UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 1-14343
MIDLAND CAPITAL HOLDINGS CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 36-4238089
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
8929 S. Harlem Avenue, Bridgeview, Illinois 60455
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (708) 598-9400
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 [ ]
Transitional Small Business Disclosure Format. Yes |_| No |X|
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date:
Common Stock, par value $.01
(Title of Class)
As of May 15, 2003, the Issuer had 370,875
shares of Common Stock issued and outstanding.
MIDLAND CAPITAL HOLDINGS CORPORATION
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 2003 (unaudited) and June 30, 2002 ................ 1
Consolidated Statements of Earnings -
Three months ended March 31, 2003 and 2002 and
Nine months ended March 31, 2003 and 2002 (unaudited) ....... 2
Consolidated Statements of Changes in Stockholders' Equity -
Nine months ended March 31, 2003 (unaudited) ................ 3
Consolidated Statements of Cash Flows - Nine months
ended March 31, 2003 and 2002 (unaudited) ................... 4
Notes to Consolidated Financial Statements .................. 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 7-15
Item 3. Controls and Procedures ..................................... 15
Part II. OTHER INFORMATION ............................................... 16
Index to Exhibits .................................................... 17
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
Assets March 31, June 30,
2003 2002
------------ -----------
(Unaudited)
Cash and amounts due from depository institutions $ 3,332,540 4,439,811
Interest-bearing deposits 43,859,457 28,481,627
------------ -----------
Total cash and cash equivalents 47,191,997 32,921,438
Investment securities, held to maturity (fair value:
March 31, 2003 - $2,510,150;
June 30, 2002 - $10,182,850) 2,499,751 10,026,708
Investment securities available for sale, at fair value 6,371,425 6,279,537
Mortgage-backed securities, held to maturity (fair value:
March 31, 2003 - $7,195,061;
June 30, 2002 - $10,553,233) 7,013,243 10,359,768
Loans receivable (net of allowance for loan losses:
March 31, 2003 - $394,560;
June 30, 2002 - $350,260) 90,780,957 85,346,846
Loans receivable held for sale 327,350 739,806
Stock in Federal Home Loan Bank of Chicago 932,900 896,600
Office properties and equipment, net 2,647,065 2,816,584
Accrued interest receivable 507,657 649,856
Prepaid expenses and other assets 505,020 551,805
------------ -----------
Total assets $158,777,365 150,588,948
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $146,767,360 138,443,669
Advance payments by borrowers for taxes and insurance 673,614 985,144
Other liabilities 400,910 763,580
------------ -----------
Total liabilities 147,841,884 140,192,393
------------ -----------
Stockholders' equity:
Preferred stock, $.01 par value:
authorized 50,000 shares; none outstanding -- --
Common stock, $.01 par value: authorized 600,000
shares; 370,875 shares issued and outstanding at
March 31, 2003 and 363,975 shares issued and outstanding
at June 30, 2002 3,709 3,640
Additional paid-in capital 3,361,175 3,276,855
Retained earnings - substantially restricted 7,312,042 6,917,305
Accumulated other comprehensive income, net of income taxes 258,555 198,755
------------ -----------
Total stockholders' equity 10,935,481 10,396,555
------------ -----------
Total liabilities and stockholders' equity $158,777,365 150,588,948
============ ===========
See accompanying notes to consolidated financial statements.
