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 December 31, 1996 Commission File No. 0-21482
MBLA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1637679
(State of Incorporation) (I.R.S. Employer Identification No.)
101 Vine Street
Macon, Missouri 63552
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (816) 385-2122
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 1,332,631 at January 24, 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
December 31, 1996 (unaudited) and June 30, 1996 . . . . . . . . . 2
Consolidated Statements of Operations for the Three Months
ended December 31, 1996 and 1995 and for the Six Months ended
December 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . . 3
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months ended December 31, 1996 and
1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months
ended December 31, 1996 and 1995 (unaudited) . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements. . . . . . . 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 10
Part II. Other Information
- ----------------------------
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 18
Item 3 Default upon Senior Securities . . . . . . . . . . . . . . . . . 18
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . 18
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 18
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
December 31, June 30,
1996 1996
(unaudited)
-------- --------
ASSETS (In thousands)
Cash on hand and noninterest-earning deposits $ 586 $ 320
Interest-earning deposits in other institutions 6,019 4,811
Investment securities available-for-sale, at fair value 12,886 12,437
Mortgage-backed and related securities
available-for-sale, at fair value 69,944 71,129
Loans receivable, net 112,114 106,485
FHLB stock 5,652 4,256
Accrued interest receivable 1,333 1,152
Real estate owned 15 23
Premises and equipment 267 284
Other assets 82 142
-------- --------
Total assets $ 208,898 $ 201,039
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 92,120 $ 86,716
Advances from Federal Home Loan Bank 86,980 85,086
Advances from borrowers for taxes and insurance 55 155
Income taxes payable 488 240
Dividends payable 268 274
Accrued expenses and other liabilities 563 500
-------- --------
Total liabilities $ 180,474 $ 172,971
-------- --------
Preferred stock, $.01 par value;
authorized 500,000 shares; none outstanding $ - $ -
Common stock, $.01 par value; authorized 2,500,000
shares, issued 1,738,111 shares at September 30,
1996 and June 30, 1996 17 17
Additional paid-in capital 16,858 16,754
Retained earnings, substantially restricted 18,033 17,665
Less:
Treasury stock, at cost - 399,250 shares at December
31, 1996 and 373,000 shares at June 30, 1996 (6,493) (5,924)
Common stock acquired by the ESOP (329) (390)
Common stock awarded by Association Recognition
and Retention Plan (208) (208)
Unrealized loss on securities available-for-sale,
net of applicable deferred income taxes 546 154
-------- --------
Total stockholders' equity $ 28,424 $ 28,068
-------- --------
Total liabilities and stockholders' equity $ 208,898 $ 201,039
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
(In thousands) (In thousands)
Interest income:
Loans receivable $2,072 $1,805 $4,036 $3,593
Investment securities 767 260 1,077 517
Mortgage-backed and related securities 1,186 1,223 2,390 2,455
Other interest-earning assets 36 84 62 161
------ ------ ------ ------
Total interest income 4,061 3,372 7,565 6,726
Interest expense:
Deposits 1,227 1,176 2,402 2,324
Advances 1,558 1,292 2,801 2,600
------ ------ ------ ------
Total interest expense 2,785 2,468 5,203 4,924
Net interest income 1,276 904 2,362 1,802
Provision for loan losses 5 - 25 -
Net interest income after provision ------ ------ ------ ------
for loan losses 1,271 904 2,337 1,802
Noninterest income:
Commitment fees - - - -
Other 5 2 6 6
------ ------ ------ ------
Total noninterest income 5 2 6 6
Noninterest expense:
Compensation and benefits 238 259 472 467
Occupancy and equipment 35 33 67 66
SAIF deposit insurance premiums 64 63 686 124
Loss (gain)on sale of real estate owned 8 - 6 -
Other 74 53 114 99
------ ------ ------ ------
Total noninterest expense 419 408 1,345 756
Income before income taxes 857 498 998 1,052
Income tax expense 335 197 370 403
------ ------ ------ ------
Net income $ 522 $ 301 $ 628 $ 649
====== ====== ====== ======
Earnings per share:
Primary $ 0.37 $ 0.21 $ 0.45 $ 0.45
Fully diluted $ 0.37 $ 0.21 $ 0.45 $ 0.45
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
------ ------- -------- -------- ------- ------- ------- --------
(In thousands)
Six Months Ended
December 31, 1995
