<PAGE>
================================================================================
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, 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 February 2, 1999.
================================================================================
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
<TABLE>
<CAPTION>
Index
Part I. Financial Information Page
- -------------------------------- ------
<S> <C> <C>
Item 1 Financial Statements
Consolidated Statements of Financial Condition as of December 31,
1998 (unaudited) and June 30, 1998.......................................... 2
Consolidated Statements of Income for the Three Months
ended December 31, 1998 and 1997 (unaudited) and for the
Six Months ended December 31, 1998 and 1997 (unaudited)..................... 3
Consolidated Statements of Comprehensive Income for the
Three Months ended December 31, 1998 and 1997 (unaudited) and for the
Six Months ended December 31, 1998 and 1997 (unaudited)..................... 4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months ended December 31, 1998 and
1997 (unaudited)............................................................ 5
Consolidated Statements of Cash Flows for the Six Months
ended December 31, 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
Item 3 Quantitative and Qualitative Disclosures About Market Risk.................. 20
Part II. Other Information
- -----------------------------
Item 1 Legal Proceedings........................................................... 21
Item 2 Changes in Securities and Use of Proceeds................................... 21
Item 3 Default upon Senior Securities.............................................. 21
Item 4 Submission of Matters to a Vote of Security Holders......................... 21
Item 5 Other Information........................................................... 21
Item 6 Exhibits and Reports on Form 8-K............................................ 21
Signature Page.......................................................................... 23
</TABLE>
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
1998 June 30,
(unaudited) 1998
------------ --------
ASSETS (In thousands)
<S> <C> <C>
Cash on hand and noninterest-earning deposits $798 $580
Interest-earning deposits in other institutions 7,578 3,055
Investment securities available-for-sale, at fair value 7,043 9,770
Mortgage-backed and related securities
available-for-sale, at fair value 45,633 48,226
Loans receivable, net 142,064 136,647
FHLB stock 3,134 3,134
Accrued interest receivable 1,128 1,162
Real estate owned 4 -
Premises and equipment 278 282
Other assets 416 372
-------- --------
Total assets $208,076 $203,228
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $120,865 $115,330
Advances from Federal Home Loan Bank 57,518 58,640
Advances from borrowers for taxes and insurance 64 165
Income taxes payable 520 541
Accrued expenses and other liabilities 748 711
-------- --------
Total liabilities $179,715 $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
December 31, 1998 and June 30, 1998 17 17
Additional paid-in capital 17,678 17,526
Retained earnings, substantially restricted 19,616 19,022
Less:
Treasury stock, at cost - 518,190 shares at
December 31, 1998 and June 30, 1998 (9,395) (9,395)
Common stock acquired by the ESOP (139) (188)
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 584 859
-------- --------
Total stockholders' equity $28,361 $27,841
-------- --------
Total liabilities and stockholders' equity $208,076 $203,228
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
2
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,588 $2,386 $5,166 $4,760
Investment securities 169 278 355 627
Mortgage-backed and related securities 759 1,171 1,562 2,373
Other interest-earning assets 83 101 114 167
------ ------ ------ ------
Total interest income 3,599 3,936 7,197 7,927
Interest expense:
Deposits 1,653 1,521 3,300 2,985
Advances 812 1,247 1,667 2,581
------ ------ ------ ------
Total interest expense 2,465 2,768 4,967 5,566
Net interest income 1,134 1,168 2,230 2,361
Provision for loan losses 15 15 30 30
------ ------ ------ ------
Net interest income after provision
for loan losses 1,119 1,153 2,200 2,331
------ ------ ------ ------
Noninterest income:
Committment fees - - - 1
Other 6 1 55 4
------ ------ ------ ------
Total noninterest income 6 1 55 5
------ ------ ------ ------
Noninterest expense:
Compensation and benefits 249 244 494 475
Occupancy and equipment 33 39 67 73
SAIF deposit insurance premiums 33 32 64 61
Net gain on sale of investments - (14) - (14)
