UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20519
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission File Number: 0-23620
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Mid Continent Bancshares, Inc.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in its charter
Kansas 48-1146797
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
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(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: January 30, 1998
Class: $0.10 par value, common stock
Outstanding: 1,998,149 shares
MID CONTINENT BANCSHARES, INC.
INDEX
Page Number
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Balance Sheets as of December 31, 1997 (Unaudited)
and September 30, 1997 3
Consolidated Statements of Income for the Three Months
Ended December 31, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Stockholders' Equity for the Three
Months Ended December 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
MID CONTINENT BANCSHARES, INC.
PART I
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
1997 1997
(Unaudited)
--------------- ------------
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions $ 1,387 $ 1,582
Interest bearing deposits in other banks 15,940 9,019
--------- ---------
Total cash and cash equivalents 17,327 10,601
INVESTMENT SECURITIES 79,390 67,150
CAPITAL STOCK OF FEDERAL HOME LOAN BANK, at Cost 6,675 6,813
MORTGAGE-RELATED SECURITIES 28,124 26,320
LOANS HELD FOR SALE, at lower of cost or market value 13,894 22,583
LOANS RECEIVABLE (Less allowance for loan losses of $465 and $780) 233,311 246,297
PREMISES AND EQUIPMENT, Net 7,222 7,091
REAL ESTATE OWNED (Less allowance for losses of $19 and $5) 41 20
ACCRUED INTEREST RECEIVABLE 2,871 3,226
MORTGAGE SERVICING RIGHTS, Net 13,615 14,162
OTHER ASSETS 2,792 3,348
--------- ---------
TOTAL ASSETS $ 405,262 $ 407,611
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 236,333 $ 262,386
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE 2,066 916
INCOME TAXES PAYABLE, Net of deposits 122
DEFERRED INCOME TAXES 1,042 1,042
ACCRUED AND OTHER LIABILITIES 4,039 2,641
ADVANCES FROM FEDERAL HOME LOAN BANK 121,800 99,500
--------- ---------
Total liabilities 365,280 $ 366,607
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, 2,251,953 shares issued 225 225
ADDITIONAL PAID-IN CAPITAL 22,209 22,213
LESS UNEARNED COMPENSATION-EMPLOYEE STOCK OWNERSHIP PLAN (918) (871)
RETAINED EARNINGS, Substantially restricted 23,851 24,514
--------- ---------
Total 45,367 46,081
TREASURY STOCK, 290,000 and 253,804 shares, at cost (5,385) (5,077)
--------- ---------
Total stockholders' equity 39,982 41,004
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 405,262 $ 407,611
========= =========
See notes to consolidated financial statements
3
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Share Amounts)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1997
(Unaudited) (Unaudited)
INTEREST INCOME:
Loans receivable $ 3,648 $ 4,896
Mortgage-related securities 654 571
Investment securities 1,771 1,464
Other interest-cash and cash equivalents 49 74
------- -------
Total interest income 6,122 7,005
------- -------
INTEREST EXPENSE:
Deposits 2,655 2,835
Advances from Federal Home Loan Bank 1,252 1,667
------- -------
Total interest expense 3,907 4,502
------- -------
NET INTEREST INCOME 2,215 2,503
PROVISION FOR LOAN LOSSES 25 325
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,190 2,178
------- -------
OTHER INCOME:
Loan servicing fees 1,207 1,228
Amortization of mortgage servicing rights (421) (495)
Service fees and other charges to customers 704 883
Gain on sale of loans, net 291 416
Insurance commissions 16 4
Other 53 3
------- -------
Total other income 1,850 2,039
------- -------
OTHER EXPENSE:
Salaries and employee benefits 1,129 1,563
Occupancy of premises 291 289
Office supplies and related expenses 141 151
Data processing 154 163
Advertising and promotions 111 92
Federal insurance premiums 96 39
Professional services 57 60
Provision for losses on real estate owned -- 18
Amortization of excess cost over fair value of asset acquired 12 --
Deposit account expense 89 88
Loan servicing expense 66 72
Other 101 276
------- -------
Total other expenses 2,247 2,811
------- -------
INCOME BEFORE INCOME TAX EXPENSE 1,793 1,406
INCOME TAX EXPENSE 695 552
------- -------
NET INCOME $ 1,098 $ 854
======= =======
Basic earnings per share $ 0.59 $ 0.45
======= =======
Diluted earnings per share $ 0.56 $ 0.43
======= =======
See notes to consolidated financial statements
4
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
Unearned
Compensation
- Employee Retained
Additional Stock Earnings, Total
Common Stock Paid-In Ownership Substantially Treasury Stock Stockholders'
Shares Amount Capital Plan Restricted Shares Amount Equity
BALANCE, October 1, 1997 2,251,953 $225 $22,209 ($918) $23,851 290,000 ($5,385) $39,982
Exercise of stock options (105) (36,196) 308 203
Common stock committed to be released
for allocation - Employee Stock Ownership
Plan 47 47
Increase in fair market value of Employee
Stock Ownership Plan shares committed to be
released for allocation 109 109
Dividends on common stock to stockholders (191) (191)
Net income 854 854
========== ======= ======== ============== ========= ========== ========= ========
