SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1997
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- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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SEC File Number: 0-23620
MID CONTINENT BANCSHARES, INC.
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(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
of incorporation or organization) Identification No.)
124 W. Central, El Dorado, Kansas 67042
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(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (316) 321-2700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
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 such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the last sale price of such stock on
December 17, 1997 was $73.5 million.
As of December 17, 1997, the Registrant had 1,997,332 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Part II -- Portions of the Registrant's 1997 Annual Report to Stockholders.
2. Part III -- Portions of the Registrant's Proxy Statement for Annual Meeting
of Stockholders to be held in February - March 1998.
PART I
Item 1. Business
(Dollars in Thousands)
General
Mid Continent Bancshares, Inc. ("Registrant" or "Company") is a unitary
savings and loan holding company that was incorporated in January 1994 under the
laws of the State of Kansas for the purpose of acquiring all of the issued and
outstanding common stock of Mid-Continent Federal Savings Bank ("Mid-Continent
Federal" or "Savings Bank"). This acquisition occurred in June 1994 at the time
Mid-Continent Federal changed its name from Mid-Continent Federal Savings and
Loan Association of El Dorado, simultaneously converted from a mutual to stock
institution, and sold all of its outstanding capital stock to the Company and
the Company made its initial public offering of common stock. As of September
30, 1997, the Company had total assets of $405,262, total deposits of $236,333
and stockholders' equity of $39,982 or 9.87% of total assets under generally
accepted accounting principles ("GAAP"). The only subsidiary of the Company is
the Savings Bank. The Savings Bank has one subsidiary, Laredo Investment, Inc.
Mid-Continent Federal is a federally chartered capital stock savings
bank located in El Dorado, Kansas. The Savings Bank was founded in 1925 as a
Kansas chartered savings and loan association under the name Mid-Continent
Savings and Loan Association. In 1935, the Savings Bank adopted a federal
charter and changed its name to Mid-Continent Federal Savings and Loan
Association of El Dorado (the "Association"). In June 1994, the Association
converted from a federally chartered mutual savings and loan association to its
current form, a federally chartered capital stock savings bank subsidiary of a
savings and loan holding company. The Savings Bank's deposits are federally
insured by the Federal Deposit Insurance Corporation ("FDIC").
The Company directs and plans the activities of the Savings Bank, the
Company's primary asset. The Company's business activities to date have been
limited to its investment in the Savings Bank, loans made to the Savings Bank
for use in the normal course of the Savings Bank's business and to the
Mid-Continent Federal Savings Bank Employee Stock Ownership Plan (the "ESOP") to
enable the ESOP to purchase shares of the Company's common stock in the initial
public offering and the repurchase of a portion of the Company's stock, as
permitted by the Office of Thrift Supervision. References to the Company include
the Savings Bank, unless the context otherwise indicates.
The Company is primarily engaged in attracting deposits from the
general public and using those funds to originate and sell real estate loans on
one-to-four family residences and, to a lesser extent, to originate consumer and
construction loans for its portfolio. The Company also purchases one-to-four
family residential loans. The Company has offices in El Dorado, Newton,
Winfield, Augusta, Derby and Wichita, Kansas, which are located in its primary
market area of Butler, Cowley, Sedgwick and Harvey Counties in the State of
Kansas. The Company opened two full service branches in 1997. In addition, the
Company invests in mortgage-related
2
securities and investment securities. The Company offers its customers
fixed-rate, and adjustable-rate mortgage loans ("ARM"), as well as FHA/VA loans
and consumer loans, including home equity and savings account loans.
Adjustable-rate mortgage loans and short-term fixed-rate mortgage loans
generally are originated for retention in the Company's portfolio while
long-term fixed-rate mortgage loans are generally sold into the secondary
market. All consumer loans are retained in the Company's portfolio.
The principal sources of funds for the Company's lending activities are
deposits and the amortization, repayment and maturity of loans, mortgage-related
securities, and investment securities and borrowings from the Federal Home Loan
Bank. Principal sources of income are interest and fees on loans,
mortgage-related securities, investment securities, and deposits held in other
financial institutions. The Company's principal expense is interest paid on
deposits.
The Company is actively engaged in the purchase and sale of mortgage
loans through a correspondent network. These purchased loans and loans
originated by the Company are then sold, generally without recourse, into the
secondary market with the Company generally retaining the servicing rights. The
Company is contingently liable on certain loans sold with recourse. The
principal balance of loans sold with recourse totaled approximately $207 at
September 30, 1997.
The Company has striven to increase its other income by increasing its
portfolio of loans serviced for others. The Company expects to continue to
increase the size of its portfolio of loans serviced for others. This portfolio
totaled approximately $1,291,331 as of September 30, 1997. Income from loan
servicing fees, net of amortization and before operating expenses, has provided
a substantial portion of net income in recent years and totaled $3,099, before
income tax, for the fiscal year ended September 30, 1997.
The counties of Butler, Cowley, Sedgwick and Harvey, Kansas are the
Company's primary market area for deposits and are located in south central
Kansas. This area was founded on agriculture and the oil and gas industry, which
continue to play a major role in the economy. This area has also attracted a
variety of industries including aircraft, recreational and camping equipment,
balloon plant, meat processing, refineries, state and private universities,
junior colleges, electronics manufacturing, and heating and air conditioning
equipment manufacturing. This area also includes the health care, financial
service, and other service related industries, including the wholesale/retail
trade industries. Also, within Butler County are located two state prisons. The
largest employment sectors in the Company's market area are aircraft, industrial
manufacturing, and retail.
Lending Activities
General. The Company's loan portfolio consists of fixed-rate mortgage
loans and adjustable-rate mortgage loans ("ARMs") secured by one-to-four family
residences and, to a much lesser extent, commercial real estate, mobile home
loans, and real estate construction loans. As of September 30, 1997, the
Company's total portfolio of loans (the "loan portfolio") was $233,311 (net of
loans in process, deferred fees and costs and allowance for loan losses), of
3
which $237,197 or 101.67%, was secured by one-to-four family residential real
estate, $607, or 0.26%, was secured by commercial real estate, and $128, or
0.05%, was secured by mobile homes. The following table sets forth information
about the company's loan portfolio at September 30, of each year presented.
