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 September 30, 1998
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 ]
Indicate the number of shares of each of the Issuer's classes of common stock as
of the latest practicable date:
Common Stock, par value $.01
(Title of Class)
As of November 13, 1998, the Issuer had 363,975 shares of Common Stock issued
and outstanding.
MIDLAND CAPITAL HOLDINGS CORPORATION
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1998 (unaudited) and June 30, 1998 1
Consolidated Statements of Earnings - Three Months
Ended September 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended September 30, 1998 (unaudited) 3
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Part II. OTHER INFORMATION 12
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I ~ FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
Assets September 30, June 30,
1998 1998
------------ -----------
(Unaudited)
Cash and amounts due from
depository institutions $ 2,507,628 2,656,448
Interest-bearing deposits 29,900,197 29,337,747
------------ ---------
Total cash and cash equivalents 32,407,825 31,994,195
Investment securities, held to maturity (fair value:
September 30, 1998 - $20,207,031;
June 30, 1998 - $20,030,469) 19,991,497 19,989,055
Investment securities available for sale, at fair value 1,276,563 1,195,938
Mortgage-backed securities, held to maturity (fair value:
September 30, 1998 - $20,678,710;
June 30, 1998 - $21,128,839) 20,329,910 20,844,623
Loans receivable (net of allowance for loan losses:
September 30, 1998 - $394,354;
June 30, 1998 - $393,884) 42,464,300 38,513,121
Loans receivable, held for sale 230,000 659,450
Real estate owned, net 688,400 746,522
Stock in Federal Home Loan Bank of Chicago 554,000 554,000
Office properties and equipment, net 1,578,156 1,567,285
Accrued interest receivable 634,148 619,464
Prepaid expenses and other assets 670,532 689,727
------------ ---------
Total assets $120,825,331 117,373,380
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $110,676,132 107,761,846
Advance payments by borrowers for taxes and insurance 727,506 447,668
Other liabilities 477,634 396,229
------------ ---------
Total liabilities 111,881,272 108,605,743
------------ ---------
Consolidated Statements of Financial Condition
Assets September 30, June 30,
1998 1998
------------ -----------
(Unaudited)
Stockholders' equity:
Preferred stock, $.01 par value:
authorized 1,000,000 shares; none outstanding - -
Common stock, $.01 par value: authorized 5,000,000
shares; issued and outstanding 363,975 shares
at September 30, 1998 and June 30, 1998 3,640 3,640
Additional paid-in capital 3,266,315 3,266,315
Retained earnings - substantially restricted 5,545,324 5,430,065
Accumulated other comprehensive income, net of income taxes 198,153 145,099
Common stock awarded by Bank Incentive Plan (69,373) (77,482)
------------ ---------
Total stockholders' equity 8,944,059 8,767,637
------------ ---------
Total liabilities and stockholders' equity $120,825,331 117,373,380
============ ===========
See accompanying notes to consolidated financial statements.
-1-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended
September 30,
---------------------
1998 1997
--------- ---------
(Unaudited)
Interest income:
Interest on loans $ 799,127 680,553
Interest on mortgage-backed securities 343,604 408,052
Interest on investment securities 309,208 311,291
Interest on interest-bearing deposits 389,234 345,472
Dividends on FHLB stock 9,251 9,426
---------- -------
Total interest income 1,850,425 1,754,794
---------- -------
Interest expense:
Interest on deposits 1,059,775 970,810
---------- -------
Total interest expense 1,059,775 970,810
---------- -------
Net interest income 790,650 783,984
---------- -------
Non-interest income:
Loan fees and service charges 97,412 49,305
Commission income 42,221 41,109
Profit on sale of loans 17,054 5,385
Profit on sale of real estate owned 12,278 0
Deposit related fees 142,267 153,668
Other income 34,882 30,645
---------- -------
Total non-interest income 346,114 280,112
---------- -------
Non-interest expense:
Staffing costs 489,208 435,702
Advertising 19,400 17,154
Occupancy and equipment expenses 123,614 113,720
Data processing 63,634 38,774
Federal deposit insurance premiums 15,326 16,090
Other 209,571 169,261
---------- -------
Total non-interest expense 920,753 790,701
---------- -------
Income before income taxes 216,011 273,395
Income tax provision 73,454 92,964
---------- -------
Net income $ 142,557 180,431
========== =======
Earnings per share (basic) $ 0.39 0.52
========== ====
Earnings per share (diluted) $ 0.39 0.51
========== ====
Dividends declared per common share $ 0.075 0.075
========== ====
See accompanying notes to consolidated financial statements.