-1-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
---------- --------- --------- ---------
(Unaudited) (Unaudited)
Interest income:
Interest on loans $1,429,286 1,384,452 4,367,129 3,994,392
Interest on mortgage-backed securities 102,158 202,775 360,717 709,794
Interest on investment securities 109,006 355,183 439,463 1,246,321
Interest on interest-bearing deposits 120,957 92,265 392,725 313,463
Dividends on FHLB stock 11,441 9,940 36,469 33,541
---------- --------- --------- ---------
Total interest income 1,772,848 2,044,615 5,596,503 6,297,511
---------- --------- --------- ---------
Interest expense:
Interest on deposits 626,161 857,576 2,155,096 3,047,037
---------- --------- --------- ---------
Total interest expense 626,161 857,576 2,155,096 3,047,037
---------- --------- --------- ---------
Net interest income before provision
for loan losses 1,146,687 1,187,039 3,441,407 3,250,474
Provision for loan losses 15,000 0 45,000 0
---------- --------- --------- ---------
Net interest income after provision
for loan losses 1,131,687 1,187,039 3,396,407 3,250,474
---------- --------- --------- ---------
Non-interest income:
Loan fees and service charges 109,881 124,629 381,669 349,551
Commission income 14,494 13,070 56,271 51,383
Profit on sale of loans 3,609 7,035 20,207 33,062
Deposit related fees 125,384 123,596 390,846 380,559
Other income 14,235 17,394 41,573 47,076
---------- --------- --------- ---------
Total non-interest income 267,603 285,724 890,566 861,631
---------- --------- --------- ---------
Non-interest expense:
Staffing costs 636,895 624,220 1,937,318 1,798,821
Advertising 14,108 12,524 43,313 43,882
Occupancy and equipment expenses 203,566 204,934 583,125 559,083
Data processing 54,140 56,227 153,100 159,182
Federal deposit insurance premiums 6,015 6,092 17,875 18,288
Other 215,547 205,031 704,423 607,907
---------- --------- --------- ---------
Total non-interest expense 1,130,271 1,109,028 3,439,154 3,187,163
---------- --------- --------- ---------
Income before income taxes 269,019 363,735 847,819 924,942
Income tax provision 91,466 123,670 288,258 314,480
---------- --------- --------- ---------
Net income $ 177,553 240,065 559,561 610,462
========== ========= ========= =========
Earnings per share (basic) $ .48 .66 1.53 1.68
========== ========= ========= =========
Earnings per share (diluted) $ .48 .65 1.53 1.66
========== ========= ========= =========
Dividends declared per common share $ .15 .12 .45 .34
========== ========= ========= =========
See accompanying notes to consolidated financial statements.
-2-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
----------- ----------- ----------- ------------- -----------
Balance at June 30, 2002 $ 3,640 3,276,855 6,917,305 198,755 10,396,555
----------- ----------- ----------- ----------- -----------
Comprehensive Income:
Net Income 559,561 559,561
Other comprehensive income, net of tax:
Unrealized holding gain
during the period 59,800 59,800
----------- ----------- -----------
Total comprehensive income 559,561 59,800 619,361
Common stock issued in
connection with stock
options exercised 69 68,931 69,000
Tax benefit related to
stock option plan 15,389 15,389
Dividends declared on common
stock ($0.45 per share) (164,824) (164,824)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 2003 $ 3,709 3,361,175 7,312,042 258,555 10,935,481
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-3-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended
March 31,
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 559,561 610,462
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 239,567 243,894
Net amortization (accretion) on securities 11,509 (22,139)
Provision for loan losses 45,000 --
Federal Home Loan Bank stock dividend (36,300) (23,500)
Proceeds from sale of loans held for sale 1,425,506 2,373,650
Origination of loans held for sale (1,013,050) (2,441,350)
Profit on sale of loans (20,207) (33,063)
Decrease in accrued interest receivable 142,199 208,964
Decrease in accrued interest payable (8,472) (8,674)
Decrease in deferred income on loans (20,311) (125,335)
Decrease (increase) in other assets 36,185 (89,613)
Increase (decrease) in other liabilities (338,809) 144,010
------------- -------------
Net cash provided by operating activities 1,022,378 837,306
------------- -------------
Cash flows from investing activities:
Proceeds from repayments of mortgage backed securities,
held to maturity 3,360,692 5,180,404
Proceeds from maturities of investment securities,
held to maturity 7,500,000 7,500,000
Proceeds from early redemption of investment securities,
available for sale -- 10,000,000
Purchase of investment securities, available for sale -- (4,998,531)
Loan disbursements (38,016,444) (32,320,346)
Loan repayments 32,557,644 17,852,555
Property and equipment expenditures (70,048) (745,856)
------------- -------------
Net cash provided by investing activities 5,331,844 2,468,226
------------- -------------
Cash flows from financing activities:
Deposit receipts 322,851,213 314,937,776
Deposit withdrawals (316,579,435) (309,566,421)
Interest credited to deposit accounts 2,051,913 2,902,759
Proceeds from exercise of stock options 69,000 --
Payment of dividends (164,824) (123,751)
Decrease in advance payments by borrowers
for taxes and insurance (311,530) (250,362)
------------- -------------
Net cash provided by financing activities 7,916,337 7,900,001
------------- -------------
Increase in cash and cash equivalents 14,270,559 11,205,533
Cash and cash equivalents at beginning of period 32,921,438 20,718,671
------------- -------------
Cash and cash equivalents at end of period $ 47,191,997 31,924,204
============= =============
Cash paid during the period for interest $ 2,163,568 3,055,710
Cash paid during the period for income taxes 505,053 117,000
See accompanying notes to consolidated financial statements.