(Dollars in Thousands)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
$ % $ % $ % $ % $ %
- - - - - - - - - -
TYPE OF LOANS:
Real Estate Loans
Residential $53,727 94.89% $ 96,631 94.52% $117,216 93.93% $159,672 93.29% 219,819 94.22%
Construction 569 1.00% 6,976 6.82% 10,351 8.29% 17,367 10.15% 17,534 7.52%
Commercial 1,809 3.19% 1,210 1.18% 1,212 0.97% 964 0.56% 813 0.35%
Land 67 0.12% 73 0.07% 599 0.48% 49 0.03% 44 0.02%
Consumer Loans
Mobile home loans 931 1.60% 716 0.70% 499 0.40% 305 0.18% 128 0.05%
Savings account loans 479 0.85% 699 0.68% 688 0.55% 769 0.45% 795 0.34%
Home improvement loans 1,031 1.82% 873 0.85% 414 0.33% 1,012 0.59% 962 0.41%
Automobile loans 31 0.05% 682 0.67% 1,050 0.84% 1,115 0.65% 1,292 0.55%
Other 182 0.32% 225 0.22% 507 0.41% 890 0.52% 1,454 0.62%
------- ------ -------- ------ ------- ------ -------- ------ -------- ------
Total 58,826 103.89% 108,085 105.71% 132,536 106.20% 182,143 106.42% 242,841 104.08%
Less:
Loans in process (1,036) (1.83%) (4,581) (4.49%) (6,624) (5.30%) (10,407) (6.08%) (9,547) (4.09%)
Deferred loan fees
and costs (821) (1.53%) (987) (0.97%) (693) (0.56%) (157) (0.09%) 482 0.21%
Allowance for loan
losses (346) (0.61%) (274) 0.27% (423) (0.34%) (421) (0.25%) (465) (0.20%)
------- ------ -------- ------- -------- ------ -------- ------ -------- ------
Total loans, net $56,623 100.00% $102,243 100.00% $124,796 100.00% $171,158 100.00% 233,311 100.00%
======= ====== ======== ======= ======== ====== ======== ====== ======== ======
Total mortgage-related
securities, net $42,856 100.00% $ 45,030 100.00% $ 40,004 100.00% $ 34,383 100.00% $ 28,124 100.00%
======= ====== ======== ====== ======== ====== ======== ====== ======== ======
TYPE OF SECURITY:
Residential real estate
1 to 4 family 53,900 95.19% 103,607 101.34% 127,567 102.22% 176,843 103.33% 237,197 101.67%
Other dwelling units 396 0.70% 275 0.27% 254 0.20% 231 0.13% 362 0.16%
Commercial real estate 1,809 3.19% 935 0.91% 958 0.77% 929 0.54% 607 0.26%
Land 67 0.12% 73 0.07% 599 0.48% 49 0.03% 44 0.02%
Consumer loans
Mobile homes 931 1.64% 716 0.70% 499 0.40% 305 0.18% 128 0.05%
Savings accounts 479 0.85% 699 0.68% 688 0.55% 769 0.45% 795 0.34%
Home improvement 1,031 1.82% 873 0.85% 414 0.33% 1,012 0.59% 962 0.41%
Automobiles 31 0.05% 682 0.67% 1,050 0.84% 1,115 0.65% 1,292 0.55%
Other 182 0.32% 225 0.22% 507 0.41% 890 0.52% 1,454 0.62%
------- ------ --------- ------ ------- ------ -------- ------ -------- ------
Total 58,826 103.89% 108,085 105.71% 132,536 106.20% 182,143 106.42% 242,841 104.08%
Less:
Loans in process (1,036) (1.83%) (4,581) (4.49%) (6,624) (5.30%) (10,407) (6.08%) (9,547) (4.09%)
Deferred loan fees
and costs (821) (1.53%) (987) (0.97%) (693) (0.56%) (157) (0.09%) 482 0.21%
Allowance for loan losses (346) (0.61%) (274) (0.27%) (423) (0.34%) (421) (0.25%) (465) (0.20%)
------- ------ --------- ------ -------- ------ -------- ------ -------- ------
Total loans, net $56,623 100.00% $ 102,243 100.00% $124,796 100.00% $171,158 100.00% $233,311 100.00%
======= ====== ========= ====== ======== ====== ======== ====== ======== ======
Total mortgage-related
securities, net $42,856 100.00% $ 45,030 100.00% $ 40,004 100.00% $ 34,383 100.00% $ 28,124 100.00%
======= ====== ========= ====== ======== ====== ======== ====== ======== ======
4
Loan Maturity. The following table sets forth the maturity of the Company's loan
portfolio at September 30, 1997. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totaled $30,688, $44,858, and $58,362, for the three years ended
September 30, 1995, 1996 and 1997, respectively. Adjustable-rate mortgage loans
are shown as maturing based on contractual maturities.
Multi-
1-4 Family Family and
Real Estate Commercial
Mortgage Real Estate Construction Consumer Total
-------- ----------- ------------ -------- -----
(In Thousands)
Amounts Due:
Within 1 year $ 25 $ 38 $ 17,534 $ 759 $ 18,356
--------- --------- --------- --------- ---------
After 1 year
1 to 5 years 2,801 169 2,339 5,309
Over 5 years 216,993 650 1,533 219,176
--------- --------- --------- --------- ---------
Total due after one year 219,794 819 3,872 224,485
--------- --------- --------- --------- ---------
Total $ 219,819 $ 857 $ 17,534 4,631 242,841
========= ========= ========= =========
Less:
Allowance for loan loss (465)
Loans in process (9,547)
Deferred loan origination
fees and cost 482
---------
Loans receivable, net $ 233,311
=========
The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have predetermined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rate Rates Total
---- ----- -----
(In Thousands)
One-to-four family $ 75,499 $144,295 $219,794
Multi-family and Commercial real estate 512 307 819
Construction 0 0 0
Consumer 3,592 280 3,872
-------- -------- --------
Total $ 79,603 $144,882 $224,485
======== ======== ========
5
The following table sets forth the contractual maturities of the
Company's mortgage-backed securities portfolio as of September 30, 1997.
2001 to 2003 to 2008 and
1998 1999 2000 2002 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
(Dollars in Thousands)
$12 $1,197 $ - 0 - $3,931 $ - 0 - $22,984 $28,124
Residential Loans. The Company's primary lending activity consists of
the origination of one-to-four family, owner-occupied, residential mortgage
loans secured by property located in the Company's primary market area of the
state of Kansas. At September 30, 1997, the Company had $237,353, or 101.74%, of
its net loan portfolio invested in these loans. Management believes that this
policy of focusing on one-to-four family lending has been effective in
contributing to net interest income while reducing credit risk by keeping loan
delinquencies and losses to a minimum.
The Company offers ARMs that adjust every one to three years and have
terms from 10 to 30 years, as well as ARMs that adjust annually, but only after
the third year. One year ARMs have adjustments that are limited to 2% per year
and 6% over the life of the loan, and ARMs that are fixed for the first three
years and adjust annually thereafter have adjustments that are limited to 2% per
year and 5% over the life of the loan. The Company also offers conventional
fixed-rate mortgage loans with terms from 10 to 30 years. Generally, the
interest rates on ARMs are based on treasury bill indices. The Company considers
the market factors and competitive rates on loans as well as its own cost of
funds when determining the rates on the loans that it offers. The Company also
has a network of correspondents from whom the Company may be referred both
fixed- and adjustable-rate real estate mortgage loans. The Company expects to
expand its purchases and sales of mortgage loans, subject to market conditions.
Since 1989, the Company has sold most of its originated fixed-rate mortgage
loans into the secondary market. The Company does, however, service most of the
loans sold since 1991.
Generally, during periods of rising interest rates, the risk of default
on an ARM is considered to be greater than the risk of default on a fixed-rate
loan due to the upward adjustment of interest costs to the borrower. To help
reduce such risk, the Company qualifies the loan at the fully indexed interest
rate, as opposed to the original interest rate. ARM loans may be made at up to
95% loan to value ratio. The Company does not originate ARMs with negative
amortization.
Regulations limit the amount which a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. The Company's lending policies, however,
generally limit the maximum loan-to-value ratio to 80% of the appraised value of
the property, based on an independent or staff appraisal. When the Company makes
a loan in excess of 80% of the appraised value or purchase price, private
mortgage insurance is required for at least the
6
amount of the loan in excess of 80% of the appraised value. The Company
generally does not make conventional mortgage loans in excess of 95% of the
appraised value.
The loan-to-value ratio, maturity, and other provisions of the
residential real estate loans made by the Company reflect the policy of making
loans generally below the maximum limits permitted under applicable regulations.
The Company requires an independent appraisal, title insurance, flood hazard
insurance (if applicable), and fire and casualty insurance on all properties
securing real estate loans made by the Company. The Company reserves the right
to approve the selection of which title insurance companies' policies are
acceptable to insure the real estate in the loan transactions.