-2-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Accumulated Common
Additional Other stock
Common Paid-In Retained Comprehensive awarded
Stock Capital Earnings Income by BIP Total
----- ------- -------- ------ ------ -----
Balance at June 30, 1998 $ 3,640 3,266,315 5,430,065 145,099 (77,482) 8,767,637
---------- --------- --------- ------- ------- ---------
Comprehensive Income:
Net Income 142,557 142,557
Other comprehensive income, net of tax:
Unrealized holding gain
during the period 53,054 53,054
--------- ------- --------
Total comprehensive income 142,557 53,054 195,611
Amoritzation of award of
BIP stock 8,109 8,109
Dividends declared on
common stock ($0.075
per share) (27,298) (27,298)
---------- --------- --------- ------- ------- ---------
Balance at
September 30, 1998 $ 3,640 3,266,315 5,545,324 198,153 (69,373) 8,944,059
========== ========= ========= ======= ======= =========
See accompanying notes to consolidated financial statements.
-3-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
September 30,
--------------------------
1998 1997
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 142,557 180,431
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 39,461 34,676
Amortization of premiums and discounts on securities 3,440 7,997
Amortization of cost of stock benefit plan 8,109 8,109
Profit on sale of real estate owned (12,278) 0
Proceeds from sale of loans held for sale 1,833,675 408,400
Origination of loans held for sale (1,404,225) (178,000)
Profit on sale of loans (17,054) (5,385)
Increase in accrued interest receivable (14,684) (27,034)
Increase (decrease) in accrued interest payable (1,858) 1,384
Decrease in deferred income on loans (40,137) (6,058)
Decrease in other assets 8,918 96,808
Increase (decrease) in other liabilities 83,263 (7,776)
------------ ----------
Net cash provided by operating activities 629,187 513,552
------------ ----------
Cash flows from investing activities:
Purchase of mortgage-backed securities (1,101,593) (4,610,445)
Proceeds from repayments of mortgage backed securities 1,610,184 1,886,867
Purchase of investment securities (2,500,000) (2,494,300)
Proceeds from maturities of investment securities 2,500,000 2,500,000
Loan disbursements (6,686,783) (1,818,743)
Loan repayments 2,775,741 1,562,550
Proceeds from sale of real estate owned 70,400 0
Property and equipment expenditures (50,332) (26,300)
------------ ----------
Net cash provided for investing activities (3,382,383) (3,000,371)
------------ ----------
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
September 30,
--------------------------
1998 1997
----------- -----------
(Unaudited)
Cash flows from financing activities:
Deposit account receipts 97,231,646 88,422,297
Deposit account withdrawals (95,318,756) (91,315,661)
Interest credited to deposit accounts 1,001,396 918,895
Payment of dividends (27,298) (26,005)
Increase (decrease) in advance payments by
borrowers for taxes and insurance 279,838 (288,803)
------------ ----------
Net cash provided for financing activities 3,166,826 (2,289,277)
------------ ----------
Increase (decrease) in cash and cash equivalents 413,630 (4,776,096)
Cash and cash equivalents at beginning of period 31,994,195 30,902,575
------------ ----------
Cash and cash equivalents at end of period $ 32,407,825 26,126,479
============ ==========
Cash paid during the period for:
Interest $ 1,061,633 969,426
Income taxes 0 0
============ ==========
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 ended September 30, 1998 are not
necessarily indicative of the results which 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 subsidiaries, Midland Federal Savings and Loan Association (the
"Association"), Midland Service Corporation, MS Insurance Agency, Inc. and
Bridgeview Development Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note C - Stock Conversion
In January, 1993, the Association's Board of Directors approved a plan to
voluntarily convert the Association from a federal mutual savings and loan
association to a federal stock savings and loan association. The stock offering
of Midland Federal Savings and Loan Association was closed on June 30, 1993 with
the sale of 345,000 shares of $.01 par value common stock at $10.00 per share.
