UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20519
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
-----------------
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: 0-23620
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Mid Continent Bancshares, Inc.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in its charter
Kansas 48-1146797
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
124 West Central, El Dorado, Kansas 67042
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(316) 321-2700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant 91) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for short period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
Date: January 31, 1997
Class: $0.10 par value, common stock
Outstanding: 1,984,250 shares
MID CONTINENT BANCSHARES, INC.
INDEX
Page Number
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Balance Sheets as of December 31, 1996 (Unaudited)
and September 30, 1996 3
Consolidated Statements of Income for the Three Months
Ended December 31, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Stockholders' Equity for the
Three Months Ended December 31, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
PART II - OTHER INFORMATION 16 - 17
SIGNATURES 18
MID CONTINENT BANCSHARES, INC.
PART I
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September December
30, 31,
1996 1996
(Unaudited)
------------------------
(Dollars in Thousands)
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions $1,694 $1,542
Interest bearing deposits in other banks 3,924 7,140
------- -------
Total cash and cash equivalents 5,618 8,682
INVESTMENT SECURITIES 86,235 87,268
CAPITAL STOCK OF FEDERAL HOME LOAN BANK, at Cost 4,327 4,683
MORTGAGE-RELATED SECURITIES 34,383 33,305
LOANS HELD FOR SALE, at lower of cost or market value 13,718 16,221
LOANS RECEIVABLE (Less allowance for loan losses of $421 and $415) 171,158 179,142
PREMISES AND EQUIPMENT, Net 6,271 6,581
REAL ESTATE OWNED (Less allowance for losses of $34 and $34) 28 139
ACCRUED INTEREST RECEIVABLE 2,744 3,182
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED (Less
accumulated amortization of $1,055 and $1,067) 22 10
MORTGAGE SERVICING RIGHTS, Net 12,496 12,740
OTHER ASSETS 3,186 3,572
------- -------
TOTAL ASSETS $340,186 $355,525
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $214,493 $224,783
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE 1,805 588
INCOME TAXES PAYABLE, Net of deposits 240
DEFERRED INCOME TAXES 698 698
ACCRUED AND OTHER LIABILITIES 4,683 3,873
ADVANCES FROM FEDERAL HOME LOAN BANK 81,700 87,500
------- -------
Total liabilities 303,379 317,682
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, no par, 10,000,000 shares authorized,
no shares issued or outstanding
COMMON STOCK, $0.10 par value, 20,000,000 shares 225 225
authorized, 2,248,250 shares issued
ADDITIONAL PAID-IN CAPITAL 21,663 21,703
LESS UNEARNED COMPENSATION - EMPLOYEE STOCK OWNERSHIP PLAN (1,054) (1,014)
LESS UNEARNED COMPENSATION - MANAGEMENT STOCK BONUS PLAN (547) (497)
RETAINED EARNINGS, Substantially restricted 20,424 21,330
Total 40,711 41,747
TREASURY STOCK, 231,500 shares, at cost (3,904) (3,904)
------- -------
Total stockholders' equity 36,807 37,843
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $340,186 $355,525
======== ========
See notes to consolidated financial statements.
3
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
DECEMBER 31,
1995 1996
(Unaudited) (Unaudited)
-----------------------------
(Dollars in Thousands)
INTEREST INCOME:
Loans receivable $2,794 $3,648
Mortgage-related securities 776 654
Investment securities 1,047 1,771
Other interest-cash and cash equivalents 109 49
----- -----
Total interest income 4,726 6,122
----- -----
INTEREST EXPENSE:
Deposits 2,261 2,655
Advances from Federal Home Loan Bank 545 1,252
----- -----
Total interest expense 2,806 3,907
----- -----
NET INTEREST INCOME 1,920 2,215
PROVISION FOR LOAN LOSSES -- 25
----- -----
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,920 2,190
----- -----
OTHER INCOME:
Gain on sale of loans, net 334 291
Loan servicing fees 1,213 1,207
Amortization of mortgage servicing rights (402) (421)
Service fees and other charges to customers 618 704
Insurance commissions 3 16
Other 3 53
----- -----
Total other income 1,769 1,850
----- -----
OTHER EXPENSE:
Salaries and employee benefits 1,133 1,129
Federal insurance premiums 109 96
Professional services 66 57
Occupancy of premises 224 291
Provision for losses on real estate owned
Office supplies and related expenses 139 141
Data processing 143 154
Amortization of excess cost over fair value of assets acquired 17 12
Advertising and promotions 92 111
Deposit account expense 55 89
Loan servicing expense 78 66
Other 124 101
----- -----
Total other expenses 2,180 2,247
----- -----
INCOME BEFORE INCOME TAX EXPENSE 1,509 1,793
INCOME TAX EXPENSE 558 695
----- -----
NET INCOME $951 $1,098
===== ======
Earnings per share $0.48 $0.56
===== =====
Weighted average shares outstanding 1,999,846 1,949,911
========= =========
See notes to consolidated financial statements.
