advances from borrowers
for taxes and insurance 38 49
Proceeds from FHLB advances 2,000 27,000
Principal payments on FHLB advances (15,056) (52)
Dividends paid (260) (274)
Purchase of treasury stock (714) (241)
Stock options retired (9) -
------ ------
Net cash provided (used) by financing activities ($11,655) $25,716
------ ------
Increase (decrease) in cash and cash equivalents $2009 ($4,127)
Cash and cash equivalents at beginning of period 4,714 5,131
------ ------
Cash and cash equivalents at end of period $6,723 $1,004
====== ======
6
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Three Months Ended
September 30,
1997 1996
(In thousands)
Supplemental cash flow disclosures: ------ ------
Cash paid for:
Interest $1,812 $1,655
====== ======
Income Taxes $2 $267
====== ======
Noncash activity:
Loans transferred to real estate owned - $30
====== ======
See accompanying Notes to Unaudited Consolidated Financial Statements
7
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Generally Accepted Accounting
Principles (GAAP) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been
included. The results of operations and other data for the three
month period ended September 30, 1997 are not necessarily indicative
of results that may be expected for the entire fiscal year ending
June 30, 1998.
The unaudited consolidated financial statements include the amounts
of MBLA Financial Corporation (the "Holding Company") and its
wholly-owned subsidiary, Macon Building and Loan Association, (the
"Association"), and the Association's wholly-owned subsidiary, MBL
Financial Services, for the three months ended September 30, 1997.
The consolidated financial statements for the prior periods include
accounts of the Holding Company and its subsidiaries. Material
intercompany accounts and transactions have been eliminated in
consolidation.
(2) CONVERSION TO STOCK OWNERSHIP
The Board of Directors of the Association, on December 10, 1992,
unanimously adopted a Plan of Conversion pursuant to which the
Association converted from a state chartered mutual savings and loan
association to a state chartered stock savings and loan association,
with the concurrent formation of the Holding Company. The Holding
Company, on June 24, 1993, sold 1,725,000 shares of common stock at
$10.00 per share to depositors, borrowers from and employees of the
Association during the subscription offering. The proceeds from the
conversion, after recognizing conversion expenses and underwriting
costs of approximately $840,000, were $16,410,000 and are recorded
as common stock and additional paid in capital on the accompanying
unaudited consolidated statement of financial condition. The Holding
Company utilized approximately $8,205,000 of the net proceeds to
purchase all of the capital stock of the Association.
The Association has established for eligible employees an Employee
Stock Ownership Plan ("ESOP") in connection with the conversion. The
ESOP borrowed $685,000 from the Holding Company and purchased 68,500
common shares issued in the conversion. The Association is making
the scheduled discretionary cash contributions to the ESOP
sufficient to service the amount borrowed. To date, the Association
has made payments of $486,000 ($403,000 in principal) to the Holding
Company. The $282,000 ESOP obligation ($685,000 in stock issued by
the Holding Company on June 30, 1993 less the principal payments
made by the Association) is reflected in the accompanying
consolidated financial statements as a charge to unearned
compensation and a credit to common stock and paid-in capital. The
unamortized balance of unearned compensation is shown as a deduction
of stockholders' equity. The unpaid balance of the ESOP loan is
eliminated in consolidation.
The Association has established several Recognition and Retention
Plans ("RRP's") which purchased in the aggregate 69,000 shares of
common stock in the conversion. The Association contributed $690,000
to fund the purchase of the RRP shares. All but 4,692 shares were
awarded to directors and officers and are designed to be earned over
varying
8
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annual rates, depending upon the individual's position in
the Association. The aggregate purchase price of these shares will
be amortized as compensation expense over the participants' vesting
period. The unamortized cost is reflected as a reduction of
stockholders' equity.
The Holding Company has adopted stock option plans for the benefit
of directors, officers, and other key employees of the Association.
The number of shares of common stock reserved for issuance under the
stock option plans was equal to 10% of the total number of common
shares issued pursuant to the Association's conversion to the stock
form of ownership. The option exercise price was $10.00 as of the
date of the option grant, and the maximum option term cannot exceed
ten years. The stock options awarded to directors may be exercised
at any time after grant.
The stock options awarded to officers and other key employees are
exercisable on a cumulative basis in equal installments over varying
time periods, depending upon the officer's or employee's position
with the Association. At June 24, 1993, 172,500 stock options were
issued with 9,833 reserved for future use and 162,667 granted. As of
September 30, 1997, 23,634 options had been exercised or retired,
leaving a total of 139,033 which had not been exercised.
