UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2007
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number 1-14343
MIDLAND CAPITAL HOLDINGS CORPORATION
(Name of Small Business Issuer in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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36-4238089
(I.R.S. Employer
Identification Number)
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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
þ
No
o
Transitional Small Business Disclosure Format. Yes
o
No
þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
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 $.01
(Title of Class)
As of November 14, 2007, the Issuer had
372,600 shares of Common Stock issued and outstanding.
MIDLAND CAPITAL HOLDINGS CORPORATION
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Part I — FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
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September 30,
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June 30,
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2007
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2007
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(Unaudited)
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Assets
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Cash and amounts due from depository institutions
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$
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1,982,224
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2,224,076
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Interest-bearing deposits
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16,782,732
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11,231,760
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Total cash and cash equivalents
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18,764,956
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13,455,836
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Investment securities available for sale, at fair value
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16,063,331
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21,019,975
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Mortgage-backed securities, held to maturity (fair value:
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September 30, 2007 - $1,361,863;
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June 30, 2007 - $1,482,977)
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1,351,683
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1,474,504
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Loans receivable (net of allowance for loan losses:
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September 30, 2007 - $419,701;
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June 30, 2007 - $420,079)
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83,103,788
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83,844,418
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Loans receivable held for sale
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1,026,400
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1,012,200
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Other Investments — available for sale, at fair value
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41,835
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106,633
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Stock in Federal Home Loan Bank of Chicago
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1,148,087
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1,148,087
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Accrued interest receivable
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373,795
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333,666
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Office properties and equipment, net
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2,030,377
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2,071,621
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Prepaid expenses and other assets
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647,179
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425,814
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Total assets
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$
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124,551,431
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124,892,754
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Liabilities and Stockholders’ Equity
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Liabilities:
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Deposits
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$
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108,855,151
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109,744,662
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Advance payments by borrowers for taxes and insurance
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1,318,448
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998,142
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Other liabilities
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564,574
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439,476
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Total liabilities
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110,738,173
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111,182,280
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Stockholders’ equity:
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Preferred stock, $.01
par value: authorized 50,000 shares;
none outstanding
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—
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—
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Common stock, $.01 par value: authorized 600,000
shares; issued and outstanding 372,600 shares
at September 30, 2007 and June 30, 2007
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3,726
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3,726
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Additional paid-in capital
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3,395,580
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3,395,580
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Retained earnings — substantially restricted
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10,206,251
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10,104,065
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Accumulated other comprehensive income, net of income taxes
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207,701
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207,103
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Total stockholders’ equity
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13,813,258
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13,710,474
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Total liabilities and stockholders’ equity
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$
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124,551,431
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124,892,754
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See accompanying notes to consolidated financial statements.
-1-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
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Three Months Ended
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September 30,
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2007
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2006
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Interest income:
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Interest on loans
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$
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1,241,260
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1,349,977
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Interest on mortgage-backed securities
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20,016
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21,758
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Interest on investment securities
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240,233
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259,544
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Interest on interest-bearing deposits
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166,992
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107,597
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Dividends on FHLB stock
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8,014
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8,873
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Total interest income
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1,676,515
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1,747,749
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Interest expense:
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Interest on deposits
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561,807
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492,674
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Total interest expense
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561,807
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492,674
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Net interest income
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1,114,708
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1,255,075
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Provision for loan losses
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—
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—
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Net interest income after provision for loan losses
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1,114,708
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1,255,075
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Non-interest income:
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Loan fees and service charges
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49,970
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51,166
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Gain on sale of other investments
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66,726
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—
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Commission income
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16,275
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11,594
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Gain on sale of loans
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35,735
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26,296
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Deposit related fees
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79,255
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94,892
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Other income
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13,864
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13,457
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Total non-interest income
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261,825
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197,405
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Non-interest expense:
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Staffing costs
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619,698
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657,221
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Advertising
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16,206
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17,895
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Occupancy and equipment expenses
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166,120
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165,645
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Data processing
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44,076
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44,008
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Federal deposit insurance premiums
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3,241
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3,704
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Other
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236,895
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228,795
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Total non-interest expense
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1,086,236
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1,117,268
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Income before income taxes
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290,297
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335,212
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Income tax provision
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98,687
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113,972
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Net income
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$
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191,610
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221,240
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Earnings per share (basic)
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$
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0.51
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0.59
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Earnings per share (diluted)
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$
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0.51
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0.59
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Dividends declared per common share
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$
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0.24
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0.24
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See accompanying notes to consolidated financial statements.
