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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
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For the Quarter Ended March 31, 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 May 7, 1998.
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
Part I. Financial Information
- ------------------------------
Item 1 Financial Statements Page
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Consolidated Statements of Financial Condition as of
March 31, 1998 (unaudited) and June 30, 1997 . . . . . . . 2
Consolidated Statements of Operations for the Three Months
ended March 31, 1998 and 1997 and for the
nine months ended March 31, 1998 and 1997 (unaudited). . . 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended March 31, 1998 and
1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 1998 and 1997 (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
March 31, June 30,
1998 1997
(unaudited)
----------- --------
ASSETS (In thousands)
Cash on hand and noninterest-earning deposits $415 $230
Interest-earning deposits in other institutions 6,281 4,484
Investment securities available-for-sale, at fair
value 11,012 27,039
Mortgage-backed and related securities
available-for-sale, at fair value 49,410 68,975
Loans receivable, net 132,989 126,448
FHLB stock 5,652 5,652
Accrued interest receivable 1,309 1,595
Real estate owned - -
Premises and equipment 296 308
Other assets 89 92
-------- --------
Total assets $207,453 $234,823
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $113,742 $101,959
Advances from Federal Home Loan Bank 64,699 102,870
Advances from borrowers for taxes and insurance 121 171
Income taxes payable 540 590
Accrued expenses and other liabilities 353 697
-------- --------
Total liabilities $179,455 $206,287
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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 March 31, 1998 and 1,738,111 shares at
June 30, 1997 18 17
Additional paid-in capital 17,473 16,944
Retained earnings, substantially restricted 19,136 18,535
Less:
Treasury stock, at cost - 514,165 shares at
March 31, 1998 and 439,699 shares at June
30, 1997 (9,302) (7,347)
Common stock acquired by the ESOP (235) (282)
Common stock awarded by Association
Recognition and Retention Plan - (58)
Unrealized loss on securities available-for-
sale, net of applicable deferred income taxes 908 727
-------- --------
Total stockholders' equity $27,998 $28,536
-------- --------
Total liabilities and stockholders' equity $207,453 $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 Nine Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands) (In thousands)
Interest income:
Loans receivable $2,412 $1,987 $7,172 $6,023
Investment securities 301 279 928 1,356
Mortgage-backed and related
securities 1,016 1,165 3,389 3,555
Other interest-earning assets 87 108 254 170
------ ------ ------- -------
Total interest income 3,816 3,539 11,743 11,104
Interest expense:
Deposits 1,547 1,324 4,532 3,726
Advances 1,105 1,187 3,686 3,988
------ ------ ------- -------
Total interest expense 2,652 2,511 8,218 7,714
Net interest income 1,164 1,028 3,525 3,390
Provision for loan losses 15 15 45 40
Net interest income after ------ ------ ------- -------
provision for loan losses 1,149 1,013 3,480 3,350
Noninterest income:
Committment fees - - 1 -
Other 2 5 6 11
------ ------ ------- -------
Total noninterest income 2 5 7 11
------ ------ ------- -------
Noninterest expense:
Compensation and benefits 363 214 838 686
Occupancy and equipment 43 37 116 104
SAIF deposit insurance premiums 33 23 94 709
Net loss (gain) on sale of real
estate owned - 4 - 10
Net loss (gain) on sale of
investments - 59 (14) 59
Net loss (gain) on sale of loans (8) - (8) -
Other 63 55 172 169
------ ------ ------- -------
Total noninterest expense 494 392 1,198 1,737
------ ------ ------- -------
Income before income taxes 657 626 2,289 1,624
Income tax expense 152 255 805 625
------ ------ ------- -------
Net income $505 $371 $1,484 $999
====== ====== ======= =======
Earnings per share:
Basic $0.41 $0.29 $1.19 $0.77
Diluted $0.39 $0.27 $1.13 $0.73
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 Appli-
Addi- Stock Stock cable
tional Trea- Ac- Ac- Deferred
Common Paid-In Retained sury quired quired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
----- ------- -------- ----- ------- ------ ----- -----
(In thousands)
Nine Months Ended
- -----------------
March 31, 1997
- --------------
Balance at June 30,
1996 $17 $16,754 $17,665 ($5,924) ($390) ($208) $154 $28,068
Additions (deductions)
for the nine months
ended March 31, 1997:
Net income - - 999 - - - - 999
Compensation expense