(3) EARNINGS PER SHARE
Earnings per share of common stock have been determined by dividing
net income for the period by the weighted average number of shares
of common stock, common stock equivalents outstanding, shares held
by the RRP plans and allocated ESOP shares. Unallocated ESOP shares
are not used in either primary or fully diluted earnings per share
calculations. Stock options are regarded as common stock equivalents
and are therefore considered in both primary and fully diluted
earnings per share calculations. Common stock equivalents are
computed using the treasury stock method.
(4) STOCK REPURCHASE PROGRAM
During the first quarter ended September 30, 1997, the Company
repurchased 30,144 shares of its common stock. As of October 29,
1997, MBLA Financial Corporation has repurchased a total of 470,843
shares of its common stock.
(5) COMMITMENTS AND CONTINGENCIES
Commitments to originate and purchase mortgage loans of $2.816
million (of which $2.515 million are adjustable-rate commitments) at
September 30, 1997, represent amounts which the Association plans to
fund within the normal commitment period of sixty to ninety days. As
of September 30, 1997, the Association had no commitments to
purchase mortgage-backed securities, CMOs or investment securities.
The Association had no commitments outstanding to sell mortgage
loans, mortgage-backed securities, CMOs or investment securities at
September 30, 1997.
(6) RECLASSIFICATIONS
None.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
MBLA Financial Corporation was organized, as a Delaware corporation,
in February 1993 at the direction of the Association's Board of Directors to
acquire all of the capital stock that the Association issued upon its conversion
from the mutual to stock form of ownership. The business of the Holding Company
consists primarily of the business of the Association. There are no current
arrangements, understandings or agreements to expand its business activities or
make any business acquisitions.
Macon Building and Loan Association, originally founded in 1885, is
a Federally chartered stock savings and loan association headquartered in Macon,
Missouri. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (the "FDIC"). The Association serves Macon
and Randolph Counties, Missouri. The Association conducts business through its
main office and one branch office in Moberly, Missouri.
The business of the Association consists principally of attracting
deposits from the general public and using such deposits to purchase and
originate mortgage loans secured by one- to four-family residences. The
servicing rights on substantially all loans purchased by the Association are
retained by the sellers. To a lesser extent, the Association invests in U.S.
government and federal agency securities and mortgage-backed and related
securities, interest-earning deposits and commercial and multi-family real
estate loans and consumer loans.
The Association's results of operations are dependent primarily on
net interest income, which is the difference between the interest income earned
on its loans and investment portfolio, and its cost of funds, consisting of the
interest paid on its deposits and also interest paid on FHLB advances. The
Association's operating expenses consist primarily of employee compensation,
occupancy expenses, FDIC insurance premiums and other general and administrative
expenses. The Association's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies, and actions of regulatory
authorities.
The Association's operating strategies have been developed to
respond to the economic conditions prevailing in the Association's primary
market area. Macon's deposits are generated primarily from customers located in
the Association's primary market area. However, due to low loan demand, the
Association has, for over 30 years, purchased the majority of its loans from
selected mortgage banking companies and financial institutions located primarily
in Columbia, Boone County, Missouri, and to a lesser extent, the Kansas City,
St. Louis and Springfield areas. The sellers retain servicing rights on the
loans purchased by the Association. By extending its lending market area and
employing alternative investment opportunities, such as mortgage-backed and
related securities and other investment securities, the Association has
attempted to limit, and believes it has been successful in limiting, the impact
of these economic conditions on its results of operations.
The economy of Boone County is primarily dependent on the services
and government industries. The education industry also plays an important role
in the economy of Boone County as three colleges and universities are located
there.
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The Association has continued to maintain a high level of asset
quality and has remained profitable notwithstanding the decline in the local
economy and low demand for mortgage loans in its market area.
The operations of Macon Building and Loan Association are influenced
significantly by local economic conditions and by policies of the Office of
Thrift Supervision (OTS) and the FDIC. The Association's cost of funds is
influenced by interest rates on competing investments and general market
interest rates. Lending activities are affected by the demand for financing of
real estate and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company and Association's most liquid assets are cash,
due from banks and interest-earning deposits. The levels of these assets are
dependent on the Association's lending, investing, operating, and deposit
activities during any given period. At September 30, 1997, cash, due from banks
and interest-earning deposits totalled $6.723 million.