-4-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and therefore, do not include
information or footnotes necessary for fair presentation of financial condition,
results of operations and changes in financial position in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (which are normal and recurring in nature) necessary for a fair
presentation have been included. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the three months and nine months ended March 31,
2003 are not necessarily indicative of the results that may be expected for the
entire year.
Note B - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Midland Capital Holdings Corporation (the "Company") and its
wholly-owned subsidiary, Midland Federal Savings and Loan Association (the
"Association") and the Association's wholly-owned subsidiaries, Midland Service
Corporation, MS Insurance Agency, Inc. and Bridgeview Development Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Note C - Earnings Per Share
Earnings per share for the three month and nine month periods ended March 31,
2003 and 2002 were determined by dividing net income for the period by the
weighted average number of shares of common stock outstanding (see Exhibit 11
attached). Stock options are regarded as common stock equivalents and are
therefore considered in diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method.
Note D - Industry Segments
The Company operates principally in the thrift industry through its subsidiary
savings and loan. As such, substantially all of the Company's revenues, net
income, identifiable assets and capital expenditures are related to thrift
operations.
Note E - Effect of New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses the financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
adopted SFAS No. 143 on July 1, 2002 and upon adoption, this pronouncement did
not have a material impact on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment and
Disposal of Long-Term Assets". This statement supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" as well as the accounting and reporting of the Accounting
Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". This statement
eliminates the allocation of goodwill to long-lived assets to be tested for
impairment and details both a probability-weighted and "primary-asset" approach
to estimate cash flows in testing for impairment for long-lived assets.
-5-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Note E - Effect of New Accounting Pronouncements (continued)
SFAS No. 144 is effective for financial statement issued for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 144 on July 1,
2002 and upon adoption, this pronouncement did not have a material impact on the
Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds SFAS No. 44 "Accounting for Intangible Assets of Motor
Carriers". This Statement amended SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. This Statement is effective for fiscal years beginning
after May 15, 2002. The Company adopted SFAS No. 145 on July 1, 2002 and upon
adoption, this pronouncement did not have a material impact on the Company's
consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". This Statement
is effective for exit or disposal activities that are initiated after March 31,
2003. Adoption of this statement is not expected to have a material effect on
the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Acquisitions for Stock-Based
Compensation-Transition and Disclosure". This statement amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods for transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This Statement is effective for fiscal years ending
after December 15, 2002. Adoption of this Statement is not expected to have a
material effect on the Company's consolidated financial statements.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a particular interest to financial institutions.
-6-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions and real estate values in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, all or some of which could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
GENERAL
Midland Capital Holdings Corporation (the "Company") is a Delaware corporation
that was organized in 1998 by Midland Federal Savings and Loan Association (the
"Association" or "Midland Federal") for the purpose of becoming a thrift
institution holding company. The Company and the Association are headquartered
in Bridgeview, Illinois. The Association began operations in 1914 as a
state-chartered mutual savings institution. In 1982, the Association became a
federal mutual savings and loan association. On June 30, 1993, the Association
completed a conversion to the stock form of organization. In that conversion,
the Association issued 345,000 shares of common stock, raising net proceeds of
approximately $3.1 million. On July 23, 1998, the Association became a
wholly-owned subsidiary of the Company by reorganizing the Association into a
holding company form of organization. Each outstanding share of common stock of
the Association became one share of common stock of the Company.
The principal asset of the Company is the outstanding stock of the Association.
The Company presently has no separate operations and its business consists only
of the business of the Association and its subsidiaries. Midland Federal has
been principally engaged in the business of attracting deposits from the general
public and using such deposits to originate residential mortgage loans, and to a
lesser extent, consumer, multi-family and other loans in its primary market
area. The Association also has made substantial investments in mortgage-backed
securities, investment securities and liquid assets. Midland Federal also
operates a wholly-owned subsidiary, Midland Service Corporation that owns and
operates MS Insurance Agency, Inc., a full service retail insurance agency.
