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 June 30, 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
-------
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 Identification No.)
Incorporation or organization)
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: July 31, 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 June 30, 1997 (Unaudited)
and September 30, 1996 3
Consolidated Statements of Income for the Three and Nine Months
Ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Stockholders' Equity for the Nine
Months Ended June 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 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
(Dollars in Thousands)
September 30, June 30,
1996 1997
(Unaudited)
------------------------------------
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions $1,694 $1,449
Interest bearing deposits in other banks 3,924 8,076
----- -----
Total cash and cash equivalents 5,618 9,525
INVESTMENT SECURITIES 86,235 107,171
CAPITAL STOCK OF FEDERAL HOME LOAN BANK, at Cost 4,327 6,556
MORTGAGE-RELATED SECURITIES 34,383 30,458
LOANS HELD FOR SALE, at lower of cost or market value 13,718 15,147
LOANS RECEIVABLE (Less allowance for loan losses of $421 and $427) 171,158 213,194
PREMISES AND EQUIPMENT, Net 6,271 7,250
REAL ESTATE OWNED (Less allowance for losses of $34 and $30) 28 14
ACCRUED INTEREST RECEIVABLE 2,744 3,877
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 13,233
OTHER ASSETS 3,186 2,165
----- -----
TOTAL ASSETS $340,186 $408,590
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $214,493 $247,010
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE 1,805 1,195
INCOME TAXES PAYABLE, Net of deposits 328
DEFERRED INCOME TAXES 698 698
ACCRUED AND OTHER LIABILITIES 4,683 4,900
ADVANCES FROM FEDERAL HOME LOAN BANK 81,700 116,100
------ -------
Total liabilities 303,379 370,231
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, no par value, 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 21,810
LESS UNEARNED COMPENSATION-EMPLOYEE STOCK OWNERSHIP PLAN (1,054) (946)
LESS UNEARNED COMPENSATION-MANAGEMENT STOCK BONUS PLAN (547) (398)
RETAINED EARNINGS, Substantially restricted 20,424 23,054
------ ------
Total 40,711 43,745
TREASURY STOCK, 231,500 and 290,000 shares, at cost (3,904) (5,386)
------- -------
Total stockholders' equity 36,807 38,359
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $340,186 $408,590
======== ========
See notes to consolidated financial statements
3
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Share Amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
----------------------------------------------------------------
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Loans receivable $2,899 $4,071 $8,399 $11,404
Mortgage-related securities 738 645 2,220 1,931
Investment securities 1,379 1,937 3,631 5,476
Other interest-cash and cash equivalents 73 19 272 147
-----------------------------------------------------------------
Total interest income 5,089 6,672 14,522 18,958
---------------------------------------------------------------
INTEREST EXPENSE:
Deposits 2,429 2,687 7,013 8,158
Advances from Federal Home Loan Bank 622 1,607 1,757 4,119
-----------------------------------------------------------------
Total interest expense 3,051 4,294 8,770 12,277
-----------------------------------------------------------------
NET INTEREST INCOME 2,038 2,378 5,752 6,681
PROVISION FOR LOAN LOSSES 30 76 23 101
-----------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,008 2,302 5,729 6,580
-----------------------------------------------------------------
OTHER INCOME:
Loan servicing fees 1,190 1,219 3,596 3,619
Amortization of mortgage servicing rights (413) (441) (1,273) (1,303)
Service fees and other charges to customers 618 805 1,868 2,215
Gain on sale of loans, net 277 258 1,020 774
Insurance commissions 3 51 50 70
Other 80 2 83 77
-----------------------------------------------------------------
Total other income 1,755 1,894 5,344 5,452
-----------------------------------------------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,201 1,174 3,483 3,437
Occupancy of premises 250 284 711 866
Office supplies and related expenses 156 190 483 505
Data processing 147 158 439 449
Advertising and promotions 126 128 336 365
Federal insurance premiums 111 37 332 168
Professional services 70 74 205 209
Provision for losses on real estate owned -- -- 18 10
Amortization of excess cost over fair value of asset acquired 14 -- 47 22
Deposit account expense 73 85 210 244
Loan servicing expense 101 68 257 193
Other 50 121 295 345
-----------------------------------------------------------------
Total other expenses 2,299 2,319 6,816 6,813
-----------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 1,464 1,877 4,257 5,219
INCOME TAX EXPENSE 569 750 1,591 2,026
-----------------------------------------------------------------
NET INCOME $895 $1,127 $2,666 $3,193
=================================================================
Earnings per share $0.46 $0.59 $1.35 $1.65
