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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998 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: (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 1,247,021 at November 2, 1998.
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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, 1998 (unaudited) and June 30, 1998 . . . 2
Consolidated Statements of Income for the Three Months
ended September 30, 1998 and 1997 (unaudited). . . . . . . . 3
Consolidated Statements of Comprehensive Income for the
Three Months ended September 30, 1998 and 1997 (unaudited) . 4
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months ended September 30, 1998 and
1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Three Months
ended September 30, 1998 and 1997 (unaudited). . . . . . . . 7
Notes to Unaudited Consolidated Financial Statements . . . . 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 11
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
September 30, June 30
1998 1998
(unaudited)
----------- ----------
ASSETS (In thousands)
Cash on hand and noninterest-earning deposits $512 $580
Interest-earning deposits in other institutions 5,074 3,055
Investment securities available-for-sale, at fair value 8,551 9,770
Mortgage-backed and related securities
available-for-sale, at fair value 47,020 48,226
Loans receivable, net 142,568 136,647
FHLB stock 3,134 3,134
Accrued interest receivable 1,157 1,162
Real estate owned 4 -
Premises and equipment 274 282
Other assets 426 372
-------- --------
Total assets $208,720 $203,228
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $118,428 $115,330
Advances from Federal Home Loan Bank 60,580 58,640
Advances from borrowers for taxes and insurance 213 165
Income taxes payable 753 541
Accrued expenses and other liabilities 356 711
-------- --------
Total liabilities $180,330 $175,387
-------- --------
Preferred stock, $.01 par value;
authorized 500,000 shares; none outstanding $ - $ -
Common stock, $.01 par value; authorized
2,500,000 shares, issued 1,765,211 shares
at September 30, 1998 and June 30, 1998 17 17
Additional paid-in capital 17,607 17,526
Retained earnings, substantially restricted 19,515 19,022
Less:
Treasury stock, at cost - 518,190 shares
at September 30, 1998 and June 30, 1998 (9,395) (9,395)
Common stock acquired by the ESOP (188) (188)
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 834 859
-------- --------
Total stockholders' equity $ 28,390 $ 27,841
-------- --------
Total liabilities and stockholders' equity $208,720 $203,228
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
2
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Income
(Unaudited)
Three Months Ended
September 30,
--------------------
1998 1997
------ ------
(In thousands)
Interest income:
Loans receivable $2,578 $2,374
Investment securities 186 349
Mortgage-backed and related securities 803 1,202
Other interest-earning assets 31 66
------ ------
Total interest income 3,598 3,991
Interest expense:
Deposits 1,647 1,464
Advances 855 1,334
------ -----
Total interest expense 2,502 2,798
Net interest income 1,096 1,193
Provision for loan losses 15 15
------ ------
Net interest income after provision
for loan losses 1,081 1,178
------ ------
Noninterest income:
Committment fees - 1
Other 49 3
------ ------
Total noninterest income 49 4
------ ------
Noninterest expense:
Compensation and benefits 245 231
Occupancy and equipment 34 34
SAIF deposit insurance premiums 31 29
Net gain on sale of loans (13) -
Other 62 47
------ ------
Total noninterest expense 359 341
------ ------
Income before income taxes 771 841
Income tax expense 278 336
------ ------
Net income $ 493 $ 505
====== ======
Earnings per share:
Basic $ 0.40 $ 0.40
Diluted $ 0.39 $ 0.38
See accompanying Notes to Unaudited Consolidated Financial Statements
3
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
September 30,
------------------
1998 1997
---- ----
(In thousands)
Net income $493 $505
Other comprehensive loss, net of tax:
Unrealized holding losses arising during period (25) (22)
----- -----
Comprehensive income $468 $483
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See accompanying Notes to Unaudited Consolidated Financial Statements
4
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<TABLE>
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
----- ------- -------- ----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Three Months Ended
- ------------------
September 30, 1997
- ------------------
Balance at June 30, 1997 $17 16,944 18,535 (7,347) ($282) ($58) $727 28,536
Additions (deductions) for
the three months ended
September 30, 1997:
Net income - - 505 - - - - 505
Compensation expense
related to ES - 33 - - - - - 33
Deferred tax on R - 18 - - - - - 18
Purchase of treasury stock
(30,144 share - - - (714) - - - (714)
Stock options ret - - (9) - - - - (9)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of - - - - - - (22) (22)
-----------------------------------------------------------------------
Balance, September 30, 1997 $17 16,995 19,031 (8,061) ($282) ($58) $705 28,347
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See accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