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Balance at June 30, 1995 $ 17 $16,615 $ 16,806 ($3,667) ($524) ($357) $198 $29,088
Additions (deductions) for
the six months ended
December 31, 1995:
Net income - - 649 - - - - 649
Compensation expense
related to ESOP - 22 - - - - - 22
Reduction of ESOP
obligation - - - - 75 - - 75
Dividends on unallocated
ESOP shares - - 10 - - - - 10
Deferred tax on RRP - 10 - - - - - 10
Purchase of treasury stock
(90,744 shares) - - - (1,525) - - - (1,525)
Dividends declared - - (280) - - - - (280)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $172,000 - - - - - - 295 295
------ ------- -------- -------- ------- ------- ------- --------
Balance, December 31, 1995 $ 17 $16,647 $ 17,185 ($5,192) ($449) ($357) $ 493 $28,344
====== ======= ======== ======== ======= ======= ======= ========
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Net of
Common Common Applicable
Additional Stock Stock Deferred
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
------ ------- -------- -------- ------- ------- ------- --------
(In thousands)
Six Months Ended
December 31, 1996
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Balance at June 30, 1996 $ 17 $16,754 $ 17,665 ($5,924) ($390) ($208) $154 $28,068
Additions (deductions) for
the six months ended
December 31, 1996:
Net income - - 628 - - - - 628
Compensation expense
related to ESOP - 68 - - - - - 68
Reduction of ESOP
obligation - - - - 61 - - 61
Dividends on unallocated
ESOP shares - - 8 - - - - 8
Deferred tax on RRP - 36 - - - - - 36
Purchase of Treasury stock
(26,250 shares) - - - (569) - - - (569)
Dividends declared - - (268) - - - - (268)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $231,000 - - - - - - 392 392
------ ------- -------- -------- ------- ------- ------- --------
Balance, December 31, 1996 $ 17 $16,858 $ 18,033 ($6,493) ($329) ($208) $ 546 $28,424
====== ======= ======== ======== ======= ======= ======= ========
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
1996 1995
------ ------
(In thousands)
Cash flow from operating activities:
Net income $ 628 $ 649
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 25 -
Net loss on sale of real estate owned 6 -
Depreciation 22 23
Amortization of premiums and discounts (40) (44)
Excess of fair value over cost of ESOP unallocated shares 68 22
Deferred tax on RRP 36 10
FHLB stock dividend - (82)
Decrease (increase) in interest receivable (180) (26)
Decrease (increase) in other assets 59 14
Increase (decrease) in income tax payable 17 52
Increase (decrease) in other liabilities 60 86
------ ------
Net cash provided by operating activities $ 701 $ 704
------ ------
Cash flow from investing activities:
Loans purchased (13,717) (4,117)
(Increase) decrease in loans, net 8,033 5,907
Proceeds from maturities of available-for-sale
investment securities and certificates of deposit 28,026 5,669
Purchase of available-for-sale investment securities
and certificates of deposit (28,408) (3,000)
Principal collected on repayments and maturities of
available-for-sale mortgage-backed and related securities 1,783 2,905
Purchase of available-for-sale mortgage-backed
and related securities - (2,505)
Purchase of FHLB stock (1,396) -
Proceeds from the sale of real estate owned 32 -
Purchase of equipment and office building improvements (4) (4)
------ ------
Net cash provided (used) by investing activities ($5,651) $4,855
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposits 5,404 1,186
Net increase (decrease) in advances from
borrowers for taxes and insurance (100) (133)
Proceeds from FHLB advances 40,000 -
Principal payments on FHLB advances (38,106) (599)
Dividends paid (266) (288)
Purchase of treasury stock (569) (1,525)
Unearned ESOP compensation decrease 61 75
Net cash provided (used) by financing activities $6,424 ($1,284)
------ ------
Increase (decrease) in cash and cash equivalents $1,474 $4,275
Cash and cash equivalents at beginning of period 5,131 2,631
------ ------
Cash and cash equivalents at end of period $6,605 $6,906
====== ======
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Six Months Ended
December 31,
1996 1995
------ ------
(In thousands)
Supplemental cash flow disclosures:
Cash paid for:
Interest $3,644 $3,411
Income Taxes $ 319 $ 335
Noncash activity:
Loans transferred to real estate owned $ 30 -
See accompanying Notes to Unaudited Consolidated Financial Statements
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been included. The
results of operations and other data for the three and six month periods ended
December 31, 1996 are not necessarily indicative of results that may be
expected for the entire fiscal year ending June 30, 1997.
