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, 2004
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 14, 2004, the Issuer had
372,600 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, 2004 (unaudited) and June 30, 2003 ................ 1
Consolidated Statements of Earnings -
Three months ended March 31, 2004 and 2003 and
Nine months ended March 31, 2004 and 2003 (unaudited) ....... 2
Consolidated Statements of Changes in Stockholders' Equity -
Nine months ended March 31, 2004 (unaudited) ................ 3
Consolidated Statements of Cash Flows - Nine months
ended March 31, 2004 and 2003 (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 ..................................... 16
Part II. OTHER INFORMATION ............................................... 17
Item 1. Legal Proceedings ........................................... 17
Item 2. Changes in Securities ....................................... 17
Item 3. Defaults Upon Senior Securities ............................. 17
Item 4. Submission of Matters to a Vote of Security Holders ......... 17
Item 5. Other Information ........................................... 17
Item 6. Exhibits and Reports on Form 8-K ............................ 17
Index to Exhibits ................................................... 18
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
Assets March 31, June 30,
2004 2003
------------ -----------
(Unaudited)
Cash and amounts due from depository institutions $ 4,191,911 3,742,724
Interest-bearing deposits 46,910,332 45,678,341
------------ -----------
Total cash and cash equivalents 51,102,243 49,421,065
Investment securities available for sale, at fair value 1,319,063 6,388,900
Mortgage-backed securities, held to maturity (fair value:
March 31, 2004 - $3,873,940;
June 30, 2003 - $6,425,722) 3,813,349 6,272,466
Loans receivable (net of allowance for loan losses:
March 31, 2004 - $436,257;
June 30, 2003 - $409,560) 92,728,430 92,932,253
Loans receivable held for sale -- 367,300
Stock in Federal Home Loan Bank of Chicago 1,046,400 996,200
Office properties and equipment, net 2,428,935 2,607,389
Accrued interest receivable 381,959 448,762
Prepaid expenses and other assets 574,191 542,049
------------ -----------
Total assets $153,394,570 159,976,384
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $140,604,251 147,489,604
Advance payments by borrowers for taxes and insurance 600,103 998,779
Other liabilities 513,674 431,854
------------ -----------
Total liabilities 141,718,028 148,920,237
------------ -----------
Stockholders' equity:
Preferred stock, $.01 par value:
authorized 50,000 shares; none outstanding -- --
Common stock, $.01 par value: authorized 600,000
shares; 372,600 shares issued and outstanding at
March 31, 2004 and June 30, 2003 3,726 3,726
Additional paid-in capital 3,395,580 3,395,580
Retained earnings - substantially restricted 8,054,510 7,387,034
Accumulated other comprehensive income, net of income taxes 222,726 269,807
------------ -----------
Total stockholders' equity 11,676,542 11,056,147
------------ -----------
Total liabilities and stockholders' equity $153,394,570 159,976,384
============ ===========
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,
2004 2003 2004 2003
---------- --------- --------- ---------
(Unaudited) (Unaudited)
Interest income:
Interest on loans $1,341,351 1,429,286 4,184,675 4,367,129
Interest on mortgage-backed securities 46,639 102,158 166,667 360,717
Interest on investment securities 18,990 109,006 99,267 439,463
Interest on interest-bearing deposits 110,519 120,957 335,789 392,725
Dividends on FHLB stock 16,731 11,441 50,332 36,469
---------- --------- --------- ---------
Total interest income 1,534,230 1,772,848 4,836,730 5,596,503
---------- --------- --------- ---------
Interest expense:
Interest on deposits 398,178 626,161 1,346,808 2,155,096
---------- --------- --------- ---------
Total interest expense 398,178 626,161 1,346,808 2,155,096
---------- --------- --------- ---------
Net interest income before provision
for loan losses 1,136,052 1,146,687 3,489,922 3,441,407
Provision for loan losses 15,000 15,000 45,000 45,000
---------- --------- --------- ---------
Net interest income after provision
for loan losses 1,121,052 1,131,687 3,444,922 3,396,407
---------- --------- --------- ---------
Non-interest income:
Loan fees and service charges 49,347 109,881 323,449 381,669
Commission income 15,674 14,494 53,300 56,271
Profit on sale of loans 90,657 3,609 101,769 20,207
Deposit related fees 112,372 125,384 362,610 390,846
Gain of satisfaction of
foreclosure judgments -- -- 433,285 --
Other income 17,241 14,235 62,118 41,573
---------- --------- --------- ---------
Total non-interest income 285,291 267,603 1,336,531 890,566
---------- --------- --------- ---------
Non-interest expense:
Staffing costs 641,939 636,895 2,005,955 1,937,318
Advertising 15,749 14,108 52,728 43,313
Occupancy and equipment expenses 178,788 203,566 563,561 583,125