5
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<TABLE>
MBLA FINANCIAL CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Net of
Common Applicable
Additional Stock Deferred
Common Paid-In Retained Treasury Acquired Income
Stock Capital Earnings Stock by ESOP Taxes Total
----- ------- -------- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Three Months Ended
- ------------------
September 30, 1998
- ------------------
Balance at June 30, 1998 $17 17,526 19,022 (9,395) ($188) $859 $27,841
Additions (deductions) for
the nine months ended
September 30, 1998:
Net income - - 493 - - - 493
Compensation expense
related to ES - 28 - - - - 28
Deferred tax on R - 8 - - - - 8
Deferred tax on incentive
options exerc - 45 - - - - 45
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of - - - - - (25) (25)
-------------------------------------------------------------------
Balance, September 30, 1998 $17 17,607 19,515 (9,395) ($188) $834 $28,390
===================================================================
See accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
6
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
------------------
1998 1997
-------- --------
(In thousands)
Cash flow from operating activities:
Net income $493 $505
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 15 15
Net loss on disposal of fixed assets - 2
Depreciation 9 11
Amortization of premiums and discounts (5) (11)
Excess of fair value over cost of ESOP
unallocated shares 28 33
Deferred tax on RRP 8 18
Deferred tax on incentive options exercised 44 -
Decrease (increase) in interest receivable 8 210
Decrease (increase) in other assets (54) 6
Increase (decrease) in income tax payable 226 316
Increase (decrease) in other liabilities 18 8
-------- --------
Net cash provided by operating activities $790 $1,113
-------- --------
Cash flow from investing activities:
Loans purchased and originated (13,823) (6,936)
Proceeds from loans sold 841 -
(Increase) decrease in loans, net 7,045 4,141
Proceeds from maturities of available-for-sale
investment securities 1,500 16,686
Purchase of available-for-sale investment securities (250) (2,183)
Principal collected on repayments and maturities of
available-for-sale mortgage-backed and
related securities 1,142 850
Loans transferred to REO (8) -
Proceeds from REO insurance claims 4 -
Purchase of equipment and office building improvements (2) (7)
-------- --------
Net cash provided (used) by investing activities ($3,551) $12,551
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 3,098 2,346
Net increase (decrease) in advances from borrowers
for taxes and insurance 48 38
Proceeds from FHLB advances 2,000 2,000
Principal payments on FHLB advances (60) (15,056)
Dividends paid (374) (260)
Purchase of treasury stock - (714)
Stock options retired - (9)
Net cash provided (used)
-------- --------
by financing activities $4,712 (11,655)
-------- --------
Increase (decrease) in cash
and cash equivalents $1,951 $2,009
Cash and cash equivalents at beginning of period 3,635 4,714
-------- --------
Cash and cash equivalents at end of period $5,586 $6,723
======== ========
7
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Three Months Ended
September 30,
------------------
1998 1997
-------- -------
(In thousands)
Supplemental cash flow disclosures:
Cash paid for:
Interest $1,350 $1,812
======== =======
Income Taxes - $2
======== =======
Noncash activity:
Loans transferred to real estate owned $8 -
======== =======
See accompanying Notes to Unaudited Consolidated Financial Statements
8
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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, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal
year ending June 30, 1999.
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 month period ended September 30,
1998. The consolidated financial statements for the prior period
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 $16.41million 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 million 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 $590,000 ($497,000 in principal) to
the Holding Company. The $188,000 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 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 at conversion and were earned over
varying annual rates, depending upon the individual's position in
the Association. The aggregate purchase price of
9
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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 remaining 4,692 shares
were awarded to directors on January 2, 1998 and were accordingly
expensed at that time.
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. The remaining 9,833 options were awarded to
directors during the quarter ended September 30, 1997. As of
September 30, 1998, 94,275 options had been exercised or retired,
leaving a total of 78,225 which had not been exercised.
(3) Earnings Per Share
Earnings per share (EPS) computations follow SFAS No. 128 which is
effective for financial statements issued for periods ending after
December 15, 1997. Basic EPS have been determined by dividing net
income for the period (numerator) by the weighted-average number of
common shares outstanding during the period (denominator).