The unaudited consolidated financial statements include the amounts of MBLA
Financial Corporation (the "Holding Company") and its wholly-owned subsidiary,
Macon Building and Loan Association, (the "Association"), and the
Association's wholly-owned subsidiary, MBL Financial Services, for the three
months ended December 31, 1996 and the six months ended December 31, 1996.
The consolidated financial statements for the prior periods include accounts
of the Holding Company and its subsidiaries. Material intercompany accounts
and transactions have been eliminated in consolidation.
(2) Conversion to Stock Ownership
The Board of Directors of the Association, on December 10, 1992,
unanimously adopted a Plan of Conversion pursuant to which the Association
converted from a state chartered mutual savings and loan association to a
state chartered stock savings and loan association, with the concurrent
formation of the Holding Company. The Holding Company, on June 24, 1993, sold
1,725,000 shares of common stock at $10.00 per share to depositors, borrowers
from and employees of the Association during the subscription offering. The
proceeds from the conversion, after recognizing conversion expenses and
underwriting costs of approximately $840,000, were $16,410,000 and are
recorded as common stock and additional paid in capital on the accompanying
unaudited consolidated statement of financial condition. The Holding Company
utilized approximately $8,205,000 of the net proceeds to purchase all of the
capital stock of the Association.
The Association has established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the conversion. The ESOP borrowed
$685,000 from the Holding Company and purchased 68,500 common shares issued in
the conversion. The Association is making the scheduled discretionary cash
contributions to the ESOP sufficient to service the amount borrowed. To
date, the Association has made payments of $432,000 ($356,000 in principal) to
the Holding Company. The $329,000 ESOP obligation ($685,000 in stock issued
by the Holding Company on June 30, 1993 less the principal payments made by
the Association) is reflected in the accompanying consolidated financial
statements as a charge to unearned compensation and a credit to common stock
and paid-in capital. The unamortized balance of unearned compensation is
shown as a deduction of stockholders' equity. The unpaid balance of the ESOP
loan is eliminated in consolidation.
The Association has established several Recognition and Retention Plans
("RRP's") which purchased in the aggregate 69,000 shares of common stock in
the conversion. The Association contributed $690,000 to fund the purchase of
the RRP shares. All but 9,384 shares were awarded to directors and officers
and are designed to be earned over varying
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annual rates, depending upon the individual's position in the Association.
The aggregate purchase price of these shares will be amortized as compensation
expense over the participants' vesting period. The unamortized cost is
reflected as a reduction of stockholders' equity.
The Holding Company has adopted stock option plans for the benefit of
directors, officers, and other key employees of the Association. The number
of shares of common stock reserved for issuance under the stock option plans
was equal to 10% of the total number of common shares issued pursuant to the
Association's conversion to the stock form of ownership. The option exercise
price was $10.00 as of the date of the option grant, and the maximum option
term cannot exceed ten years. The stock options awarded to directors may be
exercised at any time after grant.