The Association's primary sources of funds are deposits, advances
from the FHLB, proceeds from principal and interest payments on loans, proceeds
from principal and interest payments on mortgage-backed and related securities,
and proceeds from the maturing of investment securities. While maturity and
scheduled amortization of loans and investment securities are predictable
sources of funds, deposit inflows and mortgage prepayments are greatly
influenced by local conditions, general interest rates and regulatory changes.
The Association is required to maintain minimum levels of liquid
assets as defined by OTS regulations. Liquid assets consist of cash, due from
banks, interest-earning deposits, short and intermediate term U.S. Government
and government agency securities. This requirement, which periodically varies
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short term borrowings. The current required liquidity ratio is
5%. The Association historically has maintained a level of liquid assets in
excess of this regulatory requirement. The Association's liquidity ratios were
7.20% and 5.70% at September 30, 1997 and 1996, respectively. Liquidity
management for the Association is both a daily and long term function of the
Association's management strategy. In the event that the Association should
require funds beyond its ability to generate internally, additional sources of
funds are available through the use of Federal Home Loan Bank advances and
reverse repurchase agreements.
The primary investment activity of the Association is the
origination and purchase of mortgage loans. During the three months ended
September 30, 1997 and 1996, the Association originated and purchased mortgage
loans in the aggregate amount of $6.936 million and $10.145 million,
respectively. Another investment activity of the Association is the investment
of funds in U.S. Treasury securities, agency bonds, mortgage-backed securities,
collateralized mortgage obligations and FHLB overnight funds. During periods
when the Association's loan demand is limited, the Association may purchase
short-term investment securities to obtain a higher yield than otherwise
available.
At September 30, 1997, the Association had outstanding loan
commitments to originate and purchase $2.816 million of loans. The Association
believes that it will have sufficient funds available to meet all of these
commitments. At September 30, 1997, the Association had no outstanding
commitments to sell mortgage loans, mortage-backed and related securities, or
any other investment securities. Should the Association need to, the Board of
Directors has authorized management to obtain additional short-term advances
from the Federal Home Loan Bank of Des Moines to fund loan purchases. At
September 30, 1997, certificates of deposit which are scheduled to mature in one
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year or less from September 30, 1997, totalled $74.516 million. Management
believes that a significant portion of these funds will remain with the
Association.
At September 30, 1997, the Association exceeded each of the three
OTS capital requirements. The Association's ratios were: 12.01% tangible capital
ratio; 12.01% core capital ratio; and 32.63% risk-based capital ratio. These
regulatory capital ratio requirements at September 30, 1997 were 1.5%, 3.0%, and
8.0%, respectively.
CHANGES IN FINANCIAL CONDITION
Total assets decreased $10.81 million to $224.013 million at
September 30, 1997 from $234.823 million at June 30, 1997. The decrease in
assets is due primarily to a $15 million FHLB bond which was called in late July
1997. Cash due from banks and interest-earning deposits increased $2.009 million
to $6.723 million. Loans receivable increased $2.778 million to $129.226 million
at September 30, 1997 from $126.448 million at June 30, 1997. Mortgage-backed
and related securities decreased $842,000 to $68.133 million at September 30,
1997. Investment securities decreased $14.533 million to $12.506 million at
September 30, 1997 because of a $15 million FHLB bond which was called. FHLB
stock was unchanged at $5.652 million at September 30, 1997.
Deposits increased $2.346 million or 2.30% from $101.959 million at
June 30, 1997 to $104.305 million at September 30, 1997. The average cost of
deposits increased from 5.64% at June 30, 1997 to 5.67% at September 30, 1997.
Advances from the Federal Home Loan Bank of Des Moines decreased $13.056 million
to $89.814 million at September 30, 1997 from $102.870 million at June 30, 1997.
The average cost of advances was unchanged from June 30, 1997 to September 30,
1997 at 5.63%.
Stockholders' equity decreased $189,000 or 0.66% to $28.347 million
at September 30, 1997, from $28.536 million at June 30, 1997. MBLA Financial
Corporation's capital to assets ratio was 12.65% as of September 30, 1997 as
compared to 12.15% at June 30, 1997.
INTEREST RATE SENSITIVITY
Macon Building and Loan Association has employed various strategies
intended to minimize the adverse effect of interest rate risk on future
operations by providing a close match between the interest rate sensitivity of
its assets and liabilities and by expanding its activities which are not
directly dependent on interest rate spreads. The Association's strategies are
intended to stabilize net interest income for the long-term by protecting its
interest rate spread against changes in interest rates.