Note D ~ Holding Company Reorganization
On March 19, 1998 the Board of Directors of the Association adopted a proposal
to reorganize the Association into a holding company form of organization in
accordance with a Merger Agreement and Plan of Reorganization (the
"Reorganization"). The Reorganization was approved by the Association's
shareholders on July 15, 1998 and became effective on July 23, 1998. As a result
of the Reorganization, the Association became a wholly owned subsidiary of
Midland Capital Holdings Corporation, a newly formed Delaware Corporation, and
each outstanding share of common stock of the Association became, by operation
of law, one share of common stock of Midland Capital Holdings Corporation.
Midland Capital Holdings Corporation operates as a unitary thrift holding
company.
Note E - Earnings Per Share
Earnings per share for the three month periods ended September 30, 1998 and 1997
was determined by dividing net income for the period by the weighted average
number of both basic and diluted shares of common stock and common stock
equivalents 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. Earnings per share data for the three month period ended September
30, 1997 has been restated for comparative purposes to reflect the
implementation of Statement of Financial Accounting Standards No. 128.
-5-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note F - Effect of New Accounting Standards
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 ("SFAS 132"), entitled "Employers' Disclosure about Pensions and Other
Post-retirement Benefits". SFAS 132 alters current disclosure requirements
regarding pensions and other post-retirement benefits in the financial
statements of employers who sponsor such benefit plans. The revised disclosure
requirements are designed to provide additional information to assist readers in
evaluating future costs related to such plans. Additionally, the revised
disclosures are designed to provide changes in the components of pension and
benefit costs in addition to the year end components of those factors in the
resulting asset or liability related to such plans. The statement is effective
for fiscal years beginning after December 15, 1997 with earlier application
available. Management does not believe that adoption of SFAS 132 will have a
material impact on the Company's consolidated financial condition or results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), entitled "Accounting for Derivative Instruments and for
Hedging Activities". SFAS 133 provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. The
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes special accounting for the following three different types
of hedges: hedges of changes in the fair value of assets, liabilities or firm
commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. Though the
accounting treatment and criteria for each of the three types of hedges is
unique, they all result in recognizing offsetting changes in value or cash flows
of both the hedge and the hedged item in earnings in the same period. Changes in
the fair value of derivatives that do not meet the criteria of one of these
three categories of hedges are included in earnings in the period of the change.
SFAS 133 is effective for years beginning after June 15, 1999, but companies can
early adopt as of the beginning of any fiscal quarter that begins after June
1998. Management does not expect the adoption of this statement to have a
material impact on the Company's consolidated financial condition or results of
operations.
The foregoing does not constitute a comprehensive summary of all material
changes or development affecting the manner in which the Company keeps its books
and records and performs its financial accounting responsibilities. It is
untended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
-6-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Midland Capital Holdings Corporation (the "Company") is a Delaware corporation
which 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. 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.
All references to the Company, unless otherwise indicated, at or before July 23,
1998 refer to the Association. 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.