The stock options awarded to officers and other key employees are
exercisable on a cumulative basis in equal installments over varying time
periods, depending upon the officer's or employee's position with the
Association. At June 24, 1993, 172,500 stock options were issued with 9,833
reserved for future use and 162,667 granted. As of December 31, 1996, 13,111
options had been exercised, leaving a total of 149,556 which had not been
exercised.
(3) Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common
stock, common stock equivalents outstanding, shares held by the RRP plans and
allocated ESOP shares. Unallocated ESOP shares are not used in either primary
or fully diluted earnings per share calculations. Stock options are regarded
as common stock equivalents and are therefore considered in both primary and
fully diluted earnings per share calculations. Common stock equivalents are
computed using the treasury stock method.
(4) Stock Repurchase Program
On November 15, 1996, MBLA Financial Corporation announced it was
extending its previously announced common stock repurchase program. Under the
extended program, the company is seeking to repurchase up to an additional 15%
(200,844) of its outstanding common shares. As of January 24, 1997, MBLA
Financial Corporation has repurchased a total of 405,480 shares of its common
stock.
(5) Commitments and Contingencies
Commitments to originate and purchase mortgage loans of $2.558 million
(of which $1.917 million are adjustable-rate commitments) at December 31,
1996, represent amounts which the Association plans to fund within the normal
commitment period of sixty to ninety days. As of December 31, 1996, 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
December 31, 1996.
(6) Reclassifications
None.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
MBLA Financial Corporation was organized, as a Delaware corporation, in
February 1993 at the direction of the Association's Board of Directors to
acquire all of the capital stock that the Association issued upon its
conversion from the mutual to stock form of ownership. The business of the
Holding Company consists primarily of the business of the Association. There
are no current arrangements, understandings or agreements to expand its
business activities or make any business acquisitions.
Macon Building and Loan Association, originally founded in 1885, is a
Missouri chartered stock savings and loan association headquartered in Macon,
Missouri. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (the "FDIC"). The Association serves
Macon and Randolph Counties, Missouri. The Association conducts business
through its main office and one branch office in Moberly, Missouri.
The business of the Association consists principally of attracting
deposits from the general public and using such deposits to purchase and
originate mortgage loans secured by one- to four-family residences. The
servicing rights on substantially all loans purchased by the Association are
retained by the sellers. To a lesser extent, the Association invests in U.S.
government and federal agency 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 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 December 31, 1996, cash, due from
banks and interest-earning deposits totalled $6.605 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 8.67% and 10.61% at December 31, 1996 and 1995,
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 December 31, 1996
and 1995, the Association originated and purchased mortgage loans in the
aggregate amount of $3.932 million and $3.556 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 December 31, 1996, the Association had outstanding loan commitments to
originate and purchase $2.558 million of loans. The Association believes that
it will have sufficient funds available to meet all of these commitments. At
December 31, 1996, 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 December 31,
1996, certificates of deposit which are scheduled to mature in one year
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or less from December 31, 1996, totalled $57.496 million. Management believes
that a significant portion of these funds will remain with the Association.
At December 31, 1996, the Association exceeded each of the three OTS
capital requirements. The Association's ratios were: 12.81% tangible capital
ratio; 12.81% core capital ratio; and 36.80% risk-based capital ratio. These
regulatory capital ratio requirements at December 31, 1996 were 1.5%, 3.0%,
and 8.0%, respectively.
Changes in Financial Condition
Total assets increased $7.859 million to $208.898 million at December 31,
1996 from $201.039 million at June 30, 1996. Cash due from banks and
interest-earning deposits increased $1.474 million to $6.605 million. Loans
receivable increased $5.629 million to $112.114 million at December 31, 1996
from $106.486 million at June 30, 1996. Mortgage-backed and related
securities decreased $1.185 million to $69.944 million at December 31, 1996.