=================================================================
Weighted average shares outstanding 1,951,916 1,921,372 1,972,049 1,934,536
=================================================================
See notes to consolidated financial statements
4
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1997
(Dollars in Thousands)
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 108 108
Increase in
fair market
value of
Employee
Stock Ownership
Plan shares
committed to be
released for
allocation 147 147
Amortization
of unearned
compensation -
Management
Stock Bonus Plan 149 149
Dividends on
common stock
to stockholders (563) (563)
Net income 3,193 3,193
-----------------------------------------------------------------------------------------------------------------
BALANCE,
June 30,
1997 2,248,250 $225 $21,810 ($946) ($398) $23,054 290,000 ($5,386) $38,359
=================================================================================================================
See notes to consolidated financial statements
5
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
NINE MONTHS ENDED
JUNE 30,
1996 1997
(Unaudited) (Unaudited)
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,666 $3,193
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 107 108
Increase in fair market value of Employee Stock Ownership Plan shares committed
to be released for allocation 81 147
Amortization of unearned compensation - Management Stock Bonus Plan 149 149
Stock dividend on capital stock in Federal Home Loan Bank (110) (245)
Amortization of premiums and discounts on mortgage-related securities and
investment securities, net (113) (79)
Provision for loan losses 23 101
Provision for losses on real estate owned 18 10
Net loan origination fees capitalized 1,481 722
Amortization of net deferred loan origination fees (116) (57)
Amortization of mortgage servicing rights 1,273 1,303
Impairment of mortgage servicing rights -- 8
Amortization of excess of costs over fair value of asset acquired 47 22
Gain on sale of real estate owned -- (34)
Depreciation on premises and equipment 350 386
Gain on sale of loans, net (1,020) (774)
Origination of loans held for sale (148,675) (155,339)
Proceeds from sale of loans held for sale 157,934 154,684
Changes in:
Accrued interest receivable (683) (1,133)
Other assets (200) 565
Income taxes payable (293) 783
Accrued and other liabilities 1,067 221
------------------------------------
Net cash provided by operating activities 13,986 4,741
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity or call of investment securities 29,000 11,000
Purchases of investment securities (61,313) (33,820)
Principal collected on mortgage-related securities 5,145 3,904
Purchase of mortgage-related securities (1,158) --
Origination of loans receivable, net of principal collection (21,731) (43,067)
Acquisitions of mortgage servicing rights (1,878) (2,047)
Purchases of premises and equipment (1,388) (1,366)
Proceeds from sales of real estate owned 327 304
------------------------------------
Net cash used in investing activities (52,996) (65,092)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts for deposits, net 19,498 32,517
Net decrease in advance payments by borrowers for taxes and insurance (890) (610)
Proceeds from advances from Federal Home Loan Bank 88,800 253,980
Repayments on advances from Federal Home Loan Bank (65,300) (219,580)
Cash dividend on common stock to stockholders (597) (567)
Acquisition of Treasury Stock (2,450) (1,482)
------------------------------------
Net cash provided by financing activities 39,061 64,258
------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 51 3,907
CASH AND CASH EQUIVALENTS:
Beginning of period 5,677 5,618
------------------------------------
End of period $5,728 $9,525
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments $1,884 $1,243
====================================
Interest payments $8,781 $12,359
====================================
Loans held for sale securitized into mortgage-related securities $66,577 $62,416
====================================
Loans transferred to real estate owned $178 $266
====================================
Accrued dividends on common stock $192 $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 June 30, 1997, the consolidated statements
of income for the three and nine months ended June 30, 1996 and 1997,
stockholders' equity for the nine months ended June 30, 1997 and cash flows for
the nine months ended June 30, 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 nine months
ended June 30, 1997 are not necessarily indicative of the results which may be
expected for the entire year.
3. DIVIDENDS ON COMMON STOCK
On June 26, 1997 the Company declared a $0.10 per share cash dividend to
shareholders of record on July 10, 1997. The dividend was paid on July 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
7
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 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.
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 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.