related to ESOP - 91 - - - - - 91
Reduction of ESOP
obligation - - - - 61 - - 61
Amortization of RRPs - - - - - 12 - 12
Dividends on un-
allocated ESOP
shares - - 8 - - - - 8
Deferred tax on RRP - 36 - - - - - 36
Purchase of treasury
stock (49,109
shares) - - - (1,028) - - - (1,028)
Dividends declared - - (268) - - - - (268)
Stock options
retired - - (57) - - - - (57)
Unrealized gain
(loss) on
securities
available-for-
sale, net of
deferred income
tax of $230,000 - - - - - - 391 391
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Balance, March 31,
1997 $17 $16,881 $18,347 ($6,952) ($329) ($196) $545 $28,313
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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 Appli-
Addi- Stock Stock cable
tional Trea- Ac- Ac- Deferred
Common Paid-In Retained sury quired quired Income
Stock Capital Earnings Stock by ESOP by RRP Taxes Total
----- ------- -------- ----- ------- ------ ----- -----
(In thousands)
Nine Months Ended
- -----------------
March 31, 1998
- --------------
Balance at June 30,
1997 $17 $16,944 $18,535 ($7,347) ($282) ($58) $727 $28,536
Additions (deductions)
for the nine months
ended March 31, 1998:
Net income - - 1,484 - - - - 1,484
Compensation expense
related to ESOP - 115 - - - - - 115
Reduction of ESOP
obligation - - - - 47 - - 47
Amortization of RRPs - - - - - 58 - 58
Dividends on
unallocated ESOP
shares - - 6 - - - - 6
Deferred tax on RRP - 55 - - - - - 55
RRP shares released - 88 - - - - - 88
Stock options
exercised 1 271 - - - - - 272
Stock options
retired - - (632) - - - - (632)
Purchase of treasury
stock (74,466
shares) - - - (1,955) - - - (1,955)
Dividends declared - - (257) - - - - (257)
Unrealized gain (loss)
on securities
available-for-
sale, net of
deferred income
tax of $106,000 - - - - - - 181 181
-------------------------------------------------------
Balance, March 31,
1998 $18 $17,473 $19,136 ($9,302) ($235) $0 $908 $27,998
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See accompanying Notes to Unaudited Consolidated Financial Statements
5
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months End
March 31,
---------------
1998 1997
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(In thousands)
Cash flow from operating activities:
Net income $1,484 $999
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 45 40
Net loss on sale of real estate owned - 10
Net loss on sale of investments - 59
Net gain on sale of mortgage-backed and
related securities (14) -
Net loss on disposal of fixed assets 2 -
Depreciation 33 32
Amortization of premiums and discounts (52) (54)
Excess of fair value over cost of ESOP
unallocated shares 115 91
Amortization of RRP 147 12
Deferred tax on RRP 54 36
Decrease (increase) in interest receivable 286 (154)
Decrease (increase) in other assets 3 50
Increase (decrease) in income tax payable (156) (32)
Increase (decrease) in other liabilities (85) 36
------- -------
Net cash provided by operating activities $1,862 $1,125
------- -------
Cash flow from investing activities:
Loans purchased and originated (23,725) (16,318)
Proceeds from loans sold 735 -
(Increase) decrease in loans, net 16,403 6,653
Proceeds from maturities of available-for-sale
investment securities 27,186 30,019
Purchase of available-for-sale investment
securities (11,147) (29,904)
Principal collected on repayments and
maturities of available-for-sale mortgage-
backed and related securities 20,004 2,666
Proceeds from sale of mortgage-backed and
related securities 3,905 16,517
Purchase of mortgage-backed and related
securities (4,000) (17,000)
Purchase of FHLB stock - (1,396)
Proceeds from the sale of real estate owned - 43
Purchase of equipment and office building
improvements (23) (4)
Net cash provided (used) by investing ------- -------
activities $29,338 ($8,724)
------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits 11,783 11,733
Net increase (decrease) in advances from
borrowers for taxes a (50) (32)
Proceeds from FHLB advances 2,000 28,000
Principal payments on FHLB advances (40,171) (31,160)
Dividends paid (511) (534)
Purchase of treasury stock (1,955) (1,029)
Proceeds from issuance of common stock 271 -
Unearned ESOP compensation decrease 47 61
Stock options retired (632) (58)
Net cash provided (used) by financing ------- -------
activities ($29,218) $6,981
------- -------
Increase (decrease) in cash and cash
equivalents $1,982 ($618)
Cash and cash equivalents at beginning of period 4,714 5,131
------- -------
Cash and cash equivalents at end of period $6,696 $4,513
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6
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MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