4
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
Unearned
Compensation Unearned
- Employee Compensation Retained
Common Stock Additional Stock Management Earnings, Treasury Stock Total
------------ Paid-In Ownership Stock Bonus Substantially -------------- Stockholders'
Shares Amount Capital Plan Plan Restricted Shares Amount Equity
BALANCE, October 1, 1996 2,248,250 $225 $21,663 ($1,054) ($547) $20,424 231,500 ($3,904) $36,807
Common stock committed
to be released for
allocation -
Employee Stock
Ownership Plan 40 40
Increase in fair
market value of
Employee Stock
Ownership Plan shares
committed to be
released for allocation 40 40
Amortization of
unearned
compensation -
Management Stock
Bonus Plan 50 50
Dividends on common
stock to stockholders (192) (192)
Net income 1,098 1,098
-----------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 2,248,250 $225 $21,703 ($1,014) ($497) $21,330 231,500 ($3,904) $37,843
===============================================================================================
See notes to consolidated financial statements.
5
MID CONTINENT BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
1995 1996
(Unaudited) (Unaudited)
---------- ---------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $951 $1,098
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Common Stock committed to be released for allocation - 39 40
Employee Stock Ownership Plan
Increase in fair market value of Employee Stock Ownership 26 40
Plan shares committed to be released for allocation
Amortization of unearned compensation - Management Stock Bonus Plan 50 50
Stock dividend on capital stock in Federal Home Loan Bank (36) (73)
Amortization of premiums and discounts on mortgage-related
securities and investment securities, net (33) (26)
Provision for loan losses 25
Net loan origination fees capitalized 344 240
Amortization of net deferred loan origination fees (48) (25)
Amortization of mortgage servicing rights 402 421
Mortgage servicing rights impairment 1
Amortization of excess of costs over fair value of asset acquired 17 12
Gain on sale of real estate owned, net (2) (18)
Depreciation on premises and equipment 110 132
Gain on sale of loans (334) (291)
Origination of loans held for sale (42,715) (53,109)
Proceeds from sale of loans held for sale 47,738 50,897
Changes in:
Accrued interest receivable (322) (438)
Other assets 203 (842)
Income taxes payable 283 695
Accrued and other liabilities 19 (811)
------ -------
Net cash provided by (used in) operating activities 6,692 (1,982)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity or call of investment securities 3,000 11,000
Purchases of investment securities (9,986) (12,283)
Principal collected on mortgage-related securities 1,737 1,071
Origination of loans receivable, net of principal collection (468) (8,386)
Acquisitions of mortgage servicing rights (619) (666)
Purchase of premises and equipment (556) (442)
Proceeds from sales of real estate owned 79 69
------- -------
Net cash used in investing activities (6,813) (9,637)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts (payments) for deposits, net (361) 10,290
Net decrease in advance payments by borrowers for taxes and insurance (1,659) (1,217)
Proceeds from advance from Federal Home Loan Bank 18,000 89,700
Repayments on advances from Federal Home Loan Bank (15,000) (83,900)
Acquisition of Treasury Stock (1,368) --
Cash dividends on common stock to stockholders (204) (190)
------ ------
Net cash provided by (used in ) financing activities (592) 14,683
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (713) 3,064
CASH AND CASH EQUIVALENTS:
Beginning of period 5,677 5,618
------ ------
End of period $4,964 $8,682
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments (refunds) $275 $ 0
====== ======
Interest payments $2,814 $3,930
====== ======
Loans transferred to real estate owned -- $162
====== ======
Accrued dividends on common stock $198 $192
====== ======
See notes to consolidated financial statements
6
MID CONTINENT BANCSHARES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mid Continent
Bancshares, Inc., (the Company), and its wholly-owned subsidiary, Mid-Continent
Federal Savings Bank (the Bank) and its subsidiary, Laredo Investment, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of December 31, 1996, the consolidated
statements of income for the three months ended December 31, 1995 and 1996,
stockholders' equity for the three months ended December 31, 1996 and cash flows
for the three months ended December 31, 1995 and 1996, have been prepared by the
Company, without audit, and therefore do not include information or footnotes
necessary for a complete presentation of consolidated financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. These consolidated financial statements should be read in
conjunction with the September 30, 1996 financial statements and notes thereto
included in the Annual Report of the Company. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary for the
fair presentation of the consolidated financial statements have been included.