While one-to-four family residential real estate loans are normally
originated with 10-30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all of the fixed-interest rate
loans in the Company's loan portfolio contain due-on-sale clauses providing that
the Company may declare the unpaid amount due and payable upon the sale of the
property securing the loan. The Company enforces these due-on-sale clauses to
the extent permitted by law. Thus, average loan maturity is a function of, among
other factors, the level of purchase and sale activity in the real estate
market, the prevailing interest rates, and the interest rates payable on
outstanding loan.
Multi-Family Loans. The Company does not presently originate
multi-family loans. The existing portfolio, $362 at September 30, 1997,
consisted of permanent loans secured by apartments. Multi-family loans are
generally considered to have more credit risk than traditional single family
mortgage loans.
Construction Loans. As of September 30, 1997, the Company had $17,534
of construction loans or 7.52% of the Company's total loan portfolio. The
Company originates construction loans within its market area for custom homes
built for specific borrowers. The Company also originates construction loans for
homes being built by professional builders for which a final retail purchaser
has not yet been identified. Construction financing is generally considered to
involve a higher degree of risk of loss than long-term financing on improved,
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Company may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Company may be confronted, at or prior to the
maturity of the loan, with a project having a sales value which is insufficient
to assure full repayment. Construction loans originated for homes built by
professional builders for which the ultimate purchaser has not been identified
have the increased risk that the builder may be unable to locate a purchaser and
may be unable to continue funding the monthly interest and principal expense.
7
Consumer Loans. Mid-Continent views consumer lending as an important
component of its business operations because consumer loans generally have
shorter terms and higher yields, thus reducing exposure to changes in interest
rates. In addition, the Company believes that offering consumer loans helps to
expand and create stronger ties to its customer base. Consequently, the Company
intends to increase its consumer lending by marketing consumer loans to existing
and potential customers. All branches are now able to originate consumer loans.
Regulations permit federally chartered savings associations to make secured and
unsecured consumer loans up to 35% of the Company's assets. In addition, the
Company has lending authority above the 35% limit for certain consumer loans,
such as home improvement loans and loans secured by savings accounts.
Consumer loans consist of personal, unsecured loans, home improvement
loans, automobile loans, mobile home loans, and savings account loans, at fixed
rates. Of these consumer loans, as of September 30, 1997, approximately $128, or
0.05% of the Company's total loan portfolio consisted of mobile home loans.
These mobile home loans were obtained in 1986. The Company does not originate
mobile home loans and expects that the size of the mobile home loan portfolio
will continue to decline as outstanding loans are repaid. As of September 30,
1997, total consumer loans aggregated $4,631, or 1.97% of the Company's total
loan portfolio.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of liability to meet existing obligation and payments on the proposed
loan. In addition, the stability of the applicant's monthly income from primary
employment is considered during the underwriting process. Creditworthiness of
the applicant is of primary consideration; however, the underwriting process
also includes a comparison of the value of the security in relation to the
proposed loan amount.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. The Company adds a general provision to its consumer loan loss
allowance, based on general economic conditions, prior loss experience and
management's periodic evaluation.
Commercial Real Estate Loans. The Company does not presently originate
commercial real estate loans. The existing portfolio, $607, or 0.26% of the loan
portfolio as of September 30, 1997, consisted of permanent loans secured by
small office buildings, churches and other non-residential buildings. Commercial
real estate secured loans were, in the past, originated in amounts up to 80% of
the appraised value of the property. Such appraised value was determined by an
independent appraiser previously approved by the Company.
8
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. As of September 30, 1997, the largest commercial
real estate loan had a balance of $162 and was performing in accordance with its
terms.
Loan Solicitation and Processing for Portfolio Loans. The Company's
source of mortgage loan applications is referrals from existing or past
customers, real estate brokers, call-in and walk-in customers, and also as the
result of advertising. The Company has, in the past, added to its portfolio some
of the adjustable-rate loans and shorter term fixed-rate loans and, to a lesser
extent, some of the short term balloon loans obtained from the correspondent
network that the Company uses for its mortgage banking operations.
All loans are underwritten and approved, or denied, by the loan
committee, including loans obtained through the correspondent network. All
single-family loans approved by the loan committee are ratified by the Board of
Directors.
The Company uses independent fee appraisers on all real estate related
transactions that are originated in the branches of the Company and for each
purchased loan. Each fee appraiser used must be licensed and approved by
Mid-Continent's Board of Directors. Each purchased loan is reviewed and
underwritten as if Mid-Continent were originating the loan. It is the Company's
policy to obtain title and fire and casualty insurance for all mortgage loans.
If appropriate, flood insurance is also required.
Loan Solicitation and Processing for Mortgage Banking Operations. The
Company solicits fixed- and adjustable-rate mortgage loans through a network of
approximately 125 correspondents located primarily in Kansas and Oklahoma for
sale in the secondary mortgage market.
The Company regularly advises its correspondents of the rates it will
pay to purchase mortgage loans. All loans are underwritten and approved, or
denied, by the loan committee. All single family loans are reviewed and approved
by both the loan committee and the Board of Directors. The Company issues a
commitment letter by which the Company will extend the offer of a particular
rate and terms for a period of up to 60 days. The Company's correspondents,
typically other financial institutions, close the loan in the name of the
correspondent and sell the loan to the Company based on the terms previously
established for the loan.
The Company generally retains the servicing rights to the loans it
sells. The Company also sells mortgage loans originated through referrals from
existing or past customers, real estate brokers, call-in and walk-in customers,
and also as the result of advertising.
9
Origination, Purchase and Sale of Loans
During the fiscal year ended September 30, 1997, the Registrant
originated $115,236 in loans, purchased $219,374 in loans (all secured by
one-to-four family residences), and sold $215,076 in loans (including $85,067 of
loans securitized primarily through GNMA).
Loan Sales. The Company currently sells most of its fixed-rate mortgage
loan originations to FNMA, GNMA, FHLMC and private secondary market purchasers.
The Company does not have separate underwriting policies for loans to be sold
and loans to be retained. Loans originated for sale are underwritten with the
same standards used to originate loans to be retained in the Company's loan
portfolio. The Company pools its FHA and VA loans into GNMA pools that are then
sold. Mortgage loans are typically sold with retention of servicing rights by
the Company but generally without recourse.
Loan Commitments. The Company issues written, formal commitments to
prospective borrowers on all real estate approved loans. The commitment requires
acceptance within 60 days of the date of issuance. As of September 30, 1997, the
Company had $87,584 of commitments to originate mortgage loans. The Company has
commitments to sell, with servicing rights retained, $34,191 of these loans and
the intent to add $17,486 of loans to its investment in loans receivable to be
held to maturity.
Loan Processing and Servicing Fees. In addition to interest earned on
loans, the Company recognized fees and service charges which consist primarily
of fees on loans serviced for others. The Company recognized net loan servicing
fees of $3,102, $3,128 and $3,099, before operating expenses, for the years
ended September 30, 1995, 1996, and 1997, respectively. As of September 30,
1997, loans serviced for others totaled approximately $1,291,331. The Company
has a strategy in place to expand the amount of loans serviced for others. This
strategy requires the increase in both loans originated by the Company and sold
into the secondary market with servicing retained as well as the purchase of
loans originated out of Kansas for the purpose of resale with retention of the
servicing rights.
Loans to One Borrower. Regulations limit loans to one borrower in an
amount equal to (i) 15% of unimpaired capital and retained earnings on an
unsecured basis and an additional amount equal to 10% of unimpaired capital and
retained earnings if the loan is secured by readily marketable collateral
(generally, financial instruments, not real estate) or (ii) $500, whichever is
higher. The Company's maximum loan-to-one borrower limit was approximately
$5,427 as of September 30, 1997.