Net gain of sale of loans (15) - (28) -
Other 77 62 139 109
------ ------ ------ ------
Total noninterest expense 377 363 736 704
------ ------ ------ ------
Income before income taxes 748 791 1,519 1,632
Income tax expense 278 317 556 653
------ ------ ------ ------
Net income $ 470 $ 474 $ 963 $ 979
====== ====== ====== ======
Earnings per share:
Basic $0.38 $0.38 $0.78 $0.78
Diluted $0.37 $0.36 $0.76 $0.74
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net income $ 470 $ 474 $ 963 $ 979
Other comprehensive gain (loss), net of tax:
Unrealized holding gains (losses)
arising during period (250) 181 (275) 159
------ ------ ------ ------
Comprehensive income $ 220 $ 655 $ 688 $1,138
====== ====== ====== ======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended
December 31, 1997
Balance at June 30, 1997 $17 $16,944 $18,535 ($7,347) ($282) ($58) $727 $28,536
Additions (deductions) for
the six months ended
December 31, 1997:
Net income - - 979 - - - - 979
Compensation expense
related to ESOP - 74 - - - - - 74
Reduction of ESOP
obligation - - - - 47 - - 47
Deferred tax on RRP - 36 - - - - - 36
Dividends on unallocated
ESOP shares - - 6 - - - - 6
Purchase of treasury stock
(43,923 shares) - - - (1,089) - - - (1,089)
Stock options exercised - 155 - - - - - 155
Stock options retired - - (299) - - - - (299)
Dividends declared - - (257) - - - - (257)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $93,000 - - - - - - 159 159
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 $17 $17,209 $18,964 ($8,436) ($235) ($58) $886 $28,347
==============================================================================================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
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
------ ---------- -------- -------- -------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended
December 31, 1998
Balance at June 30, 1998 $17 $17,526 $19,022 ($9,395) ($188) $859 $27,841
Additions (deductions) for
the six months ended
December 31, 1998:
Net income - - 963 - - - 963
Compensation expense
related to ESOP - 47 - - - - 47
Reduction of ESOP
obligation - - - - 49 - 49
Deferred tax on RRP - 16 - - - - 16
Dividends on unallocated
ESOP shares - - 5 - - - 5
Deferred tax on incentive
options exercised - 89 - - - - 89
Dividends declared - - (374) - - - (374)
Unrealized gain (loss) on
securities available-for-
sale, net of deferred
income tax of $161,000 - - - - - (275) (275)
----------------------------------------------------------------------------------
Balance, December 31, 1998 $17 $17,678 $19,616 ($9,395) ($139) $584 $28,361
==================================================================================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 963 $ 979
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 30 30
Net gain on sale of mortgage-backed and related securities - (14)
Net loss on disposal of fixed assets - 2
Depreciation 19 22
Amortization of premiums and discounts (7) (19)
Excess of fair value over cost of ESOP unallocated shares 46 74
Deferred tax on RRP 16 36
Deferred tax on incentive options exercised 89 -
Decrease (increase) in interest receivable 36 194
Decrease (increase) in other assets (44) 15
Increase (decrease) in income tax payable 140 117
Increase (decrease) in other liabilities 33 (17)
-------- --------
Net cash provided by operating activities: $ 1,321 $ 1,419
-------- --------
Cash flow from investing activities:
Loans purchased and originated (24,777) (13,193)
Proceeds from loans sold 2,147 95
(Increase) decrease in loans, net 17,182 9,614
Proceeds from maturities of available-for-sale investment securities 3,000 18,682
Purchase of available-for-sale investment securities (250) (2,933)
Principal collected on repayments and maturities of available-
for-sale mortgage-backed and related securities 2,142 1,882
Proceeds from sale of mortgage-backed and related securities - 3,905
Loans transferred to REO (8) -
Proceeds from REO insurance claims 4 -
Purchase of equipment and office building improvements (14) (10)
-------- --------
Net cash provided (used) by investing activities ($574) $ 18,042
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 5,535 6,960
Net increase (decrease) in advances from borrowers
for taxes and insurance (101) (116)
Proceeds from FHLB advances 2,000 2,000
Principal payments on FHLB advances (3,121) (20,113)
Dividends paid (368) (254)
Purchase of treasury stock - (1,090)
Issuance of common stock - 155
Unearned ESOP compensation decrease 49 47
Stock options retired - (299)
-------- --------
Net cash provided (used) by financing activities $ 3,994 ($12,710)