Data processing 55,156 54,140 158,931 153,100
Federal deposit insurance premiums 5,535 6,015 16,978 17,875
Other 216,897 215,547 684,054 704,423
---------- --------- --------- ---------
Total non-interest expense 1,114,064 1,130,271 3,482,207 3,439,154
---------- --------- --------- ---------
Income before income taxes 292,279 269,019 1,299,246 847,819
Income tax provision 99,375 91,466 441,744 288,258
---------- --------- --------- ---------
Net income $ 192,904 177,553 857,502 559,561
========== ========= ========= =========
Earnings per share (basic) $ .52 .48 2.30 1.53
========== ========= ========= =========
Earnings per share (diluted) $ .52 .48 2.30 1.53
========== ========= ========= =========
Dividends declared per common share $ .17 .15 .51 .45
========== ========= ========= =========
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, 2003 $ 3,726 3,395,580 7,387,034 269,807 11,056,147
--------- --------- ----------- ----------- -----------
Comprehensive Income:
Net Income 857,502 857,502
Other comprehensive
income, net of tax:
Unrealized holding loss
during the period (47,081) (47,081)
----------- ----------- -----------
Total comprehensive income 857,502 (47,081) 810,421
Dividends declared on common
stock ($0.51 per share) (190,026) (190,026)
--------- --------- ----------- ----------- -----------
Balance at March 31, 2004 $ 3,726 3,395,580 8,054,510 222,726 11,676,542
========= ========= =========== =========== ===========
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,
2004 2003
------------- -------------
Cash flows from operating activities:
Net income $ 857,502 559,561
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 212,401 239,567
Net (accretion) amortization on securities (9,902) 11,509
Provision for loan losses 45,000 45,000
Federal Home Loan Bank stock dividend (50,200) (36,300)
Proceeds from sale of loans held for sale 1,054,761 1,425,506
Origination of loans held for sale (687,461) (1,013,050)
Profit on sale of loans (101,769) (20,207)
Decrease in accrued interest receivable 66,803 142,199
Decrease in accrued interest payable (6,243) (8,472)
Decrease in deferred income on loans (246,490) (20,311)
Decrease in other assets 93,881 36,185
Increase (decrease) in other liabilities 88,062 (338,809)
------------- -------------
Net cash provided by operating activities 1,316,345 1,022,378
------------- -------------
Cash flows from investing activities:
Proceeds from repayments of mortgage backed securities,
held to maturity 2,467,520 3,360,692
Proceeds from maturities of investment securities,
held to maturity -- 7,500,000
Proceeds from maturities of investment securities,
available for sale 5,000,000 --
Loan disbursements (33,062,983) (38,016,444)
Loan repayments 33,151,847 32,557,644
Proceeds from sale of loans 316,450 --
Property and equipment expenditures (33,947) (70,048)
------------- -------------
Net cash provided by investing activities 7,838,887 5,331,844
------------- -------------
Cash flows from financing activities:
Deposit receipts 301,153,736 322,851,213
Deposit withdrawals (309,307,632) (316,579,435)
Interest credited to deposit accounts 1,268,544 2,051,913
Proceeds from exercise of stock options -- 69,000
Payment of dividends (190,026) (164,824)
Decrease in advance payments by borrowers
for taxes and insurance (398,676) (311,530)
------------- -------------
Net cash provided (for) by financing activities (7,474,054) 7,916,337
------------- -------------
Increase in cash and cash equivalents 1,681,178 14,270,559
Cash and cash equivalents at beginning of period 49,421,065 32,921,438
------------- -------------
Cash and cash equivalents at end of period $ 51,102,243 47,191,997
============= =============
Cash paid during the period for interest $ 1,353,051 2,163,568
Cash paid during the period for income taxes 417,883 505,053
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,
2004 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,
2004 and 2003 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 January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities", which was subsequently replaced by a revised FIN 46
in December 2003. FIN 46 provides new accounting guidance on when to consolidate
a variable interest entity. A variable interest entity exists when either the
total equity investment at risk is not sufficient to permit the entity to
finance its activities by itself, or the equity investors lack one of three
characteristics associated with owning a controlling financial interest. Those
characteristics include the direct or indirect ability to make decisions about
an entity's activities through voting rights or similar rights, the obligation
to absorb the expected loss of an entity if they occur, and the right to receive
the expected residual return of the entity if they occur. FIN 46 is effective
for the first reporting period ending after December 15, 2003. Adoption of this
Statement did not have a material impact on the Company's consolidated financial
statements.