Investment securities increased $449,000 to $12.886 million at December 31,
1996. FHLB stock increased $1.396 million to $5.652 million at December 31,
1996.
Deposits increased $5.404 million or 6.23% from $86.716 million at June
30, 1996 to $92.120 million at December 31, 1996. The average cost of
deposits increased from 5.46% at June 30, 1996 to 5.55% at December 31, 1996.
Advances from the Federal Home Loan Bank of Des Moines increased $1.894
million to $86.98 million at December 31, 1996 from $85.086 million at June
30, 1996. The average cost of advances decreased from 5.61% at June 30,
1996 to 5.55% at December 31, 1996.
Stockholders' equity increased $356,000 or 1.27% to $28.424 million at
December 31, 1996, from $28.068 million at June 30, 1996. MBLA Financial
Corporation's capital to assets ratio was 13.61% as of December 31, 1996 as
compared to 13.96% at June 30, 1996.
Interest Rate Sensitivity
Macon Building and Loan Association has employed various strategies
intended to minimize the adverse effect of interest rate risk on future
operations by providing a close match between the interest rate sensitivity of
its assets and liabilities and by expanding its activities which are not
directly dependent on interest rate spreads. The Association's strategies are
intended to stabilize net interest income for the long-term by protecting its
interest rate spread against changes in interest rates.
The Association utilizes ARMs to provide repricing opportunities more
closely matched within the time frames in which its deposits are repriced.
Management is charged with the responsibility to manage interest rate risk
while remaining sensitive to the Board's directive that credit risk not be
substituted for interest rate risk. As a result of these efforts,
approximately 89.50% of Macon Building and Loan Association's mortgage loan
portfolio as of December 31, 1996, consisted of ARMs, including ARM loans
secured by commercial real estate. Approximately 88.72% of all ARMs, or 79.40%
of all loans, are adjustable in one, two, or three years from December 31,
1996.
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FASB 115
MBLA Financial Corporation and Macon and Building and Loan Association
have adopted and implemented FASB 115 which requires investments in equity
securities that have readily determinable fair values and all investments in
debt securities be classified as either: (1) held-to- maturity, (2) trading
securities or (3) available-for-sale.
During the fourth quarter of fiscal year ended June 30, 1994, MBLA
Financial Corporation and Macon Building and Loan Association classified all
securities as available-for-sale with all investments reported at fair value
with unrealized holding gains and losses excluded from earnings and reported
as a separate component of shareholders' equity. At December 31, 1996, the
effect on stockholders' equity was an addition of $546,000 net of deferred
income taxes as compared to an addition of $154,000 at June 30, 1996 net of
deferred income taxes.
Asset Quality
The Holding Company and the Association regularly review interest earning
assets to determine proper valuation. Management's monitoring of the asset
portfolio includes reviews of historical loss experience, known and inherent
risks in the portfolio, the value of any underlying collateral, prospective
economic conditions and the regulatory environment. The Association's non-
accrual mortgage loans delinquent more than 90 days decreased $131,000 from
$663,000 at June 30, 1996 to $532,000 at December 31, 1996.
The table on the following page sets forth information regarding the
Association's non- accrual loans and foreclosed real estate at the dates
indicated. The Association discontinues accruing interest on delinquent loans
no later than ninety days past due, at which time all accrued but uncollected
interest is reversed. At December 31, 1996, the Association has no
restructured loans within the meaning of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 15.