-7-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
GENERAL (continued)
The Association's primary market area consists of Southwest Chicago, and the
southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Justice, Burbank, Chicago Ridge, Homer Glen, Lockport, Orland Park and
Lemont. The Company serves these communities through its main office in
Bridgeview, two branch banking offices in southwest Chicago and a third branch
banking office in Homer Glen, Illinois. The Association's deposits are insured
up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
At March 31, 2003, Midland Federal's capital ratios exceeded all of its
regulatory capital requirements with both tangible and core capital ratios of
5.84% and a risk-based capital ratio of 11.87%.
FINANCIAL CONDITION
At March 31, 2003, total assets of the Company increased by $8.2 million to
$158.8 million from $150.6 million at June 30, 2002. Loans receivable, including
loans held for sale, increased $5.0 million to $91.1 million at March 31, 2003.
The Company originated $39.0 million of primarily one-to-four family fixed rate
loans during the nine months ended March 31, 2003 compared to loan originations
of $34.8 million during the prior year period. Approximately, 50% of the fixed
rate loans originated during the nine months ended March 31, 2003 had original
term to maturities of 15 years or less. The higher loan origination volume in
the current nine month period was due in part to an increase in mortgage
refinancing activity as a result of the decline in interest rates that began in
January 2001. Offsetting loan originations in the current nine month period were
loan repayments of $32.6 million as well as loan sales of $1.4 million. There
were no new purchases of mortgage-backed securities during the nine months ended
March 31, 2003 and as a result, the balance of mortgage-backed securities
decreased by $3.3 million to $7.0 million due to repayments and amortization.
The $5.0 million increase in net loans receivable, discussed above, was funded
in part by the $3.0 million decrease in mortgage-backed securities as well as an
$8.3 million increase in deposits.
The balance of investment securities classified as held to maturity decreased by
$7.5 million to $2.5 million at March 31, 2003 due to maturities of U.S. Agency
securities. Investment securities available for sale remained stable at $6.4
million at March 31, 2003 compared to $6.3 million at June 30, 2002. Gross
unrealized gains in the available for sale portfolio were $392,000 at March 31,
2003 compared to gross unrealized gains of $301,000 at June 30, 2002, reflecting
the positive impact of lower interest rates. The weighted average remaining term
to maturity of the Company's total investment securities portfolio at March 31,
2003 was 1.98 years.
In anticipation of an increase in economic activity and upward pressure on
interest rates in 2003, the Company increased the balance of cash and cash
equivalents by $14.3 million to $47.1 million at March 31, 2003 from $32.9
million at June 30, 2002. The increase in cash equivalents during the nine
months ended March 31, 2003 was partly funded by the proceeds of $7.5 million in
maturing U.S. Agency securities, discussed above.
Non-performing assets consisted of $596,000 in non-performing loans at March 31,
2003 compared to $164,000 in non-performing loans at June 30, 2002. Non-accruing
loans at March 31, 2003 consisted of $575,000 in one-to-four family residential
mortgage loans and $21,000 in non-mortgage loans. The allowance for loan losses
increased by $44,000 to $394,000 at March 31, 2003 as a result of $45,000 in
loan loss provisions offset by $1,000 in net loan charge offs during the nine
months ended March 31, 2003. At March 31, 2003 the Company's ratio of allowance
for loan losses to non-performing loans was 66.19% compared to 213.29% at June
30, 2002. Management believes that the current allowance for loan losses is
adequate to cover probable accrued losses in the portfolio.
-8-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION (continued)
The following table sets forth the amounts and categories of non-performing
assets in the Company's portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest becomes doubtful, generally when the
loan is delinquent 90 days or more. Foreclosed assets, if any, include assets
acquired in settlement of loans.
March 31, June 30,
2003 2002
-------- --------
(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family $575 148
Multi-family -- --
Consumer 12 15
Commercial business 9 1
---- ----
Total 596 164
---- ----
Accruing loans 90 days or more overdue:
Commercial real estate -- --
---- ----
Total -- --
---- ----
Total non-performing loans $596 $164
---- ----
Foreclosed Assets:
One-to-four family -- --
---- ----
Total foreclosed assets -- --
---- ----
Total non-performing assets $596 $164
==== ====
Total as a percentage of total assets 0.38% 0.11%
==== ====
As of March 31, 2003, there were no loans not included in the above table where
known information about the possible credit problems of borrowers caused
management to have serious doubts as to the ability of the borrower to comply
with present loan repayment terms and which may result in disclosure of such
loans in the future.
-9-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION (continued)
The following table sets forth an analysis of the Company's allowance for loan
losses.