The results of operations for the three months ended December 31, 1996 are not
necessarily indicative of the results which may be expected for the entire year.
3. DIVIDENDS ON COMMON STOCK
On December 19, 1996 the Company declared a $0.10 per share cash dividend to
shareholders of record on January 2, 1997. The dividend was paid on January 16,
1997.
4. NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1995, FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which became
effective for the Company beginning October 1, 1996. This Statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
7
the undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized to reduce the carrying amount to the fair value of
the asset. Generally, long-lived assets and certain identifiable intangibles
that are to be disposed of should be reported at the lower of the carrying
amount or fair value less costs to sell. The implementation of this Statement
did not have a material impact on the consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which became effective for the Company beginning October 1, 1996.
SFAS No. 123 requires increased disclosure of compensation expense arising from
both fixed and performance stock compensation plans. Such expense will be
measured as the fair value of the award at the date it is granted using an
option-pricing model that takes into account the exercise price and expected
volatility, expected dividends on the stock and the expected risk-free rate of
return during the term of the option. The compensation cost would be recognized
over the service period, usually the period from the grant date to the vesting
date. SFAS No. 123 encourages, rather than requires, companies to adopt a new
method that accounts for stock compensation awards based on their estimated fair
value at the date they are granted. Companies would be permitted, however, to
continue accounting under Accounting Principles Board ("APB") Opinion No. 25.
The Company will continue to apply APB Opinion No. 25 in their financial
statements and will be required to disclose pro forma net income and earnings
per share in a footnote, determined as if the Company had applied the new
method.
In December 1996, the FASB issued SFAS No. 127, deferring the effective date of
certain provisions of SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 125 will now
become effective for the Company for transfers of financial assets occurring
after December 31, 1997 and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. SFAS No.125 supersedes SFAS No.
122, Accounting for Mortgage Servicing Rights. For each servicing contract in
existence before January 1, 1997, previously recognized servicing rights and
"excess servicing" receivables shall be combined, net of any previously
recognized servicing obligations under that contract, as a servicing asset or
liability. The Statement provides that servicing assets and other retained
interests in transferred assets be measured by allocating the previous carrying
amount between the assets sold, if any, and retained interest, if any, based on
their relative fair values at the date of the transfer, and servicing assets and
liabilities be subsequently measured by (1) amortization in proportion to and
over the period of estimated net servicing income or loss, and (2) assessment
for asset impairment or increased obligation based on their fair values. The
Company does not anticipate that the implementation of this Statement will have
a material impact on the consolidated financial statements.