Nine Months End
March 31,
---------------
1998 1997
---- ----
(In thousands)
Supplemental cash flow disclosures:
Cash paid for:
Interest $5,386 $5,312
====== ======
Income Taxes $908 $623
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Noncash activity:
Loans transferred to real estate owned - $30
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See accompanying Notes to Unaudited Consolidated Financial Statements
7
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MBLA FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been included. The
results of operations and other data for the three and nine month periods
ended March 31, 1998 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
and nine month periods ended March 31, 1998. 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 $16.41 million 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 $538,000 ($450,000 in principal) to the
Holding Company. The $235,000 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 and
are designed to be earned over varying annual rates, depending upon the
individual's position in the Association. The aggregate purchase price of
8
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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 March 31, 1998, 85,275 options had been exercised
or retired, leaving a total of 87,225 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 March 31, 1998, the Company repurchased 30,543 shares
of its common stock. For the nine months ended March 31, 1998, the Company
repurchased 74,466 shares of its common stock. As of May 7, 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 $6.527 million (of
which $6.200 million are adjustable-rate commitments) at March 31, 1998,
represent amounts which the Association plans to fund within the normal
commitment period of sixty to ninety days. As of March 31, 1998, the
Association had no commitments to purchase mortgage-backed securities, CMOs or
investment securities. The Association had commitments outstanding of
$286,000 to sell mortgage loans at March 31, 1998. The Association did not
have any commitments outstanding at March 31, 1998 to sell mortgage-backed and
related securities or investment securities.
(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.
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 March 31, 1998, cash, due from banks
and interest-earning deposits totalled $6.696 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 9.14% and 10.35% at March 31, 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 March 31, 1998 and
1997, the Association originated and purchased mortgage loans in the aggregate
amount of $10.532 million and $2.632 million, respectively. During the three
months ended March 31, 1998, the Association sold loans in the amount of
$641,000. 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 March 31, 1998, the Association had outstanding loan commitments to
originate and purchase $6.527 million of loans. The Association believes that
it will have sufficient funds available to meet all of these commitments. At
March 31, 1998, the Association had outstanding commitments of $286,000 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 March 31, 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
March 31, 1998, certificates of deposit which are scheduled to mature in one
year or less from March 31, 1998, totalled $83.824 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 March 31, 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% 12.71%
Total Risk-Based
Capital Ratio 8% 10% 32.18%
Tier 1 Risk-Based
Capital Ratio 4% 6% 31.37%
The minimum OTS Tangible Equity Ratio to be deemed other than "critically
under capitalized" is 2%. At March 31, 1998, the Association's tangible
equity ratio was 12.71%.
Changes in Financial Condition
Total assets decreased $27.370 million to $207.453 million at March 31,
1998 from $234.823 million at June 30, 1997. Cash due from banks and
interest-earning deposits increased $1.982 million to $6.696 million. Loans
receivable increased $6.541 million to $132.989 million at March 31, 1998 from
$126.448 million at June 30, 1997. Mortgage-backed and related securities
decreased $19.565 million to $49.410 million at March 31, 1998. Investment
securities decreased $16.027 million to $11.012 million at March 31, 1998
because of a $15 million FHLB bond called in July 1997. FHLB stock was
unchanged at $5.652 million at March 31, 1998.
Deposits increased $11.783 million or 11.56% from $101.959 million at
June 30, 1997 to $113.742 million at March 31, 1998. The average cost of
deposits increased from 5.64% at June 30, 1997 to 5.67% at March 31, 1998.