The Association's primary market area consists of Southwest Chicago, and the
southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Burbank and Justice which it serves through its main office in Bridgeview
and two branch banking offices in southwest Chicago. A fourth banking facility
is currently under development by the Association in Homer Township, Illinois, a
southwest suburb of Chicago. The Homer Township office will be a full-service
branch banking facility and is anticipated to be opened for business during the
first quarter of calendar 1999. The Association's deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At
September 30, 1998 Midland Federal had tangible and core capital of $8.4
million, which capital levels exceeded all of its fully phased-in regulatory
capital requirements.
Forward Looking Statements
When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "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 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
are subject to the above-stated qualifications in any event. The Company wishes
to advise readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
-7-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Impact of the Year 2000
All of the Company's data processing functions are performed by the Association
or outside vendors. The Association has conducted a comprehensive review of its
computer systems to identify applications that could be affected by the Year
2000 issue and has developed an implementation plan to address the issue. The
Association is in contact with vendors and providers of critical systems to
determine their progress in bringing such systems into Year 2000 compliance,
which compliance is anticipated by December 31, 1998 and the Association is
currently scheduling testing dates for mission critical and non-mission critical
systems.
The Association is scheduled to convert its on-line customer account data
processing, as well as certain other critical data processing and computer
systems, to a new service provider beginning in October 1998 (the "conversion").
The Association has been informed by the new service provider that all such
systems will be Year 2000 compliant by December 31, 1998. The Association
anticipates that it will incur additional conversion costs in the approximate
amount of $75,000, which costs will be recorded as a charge to earnings in the
period in which the conversion services are performed. The conversion will also
require additional capital expenditures for computer and related equipment in
the approximate amount of $150,000 which costs will be amortized over the useful
life of the equipment purchased.
FINANCIAL CONDITION
During the quarter ended September 30, 1998, total assets of the Company
increased by $3.4 million to $120.8 million from $117.4 million at June 30,
1998. Net loans receivable and loans available for sale increased $3.5 million
to $42.7 million at September 30, 1998 as loan disbursements of $8.1 million
more than offset loan repayments of $2.8 million and loan sales of $1.8 million.
The increase in net loans receivable was primarily funded by an increase in
deposits in the amount of $2.9 million to $110.7 million at September 30, 1998.
The balance of mortgage-backed securities decreased by $515,000 to $20.3 million
due to repayments of mortgage-backed securities in the amount of $1.6 million
which exceeded purchases of mortgage-backed securities in the amount of $1.1
million during the quarter. The balance of investment securities increased
$83,000 during the quarter ended September 30, 1998 to $21.3 million. The
weighted average remaining maturity of the Company's investment securities
portfolio at September 30, 1998 was 1.9 years.
As discussed above, deposits for the quarter ended September 30, 1998 increased
$2.9 million as deposit activity of $97.2 million and interest credited to
deposits in the amount of $1.0 million exceeded withdrawal activity of $95.3
million. The net increase in savings deposits is attributed to a $2.7 million
increase in certificate of deposit accounts, a $484,000 increase in transaction
deposits including money market accounts offset by a $231,000 decrease in
passbook accounts. The net increase in savings deposits is attributed to more
aggressive pricing and promotion of certificate of deposit rates.
Stockholders' equity for the quarter ended September 30, 1998 increased $177,000
to $8.9 million as earnings in the amount of $143,000, an $8,000 reduction in
the unamortized cost of the Association's Bank Incentive Plan and a $53,000
positive market adjustment from securities available for sale, net of income
taxes, offset dividends paid on common stock in the amount of $27,000.
-8-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company had net income of $143,000 for the quarter ended September 30, 1998
compared to net income of $180,000 for the quarter ended September 30, 1997. Net
interest income increased $7,000 to $791,000 in the quarter ended September 30,
1998 from $784,000 during the prior year quarter as an increase in the average
balance of interest earning assets offset decreases in both net interest margin
and interest rate spread. For the quarter ended September 30, 1998 the average
balance of interest earning assets increased $9.0 million to $112.9 million from
$103.9 million in the prior year quarter. For the quarter ended September 30,
1998 the Company's net interest margin and interest rate spread both decreased
to 2.80% and 2.67%, respectively, from 3.02% and 2.95%, respectively, for the
quarter ended September 30, 1997. The ratio of average interest earning assets
to average interest bearing liabilities increased to 111.27% in the quarter
ended September 30, 1998 from 109.70% in the prior year quarter. Also for the
quarter ended September 30, 1998, non-interest income and non-interest expense
increased $66,000 and $130,000, respectively, over the prior year period.