BALANCE, December 31, 1997 2,251,953 $225 $22,213 ($871) $24,514 253,804 ($5,077) $41,004
========== ======= ======== ============== ========= ========== ========= ========
5
See notes to consolidated financial statements
MID CONTINENT BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED
DECEMBER 31,
1996 1997
(Unaudited) (Unaudited)
----------- ------------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,098 $ 854
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 40 47
Increase in fair market value of Employee Stock Ownership Plan shares committed to be released for
allocation 40 109
Amortization of unearned compensation - Management Stock Bonus Plan 50 --
Stock dividend on capital stock in Federal Home Loan Bank (73) (137)
Amortization of premiums and discounts on mortgage-related securities and investment securities, net (26) (16)
Provision for loan losses 25 325
Net loan origination fees capitalized 240 318
Amortization of net deferred loan origination fees (25) (14)
Amortization of mortgage servicing rights 421 495
Impairment of mortgage servicing rights 1 (1)
Amortization of excess of costs over fair value of asset acquired 12 --
Provision for loss on real estate owned -- 18
Gain on sale of real estate owned (18) --
Depreciation on premises and equipment 132 132
Gain on sale of loans, net (291) (416)
Origination of loans held for sale (53,109) (72,929)
Proceeds from sale of loans held for sale 50,897 64,655
Changes in:
Accrued interest receivable (438) (355)
Other assets (842) (128)
Income taxes payable 695 (308)
Accrued and other liabilities (811) (1,393)
-------- --------
Net cash used in operating activities (1,982) (8,744)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity or call of investment securities 11,000 16,470
Purchases of investment securities (12,283) (4,199)
Principal collected on mortgage-related securities 1,071 1,790
Origination of loans receivable, net of principal collection (8,386) (13,616)
Acquisitions of mortgage servicing rights (666) (1,041)
Purchases of premises and equipment (442) (1)
Proceeds from sales of real estate owned 69 3
-------- --------
Net cash used in investing activities (9,637) (594)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts for deposits, net 10,290 26,053
Net decrease in advance payments by borrowers for taxes and insurance (1,217) (1,149)
Proceeds from advances from Federal Home Loan Bank 89,700 55,260
Repayments on advances from Federal Home Loan Bank (83,900) (77,560)
Cash dividend on common stock to stockholders (190) (195)
Exercise of stock options -- 203
-------- --------
Net cash provided by financing activities 14,683 2,612
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 3,064 (6,726)
CASH AND CASH EQUIVALENTS:
Beginning of period 5,618 17,327
-------- --------
End of period $ 8,682 $ 10,601
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments $ 0 $ 0
======== ========
Interest payments $ 3,930 $ 4,530
======== ========
Loans transferred to real estate owned $ 162 $ 0
======== ========
Accrued dividends on common stock $ 192 $ 189
======== ========
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. REORGANIZATION AND MERGER AGREEMENT
On September 2, 1997, the Company entered into a Reorganization and Merger
Agreement ("the agreement") to be acquired by Commercial Federal Corporation
("Commercial Federal"). Under the terms of the agreement, Commercial Federal
will acquire through a tax-free reorganization all of the outstanding shares of
the Company's common stock in exchange for Commercial Federal's common stock.
The exchange ratio will be determined based upon the average closing price of
Commercial Federal's common stock during a twenty consecutive trading day period
prior to closing. Based on Commercial Federal's closing price on September 2,
1997, the Company's shareholders would receive 1.3039 shares of Commercial
Federal's common stock for each share of the Company's outstanding common stock.
The acquisition is subject to regulatory approvals, the Company's shareholders'
approval and other conditions and is expected to close in the second fiscal
quarter of 1998. The accompanying financial statements do not include any
adjustments giving effect to the agreement.
3. BASIS OF PRESENTATION
The consolidated balance sheet as of December 31, 1997, the consolidated
statements of income for the three months ended December 31, 1996 and 1997,
stockholders' equity for the three months ended December 31, 1997 and cash flows
for the three months ended December 31, 1996 and 1997, have been prepared by the
Company, without audit, and therefore do not include information or footnotes
necessary for a complete presentation of consolidated financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. It is suggested that these consolidated financial
statements be read in conjunction with the September 30, 1997 financial
statements and notes thereto included in the Annual Report of the Company. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary for the fair presentation of the consolidated financial
statements have been included. The results of operations for the three months
ended December 31, 1997 are not necessarily indicative of the results which may
be expected for the entire year.