-5-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Note E - Effect of New Accounting Pronouncements (continued)
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". The Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". In
general, this Statement should be applied prospectively. Adoption of this
Statement did not have a material impact on the Company's consolidated financial
statements.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
Statement is effective for financial statements entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after September 15, 2003. Adoption of this Statement did not
have a material effect on the Company's consolidated financial statements.
In November 2003, the FASB ratified a consensus reached by Energizing Issues
Task Force ("EITF") in EITF 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments," which is effective for
fiscal years ending after December 15, 2003. The consensus requires certain
qualitative and quantitative disclosures for debt and marketable equity
securities classified as available-for-sale or held-to-maturity under SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" that are
impaired at the balance sheet date but for which an other-than-temporary
impairment has not been recognized. The Company believes there are no
disclosures currently required that would have a material impact on the
Company's consolidated financial statements.
In December 2003, the American Institute of Certified Public Accountants
("AICPA") released Statement of Position 03-3, "Accounting for Certain Loans or
Debt Securities Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 addresses
accounting for differences between contractual cash flows and cash flows
expected to be collected from an investor's initial investment in loans or debt
securities acquired in a transfer if those differences are attributable to
credit quality. SOP 03-3 is effective for loans acquired in fiscal years
beginning after December 15, 2004. Adoption of this Statement is not expected to
have a material impact 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 for the purpose of becoming the thrift holding company for
Midland Federal Savings and Loan Association (the "Association" or "Midland
Federal"). The Association converted from a federal mutual savings and loan
association to a federal stock savings and loan association on June 30, 1993
(the "Conversion"). In the Conversion, 345,000 shares of common stock, par value
of $.01 per share, of the Association were sold in an initial public offering
for an aggregate consideration of $3.45 million. On July 23, 1998, as a result
of a reorganization, the Association became a wholly owned subsidiary of the
Company, and each outstanding share of common stock of the Association became,
by operation of law, one share of common stock of the Company. At March 31, 2004
there were 372,600 shares of the Company's common stock outstanding.
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, multi-family, consumer and other loans in its primary market
area. The Association also invests in mortgage-backed securities, investment
securities and liquid assets in an effort to supplement loan production and
manage interest rate risk. 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, 2004, Midland Federal's capital ratios exceeded all of its
regulatory capital requirements with both tangible and core capital ratios of
6.73% and a risk-based capital ratio of 13.07%.
FINANCIAL CONDITION
At March 31, 2004, total assets of the Company decreased by $6.6 million to
$153.4 million from $160.0 million at June 30, 2003. Loans receivable, including
loans held for sale, decreased $571,000 to $92.7 million at March 31, 2004. The
Company originated $33.8 million of primarily fixed rate loans during the nine
months ended March 31, 2004 compared to loan originations of $39.0 million
during the prior year period. Approximately $4.5 million, or 13%, of the
Company's loan originations during the nine months ended March 31, 2004 were
adjustable rate mortgage loans and approximately $11.1 million, or 41%, of the
Company's fixed rate mortgage loan originations had original term to maturities
of 15 years or less. Offsetting loan originations in the current period were
loan repayments of $33.2 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, 2004 and the balance of mortgage-backed securities decreased by $2.5
million to $3.8 million due to repayments.
The balance of investment securities available for sale decreased $5.1 million
to $1.3 million at March 31, 2004 compared to $6.4 million at June 30, 2003 due
to the maturity of $5.0 million in securities. Gross unrealized gains in the
available for sale portfolio were $337,000 at March 31, 2004 compared to gross
unrealized gains of $409,000 at June 30, 2003, reflecting the negative impact of
higher interest rates and to a lesser extent the maturity of $5.0 million of
investment securities available for sale.