-2-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
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Accumulated
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Additional
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Other
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Common
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Paid-In
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Retained
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Comprehensive
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Stock
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Capital
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Earnings
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Income
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Total
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Balance at June 30, 2007
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$
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3,726
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3,395,580
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10,104,065
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207,103
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13,710,474
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Comprehensive Income:
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Net income
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191,610
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191,610
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Other comprehensive
income, net of tax:
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Unrealized holding gain
during the period
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42,820
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42,820
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Reclassification
adjustment of
gain included
in net income
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(42,222
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)
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|
|
(42,222
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)
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|
|
|
|
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|
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|
|
|
|
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|
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Total comprehensive income
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|
|
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191,610
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|
598
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|
192,208
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Dividends declared
on common
stock
($0.24 per share)
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(89,424
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)
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|
|
|
|
(89,424
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)
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|
|
|
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|
|
|
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|
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Balance at September
30, 2007
|
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$
|
3,726
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|
|
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3,395,580
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|
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10,206,251
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|
|
|
207,701
|
|
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|
13,813,258
|
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|
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|
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|
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|
|
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See accompanying notes to consolidated financial statements.
-3-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
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Three Months Ended
|
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|
|
|
September 30,
|
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|
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|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
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|
|
|
|
|
|
|
|
Net income
|
|
$
|
191,610
|
|
|
|
221,240
|
|
|
Adjustments to reconcile net income to net cash from
operating activities:
|
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|
|
|
|
|
|
|
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Depreciation
|
|
|
55,380
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|
|
|
56,347
|
|
|
Net accretion on securities
|
|
|
(221,423
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)
|
|
|
(240,794
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)
|
|
Proceeds from sale of loans held for sale
|
|
|
2,906,378
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|
|
|
2,115,888
|
|
|
Origination of loans held for sale
|
|
|
(2,898,300
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)
|
|
|
(1,654,050
|
)
|
|
Gain on sale of loans
|
|
|
(35,735
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)
|
|
|
(26,296
|
)
|
|
Gain on sale of other investments
|
|
|
(66,726
|
)
|
|
|
—
|
|
|
Increase in accrued interest receivable
|
|
|
(40,129
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)
|
|
|
(12,028
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)
|
|
Decrease in accrued interest payable
|
|
|
(801
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)
|
|
|
(750
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)
|
|
Increase in deferred income on loans
|
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|
7,542
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|
|
|
11,364
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|
|
Increase in other assets
|
|
|
(208,216
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)
|
|
|
(234,600
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)
|
|
Increase in other liabilities
|
|
|
125,899
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|
|
|
2,671
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (for) by operating activities
|
|
|
(184,521
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)
|
|
|
238,992
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from repayments of mortgage-backed securities,
held to maturity
|
|
|
122,821
|
|
|
|
61,875
|
|
|
Proceeds from maturities of investment securities,
available for sale
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
|
Purchase of investment securities, available for sale
|
|
|
(9,757,333
|
)
|
|
|
(14,619,190
|
)
|
|
Loan disbursements
|
|
|
(2,118,586
|
)
|
|
|
(3,044,838
|
)
|
|
Loan repayments
|
|
|
2,851,674
|
|
|
|
4,502,863
|
|
|
Proceeds from sale of other investments
|
|
|
67,830
|
|
|
|
—
|
|
|
Property and equipment expenditures
|
|
|
(14,136
|
)
|
|
|
(10,930
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (for) investing activities
|
|
|
6,152,270
|
|
|
|
1,889,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Deposit account receipts
|
|
|
74,604,836
|
|
|
|
79,945,771
|
|
|
Deposit account withdrawals
|
|
|
(76,019,059
|
)
|
|
|
(84,929,223
|
)
|
|
Interest credited to deposit accounts
|
|
|
524,712
|
|
|
|
457,426
|
|
|
Payment of dividends
|
|
|
(89,424
|
)
|
|
|
(89,424
|
)
|
|
Increase (decrease) in advance payments by borrowers
for taxes and insurance
|
|
|
320,306
|
|
|
|
(703,806
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided for financing activities
|
|
|
(658,629
|
)
|
|
|
(5,319,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
5,309,120
|
|
|
|
(3,190,484
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,455,836
|
|
|
|
11,259,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,764,956
|
|
|
|
8,069,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
562,608
|
|
|
|
493,424
|
|
|
Income taxes
|
|
|
3,924
|
|
|
|
85,606
|
|
|
|
|
|
|
|
|
|
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 accounting principles generally accepted in the United States of America.