Weighted-average common shares include shares held by the RRP plan
and allocated ESOP shares. Unallocated ESOP shares are not used in
either basic or diluted EPS calculations. Shares issued during the
period and shares reacquired during the period are weighted for the
portion of the period outstanding. In determining diluted EPS, the
denominator used for basic EPS is increased to include the number of
additional common shares (common stock equivalents) that would have
been outstanding if the dilutive potential common shares had been
issued. Stock options are regarded as common stock equivalents and
are computed using the treasury stock method. Prior periods EPS
have been restated to comply with SFAS No. 128.
(4) Stock Repurchase Program
During the quarter ended September 30, 1998, the Company did not
repurchase any sharesof its common stock. As of November 2, 1998,
MBLA Financial Corporation has repurchased a total of 518,190 shares
of its common stock.
(5) Commitments and Contingencies
Commitments to originate and purchase mortgage loans of $7.779
million at September 30, 1998, represent amounts which the
Association plans to fund within the normal commitment period of
sixty to ninety days. As of September 30, 1998, the Association had
no commitments to purchase mortgage-backed securities, CMOs or
investment securities. The Association had commitments outstanding
of $614,000 to sell mortgage loans at September 30, 1998. The
Association did not have any commitments outstanding at September
30, 1998 to sell mortgage-backed and related securities or
investment securities.
(6) Reclassifications
None.
10
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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.
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.
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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, 1998, cash, due from
banks and interest-earning deposits totalled $5.586 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 4%. The Association historically has maintained a level of
liquid assets in excess of this regulatory requirement. The Association's
liquidity ratios were 10.81% and 7.20% at September 30, 1998 and 1997,
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, 1998 and 1997, the Association originated and purchased mortgage
loans in the aggregate amount of $13.823 million and $6.936 million,
respectively. During the three months ended September 30, 1998, the
Association sold loans in the amount of $841,000. 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, 1998, the Association had outstanding loan
commitments to originate and purchase $7.779 million of loans. The
Association believes that it will have sufficient funds available to meet all
of these commitments. At September 30, 1998, the Association had outstanding
commitments of $614,000 to sell mortgage loans. The Association did not have
any outstanding commitments to sell mortage-backed and related securities or
any other investment securities at September 30, 1998. 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, 1998, certificates of deposit which are
scheduled to mature in one year or less from September 30, 1998, totalled
$87.659 million. Management believes that a significant portion of these
funds will remain with the Association.
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Capital and Prompt Corrective Action Ratios
At September 30, 1998, the Association exceeded each OTS capital and
prompt corrective action ratio. The following table sets forth the OTS
minimum ratios for "adequately capitalized" and "well capitalized", as well as
the Association ratio, for each category.
Minimum Minimum
"Adequately "Well
Capitalized" Capitalized" Association
Ratio Ratio Ratio Ratio
- ------------- ---------- ------------- -----------
Tier 1 (Core)
Capital Ratio 4% 5% 13.14%
Total Risk-Based
Capital Ratio 8% 10% 31.22%
Tier 1 Risk-Based
Capital Ratio 4% 6% 30.43%
The minimum OTS Tangible Equity Ratio to be deemed other than "critically
under capitalized" is 2%. At September 30, 1998, the Association's tangible
equity ratio was 13.14%.
Changes in Financial Condition
Total assets increased $5.492 million to $208.720 million at
September 30, 1998 from $203.228 million at June 30, 1998. Cash due from
banks and interest-earning deposits increased $1.951 million to $5.586
million. Loans receivable increased $5.921 million to $142.568 million at
September 30, 1998 from $136.647 million at June 30, 1998. Mortgage-backed
and related securities decreased $1.206 million to $47.020 million at
September 30, 1998. Investment securities decreased $1.219 million to $8.551
million at September 30, 1998. FHLB stock was unchanged at $3.134 million at
September 30, 1998.
Deposits increased $3.098 million or 2.69% from $115.330 million at
June 30, 1998 to $118.428 million at September 30, 1998. The average cost of
deposits decreased from 5.65% at June 30, 1998 to 5.62% at September 30, 1998.