In response to the increase in economic activity and in anticipation of upward
pressure on interest rates in 2004, the Company increased its balance of cash
and cash equivalents by $1.7 million to $51.1 million at March 31, 2004 from
$49.4 million at June 30, 2003 and did not purchase additional fixed rate
securities.
Non-performing assets consisted of $133,000 in non-accruing loans at March 31,
2004 compared to $482,000 at June 30, 2003. The allowance for loan losses
increased by $27,000 to $437,000, or 0.47% of total loans, at March 31, 2004
compared to $410,000, or .44% of total loans, at June 30, 2003. The $27,000
increase in the allowance for loan losses during the nine months ended March 31,
2004 was the result of $45,000 in loan loss provisions offset by $18,000 in net
loan charge offs. At March 31, 2004 the Company's ratio of allowance for loan
losses to non-performing loans was 327.58% compared to 84.80% at June 30, 2003.
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 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,
2004 2003
--------- --------
(Dollars in Thousands)
Non-Accruing Loans:
One-to-four family $132 472
Multi-family -- --
Consumer 1 10
Commercial business -- --
---- ----
Total non-performing loans $133 $482
---- ----
Foreclosed Assets:
One-to-four family -- --
---- ----
Total foreclosed assets -- --
---- ----
Total non-performing assets $133 $482
==== ====
Total as a percentage of total assets 0.09% 0.30%
==== ====
As of March 31, 2004, 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,
2004 2003
----- -----
(Dollars in Thousands)
Balance at beginning of period $ 410 $ 350
----- -----
Charge-offs:
One-to-four family loans -- --
Consumer loans 10 2
Commercial business loans 8 --
----- -----
Total charge-offs 18 2
----- -----
Recoveries:
One-to-four family loans -- 1
Multi-family loans -- --
Consumer loans -- --
----- -----
Total recoveries -- 1
----- -----
Net (charge-offs) recoveries (18) (1)
Additions charged to operations 45 45
----- -----
Balance at end of period $ 437 $ 394
===== =====
Ratio of net charge-offs during the period to
average loans outstanding during the period .02% .00%
Ratio of net charge-offs during the period to
average non-performing assets 5.34% .10%
Allowance for loan losses to non-performing loans 327.58% 66.19%
Allowance for loan losses to total loans 0.47% 0.43%
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.
Total deposits decreased $6.9 million to $140.6 million at March 31, 2004 from
$147.5 million at June 30, 2003. The decrease in deposits is the result of
withdrawals, net of deposits, in the amount of $8.2 million offset by interest
credited to deposits in the amount of $1.3 million. The net decrease in savings
deposits is primarily attributed to a $7.0 million decrease in certificate of
deposit accounts, a $1.4 million decrease in NOW account deposits and a $256,000
decrease in demand deposits offset by a $1.5 million increase in passbook
deposit accounts and a $253,000 increase in money market deposit accounts. The
decrease in certificate of deposit accounts is primarily attributed to increased
competition for such deposits as well as management's view that current asset
yields did not justify aggressive deposit pricing.
Stockholders' equity increased $620,000, or 5.6%, to $11.68 million at March 31,
2004 from $11.06 million at June 30, 2003. The increase in stockholders' equity
was due to net income of $857,000 offset by a decrease in accumulated other
comprehensive income of $47,000 and the payment of cash dividends in the amount
of $190,000.
-10-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company had net income of $193,000 for the quarter ended March 31, 2004
compared to net income of $178,000 for the quarter ended March 31, 2003. The
increase in net income in the current quarter is the result of an $18,000
increase in non-interest income and a $16,000 decrease in non-interest expense
offset by an $11,000 decrease in net interest income and an $8,000 increase in
income taxes. The increase in non-interest income was the result of an $87,000
gain on the sale of a non-performing loan, without recourse. The decrease in net
interest income was the result of the collection of $15,000 in non-accruing loan
interest in the prior year quarter under the terms of a loan workout agreement
that was paid in full during the quarter ended September 30, 2003.
For the nine months ended March 31, 2004 the Company had net income of $858,000
compared to net income of $560,000 for the nine months ended March 31, 2003. The
increase in net income in the current nine month period is the result of a
$49,000 increase in net interest income and a $446,000 increase in non-interest
income, which offset a $43,000 increase in non-interest expense and a $154,000
increase in income taxes. The increase in net interest income was the result of
the collection of non-accruing loan interest during the current period in the
amount of $216,000 from the payment in full of the loan workout agreement,
discussed above. Net interest income in the prior year period also included the
collection of non-accruing loan interest in the amount of $57,000 from the same
loan workout agreement. The increase in non-interest income in the current nine
month period was primarily due to payments received under the terms of the loan
workout agreement, discussed above. For a discussion on the increases in both
non-interest income and non-interest expense, respectively, see "Non-Interest
Income" and "Non-Interest Expense."
