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 March 31, 1997
--------------
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
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
124 West Central, El Dorado, Kansas 67042
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(316) 321-2700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) 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
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Date: April 30, 1997
Class: $0.10 par value, common stock
Outstanding: 1,958,250 shares
MID CONTINENT BANCSHARES, INC.
INDEX
Page Number
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
and September 30, 1996 3
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the Six
Months Ended March 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
PART II - OTHER INFORMATION 20
SIGNATURES 21
2
MID CONTINENT BANCSHARES, INC.
PART I
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1996 1997
(Unaudited)
-------------- --------------
(Dollars in Thousands)
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions $1,694 $1,957
Interest bearing deposits in other banks 3,924 6,058
----- -----
Total cash and cash equivalents 5,618 8,015
INVESTMENT SECURITIES 86,235 98,741
CAPITAL STOCK OF FEDERAL HOME LOAN BANK, at Cost 4,327 4,759
MORTGAGE-RELATED SECURITIES 34,383 31,841
LOANS HELD FOR SALE, at lower of cost or market value 13,718 16,071
LOANS RECEIVABLE (Less allowance for loan losses of $421 and $378) 171,158 185,919
PREMISES AND EQUIPMENT, Net 6,271 6,879
REAL ESTATE OWNED (Less allowance for losses of $34 and $44) 28 245
ACCRUED INTEREST RECEIVABLE 2,744 3,180
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED (Less accumulated
amortization of $1,055 and $1,077) 22 --
MORTGAGE SERVICING RIGHTS, Net 12,496 12,943
OTHER ASSETS 3,186 2,576
----- -----
TOTAL ASSETS $340,186 $371,169
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $214,493 $233,393
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE 1,805 1,358
INCOME TAXES PAYABLE, Net of deposits 265
DEFERRED INCOME TAXES 698 698
ACCRUED AND OTHER LIABILITIES 4,683 3,176
ADVANCES FROM FEDERAL HOME LOAN BANK 81,700 95,000
------ ------
Total liabilities 303,379 333,890
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 authorized, 2,248,250 shares issued 225 225
ADDITIONAL PAID-IN CAPITAL 21,663 21,755
LESS UNEARNED COMPENSATION-EMPLOYEE STOCK OWNERSHIP PLAN (1,054) (980)
LESS UNEARNED COMPENSATION-MANAGEMENT STOCK BONUS PLAN (547) (448)
RETAINED EARNINGS, Substantially restricted 20,424 22,113
------ ------
Total 40,711 42,665
TREASURY STOCK, 231,500 and 290,000 shares, at cost (3,904) (5,386)
------- -------
Total stockholders' equity 36,807 37,279
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $340,186 $371,169
======== ========
See notes to consolidated financial statements
3
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, March 31,
--------------------------- --------------------------
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Loans receivable $ 2,706 $ 3,685 $ 5,500 $ 7,333
Mortgage-related securities 706 632 1,482 1,286
Investment securities 1,205 1,768 2,252 3,539
Other interest-cash and cash equivalents 90 79 199 128
----------- ----------- ----------- -----------
Total interest income 4,707 6,164 9,433 12,286
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 2,323 2,816 4,584 5,471
Advances from Federal Home Loan Bank 590 1,260 1,135 2,512
----------- ----------- ----------- -----------
Total interest expense 2,913 4,076 5,719 7,983
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,794 2,088 3,714 4,303
PROVISION FOR (RECOVERY OF) LOAN LOSSES (7) -- (7) 25
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,801 2,088 3,721 4,278
----------- ----------- ----------- -----------
OTHER INCOME:
Loan servicing fees 1,193 1,193 2,406 2,400
Amortization of mortgage servicing rights (458) (441) (860) (862)
Service fees and other charges to customers 632 706 1,251 1,410
Gain on sale of loans, net 409 225 743 516
Insurance commissions 44 3 47 19
Other -- 23 3 76
----------- ----------- ----------- -----------
Total other income 1,820 1,709 3,590 3,559
----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 1,149 1,134 2,282 2,263
Occupancy of premises 237 291 461 582
Office supplies and related expenses 188 174 327 315
Data processing 149 137 292 291
Advertising and promotions 118 126 210 237
Federal insurance premiums 112 35 221 131
Professional services 69 78 135 135
Provision for losses on real estate owned 18 10 18 10
Amortization of excess cost over fair value of asset acquired 16 11 33 22
Deposit account expense 72 70 127 159
Loan servicing expense 78 59 156 125
Other 130 123 255 225
----------- ----------- ----------- -----------
Total other expenses 2,336 2,248 4,517 4,495
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,285 1,549 2,794 3,342
INCOME TAX EXPENSE 465 581 1,023 1,276
----------- ----------- ----------- -----------
NET INCOME $ 820 $ 968 $ 1,771 $ 2,066
=========== =========== =========== ===========
Earnings per share $ 0.42 $ 0.50 $ 0.89 $ 1.06
=========== =========== =========== ===========
Weighted average shares outstanding 1,964,079 1,932,105 1,982,060 1,941,119
=========== =========== =========== ===========
See notes to consolidated financial statements
4
================================================================================
MID CONTINENT BANCSHARES, INC.