-------- --------
Increase (decrease) in cash and cash equivalents $ 4,741 $ 6,751
Cash and cash equivalents at beginning of period 3,635 4,714
-------- --------
Cash and cash equivalents at end of period $ 8,376 $ 11,465
======== ========
</TABLE>
7
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Supplemental cash flow disclosures:
Cash paid for:
Interest $2,679 $3,666
====== ======
Income Taxes $311 $500
====== ======
Noncash activity:
Loans transferred to real estate owned $8 -
====== ======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
8
<PAGE>
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, 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, F.A. (the "Association"),
and the Association's wholly-owned subsidiary, MBL Financial Services, for
the three and six month periods ended December 31, 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 Holding Company, a Delaware corporation, was incorporated on February
23, 1993 for the purpose of becoming the holding company for the
Association upon the Association's conversion from the mutual to stock form
of ownership. The conversion was completed on June 24, 1993. 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 $643,000
($546,000 in principal) to the Holding Company. The $139,000 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 these shares was amortized as compensation expense over the
participants' vesting period. The remaining 4,692 shares were awarded to
directors on January 2, 1998 and were accordingly expensed at that time.
9
<PAGE>
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 at an exercise price
of $23.50. As of December 31, 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 December 31, 1998, the Company did not repurchase
any shares of its common stock. As of December 31, 1998, MBLA Financial
Corporation had repurchased a total of 518,190 shares of its common stock.
(5) Commitments and Contingencies
Commitments to originate and purchase mortgage loans of $3.822 million at
December 31, 1998, represent amounts which the Association plans to fund
within the normal commitment period of sixty to ninety days. As of
December 31, 1998, the Association had no commitments to purchase mortgage-
backed securities, CMOs or investment securities. The Association had
commitments outstanding of $1.098 million to sell mortgage loans at
December 31, 1998. The Association did not have any commitments
outstanding at December 31, 1998 to sell mortgage-backed and related
securities or investment securities.
(6) Reclassifications
None.
10
<PAGE>
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, F.A., 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 insufficient 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, Springfield and Cape Girardeau 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 continues to maintain a high level of asset quality and has
remained profitable. The local economies of both Macon County and Randolph
County have improved and the demand for mortgage loans is good but the
Association still must purchase the majority of their mortgage loans. Past
performance, however, is not a guarantee of future results.
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
11
<PAGE>
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, 1998, cash, due from banks and
interest-earning deposits totalled $8.376 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
11.81% and 8.51% at December 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 December 31, 1998
and 1997, the Association originated and purchased mortgage loans in the
aggregate amount of $10.954 million and $6.904 million, respectively. During the
three months ended December 31, 1998, the Association sold loans in the amount
of $1.306 million. Another investment activity of the Association is investment
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, 1998, the Association had outstanding loan commitments to
originate and purchase $3.822 million of loans. The Association believes that
it will have sufficient funds available to meet all of these commitments. At
December 31, 1998, the Association had outstanding commitments of $1.098 million
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 December 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 ("FHLB") of Des Moines to fund loan
purchases. At December 31, 1998, the Association had an available credit line
of approximately $19 million with the FHLB of Des Moines, under which $57.518
million was oustanding. If needed, the Association can pledge more collateral
to obtain a higher credit line.