As of September 30, 1997, the Company's largest aggregation of loans to
one borrower was two loans secured by 62 one-to-four family residence,
originated prior to August 1989 in the amount of $3,039 having a balance of
$3,710 as of September 30, 1997. These loans are secured by non-owner occupied
one-to-four family units located in Wichita, Kansas and were performing in
accordance with their terms as of September 30, 1997. They were restructured
during October 1994. No provision for loss was considered necessary, based on
the restructured terms and the cash flows expected to be generated by the
underlying collateral.
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Loan Delinquencies. The Company's collection procedures provide that
when a mortgage loan is 16 days past due, a computer printed delinquency notice
is sent and borrowers are contacted by telephone to discuss the delinquency. If
the loan continues in a delinquent status for 90 days or more, the Board of
Directors of the Company generally approves the initiation of foreclosure
proceedings unless other repayment arrangements are made. Collection procedures
for non-mortgage loans generally begin after is loan is ten days delinquent.
Loans are reviewed on a regular basis and are generally placed on a
non-accrual status when the loan becomes more than 90 days delinquent or, in the
opinion of management, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent payments, if any, are recorded as
interest income.
Real estate acquired by the Company as a result of foreclosure or by a
deed in lieu of foreclosure is classified as foreclosed real estate until such
time as it is sold. When foreclosure real estate is acquired, it is recorded at
fair value as of the date of foreclosure or transfer less estimated disposal
costs. It is subsequently carried at the lower of the new basis (fair value at
foreclosure or transfer) or fair value. As of September 30, 1997, the Company
had no loans that were considered troubled debt restructurings within the
meaning of SFAS No. 15.
Non-Performing Assets
At September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by one-to-four
family dwelling units $ 45 $125 $368 $445 $898
All other mortgage loans 0 0 0 0 0
Non-mortgage loans:
Consumer 0 22 24 39 34
---- ---- ---- ---- ----
Total $ 45 $147 $392 $484 $932
==== ==== ==== ==== ====
Accruing loans which are contractually past
due 90 days or more $ 0 $ 0 $ 0 $ 0 $ 0
Total non-accrual and accrual loans 45 147 392 484 932
REO 837 46 187 28 41
---- ---- ---- ---- ----
Total non-performing assets $882 $193 $579 $512 $973
==== ==== ==== ==== ====
Total non-accrual loans to net loans 0.08% 0.12% 0.31% 0.28% 0.39%
Total non-accrual loans to total assets 0.03% 0.06% 0.14% 0.14% 0.23%
Total non-performing assets to total assets 0.52% 0.08% 0.21% 0.15% 0.24%
Accrued interest on non-performing loans for the years ended September
30, 1996 and 1997 totaled approximately $45 and $79.
11
During 1995, the Savings Bank restructured loans with a carrying value
of approximately $3,039. No provision for loss was considered necessary based on
the restructured terms and the cash flows expected to be generated by the
underlying collateral. The Savings Bank did not engage in any troubled debt
restructurings during the years ended September 30, 1995, 1996 and 1997. No
loans were considered impaired under SFAS No. 114 during the years ended
September 30, 1995, 1996 and 1997.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions that covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard", "doubtful", or "loss". An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard", with the added characteristic that
the weaknesses present make "collection or liquidation in full", on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable". Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets designated
"special mention" by management are assets included on the Company's internal
watchlist because of potential weakness but which do not currently warrant
classification in one of the aforementioned categories.
When an insured institution classified problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowance which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss", it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. At September 30, 1997 the Company had a general loss
allowance for loans and REO of $484.
12
At September 30,
1997
---------------------
(In Thousands)
Special Mention $4,559
Substandard 116
Doubtful assets 0
Loss assets 1
General loss allowance 484
Specific loss allowance 0
Charge-offs, net 124
REO. Real estate owned or acquired by the Company as a result of
foreclosure, judgment or by a deed in lieu of foreclosure is classified as real
estate owed until it is sold. When property is acquired it is recorded at fair
value as of the date of foreclosure or transfer less estimated disposal costs.
It is subsequently carried at the lower of the new basis (fair value at
foreclosure or transfer) or fair value.
The Company held REO with a net balance of $41 as of September 30, 1997
consisting of two one-to-four family dwellings with a carrying value totaling
$34. An allowance for loss of $19 is carried on real estate owned. See Note 10
to the Notes to Consolidated Financial Statements.
Allowance for Loan and Real Estate Losses. It is management's policy to
provide for losses on unidentified loans in its loan portfolio and foreclosed
real estate. A provision for loan losses is charged to operations based on
management's evaluation of the potential losses that may be incurred in the
Company's loan portfolio. Such evaluation, which includes a review of all loans
of which full collectibility of interest and principal may not be reasonably
assured, considers, among other matters, the estimated net realizable value of
the underlying collateral. During the years ended September 30, 1995, 1996, and
1997, the Company charged $224, $75, and $143, respectively, to the provision
for loan losses and $81, $18, and $10, respectively, to the provision for losses
on REO or in judgment and other repossessed assets.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
The distribution of the Company's allowance for losses on loans is
shown below at the dates indicated:
13
(Dollars in Thousands)
At September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Residential real $307 92.13% $224 95.98% $365 96.49% $351 97.06% $381 97.75%
estate
Commercial real 18 3.19% 10 0.90% 10 0.98% 10 0.55% 7 0.28%
estate
Consumer 21 4.68% 41 3.12% 48 2.53% 60 2.39% 77 1.97%
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total $346 100.00% $275 100.00% $423 100.00% $421 100.00% $465 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
Analysis of the Allowance for Loan Losses.
The following table sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
At September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total loans outstanding, net $ 56,623 $ 102,243 $ 124,796 $ 171,158 $ 233,311
========= ========= ========= ========= =========
Average loans outstanding 65,959 63,751 119,247 134,013 193,512
========= ========= ========= ========= =========
Allowance balances (at beginning
of period) 283 346 275 423 421
Provision for loan losses 154 6 224 75 143
Charge-offs:
Residential (65) (67) (60) (64) (88)
Consumer (30) (13) (21) (26) (28)
Recoveries
Residential 3 2 4 6 11
Consumer 1 1 1 7 6
--------- --------- --------- --------- ---------
Allowance balance (at end of period) $ 346 $ 275 $ 423 $ 421 465
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding 0.61% 0.27% 0.34% 0.25% 0.20%
Net loans charged off as a percent of
average loans outstanding 0.14% 0.12% 0.06% 0.06% 0.05%
Analysis of the Allowance for REO
At September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total REO, net $ 837 $ 46 $ 187 $ 28 $ 41
===== ===== ===== ===== =====
Allowance balance (at beginning
of period) 36 25 16 51 34
Provision for loss 29 59 81 18 10
Charge-offs (40) (76) (47) (35) (25)
Recoveries -- 8 1 -- --
----- ----- ----- ----- -----
Allowance balance (at end of period) 25 16 51 34 19
===== ===== ===== ===== =====
Allowance for loss on REO to net REO 2.99% 34.78% 27.27% 121.43% 46.34%
===== ===== ===== ===== =====
14
Loan Servicing
General. The Company's loan servicing portfolio represents a
substantial asset which, in the opinion of management, is expected to generate
a significant source of fee income. As of September 30, 1997, the Company was
servicing approximately $1,291,331 of loans for others. The portfolio of
mortgage loans serviced for others at September 30, 1997 consisted of
approximately 22,750 loans with an average balance of approximately $57 and a
weighted average service fee of approximately 0.42% per annum. Since 1988, the
loan servicing portfolio has been increasing and the Company expects that it
will continue to increase. In management's view, the loan servicing portfolio
also acts to some degree as a hedge for the lending and mortgage banking
components of the Company's business.