Interest Income
Interest income increased $96,000, or 5.4%, for the quarter ended September 30,
1998 from the comparable prior year quarter. An increase in the average balance
of interest earning assets to $112.9 million for the quarter ended September 30,
1998 from $103.9 million for the quarter ended September 30, 1997 was partially
offset by a decrease in the average yield earned on interest earning assets to
6.56% for the quarter ended September 30, 1998 compared to 6.76% for the quarter
ended September 30, 1997.
Interest on loans receivable increased $119,000, or 17.4%, for the quarter ended
September 30, 1998 from the comparable quarter in 1997. The increase in interest
income was attributed to an increase in the average outstanding balance of net
loans receivable to $41.8 million for the quarter ended September 30, 1998 from
$33.2 million for the quarter ended September 30, 1997. The increase in the
average outstanding balance of net loans receivable offset a decrease in the
average yield earned on loans receivable to 7.64% for the quarter ended
September 30, 1998 from 8.21% for the quarter ended September 30, 1997.
Interest on mortgage backed securities decreased $64,000, or 15.8%, for the
quarter ended September 30, 1998 from the comparable quarter in 1997. The
decrease in interest income is attributed to a $3.7 million reduction in the
average balance of mortgage backed securities outstanding to $20.6 million for
the quarter ended September 30, 1998 from $24.3 million for the quarter ended
September 30, 1997. The average yield earned on mortgage backed securities also
decreased slightly to 6.67% for the quarter ended September 30, 1998 from 6.70%
for the quarter ended September 30, 1997.
Interest earned on investment securities decreased $2,000, or 0.7%, for the
quarter ended September 30, 1998 from the prior year quarter. The decrease in
interest income is attributed to a decrease in the average yield on investment
securities to 5.83% for the quarter ended September 30, 1998 from 5.90% for the
quarter ended September 30, 1997. The average balance of investment securities
remained stable for the quarter ended September 30, 1998 as compared with the
quarter ended September 30, 1997.
Interest earned on interest bearing deposits increased $44,000, or 12.7%, for
the quarter ended September 30, 1998 from the same quarter in 1997. The increase
in interest income on interest bearing deposits is attributed to an increase in
the average outstanding balance of interest bearing deposits to $28.7 million
for the quarter ended September 30, 1998 compared to $24.7 million for the
quarter ended September 30, 1997.
-9-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
The increase in the average balance of interest bearing deposits was partially
offset by a decrease in the average yield earned on interest bearing deposits to
5.43% for the quarter ended September 30, 1998 from 5.59% for the quarter ended
September 30, 1997.
Interest Expense
Interest expense increased $89,000, or 9.2%, for the quarter ended September 30,
1998 compared with the prior year quarter. The increase in interest expense is
primarily attributable to a $6.9 million increase in the average balance of
interest costing deposits to $101.5 million for the quarter ended September 30,
1998 from $94.6 million in the quarter ended September 30, 1997. The average
yield paid on interest costing deposits also increased to 4.18% for the quarter
ended September 30, 1998 from 4.10% for the quarter ended September 30, 1997.
The increase in the average yield paid on interest costing deposits is the
result of growth in higher costing certificate of deposit accounts, which
accounts were primarily responsible for the increase in interest costing
deposits discussed above.
Provisions for Losses on Loans
The Company maintains an allowance for loan losses based upon management's
periodic evaluation of 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 Company made no provisions for
loan losses out of income in either period based upon the absence of any
specific asset quality problems, the current level of general loan loss reserves
and management's assessment of the inherent risk in the loan portfolio.