Advances from the Federal Home Loan Bank of Des Moines increased $1.940
million to $60.580 million at September 30, 1998 from $58.640 million at June
30, 1998. The average cost of advances decreased from 5.63% at June 30, 1998
to 5.59% at September 30, 1998.
Stockholders' equity increased $549,000 to $28.390 million at
September 30, 1998, from $27.841 million at June 30, 1998. MBLA Financial
Corporation's capital to assets ratio was 13.60% as of September 30, 1998 as
compared to 13.70% at June 30, 1998.
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.
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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 87.66% of Macon Building and Loan Association's mortgage loan
portfolio as of September 30, 1998, consisted of ARMs, including ARM loans
secured by commercial real estate. Approximately 77.68% of all ARMs, or 68.09%
of all loans, are adjustable in one, two, or three years from September 30,
1998.
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, 1998, the effect on stockholders' equity was an addition of
$834,000 net of deferred income taxes as compared to an addition of $859,000
at June 30, 1998 net of deferred income taxes.
Year 2000
The Association will convert its data processing system from
FISERV's thrift platform to FISERV's ITI platform in August 1999. The
Association will be installing new teller terminals in the next few weeks at
an approximate installed cost of $12,000. These new terminals will be Y2K
compliant as will all other computer hardware currently in use. The total
cost of conversion will be approximately $80,000 -$100,000, with the majority
of expense incurred in the next fiscal year ending June 30,2000.
Y2K testing of the FISERV ITI processing system will be done by proxy. FISERV
is currently in the process of proxy testing and should finish by December 1,
1998. They will provide written documentation to Association management by
mid-December 1998. Testing of the Association system will be during and after
conversion to the ITI system in August 1999. Testing of the "connectivity" to
FISERV will also be completed at that time.
The Association has contacted all other major software vendors and mission
central third-party providers. The Association does not expect any major
capital expenditures on these areas at this time.
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 from $887,000 at June 30, 1998 to $878,000 at September 30, 1998.
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, 1998, the Association has no
restructured loans within the meaning of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 15.
14
<PAGE>
<PAGE>
<TABLE>
MBLA FINANCIAL CORPORATION
Asset Quality
September 30, June 30, March 31, December 31, September 30,
1998 1998 1998 1997 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Non-accrual mortgage loans
delinquent more than 90 days $878 $887 $1,137 $1,063 $1,283
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
Total non-performing loans 878 887 1,137 1,063 1,283
Real estate owned and in-
substance foreclosed loans
net of related allowance 4 0 0 0 0
Total non-performing assets $882 $887 $1,137 $1,063 $1,283
Non-performing loans to
total loans 0.62% 0.65% 0.85% 0.82% 0.99%
Non-performing assets to
total assets 0.42% 0.44% 0.55% 0.48% 0.57%
Allowance for loan losses
to non-performing loans 79.93% 77.79% 59.37% 62.09% 50.27%
</TABLE>
15
<PAGE>
<PAGE>
Results of Operations
Comparison of quarterly results in this section are between the
three month periods ended September 30, 1998, and September 30, 1997.
General
Net income for the quarter ended September 30, 1998 was $493,000, a
decrease of $12,000 from the $505,000 net income for the quarter ended
September 30, 1997. Basic earnings per share for the quarter ended September
30, 1998 were 40 cents per share as compared to 40 cents per share for the
quarter ended September 30, 1997. Diluted earnings per share were 39 cemts
per share for the quarter ended September 30, 1998 as compared to 38 cents per
share for the quarter ended September 30, 1997.
Comprehensive income for the quarter ended September 30, 1998 was
$468,000 as compared to $483,000 for the quarter ended September 30, 1997.
The only comprehensive loss component was unrealized holding losses on
available-for-sale securities during both quarters.
Interest Income
Interest income decreased $393,000 or 9.85% to $3.598 million for
the quarter ended September 30, 1998 from $3.991 million for the quarter ended
September 30, 1997. Interest on mortgage loans increased $204,000 for the
three month period ended September 30, 1998 over the same period ended
September 30, 1997. Interest on investment securities decreased $163,000 for
the three month period ended September 30, 1998 as compared to the quarter
ended September 30, 1997. Interest on mortgage-backed and related securities
decreased $399,000 for the three month period ended September 30, 1998 as
compared to the same period ended September 30, 1997. Interest on other
interest-earning assets decreased $35,000 for the three month period ended
September 30, 1998 as compared to the same period ended September 30, 1997.