13
PAGE
<PAGE>
<TABLE>
MBLA FINANCIAL CORPORATION
Asset Quality
December 31, September 30, June 30, March 31, December 31,
1996 1996 1996 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
Non-accrual mortgage loans
<S> <C> <C> <C> <C> <C>
delinquent more than 90 days $ 532 $ 405 $ 663 $ 593 $ 749
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
-------- -------- -------- -------- --------
Total non-performing loans 532 405 663 593 749
Real estate owned and in-
substance foreclosed loans
net of related allowance 15 30 23 50 0
Total non-performing assets $ 547 $ 435 $ 686 $ 643 $ 749
Non-performing loans to total loans 0.48% 0.37% 0.62% 0.62% 0.73%
Non-performing assets to total assets 0.26% 0.19% 0.34% 0.33% 0.38%
Allowance for loan losses
to non-performing loans 105.26% 137.04% 80.69% 90.22% 71.43%
14
</TABLE>
PAGE
<PAGE>
Results of Operations
Comparison of quarterly results in this section are between the three
month periods ended December 31, 1996, and December 31, 1995 and between the
six month periods then ended.
General
Net income for the second quarter ended December 31, 1996 was $522,000,
an increase of $221,000 or 73.42% over the $301,000 net income for the second
quarter ended December 31, 1995. Earnings per share for the quarter ended
December 31, 1996 were 37 cents per share as compared to 21 cents per share for
the quarter ended December 31, 1995. Net income for the six months ended
December 31, 1996 was $628,000, a decrease of $21,000 or 3.24% of the $649,000
net income for the same period ended December 31, 1995. Earnings per share for
each six month period was 45 cents per share.
Net income for the six months ended December 31, 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 six months ended
December 31, 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 $689,000 or 20.43% to $4.601 million for the
quarter ended December 31, 1996 from $3.372 million for the quarter ended
December 31, 1995. Interest income for the six months ended December 31, 1996
increased $839,000 or 12.47% to $7.565 million over the same period ended
December 31, 1995. The increase in interest income for the quarter and six
months is attributable to the purchase of an 8% FHLB quarterly callable bond
due March 26, 2004. This was funded with a FHLB one-month Libor advance with
the same maturity that could be paid-off on any quarterly call date. The bond
was called December 26, 1996 and the advance was paid-off on the same date.
Interest on mortgage loans increased $267,000 and $443,000 for the three
and six month periods ended December 31, 1996 over the same periods ended
December 31, 1995. Interest on investment securities increased $507,000 and
$560,000 for the three and six month periods ended December 31, 1996 over the
same periods ended December 31, 1995. These increases were attributable to
the FHLB bond discussed in preceding paragraph. Interest on mortgage-backed
and related securities decreased $37,000 for the three months ended December
31, 1996 and $65,000 for the six months ended December 31, 1996 as compared to
the same periods ended December 31, 1995.
Interest Expense
Interest expense for the quarter ended December 31, 1996 was $2.785
million as compared to $2.468 million for the quarter ended December 31, 1995,
an increase of $317,000 or 12.84%.
15
<PAGE>
<PAGE>
Interest expense on deposits increased $51,000 to $1.227 million at
December 31, 1996. Interest expense on advances increased $266,000 to $1.558
million at December 31, 1996.
Interest expense for the six months ended December 31, 1996 was $5.203
million as compared to $4.924 million for the six months ended December 31,
1995, an increase of $279,000 or 5.67%. Interest expense on deposits increased
$78,000 for the six months ended December 31, 1996 to $2.402 million, an
increase of 3.36%. Interest expense on advances increased $201,000 from
$2.600 million at December 31, 1995 to $2.801 million at December 31, 1996, an
increase of 7.73%. The increase on interest expense on advances is
attributable to the one-month Libor financing obtained on the 8% FHLB bond
discussed under Interest Income. The average cost of funds which includes
both interest paid on deposits and interest paid on advances, decreased from
5.71% at December 31, 1995 to 5.55% at December 31, 1996.