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 accounting principles generally accepted in the United States of America 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, 2007 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 Federal Service Corporation, Midland Insurance Services, Inc. and Bridgeview Development
Company. All significant intercompany balances and transactions have been eliminated in
consolidation.
Note C — Earnings Per Share
Earnings per share for the three month periods ended September 30, 2007 and 2006 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 September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements required under other accounting
pronouncements, but does not change existing guidance as to whether or not an instrument is carried
at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal
years. Earlier application is encouraged provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statement for an interim period
within that fiscal year. The Company does not expect the adoption of SFAS 157 to have a material
impact on its financial condition or results of operations.
-5-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Note E — Effect of New Accounting Pronouncements (continued)
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (“SFAS 159”) which allows an entity the irrevocable option to elect fair
value for the initial and subsequent measurement for certain financial assets and liabilities.
Subsequent changes in fair value of these financial assets and liabilities would be recognized in
earnings when they occur. SFAS 159 further establishes certain additional disclosure requirements.
SFAS 159 is effective for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. Management is currently evaluating the impact and timing of the adoption of SFAS 159 on
the Company’s financial condition and results of operations.
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
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 including the relationship between long and
short term interest rates, demand for loans in the Company’s market area and our ability to
maintain and grow our retail loans and deposits, 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 the holding company for Midland Federal
Savings and Loan Association (the “Association” or “Midland Federal”). At September 30, 2007,
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 one to four family
residential mortgage loans, and to a lesser extent, multi-family, commercial real estate, consumer,
and other loans in its primary market area. The Association also has made substantial investments
in investment securities, mortgage-backed securities and liquid assets. Midland Federal also
operates a wholly-owned subsidiary, Midland Federal Service Corporation that owns and operates
Midland Insurance Services, Inc., a full service retail insurance agency.
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 September 30, 2007, Midland
Federal’s capital ratios exceeded all of its regulatory capital requirements with both tangible and
core capital ratios of 8.89% and a risk-based capital ratio of 21.15%.
-7-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
FINANCIAL CONDITION
At September 30, 2007, total assets of the Company decreased by $341,000 to $124.6 million from
$124.9 million at June 30, 2007. The decrease was the result of a $741,000 decline in net loans
receivable to $83.1 million, the proceeds of which were used to fund an $890,000 decline in deposit
balances to $108.9 million at September 30, 2007.
Loans receivable decreased $741,000 to $83.1 million at September 30, 2007 due to a decline in
portfolio loan originations. The Company originated $2.1 million of portfolio loans during the
quarter ended September 30, 2007 compared to portfolio loan originations of $3.0 million during the
2006 quarter. The decline in portfolio loan origination volume in the current quarter was due in
part to an emphasis on originations of loans held for sale which increased to $2.9 million during
the quarter ended September 30, 2007 compared to $1.7 million during the prior year quarter. We
increased our originations of loans held for sale as we determined to limit fixed rate portfolio
loan originations in view of the possibility of an increase in long term interest rates. Proceeds
from the sale of loans held for sale also increased to $2.9 million during the quarter ended
September 30, 2007 compared to $2.1 million during the 2006 quarter. Portfolio loan repayments
declined to $2.9 million during the quarter ended September 30, 2007 compared with $4.5 million
during the 2006 quarter. There were no new purchases of mortgage-backed securities during the
quarter ended September 30, 2007 and as a result, the balance of mortgage-backed securities
decreased by $123,000 to $1.4 million due to repayments.