8
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.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement requires that
the Company (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Statement is effective for the Company's financial statements as of September
30, 1999. The Company does not anticipate that the implementation of this
Statement will have a material impact on the consolidated financial statements.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Statement is effective for the Company's financial statements as of September
30, 1999. 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, June 30,
1996 1997
(Unaudited)
---------------------------------------------------
(Dollars in Thousands)
First mortgage loans:
Residential-one-to-four units $157,494 $197,510
Secured by other properties 1,013 909
Construction loans 17,367 18,489
---------------------------------------------------
175,874 216,908
---------------------------------------------------
Other installment loans:
Property improvement, auto and other 5,195 6,104
Mobile home 305 171
Deposits 769 821
---------------------------------------------------
6,269 7,096
---------------------------------------------------
Less:
Unearned discounts and loan fees 157 (220)
Undisbursed loan funds 10,407 10,603
Allowance for loan losses 421 427
---------------------------------------------------
$171,158 $213,194
===================================================
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, June 30,
1996 1997
(Unaudited)
---------------------------------------------------
(Dollars in Thousands)
Government National Mortgage Association $875,381 $864,405
Federal National Mortgage Association 115,492 107,514
Federal Home Loan Mortgage Corporation 231,515 303,049
Other Investors 6,765 3,050
---------------------------------------------------
$1,229,153 $1,278,018
===================================================
6. MORTGAGE SERVICING RIGHTS (MSR)
Following is an analysis of the changes in mortgage servicing rights:
Nine Months Ended
June 30,
(Unaudited)
1996 1997
--------------------------------------------------
(Dollars in Thousands)
Balance, Beginning of period $11,625 $12,496
Additions 1,878 2,048
Amortization (1,273) (1,303)
---------------------------------------------------
12,230 13,241
Allowance for loss - 0 - 8
---------------------------------------------------
Balance, End of period $12,230 $13,233
===================================================
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 functions for others.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Resources:
The Bank's primary sources of funds are deposits, advances from the 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 additional, 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 10.9% as of September 30, 1996 and June 30, 1997, respectively.
The Bank's short-term liquidity ratio was 3.7% and 6.6%, 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.
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
June 30, 1997, the Bank was in compliance with all regulatory capital
requirements. Capital includes tangible, core and risk-based capital ratios of
8.5%, 8.5% and 22.6%, respectively.
The Bank's capital requirements and actual capital under OTS regulations are as
follows as of June 30, 1997:
AMOUNT RATIO
(in thousands)
GAAP CAPITAL $35,072
=======
TANGIBLE CAPITAL:
ACTUAL $35,072 8.5%
REQUIRED 6,173 1.5%
------- ----
EXCESS $28,899 7.0%
======= ====
CORE CAPITAL:
ACTUAL $35,072 8.5%
REQUIRED 12,346 3.0%
------- ----
EXCESS $22,726 5.5%
======= ====
RISK-BASED CAPITAL:
ACTUAL $35,499 22.6%
REQUIRED 12,568 8.0%
------- -----
EXCESS $22,931 14.6%
======= =====
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in Thousands)
GENERAL - The Company's net income for the three months ended June 30, 1997 was
$1,127 compared with $895 the three months ended June 30, 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 three month period ended June 30, 1997 was $2,378,
representing a 16.7% increase from the three month period ended June 30, 1996.
Interest-bearing assets and liabilities increased from June 30, 1996 to June 30,
1997. (Interest-bearing assets increased by $91,939, or 31.8%, while
interest-bearing liabilities increased by $91,397, or 33.6%.) Total interest
income increased by 31.1% to $6,672, while interest expense increased 40.7% to
$4,294.
INTEREST INCOME - Interest income for the three months ended June 30, 1997 was
$6,672 compared with $5,089 for the three months ended June 30, 1996,
representing an increase of $1,583 or 31.1%.
The Bank's interest on loans receivable increased $1,172 during the three months
ended June 30, 1997 over the same period in 1996. This increase reflects an
increase in loans receivable, comprised primarily of adjustable rate loans.
Loans held for investment purposes at June 30, 1997 was approximately $68,233
greater than such loans at June 30, 1996.
Interest on mortgage-related securities decreased $93. The Bank's investment in
mortgage-related securities declined in the quarter ended June 30, 1997.