Non-performing loans, net of specific reserves, increased to $554,000 at
September 30, 1998 and consisted of $515,000 in five single family residential
mortgage loans, $38,000 in one multi-family residential mortgage loan and $1,000
in consumer loans. General loan loss reserves totaled $161,000 or 29.04% of net
non-performing loans at September 30, 1998. At September 30, 1998, 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 which it considers to be adequate to
provide for potential losses, there can be no assurance that such losses will
not exceed the estimated amounts.
Non-Interest Income
Non-interest income increased $66,000 to $346,000 for the quarter ended
September 30, 1998 from $280,000 for the quarter ended September 30, 1997. The
increase in non-interest income was due primarily to a $48,000 increase in loan
fees and service charges, a $12,000 increase in profit from the sale of loans
and a $12,000 profit from the sale of a real estate owned property. The increase
in loan fees and service charges is attributed to an increase in loan
origination activity from the prior year period. Deposit related fees decreased
$12,000 to $142,000 for the quarter ended September 30, 1998 from $154,000 in
the prior year quarter.
Non-Interest Expense
Non-interest expense increased $130,000 to $921,000 in the quarter ended
September 30, 1998 from $791,000 in the 1997 quarter. The increase in
non-interest expense is primarily the result of a $54,000 increase in staffing
costs and a $25,000 increase in data processing fees. The increase in staffing
costs is primarily attributed to normal salary increases as well as an increase
in commissions paid to staff loan originators as a result of increased loan
origination activity.
-10-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Non-Interest Expense (continued)
The increase in data processing fees is the result of data processing charges
associated with the conversion of the Company's on-line data processing systems
to another service provider, which conversion is scheduled to occur in October
1998. Non-interest expense was also increased as a result of an $11,000 increase
in computer software and support expense, a $10,000 increase in legal expense
and a $6,000 increase in real estate owned expenses as compared to the prior
year quarter.
Income Taxes
Income taxes decreased $20,000 to $73,000 in the quarter ended September 30,
1998 from $93,000 for the prior year quarter. The decreased income tax provision
was due primarily to the decrease in operating income as compared to the prior
year quarter.
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. In addition, the Association may borrow
funds from the FHLB of Chicago. 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. The OTS requires members of the FHLB system to maintain minimum levels
of liquid assets. OTS regulations currently require the Association to maintain
an average daily balance of liquid assets equal to at least 4% of the sum of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. At September 30, 1998, the Association's regulatory
liquidity ratio was 54.6%. At such date, the Company had commitments to
originate $557,000 in loans, to sell $230,000 in loans, no commitments to
purchase loans and no commitments to either purchase or sell securities.
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 September 30, 1998 the Association had tangible and core capital of $8.4
million, or 7.0% of adjusted total assets, which was approximately $6.6 million
and $4.8 million above the minimum requirements in effect on that date of 1.5%
and 3.0%, respectively, of adjusted total assets.
At September 30, 1998 the Association had total capital of $8.6 million
(including $8.4 million in core capital) and risk-weighted assets of $38.0
million, or total capital of 22.5% of risk-weighted assets. This amount was $5.5
million above the 8.0% requirement in effect on that date.
RECENT DEVELOPMENTS
At the annual meeting of shareholders held on October 21, 1998, the shareholders
approved the election of two directors for terms of three years each and the
ratification of Cobitz, VandenBerg & Fennessy as independent auditors of the
Company for the fiscal year ending June 30, 1999.
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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) Financial
data schedule (Exhibit 27 filed herewith). (c) No reports on Form 8-K were filed
this quarter.
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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: November 13, 1998 BY: /s/ Paul Zogas
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Paul Zogas
President, Chief Executive Officer
and Chief Financial Officer
DATE: November 13, 1998 BY: /s/ Charles Zogas
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Charles Zogas
Executive Vice President and
Chief Operating Officer