Interest Expense
Interest expense for the quarter ended September 30, 1998 was $2.502
million as compared to $2.798 million for the quarter ended September 30,
1997, a decrease of $296,000 or 10.58%. Interest expense on deposits
increased $183,000 to $1.647 million at September 30, 1998 from $1.464
million at September 30, 1997. Interest expense on advances decreased
$479,000 to $855,000 at September 30, 1998 from $1.334 million at September
30, 1997. The average cost of funds which includes both interest paid on
deposits and interest paid on advances, decreased from 5.65% at September 30,
1997 to 5.62% at September 30, 1998.
Net Interest Income
Net interest income before provisions for loan losses was $1.096
million for the quarter ended September 30, 1998 as compared to $1.193 million
for the quarter ended September 30, 1997, a decrease of $97,000.
16
<PAGE>
<PAGE>
Provision for Loan Losses
At September 30, 1998, the provision for loan losses general loan
valuation allowance is $705,000. For the three months ended September 30,
1998, provision for loan losses was increased $15,000 as compared to an
increase of $15,000 during the quarter ended September 30, 1997. The
Association formerly had a policy of maintaining a general loan valuation
allowance of one-half of one percent of outstanding loans, but has revised
their policy to increase the loan valuation allowance to $1 million by
increasing the allowance $5,000 per month. The Association continuously
monitors this provision.
Noninterest Income
Other income for the quarter ended September 30, 1998 was $49,000 as
compared to $4,000 for the quarter ended September 30, 1997. Other
noninterest income for the quarter ended September 30, 1998 was enhanced by a
$42,000 Missouri state income tax refund for tax years 1996 and 1997. 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, 1998
increased $18,000 to $359,000, as compared to $341,000 for the quarter ended
September 30, 1997. Compensation and benefits increased $14,000 and other
noninterest expense increased $15,000 for the quarter ended September 30,
1998.
Income Tax
The provision for federal and state income taxes decreased $58,000
to $278,000 for the quarter ended September 30, 1998 as compared to $336,000
for the quarter ended September 30, 1997.
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
Exhibit 27. Financial Data Schedule*
*Submitted only with filing in electronic format.
(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: November 3, 1998 /s/ John T. Neer
----------------------------------
John T. Neer
President and
Chief Executive Officer
(Duly Authorized Officer)
Dated: November 3, 1998 /s/ Clyde D. Smith
----------------------------------
Clyde D. Smith
Vice President and
Chief Financial Officer
(Principal Financial Officer)
19
<PAGE>
<PAGE>
Exhibit 11
Exhibit 11. Statement re: Computation of Per Share Earnings
Quarter Ended
Sept. 30, 1998
--------------
1. Net income $ 493,000
==============
2. Weighted average common shares outstanding 1,229,754
==============
3. Basic earnings per share $ 0.40
==============
4. Weighted average common shares outstanding 1,229,754
5. Additional dilutive shares using the
average market value for the period
utilizing the treasury stock method
regarding stock options 47,206
--------------
6. Total weighted average common shares
and equivalents outstanding for fully
diluted earnings per share computation 1,276,960
==============
7. Diluted earnings per share $ 0.39
==============
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 512
<INT-BEARING-DEPOSITS> 5074
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55571
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 143273
<ALLOWANCE> 705
<TOTAL-ASSETS> 208720
<DEPOSITS> 118428
<SHORT-TERM> 60580
<LIABILITIES-OTHER> 1322
<LONG-TERM> 0
0
0
<COMMON> 17
<OTHER-SE> 28373
<TOTAL-LIABILITIES-AND-EQUITY> 208720
<INTEREST-LOAN> 2578
<INTEREST-INVEST> 989
<INTEREST-OTHER> 31
<INTEREST-TOTAL> 3598
<INTEREST-DEPOSIT> 1647
<INTEREST-EXPENSE> 2502
<INTEREST-INCOME-NET> 1096
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 372
<INCOME-PRETAX> 771
<INCOME-PRE-EXTRAORDINARY> 771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 493
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 7.16
<LOANS-NON> 878
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 690
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 705
<ALLOWANCE-DOMESTIC> 705
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