Advances from the Federal Home Loan Bank of Des Moines decreased $38.171
million to $64.699 million at March 31, 1998 from $102.870 million at June 30,
1997. The average cost of advances increased from 5.63% at June 30, 1997 to
5.64% at March 31, 1998.
Stockholders' equity decreased $538,000 to $27.998 million at March 31,
1998, from $28.536 million at June 30, 1997. MBLA Financial Corporation's
capital to assets ratio was 13.50% as of March 31, 1998 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.
12
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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 90.22% of Macon Building and Loan Association's mortgage loan
portfolio as of March 31, 1998, consisted of ARMs, including ARM loans secured
by commercial real estate. Approximately 97.88% of all ARMs, or 88.31% of all
loans, are adjustable in one, two, or three years from March 31, 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 March 31,
1998, the effect on stockholders' equity was an addition of $908,000 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 $1.137 million at March 31, 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 March 31, 1998, the Association has no restructured
loans within the meaning of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 15.
Year 2000
The Association has been in contact with FISERV, the Association's data
processing service provider. FISERV's tentative Year 2000 testing schedule
begins in September 1998 and continues through January 1999. As of this date,
the Association expects a cost of no more than $25,000 to be Year 2000
compliant.
The Association has contacted software vendors and does not foresee any
major capital expenditures. In-house testing of major software packages the
Association utilizes (as well as Association hardware) have been initiated and
expect to be completed by March 31, 1999. The Association should have all
testing completed by June 30, 1999.
13
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MBLA FINANCIAL CORPORATION
Asset Quality
March December September June March
31, 31, 30, 30, 31,
1998 1997 1997 1997 1997
--------------------------------------------
(Dollars in thousands)
Non-accrual mortgage loans
delinquent more than 90 days $1,137 $1,063 $1,283 $577 $514
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
--------------------------------------------
Total non-performing loans 1,137 1,063 1,283 577 514
Real estate owned and in-
substance foreclosed loans
net of related allowance 0 0 0 0 0
--------------------------------------------
Total non-performing assets $1,137 $1,063 $1,283 $577 $514
============================================
Non-performing loans to
total loans 0.85% 0.82% 0.99% 0.46% 0.44%
Non-performing assets to
total assets 0.55% 0.48% 0.57% 0.25% 0.25%
Allowance for loan losses
to non-performing loans 59.37% 62.09% 50.27% 109.19% 111.87%
14
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Results of Operations
Comparison of quarterly results in this section are between the three
month periods ended March 31, 1998, and March 31, 1997 and between the nine
month periods then ended.
General
Net income for the quarter ended March 31, 1998 was $505,000, an increase
of $134,000 from the $371,000 net income for the quarter ended March 31, 1997.
Basic earnings per share for the quarter ended March 31, 1998 were 41 cents
per share as compared to 29 cents per share for the quarter ended March 31,
1997. Net income for the nine months ended March 31, 1998 was $1.484 million,
an increase of $485,000 over the $999,000 net income for the nine months ended
March 31, 1997. Basic earnings per share for the nine months ended March 31,
1998 were $1.19 per share as compared to 77 cents per share for the nine
months ended March 31, 1997.
Net income for the nine months ended March 31, 1997 was reduced by the
one-time special assessment paid by institutions whose deposit accounts are
insured by the Savings Association Insurance Fund (SAIF). The special
assessment reduced pre-tax consolidated earnings for the 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 $277,000 or 7.83% to $3.816 million for the
quarter ended March 31, 1998 from $3.539 million for the quarter ended March
31, 1997. Interest income for the nine months ended March 31, 1998 was
$11.743 million, an increase of $639,000 over the same period ended March 31,
1997.
Interest on mortgage loans increased $425,000 and $1.149 million for the
three and nine month periods ended March 31, 1998 over the same periods ended
March 31, 1997. Interest on investment securities increased $22,000 for the
three month period ended March 31, 1998 and decreased $428,000 for the nine
month period ended March 31, 1998 over the same periods ended March 31, 1997.
Interest on mortgage-backed and related securities decreased $149,000 and
$166,000 for the three and nine month periods ended March 31, 1998 as compared
to the same periods ended March 31, 1997. Interest on other interest-earning
assets decreased $21,000 and increased $84,000 for the three and nine month
periods ended March 31, 1998 as compared to the same periods ended March 31,
1997.