At December 31, 1998, certificates of deposit which are scheduled to mature
in one year or less from December 31, 1998, totalled $89.633 million.
Management believes that a significant portion of these funds will remain with
the Association.
12
<PAGE>
Capital and Prompt Corrective Action Ratios
At December 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.
<TABLE>
<CAPTION>
Minimum Minimum
"Adequately "Well
Capitalized" Capitalized" Association
Ratio Ratio Ratio Ratio
- ------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Tier 1 (Core)
Capital Ratio 4% 5% 13.26%
Total Risk-Based
Capital Ratio 8% 10% 31.12%
Tier 1 Risk-Based
Capital Ratio 4% 6% 30.33%
</TABLE>
The minimum OTS Tangible Equity Ratio to be deemed other than "critically under
capitalized" is 2%. At December 31, 1998, the Association's tangible equity
ratio was 13.26%.
Changes in Financial Condition
Total assets increased $4.848 million to $208.076 million at December 31,
1998 from $203.228 million at June 30, 1998. The increase in assets is
primarily attributable to the increase in loans receivable and interest-earning
deposits, partially offset by decreases in investment securities and mortgage-
backed and related securities.
Cash due from banks and interest-earning deposits increased from $4.741
million to $8.376 million. This increase was due, in part, to a net inflow of
deposits and the maturing of investment securities which were invested in
overnight funds. The increased balance on cash due from bank and interest-
earning deposits are expected to be used to fund outstanding loan commitments
and to repay borrowings.
Investment securities decreased $2.727 million to $7.043 million at
December 31, 1998 from $9.770 million at June 30, 1998. The decrease is
attributable to the maturing of investment securities in an amount greater than
the purchase of investment securities during the six months ended December 31,
1998.
Mortgage-backed and related securities decreased $2.593 million to $45.633
million at December 31, 1998 from $48.226 million at June 30, 1998. This
decrease is due to the repayments of mortgage-backed and related securities
during the six months ended December 31, 1998. There were not any purchases of
mortgage-backed and related securities during the period.
Loans receivable increased $5.417 million to $142.064 million at December
31, 1998 from $136.647 million at June 30, 1998. This increase is due to loan
originations and purchases in an amount greater than loan repayments and loans
sold during the period.
Deposits increased $5.535 million or 4.80% from $115.330 million at June
30, 1998 to $120.865 million at December 31, 1998. The average cost of deposits
decreased from 5.65% at June 30, 1998 to 5.50% at December 31, 1998. The
increase in deposits is due to a net increase in
13
<PAGE>
certificates of deposit. Certificates of deposit with maturities of one year or
less increased $2.130 million; 18 to 48 month certificates of deposit increased
$2.049 million; and jumbo certificates of deposit increased $1.262 million. A
significant portion of the deposit growth of approximately $2.835 million was
from the Moberly branch office.
Advances from the FHLB of Des Moines decreased $1.122 million to $57.518
million from $58.640 million at June 30, 1998. This decrease in advances
reflects the normal principal repayment of mortgage-matched advances, along with
repayments of LIBOR advances funded with proceeds received from deposit growth
and loan repayments. The average cost of advances decreased from 5.63% at June
30, 1998 to 5.61% at December 31, 1998.
Stockholders' equity increased $520,000 to $28.361 million at December 31,
1998 from $27.841 million at June 30, 1998. The increase in stockholders'
equity is attributable to earnings during the period which was reduced by
dividends paid to shareholders. MBLA Financial Corporation's capital to asset
ratio was 13.63% as of December 31, 1998 as compared to 13.70% at June 30, 1998.
Interest Rate Sensitivity
Macon Building and Loan Association, F.A., 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 88% of
Macon Building and Loan Association's mortgage loan portfolio as of December 31,
1998, consisted of ARMs, including ARM loans secured by commercial real estate.