================================================================================
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1997
Unearned
Compensation Unearned
- Employee Compensation Retained
Additional Stock Management Earnings, Total
Common Stock Paid-In Ownership Stock Bonus Substantially Treasury Stock 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
Acquisition of
Treasury Stock 58,500 (1,482) (1,482)
Common stock
committed to be
released for
allocation
- - Employee
Stock
Ownership Plan 74 74
Increase in
fair market
value of
Employee
Stock
Ownership
Plan shares
committed to
be released
for allocation 92 92
Amortization
of unearned
compensation
- - Management
Stock Bonus
Plan 99 99
Dividends on
common stock
to stockholders (377) (377)
Net income 2,066 2,066
============ ======== =========== ============ =========== ============= ======== ========= ===============
BALANCE,
March 31, 1997 2,248,250 $225 $21,755 ($980) ($448) $22,113 290,000 ($5,386) $37,279
============ ======== =========== ============ =========== ============= ======== ========= ===============
See Notes to consolidated financial statements.
5
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
MARCH 31,
1996 1997
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,771 $ 2,066
Adjustments to reconcile net income to net cash provided by (used in operating activities:
Common stock committed to be released for allocation - Employee Stock Ownership Plan 73 74
Increase in fair market value of Employee Stock Ownership Plan shares committed to be
realized for allocation 53 92
Amortization of unearned compensation - Management Stock Bonus Plan 99 99
Stock dividend on capital stock in Federal Home Loan Bank (70) (149)
Amortization of premiums and discounts on mortgage-related securities and investment
securities, net (74) (53)
Provision for (recovery of) loan losses (7) 25
Provision for losses on real estate owned 18 10
Net loan origination fees capitalized 815 566
Amortization of net deferred loan origination fees (76) (54)
Amortization of mortgage servicing rights 860 862
Impairment of mortgage servicing rights 9 4
Amortization of excess of costs over fair value of asset acquired 33 22
Gain on sale of real estate owned -- (18)
Depreciation on premises and equipment 226 261
Gain on sale of loans, net (743) (516)
Origination of loans held for sale (78,848) (106,889)
Proceeds from sale of loans held for sale 80,914 105,052
Changes in:
Accrued interest receivable (247) (436)
Other assets 506 153
Income taxes payable (613) 720
Accrued and other liabilities 1,474 (1,501)
--------- ---------
Net cash provided by operating activities 6,173 390
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity or call of investment securities 17,000 11,000
Purchases of investment securities (40,922) (23,722)
Principal collected on mortgage-related securities 3,128 2,528
Origination of loans receivable, net of principal collection (2,848) (15,564)
Acquisitions of mortgage servicing rights (1,231) (1,313)
Purchases of premises and equipment (924) (869)
Proceeds from sales of real estate owned 148 57
--------- ---------
Net cash used in investing activities (25,649) (27,883)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts for deposits, net 11,192 18,900
Net decrease in advance payments by borrowers for taxes and insurance (1,172) (446)
Proceeds from advances from Federal Home Loan Bank 47,700 149,700
Repayments on advances from Federal Home Loan Bank (38,500) (136,400)
Cash dividend on common stock to stockholders (198) (382)
Acquisition of Treasury Stock (1,905) (1,482)
--------- ---------
Net cash provided by financing activities 17,117 29,890
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (2,359) 2,397
CASH AND CASH EQUIVALENTS:
Beginning of period 5,677 5,618
========= =========
End of period $ 3,318 $ 8,015
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments $ 1,636 $ 556
========= =========
Interest payments $ 5,786 $ 8,015
========= =========
Loans transferred to real estate owned $ 168 $ 266
========= =========
Accrued dividends on common stock $ 194 $ 186
========= =========
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 March 31, 1997, the consolidated statements
of income for the three and six months ended March 31, 1996 and 1997,
consolidated stockholders' equity for the six months ended March 31, 1997 and
consolidated cash flows for the six months ended March 31, 1996 and 1997, 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. It is suggested that these
consolidated financial statements 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 and six months ended March 31, 1997 are not necessarily indicative
of the results which may be expected for the entire year.