The Company receives fees from a variety of institutional mortgage
owners in return for performing the traditional services of collecting
individual payments and managing the loan portfolio. Loan servicing includes
processing payments, accounting for loan funds and collecting and paying real
estate taxes, hazard insurance and other loan-related items such as private
mortgage insurance. When the Company receives the gross mortgage payment from
individual borrowers, it remits to the investor in the mortgage a predetermined
net amount based on the yield on that mortgage. The difference between the
coupon on the underlying mortgage and the predetermined net amount paid to the
investor is the gross loan servicing fee. In addition, the Company retains
certain amounts in escrow for the benefit of the lender for which the Company
incurs no interest expense but is able to lend. As of September 30, 1997, the
Company held $19,870 in borrower escrow and principal and interest payments
related to loans serviced for others. These amounts are categorized as deposits
for financial reporting purposes.
Loan Servicing Portfolio. The loan servicing portfolio as of September
30, 1997 was composed primarily of GNMA mortgage loan (66.17%), FNMA mortgage
loans (7.80%), and FHLMC mortgage loans (25.57%). The balance of the loan
servicing portfolio as of September 30, 1997 consisted of loans serviced for a
variety of private investors. The loans serviced for others are predominantly
secured by property located in Kansas. As of September 30, 1997, the portfolio
also included loans secured by property located primarily in Kansas, Oklahoma,
Louisiana, Michigan and Illinois.
As a result of the increase in the size of the portfolio of loans
serviced for others, gross loan servicing fees have increased from $1,261 for
the year ended September 30, 1991 to $4,841 for the year ended September 30,
1997.
As part of its responsibilities for various investors in VA-guaranteed
or FHA-insured mortgage loans, the Company is required to advance interest and
certain other costs on those loans when the mortgagor is delinquent. This
requirement continues until the Company pays the remaining principal amount of
the loan to the investor and forecloses upon the loan. The Company subsequently
files with either the VA or FHA a claim for the amount of loan principal,
advanced interest and other costs incurred.
15
When a claim is filed with the VA, the VA either (i) pays the claim in
full and takes title to the foreclosed property (in which case the Company does
not suffer a loss) or (ii) exercises its option to pay to the company only the
mortgage guarantee amount up to a maximum of 50% of the loan amount (in which
case the Company must rely upon the sale of the foreclosed property to recover
the balance of its claim). The VA typically exercises this latter option when
the value of the property plus the guarantee is less than the carrying amount of
the loan. To the extent that the guarantee, insurance, and the amounts generated
from foreclosure proceedings are insufficient to retire the indebtedness on such
loans, a loss will be incurred.
When a claim is filed with the FHA, the Company is reimbursed for its
advances of interest on the loan at the debenture interest rate in effect on the
date that the loan was originated; in addition, the interest starts to accrue on
the 61st day after the date of default at the debenture interest rate.
Furthermore, if an originated loan does not conform to the loan underwriting
standards of the acquiror, the acquiror has a right to require the Company to
repurchase such loans.
Included in other assets as of September 30, 1997, were $1,741 in
claims receivable from the FHA or VA for insured or guaranteed mortgage loans.
These receivables are carried at the lower of cost or net realizable value.
Mortgage Servicing Rights ("MSRs"). The Savings Bank adopted Statement
of Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, effective for
the year ended September 30, 1997. For each servicing contract in existence
before January 1, 1997, previously recognized originated and purchased servicing
rights and "excess servicing" receivables are 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
implementation of this Statement did not have a material impact on the
consolidated financial statements.
Originated mortgage servicing rights are recorded at cost based upon
the relative fair values of the loans and the servicing rights. Servicing
release fees paid on comparable loans and discounted cash flows are used to
determine estimates of fair values. Purchased mortgage servicing rights are
acquired from independent third-party originators and are recorded at the lower
of cost or fair value. These rights are amortized in proportion to and over the
period of expected net servicing income.
Impairment Evaluation. The Savings Bank evaluates the carrying value of
capitalized mortgage servicing rights on a periodic basis based on their
estimated fair value. For purposes of evaluating and measuring impairment of
capitalized servicing rights, in accordance with SFAS No. 125, the Savings Bank
stratifies the rights based on their predominant risk characteristics.
16
The significant risk characteristics considered by the Savings Bank are
loan type, period of origination and stated interest rate. If the fair value
estimated, using a discounted cash flow methodology, is less than the carrying
amount of the portfolio, the portfolio is written down to the amount of the
discounted expected cash flows utilizing a valuation allowance. The Savings Bank
utilizes consensus market prepayment assumptions and discount rates to evaluate
its capitalized servicing rights which considers the risk characteristics of the
underlying servicing rights. For the years ended 1995 and 1996, there were no
write downs or valuation allowances established for capitalized servicing. A
write down and valuation allowance of $10 was established at September 30, 1997.
Sale of Mortgage Servicing Rights. The Savings Bank recognizes gains on
sales of mortgage servicing rights when a legal closing of the sale occurs with
title passing to the buyer, all significant risks and rewards of ownership have
transferred to the buyer, including risks related to default prepayment
(including no uncapped risks related to defaults or prepayments) and there are
no significant unresolved contingencies. The Savings Bank defers the gain on
sale of servicing until these conditions are met.
The following table sets forth the loan servicing fees of the Company
as well as such fees as a percentage of net interest income of the Company
during the periods indicated.
Year Ended September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Loan servicing fees, net of MSR amortization $1,125 $1,789 $3,102 $3,128 $3,099
Net interest income $5,509 $5,605 $7,221 $7,905 $9,213
Loan servicing fees as a percentage of net interest
income 20.4% 31.9% 43.0% 39.6% 33.6%
The following tables sets forth the composition of the portfolio of
loans serviced for others as of September 30, 1997.
Unpaid principal balance
------------------------
(In Thousands)
GNMA $ 854,467
FNMA 100,778
FHLMC 330,225
Other (1) 5,861
----------
$1,291,331
==========
- ---------------------------
(1) Includes private investors, other financial institutions and
municipalities.
17
Interest Bearing Accounts Held at Other Financial Institutions
As of September 30, 1997, the Company held $15,940 in interest-bearing deposits
in other financial institutions, principally with the FHLB of Topeka. The
Company maintains these accounts in order to maintain liquidity and improve the
interest-rate sensitivity of its assets.
Investment Activities
Mid-Continent is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The Company has generally maintained a
liquidity portfolio well in excess of regulatory requirements. Liquidity levels
may be increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the attractiveness of the
yields then available in relation to other opportunities and its expectation of
future yield levels, as well as management's projections as to the short-term
demand for funds to be used in the Company's loan origination and other
activities. As of September 30, 1997, the Company had an investment portfolio of
approximately $86,065, consisting primarily of U.S. Government agency
obligations, U.S. Treasury securities, and FHLB stock as permitted by the OTS
regulations. The Company has found its level of investment securities has
increased in recent years as a result of increased interest rates. Mid-Continent
has invested in mortgage-related securities to offset any excess liquidity;
principally in FNMA ARMs and FHLMC ARMs. The Company anticipates having the
ability to fund all of its investing activities from funds held on deposit at
FHLB of Topeka. Mid-Continent will continue to seek high quality investments
with short to intermediate maturities and duration from one to five years.
Investment Portfolio
The following table sets forth the carrying value of the Company's
investment securities portfolio, short-term investments, FHLB stock, at the
dates indicated. As of September 30, 1997, the market value of the Company's
total investment securities portfolio was $85,895.