Net Interest Income
Net interest income before provisions for loan losses was $1.276 million
for the quarter ended December 31, 1996 as compared to $904,000 for the
quarter ended December 31, 1995, an increase of $372,000 or 41.15%. Net
interest income before provision for loan losses was $2.362 million for the
six months ended December 31, 1996 as compared to $1.802 million for the six
months ended December 31, 1995, an increase of $560,000 or 31.08%
Noninterest Income
Other income for the quarter ended December 31, 1996 was $5,000 as
compared to $2,000 for the same quarter of the previous year. Other income
for the six months ended December 31, 1996 was $6,000 as compared to $6,000
for the six months ended December 31, 1995. Other income is not considered a
significant part of the overall income of the company.
Noninterest Expense
Noninterest expense for the quarter ended December 31, 1996 increased
$11,000 to $419,000, an increase of 2.70% as compared to $408,000 for the
quarter ended December 31, 1995. Noninterest expense for the six months ended
December 31, 1996 increased $589,000 to $1.345 million, an increase of 77.91%
as compared to $756,000 for the six months ended December 31, 1995. The
increase in noninterest expense is due to the one-time special assessment paid
by institutions whose deposit accounts are insured by the SAIF. The special
assessment was approximately $558,000.
Provision for Loan Losses
At December 31, 1996, the provision for loan losses general loan
valuation allowance is $560,000. For the three months ended December 31,
1996, provision for loan losses was increased $5,000 as compared to no
increase during the same quarter ended December 31, 1995. For the six months
ended December 31, 1996, provision for loan losses was increased $25,000 as
compared to no increase during the same period ended December 31, 1995. The
Association has a policy of maintaining a general loan valuation allowance of
one-half of one percent of outstanding loans.
16
<PAGE>
<PAGE>
Income Tax
The provision for federal and state income taxes increased $138,000 to
$335,000 for the quarter ended December 31, 1996 as compared to $197,000 for
the quarter ended December 31, 1995. The provision for federal and state
income taxes decreased $33,000 to $370,000 for the six months ended December
31, 1996 as compared to $403,000 for the same period ended December 31, 1995.
17
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Part II -- Other Information
Item 1 Legal Proceedings
The Holding Company and the Association are not involved in any
pending legal proceedings other than legal proceedings incident to
the business of the Holding Company and 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
Dec. 31, 1996
-------------
1. Net income $ 522,000
2. Weighted average common shares outstanding 1,318,114
3. Common stock equivalents due to dilutive effect
of stock options 77,079
4. Total weighted average common shares and equivalents
outstanding for primary earnings per share computation 1,395,193
5. Primary earnings per share $ 0.37
6. Weighted average common shares outstanding 1,395,193
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 0
8. Total weighted average common shares and equivalents
outstanding for fully diluted earnings per share
computation 1,395,193
9. Fully diluted earnings per share $ 0.37
(b) There were no reports filed on Form 8-K.
18
<PAGE>
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MBLA Financial Corporation
--------------------------
(Registrant)
Dated January 24, 1997 /s/ John T. Neer
-----------------
John T. Neer
President and Chief Executive Officer
(Duly Authorized Officer)
Dated January 24, 1997 /s/ Clyde D. Smith
-------------------
Clyde D. Smith
Vice President and Chief Financial
Officer
(Principal Financial Officer)
19
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 586
<INT-BEARING-DEPOSITS> 6019
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82830
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<ALLOWANCE> 560
<TOTAL-ASSETS> 208898
<DEPOSITS> 92120
<SHORT-TERM> 86980
<LIABILITIES-OTHER> 1374
<LONG-TERM> 0
0
0
<COMMON> 17
<OTHER-SE> 28407
<TOTAL-LIABILITIES-AND-EQUITY> 208898
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<INTEREST-INVEST> 3467
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<INTEREST-INCOME-NET> 2362
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<EXPENSE-OTHER> 1345
<INCOME-PRETAX> 998
<INCOME-PRE-EXTRAORDINARY> 628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 628
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 6.88
<LOANS-NON> 532
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 535
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 560
<ALLOWANCE-DOMESTIC> 560
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