3. DIVIDENDS ON COMMON STOCK
On March 27, 1997 the Company declared a $0.10 per share cash dividend to
shareholders of record on April 10, 1997. The dividend was paid on April 24,
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
7
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 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" reeceivables 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.
In February 1997, the FASB issued SFAS No. 128 Earnings per Share. The Statement
establishes standards for computing and presenting earnings per share (EPS). It
replaces the presentation of primary EPS with a presentation of basic EPS and
may require additional disclosure of the EPS computation. The Statement is
effective for the Company's financial
8
statements as of September 30, 1998. The Company does not anticipate that the
implementation of this Statement will have a material impact on the consolidated
financial statements.
In February 1997, the FASB also issued SFAS No. 129 Disclosure of Information
about Capital Structure. The Statement establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
the Company's financial statements as of September 30, 1998. The Company does
not anticipate that the implementation of this Statement will have a material
impact on the consolidated financial statements.
9
5. LOANS RECEIVABLE
September 30, March 31,
1996 1997
(Unaudited)
----------------------- --------------------
(Dollars in Thousands)
First mortgage loans:
Residential-one-to-four units $157,494 $171,808
Secured by other properties 1,013 956
Construction loans 17,367 17,197
----------------------- --------------------
175,874 189,961
----------------------- --------------------
Other installment loans:
Property improvement, auto and other 5,195 5,526
Mobile home 305 207
Deposits 769 723
----------------------- --------------------
6,269 6,456
----------------------- --------------------
Less:
Unearned discounts and loan fees 157 (28)
Undisbursed loan funds 10,407 10,148
Allowance for loan losses 421 378
======================= ====================
$171,158 185,919
======================= ====================
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, March 31,
1996 1997
(Unaudited)
-------------- -------------
(Dollars in Thousands)
Government National Mortgage Association $875,381 $868,997
Federal National Mortgage Association 115,492 108,603
Federal Home Loan Mortgage Corporation 231,515 286,060
Other Investors 6,765 6,295
---------- ----------
$1,229,153 $1,269,955
========== ==========
6. MORTGAGE SERVICING RIGHTS (MSR)
Following is an analysis of the changes in mortgage servicing rights:
Six Months Ended
March 31,
(Unaudited)
1996 1997
---------------------- --------------------
(Dollars in Thousands)
Balance, Beginning of period $11,625 $12,496
Additions 1,231 1,313
Amortization (860) (862)
---------------------- --------------------
11,996 12,947
Allowance for loss 9 4
====================== ====================
Balance, End of period $11,987 $12,943
====================== ====================
10
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.
11
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 function 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 11.1% as of September 30, 1996 and March 31, 1997, respectively. The
Bank's short-term liquidity ratio was 3.7% and 6.9%, 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.
12
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
March 31, 1997, the Bank was in compliance with all regulatory capital
requirements. Capital includes tangible, core and risk-based capital ratios of
9.1%, 9.1% and 24.0%, respectively.
The Bank's capital requirements and actual capital under OTS regulations are as
follows as of March 31, 1997:
AMOUNT RATIO
(in thousands)
GAAP CAPITAL $33,923
==================
TANGIBLE CAPITAL:
ACTUAL $33,923 9.1%
REQUIRED 5,586 1.5%
================== ==================
EXCESS $28,337 7.6%
================== ==================
CORE CAPITAL:
ACTUAL $33,923 9.1%
REQUIRED 11,173 3.0%
================== ==================
EXCESS $22,750 6.1%
================== ==================
RISK-BASED CAPITAL:
ACTUAL $34,345 24.0%
REQUIRED 11,423 8.0%
================== ==================
EXCESS $22,922 16.0%
================== ==================
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in Thousands)
GENERAL - The Company's net income for the three months ended March 31, 1997 was
$968 compared with $820 for the three months ended March 31, 1996.
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 difference times, or
on a different basis, than its interest-earning assets.
Net interest income for the three months ended March 31, 1997 was $2,088,
representing a 16.4% increase from the three month period ended March 31, 1996.
Interest-bearing assets and liabilities increased from March 31, 1996 to March
31, 1997. (Interest-bearing assets increased by $76,346, or 28.6%, while
interest-bearing liabilities increased by $79,286 or 31.8%.) Total interest
income increased by 31.0% to $6,164, while interest expense increased 39.9% to
$4,076.