Interest Expense
Interest expense for the quarter ended March 31, 1998 was $2.652 million
as compared to $2.511 million for the quarter ended March 31, 1997, an
increase of $141,000 or 5.62%. Interest expense for the nine months ended
March 31, 1998 was $8.218 million as compared to $7.714 for the nine months
ended March 31, 1997, an increase of $504,000 or 6.53%. Interest expense on
deposits increased $223,000 to $1.547 million at March 31, 1998 from $1.324
million at March 31, 1997. Interest expense on deposits for the nine months
ended March 31, 1998 increased $806,000 to $4.532 million from $3.726 million
for the nine months ended March 31, 1997. Interest expense on advances
decreased $82,000 to $1.105 million at March 31, 1998 from $1.187 million at
March 31, 1997. Interest expense on advances for the nine months ended March
31, 1998 decreased $302,000 to $3.686 million from $3.988 million for the nine
months ended March 31, 1997. The
15
<PAGE>
<PAGE>
average cost of funds which includes both interest paid on deposits and
interest paid on advances, increased from 5.54% at March 31, 1997 to 5.66% at
March 31, 1998.
Net Interest Income
Net interest income before provisions for loan losses was $1.164 million
for the quarter ended March 31, 1998 as compared to $1.028 million for the
quarter ended March 31, 1997, an increase of $136,000. Net interest income
before provisions for loan losses for the nine months ended March 31, 1998 was
$3.525 million as compared to $3.390 million for the nine months ended March
31, 1997, an increase of $135,000.
Noninterest Income
Other income for the quarter ended March 31, 1998 was $2,000 as compared
to $5,000 for the same quarter of the previous year. Other income for the
nine months ended March 31, 1998 was $7,000 as compared to $11,000 for the
nine months ended March 31, 1997. Other income is not considered a
significant part of the overall income of the company.
Noninterest Expense
Noninterest expense for the quarter ended March 31, 1998 increased
$102,000 to $494,000, as compared to $392,000 for the quarter ended March 31,
1997. Noninterest expense for the nine months ended March 31, 1998 decreased
$539,000 to $1.198 million from $1.737 million for the nine months ended March
31, 1997. The decrease in noninterest expense for the nine months ended March
31, 1998 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 nine months ended March 31, 1997.
Provision for Loan Losses
At March 31, 1998, the provision for loan losses general loan valuation
allowance is $675,000. For the three months ended March 31, 1998, provision
for loan losses was increased $15,000 as compared to an increase of $15,000
during the quarter ended March 31, 1997. For the nine months ended March 31,
1998 provision for loan losses was increased $45,000 as compared to an
increase of $40,000 during the same period ended March 31, 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.
Income Tax
The provision for federal and state income taxes decreased $103,000 to
$152,000 for the quarter ended March 31, 1998 as compared to $255,000 for the
quarter ended March 31, 1997. The provision for federal and state income
taxes increased $180,000 for the nine months ended March 31, 1998 to $805,000
as compared to $625,000 for the nine months ended March 31, 1997. The
increase is attributable to the special one-time SAIF assessment paid during
the nine months ended March 31, 1997.
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
Exhibit 27. Financial Data Schedule*
*Submitted only with filing in electronic format.
(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: May 7, 1998
/s/ John T. Neer
------------------------------------------
John T. Neer
President and Chief Executive Officer
(Duly Authorized Officer)
Dated: May 7, 1998
/s/ Clyde D. Smith
------------------------------------------
Clyde D. Smith
Vice President and Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
<PAGE>
Exhibit 11
Exhibit 11. Statement re: Computation of Per Share Earnings
Quarter Ended
Mar. 31, 1998
-------------
1. Net income $ 505,000
============
2. Weighted average common shares outstanding 1,235,470
============
3. Basic earnings per share $ 0.41
============
4. Weighted average common shares outstanding 1,235,470
5. Additional dilutive shares using the average market
value for the period utilizing the treasury stock
method regarding stock options 54,416
------------
6. Total weighted average common shares and equivalents
outstanding for fully diluted earnings per share
computation 1,289,886
============
7. Diluted earnings per share $ 0.39
============
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
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0
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<ALLOWANCE-CLOSE> 675
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</TABLE>