Income from the investment portfolio, FHLB stock and cash and cash equivalents
increased $504. The improvement is due to an increase in investment securities,
FHLB stock and interest-earning cash of $24,715, from $89,012 at June 30, 1996
to $113,727 at June 30, 1997.
INTEREST EXPENSE - Interest expense for the three months ended June 30, 1997 was
$4,294 compared with $3,051 for the three months ended June 30, 1996,
representing an increase of $1,243 or 40.7%. The increased interest expense for
the period was the result of growth in the deposits of $31,797, from $215,213 at
June 30, 1996 to $247,010 at June 30, 1997, as well as an increased amount of
borrowings of $59,600, from $56,500 at June 30, 1996 to $116,100 at June 30,
1997.
14
PROVISION FOR LOANS 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
three months ended June 30, 1997 and 1996, respectively, the Bank recorded a
provision for loans losses of $76 and $30.
OTHER INCOME - Other income for the three month period ended June 30, 1997 was
$1,894 compared with $1,755 for the three months ended June 30, 1996,
representing an increase of $139.
At June 30, 1997, the Bank was servicing approximately $1,278,018 of mortgage
loans for others. At June 30, 1996, the Bank was servicing approximately
$1,219,386 of mortgage loans for others. The Bank's total servicing portfolio
for others increased $58,632, or 4.8%. Net loan servicing fees increased $1 from
$777 for the quarter ended June 30, 1996 to $778 for the quarter ended June 30,
1997. Gross loan servicing fees increased $29, and amortization of loan
servicing rights increased $28.
Revenue from service fees and other charges to customers increased $187, from
$618 for the quarter ended June 30, 1996 to $805 for the quarter ended June 30,
1997. Gains on sale of loans decreased $19, from $277 for the quarter ended June
30, 1996 to $258 for the quarter ended June 30, 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 15,500 at June 30, 1996 to approximately 18,000 at June 30, 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 increased $1,278, or 9.2%, to $15,147 at June 30, 1997,
compared to $13,869 at June 30, 1996. Sales of loans held for sale decreased
$9,471, or 16.0%, from $59,103 for the quarter ended June 30, 1996 to $49,632
for the quarter ended June 30, 1997. Gain on the sale of loans decreased from
$277 for the quarter ended June 30, 1996 to $258 for the quarter ended June 30,
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 June 30, 1997 totaled
$2,319 compared to $2,299 for the three months ended June 30, 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 $1,201 in the June 30, 1996
quarter to $1,174 in the June 30, 1997 quarter.
Office occupancy, supplies and data processing expenses collectively increased
$79 in the June 30, 1997 quarter compared to the June 30, 1996 quarter. In
addition to general increases in costs
15
of services, the June 30, 1997 quarter includes the costs of nine full
service branches in 1997, compared to seven in 1996. The Bank's tenth full
service branch was opened in June, 1997.
Federal insurance premiums decreased $74, from $111 for the quarter ended June
30, 1996 to $37 for the quarter ended June 30, 1997.
Loan servicing expenses decreased from $101 for the quarter ended June 30, 1996
to $68 for the quarter ended June 30, 1997. Loan servicing expenses are incurred
for custodial fees for loan documents, additional loan payoff interest
associated with GNMA pooled mortgages and other miscellaneous servicing related
expenses.
INCOME TAXES - Income tax expense for the three months ended June 30, 1997
was $750 which represents an effective tax rate of 40.0%. Income tax expense for
the three months ended June 30, 1996 was $569 which represents an effective tax
rate of 38.9%.
16
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in Thousands)
GENERAL - The Company's net income for the nine months ended June 30, 1997 was
$3,193 compared with $2,666 for the nine months ended June 30, 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-earnings assets.
Net interest income for the nine month period ended June 30, 1997 was $6,681,
representing a 16.2% increase from the nine month period ended June 30, 1996.
Interest-bearing assets and liabilities increased from June 30, 1996 to June 30,
1997. (Interest-bearing assets increased by $91,939, or 31.8%, while
interest-bearing liabilities increased by $91,397, or 33.6%.) Total interest
income increased by 30.5% to $18,958 while interest expense increased 40.0% to
$12,277.
INTEREST INCOME - Interest income for the nine months ended June 30, 1997 was
$18,958 compared with $14,522 for the nine months ended June 30, 1996,
representing an increase of $4,436 or 30.5%.