Approximately 78% of all ARMs, or 69% of all loans, are adjustable in one, two,
or three years from December 31, 1998.
Investment Securities and Mortgage-Backed Securities Available-for-Sale
MBLA Financial Corporation and Macon Building and Loan Association have
classified all investment securities and mortgage-backed and related 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, 1998, the effect on
stockholders' equity was an addition of $584,000 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
installed new teller terminals during the quarter at an approximate installed
cost of $12,000. These new terminals are Y2K compliant as is 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.
14
<PAGE>
Y2K testing of the FISERV ITI processing system has been completed. Macon
Building & Loan Association participated in proxy testing with FISERV and has
received written documentation of testing. Proxy testing of both FISERV's
thrift platform and ITI platform indicates each system is Y2K compliant.
Testing of the Association system will be during and after conversion to the ITI
platform in August 1999. Testing of the "connectivity" to FISERV will also be
completed at that time.
The Association has contacted major multi-family and commercial borrowers
regarding their Y2K compliance. All responses received by the Association
indicate borrowers' awareness of Y2K issues; borrowers' awareness, and if
appropriate steps are being taken to correct any problems; if borrowers'
computer/software is compliant and has been tested; if testing has not been
undertaken, when to expect completion; and Y2K awareness but computers not used
for their accounting system. Responses received by borrowers indicate awareness
of issues and systems are either Y2K compliant or will be in 1999.
The Association has contacted all other major software vendors and mission
critical third-party providers regarding Y2K compliance. All major software
vendors and mission critical third-party providers who responded to the
Association inquiries have indicated their software and/or systems are Y2K
compliant.
The Association has adopted a "Business Resumption Contingency Plan" in the
event of a "worst-case" failure or interruption of mission critical systems. A
"worst-case" scenario would involve complete failure of Association computer
systems caused by either power failure by local utility companies who supply
electricity or by inability of Association computer system to function/operate
on January 3, 2000. Association management and personnel will be available
January 1 and January 2, 2000 to further test systems and to again validate
Association systems. 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 increased from $887,000 at
June 30, 1998 to $1.488 million at December 31, 1998. This increase is
primarily attributable to a $485,000 single-family loan becoming more than 90
days delinquent at December 31. In the event of foreclosure, the Association
does not believe it would realize a loss on the property.
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, 1998, the Association has no restructured
loans within the meaning of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 15.
15
<PAGE>
MBLA FINANCIAL CORPORATION
Asset Quality
<TABLE>
<CAPTION>
December 31, September 30, June 30, March 31, December 31,
1998 1998 1998 1998 1997
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage
loans delinquent more
than 90 days $1,488 $878 $887 $1,137 $1,063
Non-accrual other
loans delinquent more
than 90 days 0 0 0 0 0
--------------------------------------------------------------------------------------------------
Total non-performing loans 1,488 878 887 1,137 1,063
Real estate owned and in-
substance foreclosed loans
net of related allowance 4 4 0 0 0
--------------------------------------------------------------------------------------------------
Total non-performing assets $1,492 $882 $887 $1,137 $1,063
==================================================================================================
Non-performing loans to
total loans 1.05% 0.62% 0.65% 0.85% 0.82%
Non-performing assets to
total assets 0.72% 0.42% 0.44% 0.55% 0.48%
Allowance for loan losses
to non-performing loans 48.39% 79.93% 77.79% 59.37% 62.09%
</TABLE>
16
<PAGE>
Results of Operations
Comparison of quarterly results in this section are between the three month
periods ended December 31, 1998, and December 31, 1997 and between the six month
periods end then ended.
General
Net income for the quarter ended December 31, 1998 was $470,000, a decrease
of $4,000 from the $474,000 net income for the quarter ended December 31, 1997.
Basic earnings per share for the quarter ended December 31, 1998 were 38c per
share as compared to 38c per share for the quarter ended December 31, 1997.