8
5. LOANS RECEIVABLE
September 30, December 31,
1996 1996
(Unaudited)
---------------- --------------
(Dollars in Thousands)
First mortgage loans:
Residential-one-to-four units $157,494 $166,689
Secured by other properties 1,013 1,000
Construction loans 17,367 15,635
------- -------
175,874 183,324
------- -------
Other installment loans:
Property improvement, auto and other 5,195 5,304
Mobile home 305 257
Deposits 769 746
------- -------
6,269 6,307
------- -------
Less:
Unearned discounts and loan fees 157 28
Undisbursed loan funds 10,407 10,046
Allowance for loan losses 421 415
------- -------
$171,158 $179,142
======== ========
The Bank services loans for others which are not included in the accompanying
consolidated balance sheets. The approximate unpaid principal balances of these
loans are summarized as follows:
September 30, December 31,
1996 --------------
1996
(Unaudited)
-------------- --------------
(Dollars in Thousands)
Government National Mortgage Association $875,381 $871,767
Federal National Mortgage Association 115,492 111,684
Federal Home Loan Mortgage Corporation 231,515 256,942
Other Investors 6,765 6,525
---------- ----------
$1,229,153 $1,246,918
========== ==========
6. MORTGAGE SERVICING RIGHTS (MSR)
Following is an analysis of the changes in mortgage servicing rights:
Three Months Ended
December 31,
(Unaudited)
1995 1996
-------------- ----------------
(Dollars in Thousands)
Balance, Beginning of period $11,625 $12,496
Additions 619 666
Amortization (402) (421)
----- -----
11,842 12,741
Less: Impairment -- 1
-- -
Balance, End of period $11,842 $12,740
======= =======
9
7. CONTINGENCIES
LEGAL PROCEEDINGS
- -----------------
Supreme Court Ruling on Breach of Contract Regarding Supervisory Goodwill:
Mid-Continent Federal Savings Bank, the wholly-owned subsidiary of Mid Continent
Bancshares, Inc., is pursuing its claim against the federal government to
recover funds lost as a result of the enactment of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). In 1986, the Bank was
encouraged by the federal government to acquire an insolvent thrift institution
("Reserve Savings and Loan Association"). The federal government allowed the
Bank to count the insolvent thrift's losses as "goodwill" assets and to
double-count as "capital credit" federal government funds provided to help the
Bank take over the failing thrift. The Bank contends (among other things) in its
lawsuit that the federal government breached its contract with the Bank when
FIRREA was enacted because FIRREA prevented the Bank from counting such assets
toward minimum capital requirements. As a result of FIRREA, the Bank was forced
to write off approximately $7,500,000 in supervisory goodwill. This write off
reduced the Bank's regulatory capital.
On July 1, 1996, the United States Supreme Court Affirmed decisions by a federal
appellate court that the government had breached express contracts with three
thrifts (U.S. v. Winstar Corp. et al.) and therefore was liable for damages.
Those lawsuits stemmed from circumstances that are similar to those of the Bank;
in order to persuade those thrifts to acquire certain insolvent thrift
institutions, the federal government promised accounting treatment similar to
that promised to the Bank.
While the Supreme Court's ruling in U.S. v. Winstar Corp. et al., serves to
support the Bank's legal claims in its pending lawsuit against the federal
government, it is not possible at this time to predict what effect the Supreme
Court's ruling, and subsequent rulings of a lower court concerning damages, will
have on the outcome of the Bank's lawsuit. Notwithstanding the Supreme Court's
ruling, there can be no assurance that the Bank will be able to recover any
funds arising out of its claim and, if any recovery is made, the amount of such
recovery.
8. SUBSEQUENT EVENTS
During the month of January 1997, the Company acquired an additional 32,500 of
treasury stock, at a cost of $794,000.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Mid Continent Bancshares, Inc. is a Kansas corporation organized in January,
1994. The Holding Company is engaged in the business of directing and planning
the activities of Mid-Continent Federal Savings Bank, the holding company's
primary asset.
Mid-Continent Federal Savings Bank is engaged principally in the business of
attracting deposits from the general public and using such deposits, together
with other borrowed funds, to originate permanent and construction loans secured
by one-to-four family residential real estate, to make permitted investments,
including mortgage-backed and mortgage-related securities, and to acquire the
rights to perform loan servicing functions for others.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Resources:
The Bank's primary sources of funds are deposits, advances from Federal Home
Loan Bank and proceeds from principal and interest payments on loans,
mortgage-related securities and investment securities. While maturities and
scheduled amortization of loans and mortgage-related securities are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
Dependent on the current economic conditions, the Bank receives additional funds
through unscheduled prepayments of mortgage loans and mortgage-related
securities.
The Office of Thrift Supervision (OTS) requires a savings institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 5% of the average daily balance of its net
withdrawable deposits and short-term borrowings. In addition, short-term liquid
assets currently must constitute 1% of the sum of net withdrawable deposit
accounts plus short-term borrowings. The Bank's actual liquidity ratios were
9.1% and 11.0% as of September 30, 1996 and December 31, 1996, respectively. The
Bank's short-term liquidity ratio was 3.7% and 5.0%, respectively.
Managing the Bank's liquidity levels is a daily and a long-term function of the
Bank and its Asset Liability Committee. Cash flows are monitored by the Bank on
a regular basis. Cash flow planning is utilized to enhance the Bank's earnings
where possible. Management believes that the Bank has access to ample funds to
meet any unforeseen liquidity needs of the near future.
The Bank has acquired real estate and construction is in progress for a future
branch office in Derby, Kansas. Expenditures for the future office will not have
an adverse impact on liquidity.