The balance of investment securities available for sale declined by $4.9 million to $16.1 million
at September 30, 2007 compared to $21.0 million at June 30, 2007. During the current quarter the
Company reinvested $5.0 million in maturing United States Treasury securities into other short term
investment funds. The investment securities portfolio at September 30, 2007 was largely comprised
of six month United States Treasury Securities. Gross unrealized gains in the available for sale
investment securities portfolio were $273,000 at September 30, 2007 compared to gross unrealized
gains of $208,000 at June 30, 2007, primarily reflecting the positive impact of lower interest
rates on the Company’s $1.0 million long term United States Treasury bond. The weighted average
remaining term to maturity of the Company’s total investment securities portfolio at September 30,
2007 was 11 months.
The balance of interest bearing deposits increased by $5.6 million to $16.8 million at September
30, 2007 from $11.2 million at June 30, 2007. The increase in interest bearing deposits was
primarily due to the reinvestment of maturing investment securities, discussed above.
Non-performing assets consisted of non-accruing loans totaling $516,000 at September 30, 2007
compared to $511,000 at June 30, 2007. The allowance for loan losses totaled $420,000, or 0.50% of
total loans, at September 30, 2007 as compared to $420,000, or .49% of total loans, at June 30,
2007. The Company made no loan loss provision during the quarter ended September 30, 2007.
Non-accruing loans at September 30, 2007 consisted of $483,000 in one-to-four family residential
mortgage loans and $33,000 in non-mortgage loans. At September 30, 2007 the Company’s ratio of
allowance for loan losses to non-performing loans was 81.34% compared to 82.22% at June 30, 2007.
Management believes that the current allowance for loan losses at September 30, 2007 is adequate to
cover probable accrued losses in the portfolio.
Midland Federal owns $1.1 million of stock in the Federal Home Loan Bank of Chicago (“FHLBC”) as a
member institution. The FHLBC has announced that it will not declare a quarterly dividend on its
stock for the third quarter, payable in the fourth quarter. The Company has no information on when
dividends payments on FHLBC stock will resume or the amount of any future dividends.
-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.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(Dollars in Thousands)
|
|
|
Non-Accruing Loans:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
483
|
|
|
$
|
484
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
Consumer
|
|
|
33
|
|
|
|
27
|
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
516
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed Assets:
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
516
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
Total as a percentage of total assets
|
|
|
0.41
|
%
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
|
As of September 30, 2007, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
420
|
|
|
$
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
One-to-four family loans
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
One-to-four family loans
|
|
|
—
|
|
|
|
—
|
|
|
Multi-family loans
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
—
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
—
|
|
|
|
6
|
|
|
Additions charged to operations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
420
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to
average loans outstanding during the period
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to
average non-performing assets
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans
|
|
|
81.34
|
%
|
|
|
151.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
0.50
|
%
|
|
|
0.46
|
%
|
At September 30, 2007, 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 probable
accrued losses in the portfolio, there can be no assurance that such losses will not exceed the
estimated amounts.
Deposits for the quarter ended September 30, 2007 decreased $890,000 to $108.9 million as a result
of withdrawals, net of deposits, in the amount of $1.4 million, offset by interest credited to
deposits in the amount of $525,000. The net decrease in deposits is primarily attributed to
continued intense competition for deposit accounts in a flat yield curve environment. The decrease
in deposits is the result of a $583,000 decrease in demand deposit accounts, a $437,000 decrease in
passbook deposit accounts, a $256,000 decrease in money market accounts and a $101,000 decrease in
NOW accounts offset by a $487,000 increase in certificate of deposit accounts.