At September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In Thousands)
Investment Securities
U.S. Government Securities $ 1,126 $ 1,222 $ 1,326 $ 1,438 $ 1,560
U.S. Agency Securities 11,812 20,946 52,917 84,797 77,830
FHLB Stock 2,206 2,206 2,206 4,327 6,675
------- ------- ------- ------- -------
Total Investment Securities $15,144 $24,374 $56,449 $90,562 $86,065
======= ======= ======= ======= =======
On June 1, 1989, the OTS issued a rule to clarify the application of
GAAP to securities held for investment, sale and/or trading by insured savings
associations. The rule requires an insured savings association's board of
directors to document and monitor its investment policy and strategies,
discusses the appropriate documentation of investment decisions of the insured
savings association's board of directors, summarizes GAAP applicable to
securities held for investment, sale and/or trading, and offers guidance on the
application of GAAP by insured
18
savings associations in determining whether a security should be accounted for
as a security held as an investment, as a security held for sale or as a
security held for trading.
19
Investment Portfolio Maturities
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Company's investment
securities portfolio as of September 30, 1997.
As of September 30, 1997
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Investment
Securities:
U.S. Government
Obligations $1,455 14.00% $ 105 8.02% $ 1,560 13.60% $ 1,579
U.S. Agency
Obligations 7,000 4.88% $4,996 5.04% $27,500 7.22% $38,334 7.35% 77,830 6.93% 77,641
FHLB Stock 6,675 7.25% 6,675 7.25% 6,675
------ ---- ------ ---- ------- ---- ------ ---- ------- ---- -------
Total $8,455 6.45% $4,996 5.04% $27,605 7.23% $45,009 7.33% $86,065 7.08% $85,895
====== ==== ====== ==== ======= ==== ====== ==== ======= ==== =======
20
Mortgage-Related Securities
The Company has a substantial investment in residential
mortgage-related securities. Although such securities are held for investment,
they can serve as collateral for borrowings and, through repayments, as a source
of liquidity. As of September 30, 1997, the carrying value of mortgage-related
securities totaled $28,124, or 6.94% of total assets. The market value of such
securities totaled approximately $28,556 as of September 30, 1997. As of
September 30, 1997, $12,873 in mortgage-related securities were pledged as
collateral for public funds.
The mortgage-related securities portfolio as of September 30, 1997
consisted of fixed and adjustable rate pass through certificates issued by GNMA
($9,871). Fixed and adjustable pass through certificates issued by FHLMC
($13,607), and fixed and adjustable pass through certificates issued by FNMA
($2,697). To a less extent, the mortgage-related securities portfolio also
contains pass through certificates issued by the Mortgage Guarantee Insurance
Corporation ("MGIC").
Mortgage-related securities represent a participation interest in a
pool of single-family or multi-family mortgages, the principal and interest
payments on which are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as the
Company. Such quasi-governmental agencies, which guarantee the payment of
principal and interest to investors, primarily include FHLMC, FNMA and GNMA.
FHLMC is a corporation chartered by the United States Government that
issues participation certificates backed principally by conventional mortgage
loans. FHLMC guarantees the timely payment of interest and the ultimate return
or principal. FHLMC securities are indirect obligations of the United States
Government. FNMA is a private corporation chartered by Congress with a mandate
to establish a secondary market for conventional mortgage loans. FNMA guarantees
the timely payment of principal and interest, and FNMA securities are indirect
obligations of the United States Government. GNMA is a government agency with
HUD which is intended to help finance government assisted housing programs. GNMA
guarantees the timely payment of principal and interest, and GNMA securities are
backed by the full faith and credit of the United States Government. Since
FHLMC, FNMA and GNMA were established to provide support for low- and
middle-income housing, there are limits to the maximum size of loans that
qualify for these programs. To accommodate larger-sized loans, and loans that,
for other reasons, do not conform to the agency programs, a number of private
institutions have established their own home-loan origination and securitization
programs.
Mortgage-related securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
ARMs. Mortgage-related securities are generally referred to as mortgage
participation certificates or pass-through certificates. As a result, the
interest rate risk characteristics of the underlying pool of mortgages, i.e.,
fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the
certificate holder. The life of a mortgage-related pass-
21
through security is equal to the life of the underlying mortgages.
Mortgage-related securities issued by FHLMC, FNMA, and GNMA make up the majority
of the pass-through market.
In a declining interest rate environment, the Company may experience
significant prepayments on both fixed- and adjustable-rate mortgage-related
securities. In such an environment or in an environment where interest rates are
perceived to be low, the Company may not be able to reinvest the cash flow from
these securities into comparable yielding investments.
The following table sets forth the carrying value of the Company's
mortgage-related securities portfolio at the dates indicated.
At September 30,
1994 1995 1996 1997
---- ---- ---- ----
(In Thousands)
Held for Investment:
FNMA-ARMs $ 3,391 $ 2,990 $ 2,616 $ 2,352
FHLMC-ARMs 8,293 6,786 6,219 5,865
GNMA-ARMs 6,020 5,729 5,043 4,302
FHLMC-fixed rate 15,256 13,835 11,853 7,742
FNMA-fixed rate 585 459 365 345
GNMA-fixed rate 8,086 7,293 6,151 5,569
MGIC 3,399 2,912 2,136 1,949
------- ------- ------- -------
Total mortgage-related securities $45,030 $40,004 $34,383 $28,124
======= ======= ======= =======
To supplement lending activities in period of deposit growth and/or
declining loan demand, Mid-Continent has increased its investments in
residential mortgage-related securities during recent years. Although such
securities are held for investment, they can serve as collateral for borrowings
and through repayments, as a source of liquidity. As of September 30, 1997,
$50,849 in investment and mortgage-related securities were pledged as collateral
for public funds.
Subsidiary Activities
Mid-Continent is permitted to invest up to 2% of its assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. As of September 30, 1997,
the net book value of the Company's total investment in its service corporation
was $131.
The Bank has one subsidiary, Laredo Investment, Inc. which was
incorporated in the State of Kansas and is engaged in the sale of tax deferred
annuities through Mid-Continent's branch offices. Insurance commissions from the
sale of tax deferred annuities amount to $3 and $2 for the years ended September
30, 1996 and 1997, respectively.
Source of Funds
General. Deposits are the major source of the Company's funds for
lending and other investment purposes. Mid-Continent derives funds from
amortization and prepayment of loans and mortgage-related securities, maturities
of investment securities and operations. Scheduled loan principal repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions. Mid-Continent utilizes FHLB advances. The Company does not use
brokered deposits.
22
Deposits. Consumer deposits are attracted principally from within the
Company's primary market area through the offering of a broad selection of
deposit instruments including checking, statement savings, money market deposit
and term certificate accounts (including negotiated jumbo certificates in
denominations of $100,000 or more) and retirement account funds. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
The Company intends to continue to aggressively seek new checking
accounts and other related products and services by utilizing automated teller
machines, direct mail, gifts, and in-branch promotions in an effort to increase
fee income. In April 1993, the Company introduced a totally-free checking
account program which has been successful in attracting new checking accounts.
NOW account, money market accounts, regular savings accounts and
custodial accounts constituted $67,301, or 28.48% of the Company's deposit
portfolio as of September 30, 1997. Certificates of deposit constituted
$116,585, or 49.33% of the deposit portfolio, excluding Jumbo accounts, with
principal amounts of $100 or more, which constituted $52,447, or 22.19% of the
deposit portfolio, as of September 30, 1997.
Deposit Accounts of $100 or More
The following table indicates the amount of the Company's deposits of
$100 or more by time remaining until maturity as of September 30, 1997.