Nine Months Ended
March 31,
2003 2002
----- -----
(Dollars in Thousands)
Balance at beginning of period $ 350 $ 359
----- -----
Charge-offs:
One-to-four family loans -- --
Consumer loans 2 12
Commercial business loans -- 24
----- -----
Total charge-offs 2 36
----- -----
Recoveries:
One-to-four family loans 1 1
Multi-family loans -- 13
Consumer loans -- --
----- -----
Total recoveries 1 14
----- -----
Net (charge-offs) recoveries (1) (22)
Additions charged to operations 45 --
----- -----
Balance at end of period $ 394 $ 337
===== =====
Ratio of net charge-offs during the period to
average loans outstanding during the period .00% .03%
Ratio of net charge-offs during the period to
average non-performing assets .10% 7.91%
Allowance for loan losses to non-performing loans 66.19% 209.69%
Allowance for loan losses to total loans 0.43% 0.40%
The Company was aware of no regulatory directives or suggestions that the
Association make additional provisions for losses on loans. Although the Company
believes its allowance for loan losses is at a level that it considers to be
adequate to provide for possible accrued losses in the portfolio, there can be
no assurance that such losses will not exceed the estimated amounts.
Deposits for the nine months ended March 31, 2003 increased $8.3 million as a
result of interest credited to deposits in the amount of $2.0 million as well as
actual deposit inflows, net of withdrawals, in the amount of $6.3 million. The
net increase in savings deposits is primarily attributed to a $3.9 million
increase in certificate of deposit accounts due to aggressive pricing on time
deposits, a $3.5 million increase in passbook deposits, a $1.0 million increase
in demand deposit accounts and a $73,000 increase in money market accounts
offset by a $145,000 decrease in NOW accounts.
Stockholders' equity increased $539,000, or 5.2%, to $10.9 million at March 31,
2003 from $10.4 million at June 30, 2002. The increase in stockholders' equity
was due to net income of $560,000, proceeds from the exercise of stock options
in the amount of $69,000, $15,000 in option related tax benefits and an increase
in other comprehensive income of $60,000 offset by the payment of cash dividends
in the amount of $165,000.
-10-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company had net income of $178,000 for the quarter ended March 31, 2003
compared to net income of $240,000 for the quarter ended March 31, 2002. The
decrease in net income in the current quarter is the result of a $40,000
decrease in net interest income, a $15,000 provision for loan losses, an $18,000
decrease in non-interest income as well as a $21,000 increase in non-interest
expense offset by a $32,000 decrease in income taxes.
For the nine months ended March 31, 2003 the Company had net income of $560,000
compared to net income of $610,000 for the nine months ended March 31, 2002. The
decrease in net income in the current nine month period is the result of a
$45,000 provision for loan losses and a $252,000 increase in non-interest
expense offset by a $191,000 increase in net interest income, a $29,000 increase
in non-interest income and a $26,000 decrease in income taxes. For a discussion
on the changes in non-interest income and non-interest expense that occurred in
both the three and nine month periods ended March 31, 2003, see "Non-Interest
Income" and "Non-Interest Expense."
The decrease in net-interest income in the three month period ended March 31,
2003 was primarily the result of a decrease in interest rate spread to 2.87% for
the three months ended March 31, 2003 from 3.10% for the prior year period.
Interest rate spread declined in the three month period ended March 31, 2003
compared with the prior year period as a result of high mortgage refinancing
activity at lower market interest rates as well as lower investment yields on
the Company's investment securities. The decrease in interest rate spread was
partially offset by an increase in the average balance of net earning assets, or
average interest earning assets minus average interest bearing liabilities. The
average balance of net earning assets in the three month period ended March 31,
2003 increased by $1.7 million to $15.0 million from $13.3 million during the
prior year period.
The increase in net-interest income for the nine months ended March 31, 2003 was
the result of an increase in the average balance of net earning assets to $14.5
million from $13.5 million for the prior year period as well as an increase in
interest rate spread to 2.89% from 2.80% for the 2002 period. The increase in
interest rate spread in the nine month period ended March 31, 2003 was primarily
attributed to declines in the average cost of deposits which offset declines in
the average yield earned on interest earning assets as interest costing deposits
re-priced more quickly than interest earning assets during a period of declining
market interest rates.