The Association utilizes ARMs to provide repricing opportunities
more closely matched within the time frames in which its deposits are repriced.
Management is charged with the responsibility to manage interest rate risk while
remaining sensitive to the Board's directive that credit risk not be substituted
for interest rate risk. As a result of these efforts, approximately 89.43% of
Macon Building and Loan Association's mortgage loan portfolio as of September
30, 1997, consisted of ARMs, including ARM loans secured by commercial real
estate. Approximately 78% of all ARMs, or 69.75% of all loans, are adjustable in
one, two, or three years from September 30, 1997.
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FASB 115
MBLA Financial Corporation and Macon and Building and Loan
Association have adopted and implemented FASB 115 which requires investments in
equity securities that have readily determinable fair values and all investments
in debt securities be classified as either: (1) held-to-maturity, (2) trading
securities or (3) available-for-sale.
MBLA Financial Corporation and Macon Building and Loan Association
have classified all securities as available-for-sale with all investments
reported at fair value with unrealized holding gains and losses excluded from
earnings and reported as a separate component of shareholders' equity. At
September 30, 1997, the effect on stockholders' equity was an addition of
$705,000 net of deferred income taxes as compared to an addition of $727,000 at
June 30, 1997 net of deferred income taxes.
ASSET QUALITY
The Holding Company and the Association regularly review interest
earning assets to determine proper valuation. Management's monitoring of the
asset portfolio includes reviews of historical loss experience, known and
inherent risks in the portfolio, the value of any underlying collateral,
prospective economic conditions and the regulatory environment. The
Association's non-accrual mortgage loans delinquent more than 90 days increased
from $577,000 at June 30, 1997 to $1.283 million at September 30, 1997.
The table on the following page sets forth information regarding the
Association's non-accrual loans and foreclosed real estate at the dates
indicated. The Association discontinues accruing interest on delinquent loans no
later than ninety days past due, at which time all accrued but uncollected
interest is reversed. At September 30, 1997, the Association has no restructured
loans within the meaning of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 15.
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MBLA FINANCIAL CORPORATION
Asset Quality
September 30, June 30, March 31, December 31, September 30,
1997 1997 1997 1996 1996
(Dollars in thousands)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans
delinquent more than 90 days $1,283 $577 $514 $532 $405
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
------ ------ ------ ------ ------
Total non-performing loans 1,283 577 514 532 405
Real estate owned and in-
substance foreclosed loans
net of related allowance 0 0 0 15 30
------ ------ ------ ------ ------
Total non-performing assets $1,283 $577 $514 $547 $435
====== ====== ====== ====== ======
Non-performing loans to
total loans 0.99% 0.46% 0.44% 0.48% 0.37%
Non-performing assets to
total assets 0.57% 0.25% 0.25% 0.26% 0.19%
Allowance for loan losses
to non-performing loan 50.27% 109.19% 111.87% 105.26% 137.04%
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RESULTS OF OPERATIONS
Comparison of quarterly results in this section are between the
three month periods ended September 30, 1997, and September 30, 1996.
GENERAL
Net income for the first quarter ended September 30, 1997 was
$505,000, an increase of $399,000 or 376.42% over the $106,000 net income for
the first quarter ended September 30, 1996. Earnings per share for the quarter
ended September 30, 1997 were 38(cent) per share as compared to 8(cent) per
share for the quarter ended September 30, 1996.
Net income for the three months ended September 30, 1996 was reduced
by the one-time special assessment paid by institutions whose deposit accounts
are insured by the Savings Association Insurance Fund (SAIF). The special
assessment reduced pre-tax consolidated earnings for the three months ended
September 30, 1996 by approximately $558,000. Based on an estimated effective
tax rate of 37%, the after-tax charge was approximately $352,000.
INTEREST INCOME
Interest income increased $487,000 or 13.90% to $3.991 million for
the quarter ended September 30, 1997 from $3.504 million for the quarter ended
September 30, 1996.
Interest on mortgage loans increased $410,000 or 20.88% for the
three month period ended September 30, 1997 over the same period ended September
30, 1996. Interest on investment securities increased $39,000 or 12.58% for the
three month period ended September 30, 1997 over the same period ended September
30, 1996. Interest on mortgage-backed and related securities decreased $2,000
for the three month period ended September 30, 1997 as compared to the same
period ended September 30, 1996. Interest on other interest-earning assets
increased $40,000 for the quarter ended September 30, 1997.