Net of the collection of non-accruing loan interest, discussed above, the
Company's interest rate spread increased to 2.96% for the quarter ended March
31, 2004 from 2.83% for the prior year quarter. The average balance of net
earning assets (average interest earning assets minus average interest bearing
liabilities) also increased in the quarter ended March 31, 2004 by $1.3 million
to $16.3 million compared with the prior year period.
For the nine months ended March 31, 2004, net of the collection of non-accruing
loan interest, discussed above, interest rate spread decreased to 2.79% compared
to 2.84% in the prior year nine month period. Interest rate spread declined in
the nine months ended March 31, 2004 compared with the prior year period as a
result of high mortgage refinancing activity at lower market interest rates and
the maturity of investment securities which were not replaced in anticipation of
higher interest rates. The average balance of net earning assets in the nine
months ended March 31, 2004 increased by $1.6 million to $16.2 million compared
with the prior year period.
Interest Income
Interest income decreased $239,000, or 13.5%, for the quarter ended March 31,
2004 compared with the prior year quarter (a decrease of $224,000 net of the
collection of non-accruing loan interest in the prior year period). The decrease
in interest income was the result of a decrease in the average yield earned on
interest earning assets to 4.18% for the quarter ended March 31, 2004 compared
to 4.69% in the year earlier period, net of the collection of non-accruing loan
interest, discussed above. The average outstanding balance of interest earning
assets also decreased $3.1 million to $147.0 million for the quarter ended March
31, 2004 as compared with the prior year period.
-11-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
For the nine months ended March 31, 2004, interest income decreased $760,000, or
13.6%, from the 2003 period (a decrease of $919,000 net of the collection of
non-accruing loan interest in both periods). 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. Net of the collection of non-accruing loan
interest in both periods, discussed above, the average yield on interest earning
assets decreased to 4.15% compared to 4.99% for the year earlier period. The
decrease in the average yield earned on interest earning assets offset a
$538,000 increase in the average outstanding balance of interest earning assets
to $148.5 million for the nine months ended March 31, 2004 from $148.0 million
for the nine months ended March 31, 2003.
Interest on loans receivable decreased $88,000, or 6.2%, in the quarter ended
March 31, 2004, compared with the prior year quarter (a decrease of $73,000 net
of the collection of non-accruing loan interest in the prior year period), as a
result of a decrease in the average yield earned on net loans receivable. Net of
the collection of non-accruing loan interest, the average yield earned on loans
receivable decreased to 5.74% for the quarter ended March 31, 2004 as compared
to 6.21% 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 loan origination activity at lower mortgage interest rates.
The decrease in the average yield on loans receivable was offset in part by a
$2.3 million increase in the average outstanding balance of net loans receivable
to $93.5 million for the quarter ended March 31, 2004 from $91.2 million for the
prior year quarter.
Interest on mortgage-backed securities decreased $56,000, or 54.3%, for the
quarter ended March 31, 2004 from the comparable quarter in 2003. 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, 2004, the average balance of mortgage-backed securities decreased $3.4
million to $4.0 million from $7.4 million in the prior year quarter. The average
yield earned on mortgage-backed securities also decreased to 4.70% for the
quarter ended March 31, 2004 from 5.52% for the quarter ended March 31, 2003.
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 $90,000, or 82.6%, for the
quarter ended March 31, 2004 from the prior year period due to an $8.8 million
decrease in the average outstanding balance of investment securities to $1.3
million from $10.1 million in the 2003 quarter. The average yield earned on
investment securities increased to 5.83% for the quarter ended March 31, 2004
from 4.30% in the year earlier period as shorter term securities within the
investment securities portfolio matured and were not replaced.