Interest Income
Interest income decreased $272,000, or 13.3%, for the quarter ended March 31,
2003 from the comparable year earlier period. The decrease in interest income
was the result of a decrease in the average yield earned on interest earning
assets to 4.73% for the quarter ended March 31, 2003 compared to 5.77% in the
year earlier period. The decline in the average yield earned on interest earning
assets offset an $8.3 million increase in the average outstanding balance of
interest earning assets to $150.1 million for the quarter ended March 31, 2003
from $141.8 million for the quarter ended March 31, 2002.
For the nine months ended March 31, 2003, interest income decreased $701,000, or
11.1%, from the 2002 period. The decrease in interest income for the current
nine month period was the result of a decrease in the average yield earned on
interest earning assets to 5.05% compared to 6.05% for the year earlier period.
The decrease in the average yield earned on interest earning assets offset a
$9.2 million increase in the average outstanding balance of interest earning
assets to $148.0 million for the nine months ended March 31, 2003 from $138.8
million for the nine months ended March 31, 2002.
-11-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest on loans receivable increased $45,000, or 3.2%, in the quarter ended
March 31, 2003, compared with the prior year quarter, as a result of a $9.6
million increase in the average outstanding balance of net loans receivable to
$91.2 million from $81.6 million in the 2002 quarter. The increase in the
average outstanding balance of net loans receivable offset a decrease in the
average yield earned on net loans receivable to 6.27% for the quarter ended
March 31, 2003 from 6.79% for the prior year quarter. The decrease in the
average yield earned on net loans receivable was primarily the result of
prepayments of higher yielding loans combined with increased loan origination
activity at lower mortgage interest rates.
Interest on mortgage-backed securities decreased $101,000, or 49.6%, for the
quarter ended March 31, 2003 from the comparable quarter in 2002. The decrease
in interest income is attributed to a decrease in the average balance of
mortgage-backed securities due to repayments as well as a decrease in the
average yield earned on mortgage-backed securities. For the quarter ended March
31, 2003, the average balance of mortgage-backed securities decreased $5.4
million to $7.4 million from $12.8 million in the prior year quarter. The
average yield earned on mortgage-backed securities also decreased to 5.52% for
the quarter ended March 31, 2003 from 6.32% for the quarter ended March 31,
2002. The decrease in the average yield earned on mortgage-backed securities was
primarily the result of a decrease in the yield earned on the Company's balance
of adjustable rate mortgage-backed securities, which re-priced at lower yields
as market interest rates decreased between the two quarterly periods.
Interest earned on investment securities decreased $246,000, or 69.3%, for the
quarter ended March 31, 2003 from the prior year period due to a $16.0 million
decrease in the average outstanding balance of investment securities to $10.1
million from $26.1 million in the 2002 quarter. The average yield earned on
investment securities also decreased to 4.30% for the quarter ended March 31,
2003 from 5.44% in the year earlier period.
Interest earned on interest bearing deposits increased $29,000, or 31.1%, for
the quarter ended March 31, 2003 from the same quarter in 2002. The increase in
interest income is attributed to a $20.0 million increase in the average balance
of interest bearing deposits to $40.5 million from $20.5 million in the 2002
quarter. The increase in the average balance of interest bearing deposits offset
a decrease in the average yield earned on interest bearing deposits. For the
quarter ended March 31, 2003, the average yield earned on interest bearing
deposits decreased to 1.20% from 1.79% for the quarter ended March 31, 2002. The
$20.0 million increase in the average balance of interest bearing deposits was
primarily funded by the $16.0 million decrease in the average balance of
investment securities, discussed above. The Company increased its average
balance of interest bearing deposits in anticipation of an increase in economic
activity and interest rates in 2003.
For the nine months ended March 31, 2003 interest on loans receivable increased
$373,000 from the comparable prior year period. The increase in interest income
was primarily due to a $13.3 million increase in the average outstanding balance
of loans receivable to $90.3 million for the nine months ended March 31, 2003
from $77.0 million for the comparable prior year period. The increase in the
average outstanding balance of net loans receivable offset a decrease in the
average yield earned on net loans receivable to 6.45% for the nine months ended
March 31, 2003 from 6.92% for the prior year period. The growth in the Company's
loan portfolio is attributed to direct marketing of the Company's loan products.
-12-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
For the nine months ended March 31, 2003 interest earned on mortgage backed
securities decreased $349,000 to $361,000. The decrease in interest income is
attributed to a decrease in the average outstanding balance of mortgage-backed
securities as well as a decrease in the average yield earned on mortgage-backed
securities. The average outstanding balance of mortgage-backed securities
decreased by $6.2 million to $8.4 million for the nine months ended March 31,
2003 from $14.6 million in the 2002 period. The average yield earned on
mortgage-backed securities also decreased to 5.68% for the nine months ended
March 31, 2003 from 6.47% for the comparable prior year period.