The Bank's interest on loans receivable increased $3,005 during the nine months
ended June 30, 1997 over the same period in 1996. This increase reflects an
increase in loans receivable, comprised primarily of adjustable rate loans.
Loans held for investment purposes at June 30, 1997 was approximately $68,233
greater than such loans at June 30, 1996.
Interest on mortgage-related securities decreased $289. The Bank's investment in
mortgage-related securities declined in the nine months ended June 30, 1997.
Income from the investment portfolio, FHLB stock and cash and cash equivalents
increased $1,720. The improvement is due to an increase in investment
securities, FHLB stock and interest-earning cash of $24,715, from $89,012 at
June 30, 1996 to $113,727 at June 30, 1997.
INTEREST EXPENSE - Interest expense for the nine months ended June 30, 1997 was
$12,277 compared with $8,770 for the nine months ended June 30, 1996,
representing an increase of $3,507 or 40.0%. The increased interest expense for
the period was the result of growth in the deposits of $31,797, from $215,213 at
June 30, 1996 to $247,010 at June 30, 1997, as well as an increased amount of
borrowings of $59,600, from $56,500 at June 30, 1996 to $116,100 at June 30,
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
nine months ended June 30, 1997 and 1996, respectively, the Bank recorded a
provision for loan losses of $101 and $23.
OTHER INCOME - Other income for the nine month period ended June 30, 1997 was
$5,452 compared with $5,344 for the nine months ended June 30, 1996,
representing an increase of $108.
At June 30, 1997, the Bank was servicing approximately $1,278,018 of mortgage
loans for others. At June 30, 1996, the Bank was servicing approximately
$1,219,386 of mortgage loans for others. The Bank's total servicing portfolio
for others increased $58,632, or 4.8%. Net loan servicing fees decreased $7,
from $2,323 for the nine months ended June 30, 1996 to $2,316 for the nine
months ended June 30, 1997. Gross loan servicing fees increased $23 and
amortization of loan servicing rights increased $30.
Revenue from service fees and other charges to customers increased $347 from
$1,868 for the nine months ended June 30, 1996 to $2,215 for the nine months
ended June 30, 1997.
Loans held for sale increased $1,278, or 9.2%, to $15,147 at June 30, 1997,
compared to $13,869 at June 30, 1996. Sales of loans held for sale decreased
$3,250, or 2.1% from $157,934 for the nine months ended June 30, 1996 to
$154,684 for the nine months ended June 30, 1997. Gain on the sale of loans
decreased from $1,020 for the nine months ended June 30, 1996 to $774 for the
nine months ended June 30, 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 nine months ended June 30, 1997 totaled
$6,813 compared to $6,816 for the nine months ended June 30, 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 $3,483 for the nine months ended
June 30, 1996 to $3,437 for the nine months ended June 30, 1997.
Office occupancy, supplies and data processing expenses collectively increased
$187 in the nine months ended June 30, 1997 compared to the nine months ended
June 30, 1996. In addition to general increases in costs of services the nine
months ended June 30, 1997 includes the costs of nine full service branches in
1997, compared to seven in 1996. The Bank's tenth full service branch was opened
in June, 1997.
Federal insurance premiums decreased $164, from $332 for the nine months ended
June 30, 1996 to $168 for the nine months ended June 30, 1997.
18
Loan servicing expenses decreased from $257 for the nine months ended June 30,
1996 to $193 for the nine months ended June 30, 1997. Loan servicing expenses
are incurred for custodial fees for loan documents, additional loan payoff
interest associated with GNMA pooled mortgages and other miscellaneous servicing
related expenses.
INCOME TAXES - Income tax expense for the nine months ended June 30, 1997 was
$2,026 which represents an effective tax rate of 38.8%. Income tax expense for
the nine months ended June 30, 1996 was $1,591 which represents an effective tax
rate of 37.4%.
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 its behalf by the
undersigned thereunto duly authorized.
Mid Continent Bancshares, Inc.
------------------------------
August 13, 1997 /s/ Richard T. Pottorff
- --------------------- ------------------------------
Date Richard T. Pottorff
President
Chief Executive Officer
August 13, 1997 /s/ Larry R. Goddard
- ---------------------- ------------------------------
Date Larry R. Goddard
Executive Vice President
Chief Financial Officer
21