-12-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest earned on interest bearing deposits decreased $10,000, or 8.6%, for the
quarter ended March 31, 2004 from the same quarter in 2003. The decrease in
interest income is attributed to a decrease in the average yield earned on
interest bearing deposits. For the quarter ended March 31, 2004, the average
yield earned on interest bearing deposits decreased to 0.94% from 1.20% for the
quarter ended March 31, 2003. The decrease in the average yield earned on
interest bearing deposits was offset by a $6.7 million increase in the average
balance of interest bearing deposits to $47.2 million from $40.5 million in the
2003 quarter. The $6.7 million increase in the average balance of interest
bearing deposits was primarily funded by the $8.8 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 2004.
For the nine months ended March 31, 2004 interest on loans receivable decreased
$182,000, or 4.2%, compared with the prior year period (a decrease of $342,000
net of the collection of non-accruing loan interest in both periods), as a
result of a decrease in the average yield earned on net loans receivable. Net of
the collection of non-accruing loan interest in both periods, discussed above,
the average yield earned on loans receivable decreased to 5.69% for the nine
months ended March 31, 2004 as compared to 6.37% for the prior year period. The
decrease in the average yield on loans receivable was offset in part by a $2.7
million increase in the average outstanding balance of net loans receivable to
$93.0 million for the nine months ended March 31, 2004.
For the nine months ended March 31, 2004 interest earned on mortgage backed
securities decreased $194,000 to $167,000. 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 $3.9 million to $4.6 million for the nine months ended March 31,
2004 from $8.5 million in the 2003 period. The average yield earned on
mortgage-backed securities also decreased to 4.83% for the nine months ended
March 31, 2004 from 5.68% for the comparable prior year period.
For the nine months ended March 31, 2004 interest earned on investment
securities decreased $340,000 to $99,000 from $439,000 for the nine months ended
March 31, 2003. The decrease in interest income is attributed to a $9.7 million
decrease in the average outstanding balance of investment securities to $2.9
million for the nine months ended March 31, 2004 from $12.6 million in the 2003
period. The decrease in the average outstanding balance of investment securities
was offset by an increase in the average yield earned on investment securities
to 4.94% for the nine months ended March 31, 2004 from 4.59% in the comparable
prior year period as shorter term securities matured and were not replaced.
For the nine months ended March 31, 2004 interest earned on interest bearing
deposits decreased $57,000 from the year earlier period. The decrease in
interest income was primarily due to a decrease in the average yield earned on
interest bearing deposits to 0.95% for the nine months ended March 31, 2004 from
1.49% for the prior year period. The decrease in the average yield earned on
interest bearing deposits was offset by an $11.2 million increase in the average
outstanding balance of interest bearing deposits to $47.0 million for the nine
months ended March 31, 2004 from $35.8 million for the comparable prior year
period.
-13-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Expense
Interest expense decreased $228,000, or 36.4%, for the quarter ended March 31,
2004 compared with the prior year quarter. The decrease in interest expense is
primarily attributable to a decrease in the average yield paid on interest
costing deposits to 1.22% for the quarter ended March 31, 2004 from 1.85% for
the quarter ended March 31, 2003 due to a general decline in interest rates as
well as a reduction in the proportion of the Company's deposits represented by
certificate of deposit accounts. The average outstanding balance of interest
costing deposits also decreased by $4.5 million to $130.6 million for the
quarter ended March 31, 2004 from $135.1 million for the prior year quarter.
For the nine months ended March 31, 2004 interest expense decreased $808,000 to
$1.3 million from $2.1 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 1.36% for current year period from 2.16% in the
prior year period. The average outstanding balance of interest costing deposits
also decreased by $1.1 million to $132.4 million for the current period from
$133.5 million for the year earlier period.
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 losses totaled $437,000, or .47% of
total loans, at March 31, 2004 compared to $410,000, or .44% of total loans, at
June 30, 2003. The $27,000 increase in the Company's allowance for loan losses
during the current nine month period was the result of $45,000 in loan loss
provisions net of $18,000 in charge offs. At March 31, 2004, 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 $437,000
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 increased $18,000 to $285,000 in the quarter ended March 31,
2004 from $267,000 in the quarter ended March 31, 2003. The primary factors for
the increase in non-interest income in the current quarter was an $87,000 gain
from the sale of a non-performing loan, without recourse, which offset a $60,000
decrease in loan fees and service charges and a $13,000 decrease in deposit
related fees. The decrease in loan fees and service charges is attributed to a
decrease in loan origination activity as loan originations decreased to $4.8
million in the current quarter from $11.5 million in the prior year quarter.