Diluted earnings per share were 37c per share for the quarter ended December 31,
1998 as compared to 36c per share for the quarter ended December 31, 1997.
Comprehensive income for the quarter ended December 31, 1998 was $220,000
as compared to $655,000 for the quarter ended December 31, 1997. The quarter
ended December 31, 1998 had a net unrealized holding loss of $250,000 while the
quarter ended December 31, 1997 had a net unrealized holding gain of $181,000
net of deferred income taxes arising from unrealized holding gains and losses
on available-for-sale securities.
Net income for the six months ended December 31, 1998 was $963,000 as
compared to $979,000 for the six months ended December 31, 1997. Basic earnings
per share were 78c for the six months ended December 31, 1998 as compared to 78c
for the six months ended December 31, 1997. Diluted earnings per share were 76c
per share for the six months ended December 31, 1998 and 74c per share for the
six months ended December 31, 1997.
Comprehensive income for the six months ended December 31, 1998 was
$688,000 as compared to $1.138 million for the same period ended December 31,
1997. The six month period ended December 31, 1998 had a net unrealized holding
loss of $275,000 on available-for-sale securities as compared to a net
unrealized holding gain of $159,000 for the six months ended December 31, 1997.
Both are net of deferred income taxes.
Interest Income
Total interest income decreased $337,000 or 8.56% to $3.599 million for the
quarter ended December 31, 1998 from $3.936 million for the quarter ended
December 31, 1997. Interest on mortgage loans increased $202,000 to $2.588
million for the three month period ended December 31, 1998 over the same period
ended December 31, 1997. Interest on investment securities decreased $109,000
to $169,000 for the three month period ended December 31, 1998 as compared to
the quarter ended December 31, 1997. Interest on mortgage-backed and related
securities decreased $412,000 to $759,000 for the three month period ended
December 31, 1998 as compared to the same period ended December 31, 1997.
Interest on other interest-earning assets decreased $18,000 to $83,000 for the
three month period ended December 31, 1998 as compared to the same period ended
December 31, 1997.
Total interest income decreased $730,000 or 9.21% to $7.197 million for the
six months ended December 31, 1998 from $7.927 million for the six months ended
December 31, 1997. Interest on mortgage loans increased $406,000 to $5.166
million for the six month period ended December 31, 1998 over the same period
ended December 31, 1997. Interest on investment securities decreased $272,000
to $355,000 for the six month period ended December 31, 1998 as compared to the
six months ended December 31, 1997. Interest on mortgage-backed and related
securities decreased $811,000 to $1.562 million for the six month period ended
December 31, 1998 as compared to the
17
<PAGE>
same period ended December 31, 1997. Interest on other interest-earning assets
decreased $53,000 to $114,000 for the six month period ended December 31, 1998
as compared to the same period ended December 31, 1997.
Total interest income decreased during both periods because of lower
average earning asset balances during the period ended December 31, 1998 as
compared to the period ended December 31, 1997 in conjunction with slightly
lower interest rates on earning assets. Interest on mortgage loans increased
both periods because of the higher mortgage loan balances ended December 31,
1998 as compared to December 31, 1997 due to increased loan originations and
purchases. Interest on investment securities decreased both periods ended
December 31, 1998 as compared to periods ended December 31, 1997 because of
maturities of invesetment securities outpacing any new investments. The decrease
in interest income on mortage-backed and related securities for each period was
due primarily to mortgage securities which were called during the third quarter
of fiscal year ended June 30, 1998. The decrease in interest on other interest-
earning assets was attributable to the lower interest rate environment coupled
with slightly lower average balances on earning assets during both periods ended
December 31, 1998 as compared to the periods ended December 31, 1997.
Interest Expense
Total interest expense for the quarter ended December 31, 1998 was $2.465
million as compared to $2.768 million for the quarter ended December 31, 1997, a
decrease of $303,000 or 10.95%. Interest expense on deposits increased $132,000
to $1.653 million at December 31, 1998 from $1.521 million at December 31, 1997.