For the nine months ended March 31, 2003 interest earned on investment
securities decreased $807,000 to $439,000 from $1.2 million for the nine months
ended March 31, 2002. The decrease in interest income is attributed to a
decrease in the average outstanding balance of investment securities as well as
a decrease in the average yield earned on investment securities. The average
outstanding balance of investment securities declined by $17.1 million to $12.6
million for the nine months ended March 31, 2003 from $29.7 million in the 2002
period. The average yield earned on investment securities also decreased to
4.59% for the nine months ended March 31, 2003 from 5.59% in the comparable
prior year period. The decrease in the average balance of investment securities
funded an increase in interest bearing deposits.
For the nine months ended March 31, 2003 interest earned on interest bearing
deposits increased $79,000 from the year earlier period. The increase in
interest income was primarily due to a $19.1 million increase in the average
outstanding balance of interest bearing deposits to $35.8 million for the nine
months ended March 31, 2003 from $16.7 million for the comparable prior year
period. The increase in the average outstanding balance of interest bearing
deposits offset a decrease in the average yield earned on interest bearing
deposits to 1.49% for the nine months ended March 31, 2003 from 2.58% for the
prior year period.
Interest Expense
Interest expense decreased $231,000, or 27.0%, for the quarter ended March 31,
2003 compared with the prior year quarter. The decrease in interest expense is
attributable to a decrease in the average yield paid on interest costing
deposits to 1.85% for the quarter ended March 31, 2003 from 2.67% for the
quarter ended March 31, 2002. The decrease in the average yield paid on interest
costing deposits offset a $6.6 million increase in the average outstanding
balance of interest costing deposits to $135.1 million for the quarter ended
March 31, 2003 from $128.5 million for the prior year quarter.
For the nine months ended March 31, 2003 interest expense decreased $892,000 to
$2.1 million from $3.0 million for the prior year period. The decrease in
interest expense was the result of a decrease in the average yield paid on
interest costing deposits to 2.16% for current year period from 3.25% in the
prior year period. The decrease in the average yield paid on interest costing
deposits offset an $8.2 million increase in the average outstanding balance of
interest costing deposits to $133.5 million for the current period from $125.3
million for the year earlier period.
-13-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Provisions for Losses on Loans
The Company maintains an allowance for loan losses based upon management's
periodic evaluation of probable accrued losses in the portfolio based on known
and inherent risks in the loan portfolio, the Company's past loan loss
experience, adverse situations that may affect borrowers' ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The allowance for loan loses totaled $394,000, or .43% of
total loans, at March 31, 2003 compared to $350,000, or .41% of total loans, at
June 30, 2002. The $44,000 increase in the Company's allowance for loan losses
during the nine months ended March 31, 2003 was the result of $45,000 in loan
loss provisions offset by $1,000 in net loan charge-offs. At March 31, 2003,
after consideration of the high concentration of one-to-four family mortgage
loans in the loan portfolio, peer data, current economic conditions, trends in
the portfolio, the low level of loan charge offs and the strong housing market,
the $394,000 allowance for loan losses was determined by the Company to be
sufficient to cover probable accrued losses in the loan portfolio consistent
with its policy for the establishment and maintenance of adequate levels of loan
loss reserves.
Non-Interest Income
Non-interest income decreased $18,000 to $268,000 in the quarter ended March 31,
2003 from $286,000 in the quarter ended March 31, 2002. The primary factors for
the decrease in non-interest income in the current quarter were a $15,000
decrease in loan fees and service charges and a $3,000 decrease in profit on the
sale of loans.
For the nine months ended March 31, 2003 non-interest income increased $29,000
to $891,000 from $862,000 in the prior year period. The increase in non-interest
income in the current nine month period compared with the prior year period is
primarily attributed to a $32,000 increase in loan fees and service charges and
an $10,000 increase in deposit related fees offset by a $13,000 decrease in
profit on the sale of loans. The increase in loan fees and service charges in
the nine month period ended March 31, 2003 is attributed to an increase in loan
origination activity compared to the prior year period.