Stockholders’ equity increased $103,000 to $13.8 million at September 30, 2007 from $13.7 million
at June 30, 2007. The increase in stockholders’ equity was due to net income of $192,000 offset by
the payment of cash dividends in the amount of $89,000.
-10-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 2007 was $192,000 compared to net income of $221,000
for the quarter ended September 30, 2006. Net income in the current quarter was decreased as the
result of a $140,000 decrease in net interest income offset by a $65,000 increase in non-interest
income, a $31,000 decrease in non-interest expense and a $15,000 decrease in income taxes.
The Company’s interest rate spread decreased to 3.36% for the quarter ended September 30, 2007 from
3.77% for the prior year quarter and largely reflects the flat yield curve environment. The
decrease in interest rate spread reflects an increase in the Company’s average yield paid on
interest costing deposits to 2.25% in the current quarter from 1.93% in the prior year quarter as
well as a decrease in the average yield earned on interest earning assets to 5.61% in the current
quarter from 5.70% in the prior year quarter. The average balance of net earning assets (average
interest earning assets minus average interest bearing liabilities) also decreased by $1.0 million
to $19.6 million compared with the prior year quarter.
Interest Income
Interest income decreased $71,000, or 4.1%, for the quarter ended September 30, 2007 as compared to
the same period last year. The decrease in interest income is primarily attributed to a $3.2
million decline in the average balance of interest earning assets to $119.5 million for the quarter
ended September 30, 2007 compared to $122.7 million for the quarter ended September 30, 2006. The
average yield on interest earning assets also decreased to 5.61% for the quarter ended September
30, 2007 from 5.70% in the prior year quarter.
Interest on loans receivable decreased $109,000, or 8.1%, for the quarter ended September 30, 2007
from the comparable quarter in 2006. The decrease in interest income is primarily attributed to a
$6.7 million decrease in the average outstanding balance of net loans receivable to $84.5 million
for the quarter ended September 30, 2007 from $91.2 million for the quarter ended September 30,
2006. The average yield earned on loans receivable also decreased to 5.88% for the quarter ended
September 30, 2007 as compared to 5.92% for the quarter ended September 30, 2006.
Interest on mortgage-backed securities decreased $2,000, or 8.0%, for the quarter ended September
30, 2007 from the comparable quarter in 2006. The decrease in interest income is attributed to a
$264,000 decrease in the average balance of mortgage-backed securities to $1.4 million from $1.6
million in the prior year quarter. The decrease in the average balance of mortgage-backed
securities was offset by an increase in the average yield earned on mortgage-backed securities to
5.84% for the quarter ended September 30, 2007 from 5.32% in the year earlier period. The increase
in the average yield earned on mortgage-backed securities was the result of the Company’s
adjustable rate mortgage-backed securities re-pricing at higher yields as market interest rates
applicable to the interest rate indices used for these securities increased between the two
quarterly periods.
Interest on investment securities decreased $20,000 to $240,000 for the quarter ended September 30,
2007 from $260,000 for the prior year quarter due to a decrease in the average outstanding balance
of investment securities. For the quarter ended September 30, 2007 the average outstanding balance
of investment securities decreased $1.6 million to $19.0 million from $20.6 million in the 2006
quarter as a result of maturities. The average yield earned on investment securities increased
slightly to 5.06% for the quarter ended September 30, 2007 from 5.05% in the year earlier period.
-11-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Interest Income (continued)
Interest earned on interest bearing deposits increased $59,000 to $167,000 for the quarter ended
September 30, 2007 from $108,000 for the prior year quarter. The increase in interest income is
attributed to a $5.3 million increase in the average outstanding balance of interest bearing
deposits to $13.5 million for the quarter ended September 30, 2007 from $8.2 million in the 2006
quarter. Management decided to increase the Company’s investment in interest bearing deposits in
order to capture slightly higher yields compared to direct investment in short term United States
Treasury Securities. The increase in the average outstanding balance of interest bearing deposits
offset a decrease in the average yield earned on interest bearing deposits to 4.94% for the quarter
ended September 30, 2007 from 5.26% in the 2006 quarter.