Interest expense on advances decreased $435,000 to $812,000 at December 31, 1998
from $1.247 million at December 31, 1997. The average cost of funds which
includes both interest paid on deposits and interest paid on advances, decreased
from 5.72% at December 31, 1997 to 5.53% at December 31, 1998.
Total interest expense for the six months ended December 31, 1998 was
$4.967 million as compared to $5.566 million for the six months ended December
31, 1997, a decrease of $599,000 or 10.76%. Interest expense on deposits
increased $315,000 to $3.300 million at December 31, 1998 from $2.985 million at
December 31, 1997. Interest expense on advances decreased $914,000 to $1.667
million at December 31, 1998 from $2.581 million at December 31, 1997.
The decrease in total interest expense for each period ended December 31,
1998 as compared to the same periods ended December 31, 1997 is attributable to
the lower average balances in FHLB advances during the most recent periods. The
Association had mortgage securities called during the third quarter of fiscal
year ended June 30, 1998 and then paid-off the corresponding advances at the
same time. Part of this decrease in interest expense was offset by the higher
expense in deposits. The increase in interest expense on deposits resulted from
the deposit growth which the Association has been experiencing. The decrease of
interest expense of advances was discussed above.
Net Interest Income
Net interest income before provisions for loan losses was $1.134 million
for the quarter ended December 31, 1998 as compared to $1.168 million for the
quarter ended December 31, 1997, a decrease of $34,000. Net interest income
before provisions for loan losses was $2.230 million for the six months ended
December 31, 1998 as compared to $2.361 million for the six months ended
December 31, 1997, a decrease of $131,000.
The decrease in net interest income for both periods is due to the overall
net decrease in earning assets between the comparable periods. Net earning
assets at December 31, 1998 were $15.201 million less than the net earning
assets at December 31, 1997.
18
<PAGE>
Provision for Loan Losses
At December 31, 1998, the provision for loan losses general loan valuation
allowance is $720,000. For the three months ended December 31, 1998, provision
for loan losses was increased $15,000 as compared to an increase of $15,000
during the quarter ended December 31, 1997. For the six months ended December
31, 1998 and December 31, 1997, provision for loan losses was increased $30,000
each period. The Association has a policy of maintaining a general loan
valuation allowance of one-half of one percent of outstanding loans. The
Association continuously monitors this provision on a quarterly basis. As of
December 31, 1998, the provision for loan losses was .507% of outstanding loans.
Noninterest Income
Other income for the quarter ended December 31, 1998 was $6,000 as compared
to $1,000 for the quarter ended December 31, 1997. Other income for the six
months ended December 31, 1998 was $55,000 as compared to $5,000 for the six
months ended December 31, 1997. Other noninterest income for the six months
ended December 31, 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 December 31, 1998 increased
$14,000 to $377,000, as compared to $363,000 for the quarter ended December 31,
1997. Compensation and benefits increased $5,000 and other noninterest expense
increased $15,000 for the quarter ended December 31, 1998 as compared to the
quarter ended December 31, 1997. A net gain on sale of loans of $15,000 for the
quarter ended December 31, 1998 offset a $14,000 gain on sale of investments for
the quarter ended December 31, 1997.
Noninterest expense for the six months ended December 31, 1998 increased
$32,000 to $736,000, as compared to $704,000 for the six months ended December
31, 1997. Compensation and benefits increased $19,000 and other noninterest
expense increased $30,000 for the six months ended December 31, 1998 as compared
to the six months ended December 31, 1997. These increases in expenses were
partially offset by a net gain on sale of loans of $28,000 for the period ended
December 31, 1998.