INTEREST EXPENSE
Interest expense for the quarter ended September 30, 1997 was $2.798
million as compared to $2.418 million for the quarter ended September 30, 1996,
an increase of $380,000 or 15.72%. Interest expense on deposits increased
$289,000 to $1.464 million at September 30, 1997 from $1.175 million at
September 30, 1996. Interest expense on advances increased $91,000 to $1.334
million at September 30, 1997 from $1.243 million at September 30, 1996. The
average cost of funds which includes both interest paid on deposits and interest
paid on advances, increased from 5.54% at September 30, 1996 to 5.65% at
September 30, 1997.
NET INTEREST INCOME
Net interest income before provisions for loan losses was $1.193
million for the quarter ended September 30, 1997 as compared to $1.086 million
for the quarter ended September 30, 1996, an increase of $107,000 or 9.85%.
15
<PAGE>
<PAGE>
NONINTEREST INCOME
Other income for the quarter ended September 30, 1997 was $4,000 as
compared to $1,000 for the same quarter of the previous year. Other income is
not considered a significant part of the overall income of the company.
NONINTEREST EXPENSE
Noninterest expense for the quarter ended September 30, 1997
decreased $585,000 to $341,000, a decrease of 63.17% as compared to $926,000 for
the quarter ended September 30, 1996. The decrease in noninterest expense for
the three months ended September 30, 1997 is due to the one-time special
assessment paid by institutions whose deposit accounts are insured by the SAIF.
The special assessment was approximately $558,000 during the quarter ended
September 30, 1996.
PROVISION FOR LOAN LOSSES
At September 30, 1997, the provision for loan losses general loan
valuation allowance is $645,000. For the three months ended September 30, 1997,
provision for loan losses was increased $15,000 as compared to an increase of
$20,000 during the quarter ended September 30, 1996. The Association has a
policy of maintaining a general loan valuation allowance of one-half of one
percent of outstanding loans, but is considering increasing the allowance in the
future.
INCOME TAX
The provision for federal and state income taxes increased $301,000
to $336,000 for the quarter ended September 30, 1997 as compared to $35,000 for
the quarter ended September 30, 1996. The increase is attributable to the
special one-time SAIF assessment paid during the quarter ended September 30,
1996.
16
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
THE HOLDING COMPANY AND THE ASSOCIATION ARE NOT INVOLVED IN ANY
PENDING LEGAL PROCEEDINGS OTHER THAN LEGAL PROCEEDINGS INCIDENT TO
THE BUSINESS OF THE HOLDING COMPANY AND THE ASSOCIATION, WHICH
INVOLVE AMOUNTS IN THE AGGREGATE WHICH MANAGEMENT BELIEVES ARE
IMMATERIAL TO THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE HOLDING COMPANY AND THE ASSOCIATION.
ITEM 2 CHANGES IN SECURITIES
NOT APPLICABLE.
ITEM 3 DEFAULT UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
ITEM 5 OTHER INFORMATION
NONE.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
QUARTER ENDED
SEPT. 30, 1997
1. NET INCOME $ 505,000
2. WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,255,092
3. COMMON STOCK EQUIVALENTS DUE TO DILUTIVE EFFECT
OF STOCK OPTIONS 81,849
4. TOTAL WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING FOR PRIMARY EARNINGS PER SHARE
COMPUTATION 1,336,941
5. PRIMARY EARNINGS PER SHARE $ 0.38
6. WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,336,941
7. ADDITIONAL DILUTIVE SHARES USING THE HIGHER OF THE END
OF PERIOD MARKET VALUE VERSUS AVERAGE MARKET VALUE FOR
THE PERIOD UTILIZING THE TREASURY STOCK METHOD
REGARDING STOCK OPTIONS 4,280
8. TOTAL WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING FOR FULLY DILUTED EARNINGS PER SHARE
COMPUTATION 1,341,221
9. FULLY DILUTED EARNINGS PER SHARE $ 0.38
(B) THERE WERE NO REPORTS FILED ON FORM 8-K.
17
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
SIGNATURES
PURSUANT TO THE REQUIREMENT 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
--------------------------
(REGISTRANT)
DATED: OCTOBER 29, 1997 /s/JOHN T. NEER
----------------
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(DULY AUTHORIZED OFFICER)
DATED: OCTOBER 29, 1997 /s/CLYDE D. SMITH
------------------
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
18
<PAGE>
<PAGE>
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