INTEREST INCOME - Interest income for the three months ended March 31, 1997 was
$6,164 compared with $4,707 for the three months ended March 31, 1996,
representing an increase of $1,457 or 31.0%.
The Bank's interest on loans receivable increased $979 during the three months
ended March 31, 1997 over the same period in 1996. This increase reflects the
increase in loans receivable. Loans held for investment purposes at March 31,
1997 was approximately $59,174 greater than such loans at March 31, 1996.
Interest on mortgage-related securities decreased $74. The Bank's investment in
mortgage-related securities declined in the quarter ended March 31, 1997.
Income from the investment portfolio and cash and cash equivalents increased
$552. The improvement is due to an increase in investment securities of $22,966,
from $80,534 at March 31, 1996 to $103,500 at March 31, 1997.
INTEREST EXPENSE - Interest expense for the three months ended March 31, 1997
was $4,076 compared with $2,913 for the three months ended March 31, 1996,
representing an increase of $1,163, or 39.9%. The increased interest expense for
the period was the result of growth in the deposits of $26,485, from $206,908,
at March 31, 1996 to $233,393 at March 31, 1997, as well as an increased amount
of borrowings of $52,800, from $42,200 at March 31, 1996 to $95,000 at March 31,
1997.
14
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 March 31, 1997 and 1996, respectively, the Bank recorded a provision for
(recovery of) loan losses of $ -0- and $(7). Management believes the allowance
for loan losses as of March 31, 1997 is adequate to cover all material losses
inherent in the Bank's portfolio.
OTHER INCOME - Other income for the three month period ended March 31, 1997 was
$1,709 compared with $1,820 for the three months ended March 31, 1996,
representing a decrease of $111.
At March 31, 1997, the Bank was servicing approximately $1,269,955 of mortgage
loans for others. At March 31, 1996, the Bank was servicing approximately
$1,208,007 of mortgage loans for others. The Bank's total servicing portfolio
for others increased $61,948, or 5.1%.
Increases in revenue from non-interest sources came from loan servicing fees
(net of MSR amortization), which increased $17, from $735 for the quarter ended
March 31, 1996 to $752 for the quarter ended March 31, 1997, and service fees
and other charges to customers which increased $74, from $632 for the quarter
ended March 31, 1996 to $706 for the quarter ended March 31, 1997.
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 15,000 at March 31, 1996 to approximately 17,200 at March 31,
1997. 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 $4,714, or 22.7%, to $16,071 at March 31, 1997,
compared to $20,785 at March 31, 1996. Sales of loans held for sale increased
$20,979, or 63.2%, from $33,176 for the quarter ended March 31, 1996 to $54,155
for the quarter ended March 31, 1997. Gain on the sale of loans decreased from
$409 for the quarter ended March 31, 1996 to $225 for the quarter ended March
31, 1997. 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 March 31, 1997 totaled
$2,248 compared to $2,336 for the three months ended March 31, 1996. 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 $1,149 in the March 31, 1996
quarter to $1,134 in the March 31, 1997 quarter. Office occupancy, supplies and
data processing expenses collectively increased $28 in the March 31, 1997
quarter compared to the March 31, 1996 quarter. The Bank was operating two
15
additional full service branches in 1997, than were operated in 1996. In
addition to general increases in costs of services, the March 31, 1997 quarter
includes the costs of nine full service branches in 1997, compared to seven in
1996.
Federal insurance premiums decreased from $112 for the three months ended March
31, 1996 to $35 for the three months ended March 31, 1997. The decrease is
attributed to the premium rate reduction on FDIC deposits following the
recapitalization of SAIF.
Loan servicing expenses decreased from $78 for the quarter ended March 31, 1996
to $59 for the quarter ended March 31, 1997. 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 March 31, 1997 was
$581 which represents an effective tax rate of 37.5%. Income tax expense for the
three months ended March 31, 1996 was $465 which represents an effective tax
rate of 36.2%.
16
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in Thousands)
GENERAL - The Company's net income for the six months ended March 31, 1997 was
$2,066 compared with $1,771 for the six months ended March 31, 1996.
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 six month period ended March 31, 1997 was $4,303,
representing a 15.9% increase from the six month period ended March 31, 1996.
Interest-bearing assets and liabilities increased from March 31, 1996 to March
31, 1997. (Interest-bearing assets increased by $76,346, or 28.6%, while
interest bearing liabilities increased by $79,286, or 31.8%.) Total interest
income increased by 30.2% to $12,286, while interest expenses increased 39.6% to
$7,983.