Maturity Period
- ---------------
(Dollars in Thousands)
Within three months $27,793
Over three through six months 2,848
Over six through twelve months 9,813
Over twelve months 11,993
-------
Total $52,447
=======
Borrowings
Deposits are the primary source of funds of the Company's lending and
investment activities and for its general business purposes. The Company has
obtained advances from the FHLB of Topeka to supplement its supply of lendable
funds. Advances from the FHLB of Topeka have typically been secured by a pledge
of the Company's stock in the FHLB of Topeka
23
and a portion of the Company's first mortgage loans and certain other assets.
The Company, if the need arises, may also access the Federal Reserve Bank
discount window to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. As of September 30, 1997, Mid-Continent had $121,800 in
advances outstanding from the FHLB of Topeka. The Savings Bank has entered into
a line-of-credit agreement with the FHLB of Topeka wherein the Savings Bank can
borrow up to $68,292 subject to certain limitations. As of September 30, 1997,
there was $7,300 outstanding relative to this agreement. The agreement expires
December 26, 1997.
Personnel
As of September 30, 1997, the Company had 155 full-time and 29
part-time employees. None of the Company's employees are represented by a
collective bargaining group.
Competition
The Company encounters strong competition both in the attraction of
deposits and origination of loans. Competition comes primarily from savings
institutions, commercial banks and credit unions that operate in counties where
Mid-Continent's offices are located. The Company competes for savings accounts
by offering depositors competitive interest rates and a high level of personal
service. The Company competes for loans primarily through the interest rates and
loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and contractors.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Company. The description does not purport to be complete
and is qualified in its entirety by reference to applicable laws and
regulations. Unless otherwise indicated, this section discusses regulations that
apply to the Company indirectly through their direct application to the Savings
Bank.
General. As a federally chartered, FDIC-insured savings association,
the Savings Bank is subject to extensive regulation by the OTS and the FDIC.
Lending activities and other investments must comply with various federal
statutory and regulatory requirements. The Savings Bank is also subject to
certain reserve requirements promulgated by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board").
The OTS, in conjunction with the FDIC, regularly examines the Savings
Bank and prepares reports for the consideration of the Savings Bank's Board of
Directors on any deficiencies that they find in the Savings Bank's operations.
The Savings Bank's relationship with its depositors and borrowers is also
regulated to a great extent by federal law, especially in such matters as the
ownership of savings accounts and the form and content of the Savings Bank's
mortgage documents.
24
The Savings Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the FDIC and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company and its operations.
The Company is also required to file certain reports with, and otherwise comply
with the rules and regulations of the OTS and the Securities and Exchange
Commission ("SEC").
Regulatory Capital Requirements
OTS capital regulations require savings institutions to meet three
capital standards: (1) tangible capital equal to 1.5% of total adjusted assets,
(2) a leverage ratio (core capital) equal to 3% of total adjusted assets and (3)
risk-based capital equal to 8.0% of total risk-weighted assets.
The following table sets forth the Savings Bank's capital position at
September 30, 1997, as compared to the minimum regulatory capital requirements
imposed by the OTS at that date.
Percent
of Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Regulatory capital $36,179 8.9%
Regulatory requirement 6,079 1.5%
------- ----
Excess $30,100 7.4%
======= ====
Core Capital:
Regulatory capital $36,179 8.9%
Regulatory requirement 12,158 3.0%
------- ----
Excess $24,021 5.9%
======= ====
Risk-Based Capital:
Regulatory capital $36,633 22.6%
Regulatory requirement 12,954 8.0%
------- ----
Excess $23,679 14.6%
======= =====
Prompt Corrective Action
Banking regulators are required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Under the OTS rules, an institution
shall be deemed to (i) "well capitalized" if it has total risk-based capital of
10.0% or more, has a Tier I risk-based capital ratio (core or
25
leverage capital to risk-weighted assets) of 6.0% or more, has a leverage
capital ratio of 5.0% or more and is not subject to any order or final capital
directive to meet and maintain a specific capital level for any capital measure,
(ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0%
or more, a Tier I risked-based ratio of 4.0% or more and a leverage capital
ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized", (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a leverage capital ratio that is less than 4.0%
(3.0% in certain circumstances), (iv) "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a leverage capital ratio that is less
than 3.0% and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. In addition, under
certain circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
Immediately upon becoming undercapitalized, an institution becomes
subject to restrictive provisions. The appropriate federal banking agency for an
undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible long
term cost to the deposit insurance fund, subject in certain cases to specified
procedures.
The Company is currently a well capitalized institution.
Dividend and Other Capital Distribution Limitations
OTS regulations require the Savings Bank to give the OTS 30 days
advance notice of any proposed declaration of dividends and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends. In
addition, the Savings Bank may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to reduce the regulatory capital of the
Savings Bank below the amount required for the liquidation account established
pursuant to the Savings Bank's Plan of Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter
26
period. Any additional capital distributions require prior regulatory approval.
As of September 30, 1997, the Savings Bank was a Tier 1 institution. In the
event the Company's capital fell below its fully phased-in requirement or the
OTS notified it that it was in need of more than normal supervision, the Savings
Bank's ability to make capital distributions could be restricted. In addition,
the OTS could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would be
"undercapitalized" (not meet any one of its minimum regulatory capital
requirement).
Qualified Thrift Lender Test
The Home Owners Loan Act ("HOLA"), as amended, requires savings
institutions to meet a qualified thrift lender ("QTL") test. If the Savings Bank
maintains at least 65% of its portfolio assets (defined as all assets minus
intangible assets, property used by the institution in conducting its business
and liquid assets equal to 20% of total assets) in Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-backed securities ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Topeka. Certain
assets are subject to a percentage limitation of 20% of portfolio assets. In
addition, savings associations may include shares of stock of the Federal Home
Loan Banks, FNMA and FHLMC as qualifying QTIs. Compliance with the QTL test is
measured on a monthly basis in nine out of every 12 months. As of September 30,
1997, the Savings Bank was in compliance with its QTL requirement with 88.5% of
its total assets invested in Qualified Thrift Investments.
Federal Home Loan Bank System
The Savings Bank is a member of the FHLB of Topeka, which is one of 12
regional FHLBs that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB.
As a member, the Savings Bank is required to purchase and maintain
stock in the FHLB of Topeka in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. As of September 30, 1997, the Savings
Bank had $6,675 in FHLB stock, which was in compliance with this requirement.
27
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts)
and non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy the
liquidity requirements that are imposed by the OTS.
Savings association have authority to borrow from the Federal Reserve
Bank "discount window", but Federal Reserve policy generally requires savings
association to exhaust all OTS sources before borrowing from the Federal Reserve
System. The Savings Bank had no discount window borrowings as of September 30,
1997.
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Company and not for stockholders of the
Company.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions, provided the Company satisfied the QTL
test. If the Company acquires control of another savings association as a
separate subsidiary, it would become a multiple savings and loan holding
company, and the activities of the Company and any of its subsidiaries (other
than the Company or any other FDIC-insured savings association) would become
subject to such restrictions unless such other associations each qualify as a
QTL and were acquired in a supervisory acquisition.
Executive Officers of the Registrant
The following individuals were executive officers of the Registrant as
of September 30, 1997:
Name Age (1) Positions Held With the Registrant
- ---- ------- ----------------------------------
Richard T. Pottorff 63 Chairman, President, and Chief
Executive Officer
Larry R. Goddard 51 Executive Vice President, Chief Operating
Officer, and Chief Financial Officer
Harold G. Siemens 48 Senior Vice President - Lending
28
David L. Walter 49 Vice President
- ----------------------------------
(1) At September 30, 1997
The following is a description of the principal employment and
occupation during at least the past five years of the executive officers of the
Registrant as of September 30, 1997.