Non-Interest Expense
Non-interest expense increased $21,000 to $1.1 million in the quarter ended
March 31, 2003 compared to the prior year quarter. The increase in non-interest
expense is primarily the result of a $13,000 increase in staffing costs, a
$2,000 increase in professional fees and 2,000 in charges from losses on demand
deposit overdrafts.
For the nine months ended March 31, 2003 non-interest expense increased $252,000
to $3.4 million from $3.2 million in the prior year period. The primary factors
for the increase in non-interest expense in the current nine month period were a
$138,000 increase in staffing costs, a $28,000 increase in computer software and
support expense, a $24,000 increase in office occupancy expense and an $11,000
increase in professional fees, as well as $11,000 in charges from losses on
demand deposit overdrafts. The increase in staffing costs is primarily
attributed to a $64,000 increase in costs for employee medical and pension
benefits and a $31,000 increase in loan origination commissions, due to an
increase in lending volume.
Income Taxes
Income taxes decreased $33,000 to $91,000 in the quarter ended March 31, 2003
from $124,000 for the prior year quarter. For the nine months ended March 31,
2003 income taxes decreased $26,000 to $288,000 compared to $314,000 in the 2002
period. The decrease in income taxes in both periods was the result of the
decrease in operating income from the prior year periods.
-14-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits, loan and mortgage backed
securities repayments, proceeds from the maturities of investment securities and
other funds provided by operations. The Company maintains investments in liquid
assets based upon management's assessment of (i) the Company's need for funds,
(ii) expected deposit flows, (iii) the yields available on short-term liquid
assets and (iv) the objectives of the Company's asset/liability management
program. At March 31, 2003 the Company had commitments to originate $8.2 million
in single-family loans and $507,000 in multi-family residential loans.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificate of deposits and deposit withdrawals,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. The Company considers its liquidity and capital reserves
sufficient to meet its outstanding short and long-term needs. The Company
expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.
At March 31, 2003, the Association had tangible and core capital of $9.3
million, or 5.84% of adjusted total assets, which was approximately $6.9 million
and $4.5 million above the minimum requirements in effect on that date of 1.5%
and 3.0%, respectively, of adjusted total assets.
At March 31, 2003, the Association had total capital of $9.7 million (including
$9.3 million in core capital) and risk-weighted assets of $81.4 million, or
total capital of 11.87% of risk-weighted assets. This amount was $3.2 million
above the 8.0% requirement in effect on that date.
Item 3. CONTROLS AND PROCEDURES
The Company has adopted interim disclosure controls and procedures designed to
facilitate the Company's financial reporting. The interim disclosure controls
currently consist of communications between the Chief Executive Officer and each
department head to identify any new transactions, events, trends, risks or
contingencies which may be material to the Company's operations. The Company's
independent auditors meet with the Chief Executive Officer on a quarterly basis,
and with the Audit Committee when requested, to identify and discuss the
Company's material accounting policies and disclosure. The Company's CEO and CFO
has evaluated the effectiveness of these interim disclosure controls within the
90 days prior to the filing of this report and has found them to be adequate.
The Company maintains internal controls and has evaluated such controls within
90 day of the filing of this report. There have not been any significant changes
in such internal controls subsequent to the date of their evaluation.
-15-
MIDLAND CAPITAL HOLDINGS CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Association is a party to legal proceedings wherein it
enforces its security interest or is a defendant to certain lawsuits arising out
of the ordinary course of its business. Neither the Company nor the Association
believes that it is a party to any legal proceedings which if adversely
determined would have a material adverse effect on its financial condition at
this time.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Computation of earnings per share (Exhibit 11 filed herewith).
(b) No reports on Form 8-K were filed this quarter.
-16-
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11 Computation of Per Share Earnings
99 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of THE SARBANES-OXLEY ACT OF 2002
-17-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIDLAND CAPITAL HOLDINGS CORPORATION
Registrant
DATE: May 15, 2003 BY: /s/ Paul Zogas
-------------------------------------
Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: May 15, 2003 BY: /s/ Charles Zogas
-------------------------------------
Charles Zogas
Executive Vice President and
Chief Operating Officer
MIDLAND CAPITAL HOLDINGS CORPORATION
CHIEF EXECUTIVE AND FINANCIAL OFFICER CERTIFICATION
I, Paul Zogas, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Midland Capital
Holdings Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, base on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 BY: /s/ Paul Zogas
-------------------------------------
Paul Zogas
President and Chief Executive Officer
and Chief Financial Officer