For the nine months ended March 31, 2004 non-interest income increased $446,000
to $1.34 million from $891,000 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 $433,000 gain on the satisfaction of
foreclosure judgments resulting from the payment in full of the loan workout
agreement, discussed above, and the $87,000 gain from the non-performing loan
sale. Non-interest income decreased in the nine months ended March 31, 2004 due
to a $58,000 decrease in loans fees and service charges, a $28,000 decrease in
deposit related fees and a $3,000 decrease in commission income. The decrease in
loan fees and service charges in the nine month period ended March 31, 2004 is
attributed to a decrease in loan origination activity compared to the prior year
period.
-14-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Non-Interest Expense
Non-interest expense decreased $16,000 to $1.11 million in the quarter ended
March 31, 2004 compared to the prior year quarter. The decrease in non-interest
expense is primarily the result of a $25,000 decrease in office occupancy
expense offset by a $5,000 increase in staffing costs, a $2,000 increase in
advertising expense and a $1,000 increase in data processing fees. The increase
in staffing costs is primarily attributed to a $36,000 increase in costs for
employee medical and pension benefits offset by a $32,000 decrease in loan
origination commissions, due to a decrease in lending volume.
For the nine months ended March 31, 2004 non-interest expense increased $43,000
to $3.48 million from $3.44 million in the prior year period. The primary
factors for the increase in non-interest expense in the current nine month
period were a $69,000 increase in staffing costs, a $9,000 increase in
advertising expense, an $8,000 increase in professional fees and a $6,000
increase in data processing fees. Non-interest expense was decreased in the nine
months ended March 31, 2004 as a result of a $30,000 decrease in computer
software and support expense and a $20,000 decrease in office occupancy expense.
The increase in staffing costs is primarily attributed to a $70,000 increase in
costs for employee medical and pension benefits offset by a $24,000 decrease in
loan origination commissions compared with the prior year period.
Income Taxes
Income taxes increased $8,000 to $99,000 in the quarter ended March 31, 2004
from $91,000 for the prior year quarter as a result of an increase in operating
income from the prior year quarter. For the nine months ended March 31, 2004
income taxes increased $153,000 to $442,000 compared to $288,000 in the prior
year period. The effective income tax rate in all periods presented was 34.0%.
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, 2004 the Company had commitments to originate $3.2 million
in one-to-four family loans and $25,000 in commercial loans. On the same date,
the Company had $42.5 million of certificate of deposit accounts maturing within
one year. Based upon historical experience, the Company expects most of these
certificate of deposit accounts to remain with the Association.
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, 2004, the Association had tangible and core capital of $10.3
million, or 6.73% of adjusted total assets, which was approximately $8.0 million
and $5.7 million above the minimum requirements in effect on that date of 1.5%
and 3.0%, respectively, of adjusted total assets.
At March 31, 2004, the Association had total capital of $10.7 million (including
$10.3 million in core capital) and risk-weighted assets of $82.2 million, or
total capital of 13.07% of risk-weighted assets. This amount was $4.2 million
above the 8.0% requirement in effect on that date.
-15-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
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 and Financial
Officer and each department head to identify any new transactions, events,
trends, risks or contingencies which may be material to the Company's
operations. In addition, the Chief Executive and Financial Officer and the
Company's independent auditors also meet on a quarterly basis and discuss the
Company's material accounting policies. Finally, the Chief Executive and
Financial Officer and certain of the Company's other Officers meet on a regular
basis to review the Company's financial statements and certain documents related
to material transactions. The Company's Chief Executive and Financial Officer
has evaluated the effectiveness of these interim disclosure controls as of the
end of the period covered by this report and found them to be adequate.
The Company maintains internal control over financial reporting. There have not
been any significant changes in such internal control over financial reporting
in the last quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal controls over financial reporting.
-16-
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) Reports on Form 8-K:
On January 30, 2004, the Company filed a report on Form 8-K attaching a
press release announcing its fiscal second quarter earnings and declaring its
regular cash dividend. No other reports on Form 8-K have been filed during the
three month period ended March 31, 2004.
-17-
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11 Computation of Per Share Earnings
31.1 Rule 13a-14(a)/15d-14(a) Certification
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
-18-
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 14, 2004 BY: /s/ Paul Zogas
-------------------------------------
Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: May 14, 2004 BY: /s/ Charles Zogas
-------------------------------------
Charles Zogas
Executive Vice President and
Chief Operating Officer