INTEREST INCOME - Interest income for the six months ended March 31, 1997 was
$12,286 compared with $9,433 for the six months ended March 31, 1996,
representing an increase of $2,853, or 30.2%.
The Bank's interest on loans receivable increased $1,833 during the six months
ended March 31, 1997 over the same period in 1996. This increase reflects the
increase in loans receivable. Loans held for investment purposes at March 31,
1997 was approximately $59,174 greater than such loans at March 31, 1996.
Interest on mortgage-related securities decreased $196. The Bank's investment in
mortgage-related securities declined in the six months ended March 31, 1997.
Income from the investment portfolio and cash and cash equivalents increased
$1,216. The improvement is due to an increase in investment securities of
$22,966, from $80,534 at March 31, 1996 to $103,500 at March 31, 1997.
INTEREST EXPENSE - Interest expense for the six months ended March 31, 1997 was
$7,983 compared with $5,719 for the six months ended March 31, 1996,
representing an increase of $2,264, or 39.6%. The increased interest expense for
the period was the result of growth in the deposits of $26,485, from $206,908 at
March 31, 1996 to $233,393 at March 31, 1997, as well as an increased amount of
borrowings of $52,800, from $42,200 at March 31, 1996 to $95,000 at March 31,
1997.
17
PROVISION FOR LOAN LOSSES - The Bank currently 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 six
months ended March 31, 1997 and 1996, respectively, the Bank recorded a
provision for (recovery of) loan losses of $25 and $(7). Management believes the
allowance for loan losses as of March 31, 1997 is adequate to cover all material
losses inherent in the Bank's portfolio.
OTHER INCOME - Other income for the six month period ended March 31, 1997 was
$3,559 compared with $3,590 for the six months ended March 31, 1996,
representing a decrease of $31.
At March 31, 1997, the Bank was servicing approximately $1,269,955 of mortgage
loans for others. At March 31, 1996, the Bank was servicing approximately
$1,208,007 of mortgage loans for others. The Bank's total servicing portfolio
for others increased $61,948, or 5.1%.
Changes in revenue from non-interest sources came from loan servicing fees (net
of MSR amortization), which decreased $8, from $1,546 for the six months ended
March 31, 1996 to $1,538 for the six months ended March 31, 1997, and service
fees and other charges to customers which increased $159 from $1,251 for the six
months ended March 31, 1996 to $1,410 for the six months ended March 31, 1997.
Loans held for sale increased $4,714, or 22.7%, to $16,071 at March 31, 1997,
compared to $20,785 at March 31, 1996. Sales of loans held for sale increased
$24,138, or 29.8%, from $80,914 for the six months ended March 31, 1996 to
$105,052 for the six months ended March 31, 1997. Gain on the sale of loans
decreased from $743 for the six months ended March 31, 1996 to $516 for the six
months ended March 31, 1997. 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 six months ended March 31, 1997 totaled
$4,495 compared to $4,517 for the six months ended March 31, 1996. 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 $2,282 for the six months ended
March 31, 1996 to $2,263 for the six months ended March 31, 1997.
Office occupancy, supplies and data processing expenses collectively increased
$108 in the six months ended March 31, 1997 compared to the six months ended
March 31, 1996. The Bank was operating two additional full service branches in
1997, than were operated in 1996. In addition to general increases in costs of
services the six months ended March 31, 1997 includes the costs of nine full
service branches in 1997, compared to seven in 1996.
18
Federal insurance premiums decreased from $221 for the six months ended March
31, 1996 to $131 for the three months ended March 31, 1997. The decrease is
attributed to the premium rate reduction on FDIC deposits following the
recapitalization of SAIF.
Loan servicing expenses decreased from $156 for the six months ended March 31,
1996 to $125 for the six months ended March 31, 1997. 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 six months ended March 31, 1997 was
$1,276 which represents an effective tax rate of 38.1%. Income tax expense for
the six months ended March 31, 1996 was $1,023 which represents an effective tax
rate of 36.6%.
19
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
None.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
Mid Continent Bancshares, Inc.
------------------------------------------
May 2, 1997 /s/ Richard T. Pottorff
----------- ------------------------------------------
Date Richard T. Pottorff
President
Chief Executive Officer
May 2, 1997 /s/ Larry R. Goddard
----------- ------------------------------------------
Date Larry R. Goddard
Executive Vice President
Chief Financial Officer