Income Tax
The provision for federal and state income taxes decreased $39,000 to
$278,000 for the quarter ended December 31, 1998 as compared to $317,000 for the
quarter ended December 31, 1997. The provision for federal and state income
taxes decreased $97,000 to $556,000 for the six months ended December 31, 1998
as compared to $653,000 for the six months ended December 31, 1997. The
provision for federal and state income taxes decreased each period because of
the lower taxable income for each period as compared to the same period of the
previous year.
19
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 1998, there have been no material changes in the
quantitative and qualitative disclosures about market risk presented in the
Holding Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1998 based on September 30, 1998 data provided by the Office of Thrift
Supervision ("OTS"). The Association experiences approximately a 60-day lag
time from the end of the quarter until receiving data from OTS.
20
<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 and Use of Proceeds
Not applicable.
Item 3 Default upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
On October 27, 1998, the Company held its 1998 Annual Meeting of
Stockholders for the purpose of (1) the election of two directors and
(2) the ratification of Lockridge, Constant & Conrad as the Company's
independent auditors.
(1) For election of directors:
Votes For Votes Withheld
--------- --------------
Richard C. Miller, Jr. 1,032,882 4,400
Robert M. Wilhite 1,023,882 13,400
Directors whose terms were not up for re-election and the year their
term expires include:
Director Expiration of Term
-------- ------------------
Charles L. Hutton 1999
Truman L. Gehringer 1999
John T. Neer 1999
Arnold L. Walter 2000
Carl B. Barrows 2000
(2) For the ratification of Lockridge, Constant & Conrad as
independent auditors for the year ending June 30, 1999:
For Against Abstain
--- ------- -------
1,030,482 6,000 800
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.
21
<PAGE>
(b) Reports filed on Form 8-K:
On November 18, 1998, the Company filed a Current Report on Form 8-K
reporting under Item 5 first quarter earnings for period ended
September 30, 1998.
On December 14, 1998, the Company filed a Current Report on Form 8-K
reporting under Item 5 the declaration of a 30c per share cash
dividend for the period ending December 31, 1998.
22
<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: February 3, 1999 /s/ John T. Neer
--------------------------
John T. Neer
President and Chief Executive Officer
(Duly Authorized Officer)
Dated: February 3, 1999 /s/ Clyde D. Smith
--------------------------
Clyde D. Smith
Vice President and Chief Financial Officer
(Principal Financial Officer)
23
<PAGE>
Exhibit 11
Exhibit 11. Statement re: Computation of Per Share Earnings
Quarter Ended
Dec. 31, 1998
-------------
1. Net income $ 470,000
==========
2. Weighted average common shares outstanding 1,232,262
==========
3. Basic earnings per share $ 0.38
==========
4. Weighted average common shares outstanding 1,232,262
5. Additional dilutive shares using the average market
value for the period utilizing the treasury stock
method regarding stock options 40,416
----------
6. Total weighted average common shares and equivalents
outstanding for fully diluted earnings per
share computation 1,272,678
==========
7. Diluted earnings per share $ 0.37
==========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 798
<INT-BEARING-DEPOSITS> 7,578
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,676
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 142,784
<ALLOWANCE> 720
<TOTAL-ASSETS> 208,076
<DEPOSITS> 120,865
<SHORT-TERM> 57,518
<LIABILITIES-OTHER> 1,332
<LONG-TERM> 0
0
0
<COMMON> 17
<OTHER-SE> 28,344
<TOTAL-LIABILITIES-AND-EQUITY> 208,076
<INTEREST-LOAN> 5,166
<INTEREST-INVEST> 1,917
<INTEREST-OTHER> 114
<INTEREST-TOTAL> 7,197
<INTEREST-DEPOSIT> 3,300
<INTEREST-EXPENSE> 4,967
<INTEREST-INCOME-NET> 2,230
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 764
<INCOME-PRETAX> 1,519
<INCOME-PRE-EXTRAORDINARY> 1,519
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 963
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 7.06
<LOANS-NON> 1,499
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 705
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 720
<ALLOWANCE-DOMESTIC> 720
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