Richard T. Pottorff has served as a Director and Officer of the Savings
Bank since 1978 and of the Company since its incorporation in January 1994. Mr.
Pottorff has served as a Director of the FHLB of Topeka and has served as a
member of the El Dorado Chamber of Commerce, the Wichita Association of Real
Estate Brokers and the Wichita Homebuilders Association. In addition, Mr.
Pottorff is the Chairman of the Federal and State Legislative Committee of the
Heartland Community Bankers. Mr. Pottorff is also a past Chairman of the
Heartland Community Bankers.
Larry R. Goddard has been with the Savings Bank since 1978 and has
served as a Director of the Savings Bank and the Company since 1994. Mr. Goddard
is a past President of the Mid-West Savings Conference and has served as
Chairman of the Real Estate Mortgage Committee of the Heartland Community
Bankers. He is also a member of the Lions Club, a member of the Partners in
Education, a director of El Dorado, Inc., and a member of the Community Action
for Retail & Revitalization Board.
Harold G. Siemens has been with the Company since 1983. He is a
founding Director and past President of the Kansas Mortgage Banking Association
and a Director of the Mid-West Savings Conference. Mr. Siemens is also a member
of the Real Estate Mortgage Committee of the Heartland Community Bankers, the
Wichita Area Association of Realtors and the Wichita Area Builders Association.
David L. Walter has been with the Savings Bank since 1988 and has
served as a Vice President of the Company since January 1995. With respect to
the Savings Bank, Mr. Walter became the Treasurer and the Controller in 1988 and
a Vice President in 1989. Mr. Walter is a member of the Financial Managers
Society and the Treasurer of the El Dorado Kiwanis Club.
Item 2. Properties
The Company operates from its corporate office located at 124 W.
Central, El Dorado, Kansas. The Company owns this office facility which was
opened in 1965.
Full service offices owned and leased by the Company are set forth
below.
29
Location
100 W. Twelfth 405 N. Main 2123 N. Maize Road
Newton, Kansas 67114 El Dorado, Kansas 67042 Wichita, Kansas 67212
1113 S. Main 255 N. Main 3055 N. Rock Road
Winfield, Kansas 67156 Wichita, Kansas 67201 Wichita, Kansas 67226
2310 S. Main 1420 N. Ohio 762 N. West Street
Winfield, Kansas 67156 Augusta, Kansas 67010 Wichita, Kansas 67203
300 N. Rock Road
Derby, Kansas 67037
The Company owns all of its facilities except 405 N. Main in El Dorado,
which is leased. This lease expires June 30, 1998.
The Company also owns certain other properties that it leases to
others. The location of these properties is set forth below.
409 N. Main 100 W. Twelfth 402 N. Rose Hill Road
El Dorado, Kansas 67042 Newton, Kansas 67114 Rose Hill, Kansas 67213
Item 3. Legal Proceedings
There are various claims and lawsuits in which the Company is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which the Company holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Company's business. In the opinion of management, no material loss is expected
from any of such pending claims or lawsuits.
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,
30
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information contained under the section captioned "Market and
Dividend Information" in the Company's Annual Report to Stockholders for the
fiscal year ended September 30, 1997 (the "Annual Report"), is incorporated
herein by reference.
Item 6. Selected Financial Data
The information contained in the table captioned "Selected Consolidated
Financial Highlights" in the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7A. Quantitiative and Qualitative Disclosures about Market Risks
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Market Risk" in the Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's financial statements listed under Item 14 are
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no change of independent auditor for the Company, or its
subsidiaries, during the two year period ended September 30, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the section captioned "Proposal 4
Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance of Mid Continent" in the Registrant's definitive proxy statement for
the Registrant's 1997 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference. The Proxy Statement is included in Part I of a
Registration Statement on Form S-4 of Commercial Federal Corporation ("CFC")
filed with the SEC on or about December 19, 1997. This Form S-4 relates to the
merger of the Company with CFC.
Additional information concerning executive officers is included under
"Part I - Executive Officers of the Registrant".
32
Item 11. Executive Compensation
The information contained under the sections captioned "Proposal 4
Election of Directors - Executive Compensation", and "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement are incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Principal Holders
Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "Proposal I - Election of
Directors" in the Proxy Statement.
(c) Management of the Registrant knows of no arrangements, including
any pledge by any person of securities of the Registrant, the operation of which
may at a subsequent date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I - Election of Directors - Certain
Relationships and Related Transactions" in the Proxy Statement.
33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of
independent accountants of the Registrant included in the Registrant's 1997
Annual Report to Stockholders are incorporated herein by reference and also in
Item 8 hereof.
Consolidated Balance Sheets as of September 30, 1996 and 1997.
Consolidated Statements of Income for the Years Ended September 30,
1995, 1996 and 1997.
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1995, 1996 and 1997.
Consolidated Statements of Cash Flows for the Years Ended September 30,
1995, 1996 and 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules, except for Exhibit 11, for
which provision is made in the applicable accounting regulations of the SEC are
not required under the related instructions or are inapplicable and therefore
have been omitted.
3. The following exhibits are included in this Report or
incorporated herein by reference:
(a) List of Exhibits:
2 Merger Agreement with CFC*
3(i) Certificate of Incorporation of Mid Continent
Bancshares, Inc. **
3(ii) Bylaws of Mid Continent Bancshares, Inc. ***
10.1 Outside Director Consultation and Retirement Plan **
10.2 Employment Agreement with Richard T. Pottorff
10.3 Employment Agreement with Larry R. Goddard
10.4 1994 Stock Option Plan ***
10.5 Management Stock Bonus Plan and Trust Agreement ***
34
10.6 Severance Agreement with Harold Siemens
11 Statement Regarding Computation of Earnings Per
Share
13 Annual Report to Stockholders for the fiscal year
ended September 30, 1997
21 Subsidiaries of the Registrant ***
23 Consent from Deloitte & Touche, LLP
- -------------------------
* Incorporated by reference to Exhibit 99.2 of the Form 8-K (File No.
0-23620) dated September 2, 1997.
** Incorporated by reference to the registration statement on Form S-1 (File
No. 33-76010) declared effective by the SEC on May 3, 1994.
*** Incorporated by reference to the Form 10-K (File No. 0-23620) for the
fiscal year ended September 30, 1996.
(b) Reports on Form 8-K:
A Form 8-K, dated September 2, 1997 (Items 5 and 7), was filed
during the quarter.
Copies of above exhibits not contained herein are available, at a fee of $0.15
per page, to any security holder upon written request to the Secretary, Mid
Continent Bancshares, Inc., 124 West Central, El Dorado, Kansas 67042.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf, on December 23, 1997, by the undersigned, thereunto duly authorized.
Mid Continent Bancshares, Inc.
By: /s/ Richard T. Pottorff
------------------------------------
Richard T. Pottorff
President, Chairman and Chief
Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of December 23, 1997.
/s/ Larry R. Goddard /s/ Richard T. Pottorff
- ------------------------------------- ------------------------------------
Larry R. Goddard Richard T. Pottorff
Executive Vice President, Chief President, Chairman, Chief Executive
Operating Officer, Chief Financial Officer, and Director
Officer and Director (Principal Executive Officer)
(Principal Financial and Accounting
Officer)
/s/ Donald Adlesperger /s/ Thomas C. Hand
- ------------------------------------- ------------------------------------
Donald Adlesperger Thomas C. Hand
Director Director
/s/ Kenneth B. Dellett /s/ Ron J. McGraw
- ------------------------------------- ------------------------------------
Kenneth B. Dellett Ron J. McGraw
Director Director