Interest Expense
Interest expense increased $69,000, or 14.0%, for the quarter ended September 30, 2007 compared
with the prior year quarter. The increase in interest expense is attributable to an increase in
the average yield paid on interest costing deposits to 2.25% from 1.93% for the quarter ended
September 30, 2006. The increase in the average yield paid on interest costing deposits was offset
by a decrease in the average balance of interest costing deposits. The average balance of interest
costing deposits decreased by $2.2 million to $99.9 million for the quarter ended September 30,
2007 from $102.1 million in the prior year quarter.
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 $420,000, or .50% of total loans, at September
30, 2007 compared to $420,000, or .49% of total loans, at June 30, 2007. After considering the low
level of non-performing loans, the high concentration of one-to-four family mortgage loans in the
loan portfolio, the level and nature of its charge offs and recoveries, the stable housing market
in its primary lending area and the volume of its loan activity, the Company determined that the
$420,000 allowance for loan losses was 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. As a result, the Company made no loan loss provisions during the quarter ended
September 30, 2007.
Non-Interest Income
Non-interest income increased $64,000 to $262,000 in the quarter ended September 30, 2007 as
compared to the prior year quarter. The primary factors for the increase in non-interest income
were a $67,000 gain on the sale of a marketable equity, a $9,000 increase in gain on the sale of
loans, as the Company continues to emphasize loan sale activity, and a $5,000 increase in
commission income, offset by a $16,000 decrease in deposit related fees.
Non-Interest Expense
Non-interest expense decreased $31,000 to $1.1 million in the quarter ended September 30, 2007 as
compared to the prior year quarter. The decrease in non-interest expense is primarily the result
of a $38,000 decrease in staffing costs offset by a $9,000 increase in computer software and
support expense and an $8,000 increase in professional fees. The decrease in staffing costs is
primarily attributed to a $31,000 decrease in the cost of employee pension and health insurance
benefits.
-12-
MIDLAND CAPITAL HOLDINGS CORPORATION
AND SUBSIDIARIES
Income Taxes
Income taxes increased by $15,000 to $99,000 in the quarter ended September 30, 2007 from $114,000
for the same period last year. The decreased income tax provision was due to the decrease in
operating income in the quarter ended September 30, 2007 as compared to the quarter ended September
30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s principal sources of funds are deposits, loan and mortgage backed securities
repayments, proceeds from the sale and 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 September 30, 2007 the Company had commitments to originate $225,000 in
loans, all of which were one-to-four family loans as well as unused lines of credit of $3.9
million. At September 30, 2007 the Company had commitments to sell $1.0 million in loans. Also on
that date, the Company had $32.4 million of certificate of deposit accounts maturing within one
year. The Company anticipates that it will retain a majority of such funds.
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, 2007, the Association had tangible and core capital of $11.1 million, or 8.89% of
adjusted total assets, which was approximately $9.2 million and $7.3 million above the minimum
requirements in effect on that date of 1.5% and 3.0%, respectively, of adjusted total assets.
At September 30, 2007, the Association had total capital of $11.5 million (including $11.1 million
in core capital) and risk-weighted assets of $54.5 million, or total capital of 21.15% of
risk-weighted assets. This amount was $7.2 million above the 8.0% requirement in effect on that
date.
Item 3. CONTROLS AND PROCEDURES
The Company has adopted disclosure controls and procedures designed to facilitate the Company’s
financial reporting. The 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 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.
-13-
MIDLAND CAPITAL HOLDINGS CORPORATION AND SUBSIDIARIES
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 that
will 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
See Exhibit Index.
-14-
INDEX TO EXHIBITS
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Exhibit
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Number
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Description
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11
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Computation of Per Share Earnings
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31.1
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Rule 13a-14(a)/15d-14(a) Certification
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32.1
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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-15-
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.
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MIDLAND CAPITAL HOLDINGS CORPORATION
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Registrant
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DATE: November 14, 2007
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BY: /s/ Paul Zogas
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Paul Zogas
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President, Chief Executive Officer
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and Chief Financial Officer
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Midland Capital (PK) (USOTC:MCPH)
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