11
Capital Resources:
As required under the Financial Institution Reform, Recovery and Enforcement Act
(FIRREA) the Bank is required to maintain specific amounts of capital. As of
December 31, 1996, the Bank was in compliance with all regulatory capital
requirements. Capital includes tangible, core and risk-based capital ratios of
9.2%, 9.2% and 24.3%, respectively.
The Bank's capital requirements and actual capital under OTS regulations are as
follows as of December 31, 1996:
AMOUNT RATIO
(in thousands)
GAAP CAPITAL $32,936
=======
TANGIBLE CAPITAL:
ACTUAL $32,936 9.2%
REQUIRED 5,388 1.5%
------- -----
EXCESS $27,548 7.7%
======= =====
CORE CAPITAL:
ACTUAL $32,936 9.2%
REQUIRED 10,775 3.0%
------- -----
EXCESS $22,161 6.2%
======= ======
RISK-BASED CAPITAL:
ACTUAL $33,401 24.3%
REQUIRED 11,012 8.0%
------- -----
EXCESS $22,389 16.3%
======= ======
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
GENERAL - The Company's net income for the three months ended December 31, 1996
was $1,098 compared with $951 for the three months ended December 31, 1995.
NET INTEREST INCOME - The Company's net interest income is primarily dependent
upon the difference or "spread" between the yield earned on loans and
investments and the rate paid on deposits and borrowings, as well as the
relative amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. The Company, like other savings
institution holding companies, is subject to interest rate risk to the degree
that its interest-bearing liabilities mature or reprice at different times, or
on a different basis, than its interest-earning assets.
Net interest income for the three month period ended December 31, 1996 was
$2,215, representing a 15.4% increase from the three month period ended December
31, 1995. Interest-bearing assets and liabilities increased from December 31,
1995 to December 31, 1996. (Interest-bearing assets increased by $79,750, or
32.2%, while interest-bearing liabilities increased by $80,928, or 35.0%.) Total
interest income increased by 29.5% to $6,122 while interest expense increased
39.2% to $3,907.
INTEREST INCOME - Interest income for the three months ended December 31, 1996
was $6,122 compared with $4,726 for the three months ended December 31, 1995,
representing an increase of $1,396 or 29.5%.
The Bank's interest on loans receivable increased $854 during the three months
ended December 31, 1996 over the same period in 1995. This increase reflects an
increase in loans receivable. Loans held for investment purposes at December 31,
1996 were approximately $54,273 greater than at December 31, 1995.
Interest on mortgage-related securities decreased $122. The Bank's investment in
mortgage-related securities declined in the quarter ended December 31, 1996.
Income from the investment portfolio and cash and cash equivalents increased
$664. The improvement is due to an increase in investment securities of $28,434,
from $63,517 at December 31, 1995 to $91,951 at December 31, 1996.
INTEREST EXPENSE - Interest expense for the three months ended December 31, 1996
was $3,907 compared with $2,806 for the three months ended December 31, 1995,
representing an increase of $1,101 or 39.2%. The increased interest expense for
the period was the result of growth in the deposits of $29,428, from $195,355 at
December 31, 1995 to $224,783 at December 31, 1996, as well as an increased
amount of borrowings of $51,500, from $36,000 at December 31, 1995 to $87,500 at
December 31, 1996.
13
PROVISION FOR LOAN LOSSES - The Bank maintains an allowance for loan losses
based upon management's periodic evaluation of known and inherent risks in the
loan portfolio, the Bank's past loss experience, adverse situations that may
affect the borrowers' ability to repay loans, estimated value of the underlying
collateral and current and expected market conditions. During the three months
ended December 31, 1996 and 1995, respectively, the Bank recorded a provision
for loan losses of $25 and $0. Management believes the allowance for loan losses
as of December 31, 1996 is adequate to cover all material losses inherent in the
Bank's portfolio.
OTHER INCOME - Other income for the three month period ended December 31, 1996
was $1,850 compared with $1,769 for the three months ended December 31, 1995,
representing an increase of $81. At December 31, 1996, the Bank was servicing
approximately $1,246,918 of mortgage loans for others. At December 31, 1995, the
Bank was servicing approximately $1,199,763 of mortgage loans for others. The
Bank's total servicing portfolio for others increased $47,155, or 3.9%.
Revenue from loan servicing fees (net of MSR amortization), decreased $25, from
$811 for the quarter ended December 31, 1995 to $786 for the quarter ended
December 31, 1996. Gross loan servicing fees decreased $6 from $1,213 for the
three months ended December 31, 1995 to $1,207 for the three months ended
December 31, 1996. Amortization of mortgage servicing rights increased $19 in
the 1996 quarter when compared to the same 1995 quarter.
Service fees and other charges to customers increased $86, from $618 for the
quarter ended December 31, 1995 to $704 for the quarter ended December 31, 1996.
A primary source of the increase in service fees from customers is the Bank's
checking account programs. The number of checking accounts increased from
approximately 14,100 at December 31, 1995 to approximately 16,400 at December
31, 1996. In addition to enhancing service fee income, the checking account
programs provide a source of low-cost deposits for the Bank.
Loans held for sale decreased $1,199, or 6.9%, to $16,221 at December 31, 1996,
compared to $17,420 at December 31, 1995. Sales of loans held for sale increased
$3,159, or 6.6%, from $47,738 for the quarter ended December 31, 1995 to $50,897
for the quarter ended December 31, 1996. Gain on the sale of loans decreased
from $334 for the quarter ended December 31, 1995 to $291 for the quarter ended
December 31, 1996. Although the Company reduces the level of market risk by
obtaining commitments to sell loans at fixed prices, it cannot eliminate all
such risks.
OTHER EXPENSE - Other expenses for the three months ended December 31, 1996
totaled $2,247 compared to $2,180 for the three months ended December 31, 1995.
Other expenses consisted of compensation related expenses, building and
maintenance expenses, federal insurance premiums, audit and OTS examination
fees, and other general and administrative expenses.
Salaries and employee benefits decreased from $1,133 in the December 31, 1995
quarter to $1,129 in the December 31, 1996 quarter.
Office occupancy, supplies and data processing expenses collectively increased
$80 in the December
14
31, 1996 quarter compared to the December 31, 1995 quarter. The Bank opened two
additional full service branches in 1996. In addition to general increases in
costs of services, the December 31, 1996 quarter includes the costs of nine full
service branches in 1996, compared to seven in 1995.
Advertising and promotion and deposit account expenses collectively increased
$53 in the December 31, 1996 quarter compared to the December 31, 1995 quarter.
These expenses are primarily for the promotion and related costs associated with
opening new offices and the Bank's checking account programs.
Loan servicing expenses decreased from $78 for the quarter ended December 31,
1995 to $66 for the quarter ended December 31, 1996. These expenses are for
custodial fees for loan documents, additional loan pay off interest associated
with GNMA pooled mortgages and improvements in the Bank's mortgage payment and
processing systems.
INCOME TAXES - Income tax expense for the three months ended December 31, 1996
was $695 which represents an effective tax rate of 38.8%. Income tax expense for
the three months ended December 31, 1995 was $558 which represents an effective
tax rate of 37.0%.
15
MID CONTINENT BANCSHARES, INC.
PART II
Item 1. Legal Proceedings
The Company has no material proceedings pending against it.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The 1997 Annual Meeting of Stockholders of Mid Continent Bancshares,
Inc. was held on January 23, 1997.
The Meeting was for the purpose of considering and acting upon the
following matters.
1. The election of three directors of the Company.
2. The ratification of the appointment of Deloitte & Touche LLP
as independent auditors of Mid Continent Bancshares, Inc. for
the fiscal year ending September 30, 1997.
The following chart shows the voting results on the above matters.
1. Election of three directors
Votes For Votes Withheld
--------- --------------
Richard T. Pottorff 1,789,324 2,024
Kenneth B. Dellett 1,789,324 2,024
Ron J. McGraw 1,789,124 2,224
Affirmative Negative
Votes Votes Abstentions
----- ----- -----------
2. Ratification of appointment of
Deloitte and Touche LLP as
independent auditors for the
fiscal year ending
September 30, 1997 1,784,545 3,450 3,353
16
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mid Continent Bancshares, Inc.
------------------------------
February 4, 1997 /s/Richard T. Pottorff
- ---------------------------- ---------------------------------------
Date Richard T. Pottorff
President
Chief Executive Officer
February 4, 1997 /s/Larry R. Goddard
- ---------------------------- ---------------------------------------
Date Larry R. Goddard
Executive Vice President
Chief Financial Officer
18