7
4. DIVIDENDS ON COMMON STOCK
On December 18, 1997 the Company declared a $0.10 per share cash dividend to
shareholders of record on January 2, 1998. The dividend was paid on January 15,
1998.
5. NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
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. The Statement is effective for the Company's financial statements for
the interim period ended December 31, 1997. The Company's earnings per share
under the new standard is not materially different from previously reported.
In February 1997, the FASB 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 anticipates that the implementation of this Statement may
require additional disclosures.
8
6. LOANS RECEIVABLE
September 30, December 31,
1997 1997
(Unaudited)
------------- ------------
(Dollars in Thousands)
First mortgage loans:
Residential-one-to-four units $ 217,152 $ 229,424
Secured by other properties 857 795
Construction loans 17,534 19,421
--------- ---------
235,543 249,640
--------- ---------
Other installment loans:
Property improvement, auto and other 6,375 6,306
Mobile home 128 103
Deposits 795 833
--------- ---------
7,298 7,242
--------- ---------
Less:
Unearned discounts and loan fees 255 152
Unamortized premiums on loans purchased (737) (871)
Undisbursed loan funds 9,547 10,524
Allowance for loan losses 465 780
--------- ---------
$ 233,311 $ 246,297
========= =========
The Bank services loans for others which are not included in the accompanying
consolidated balance sheets. The approximate unpaid principal balances of these
loans are summarized as
follows:
September 30, December 31,
1997 1997
(Unaudited)
------------- ------------
(Dollars in Thousands)
Government National Mortgage Association $ 854,467 $ 850,841
Federal National Mortgage Association 100,778 96,983
Federal Home Loan Mortgage Corporation 330,225 358,031
Other Investors 5,861 5,574
---------- ----------
$1,291,331 $1,311,429
========== ==========
7. MORTGAGE SERVICING RIGHTS (MSR)
Following is an analysis of the changes in mortgage servicing rights:
Three Months Ended
December 31,
(Unaudited)
1996 1997
---------- ---------
(Dollars in Thousands)
Balance, Beginning of period $ 12,496 $ 13,625
Additions 666 1,041
Amortization (421) (495)
-------- -------
12,741 14,171
Allowance for loss 1 9
-------- -------
Balance, End of period $ 12,740 $ 14,162
======== ========
9
8. RECONCILIATION OF BASIC EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE
Income Shares Per-share
Amount
----------------- ---------------- -------------------
For the Quarter Ended December 31, 1996:
Basic earnings per share (Income available to common
stockholders) $1,098 1,874,032 $0.59
===================
Effect of Dilutive Securities
Stock Options 75,879
----------------- ----------------
Diluted earnings per share (Income available to common
stockholders plus assumed conversions) $1,098 1,949,911 $0.56
================= ================ ===================
For the Quarter Ended December 31, 1997:
Basic earnings per share (Income available to common
stockholders) $854 1,883,913 $0.45
===================
Effect of Dilutive Securities
Stock Options 85,382
----------------- ----------------
Diluted earnings per share (Income available to common
stockholders plus assumed conversions) $854 1,969,295 $0.43
================= ================ ===================
9. 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
10
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 4% of the average daily balance of its net
withdrawable deposits and short-term borrowings. In addition, short-term liquid
assets currently must constitute 1% of the sum of net withdrawable deposit
accounts plus short-term borrowings. The Bank's actual liquidity ratios were
10.9% and 7.8% as of September 30, 1997 and December 31, 1997, respectively. The
Bank's short-term liquidity ratio was 7.7% and 5.2%, 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
December 31, 1997, the Bank was in compliance with all regulatory capital
requirements. Capital includes tangible, core and risk-based capital ratios of
9.0%, 9.0% and 22.4%, respectively.
The Bank's capital requirements and actual capital under OTS regulations are as
follows as of December 31, 1997:
AMOUNT RATIO
(in thousands)
GAAP CAPITAL $37,163
=======
TANGIBLE CAPITAL:
ACTUAL $37,163 9.0%
REQUIRED 6,193 1.5%
------- -----
EXCESS $30,970 7.5%
======= ====
CORE CAPITAL:
ACTUAL $37,163 9.0%
REQUIRED 12,387 3.0%
------- -----
EXCESS $24,776 6.0%
======= ====
RISK-BASED CAPITAL:
ACTUAL $37,943 22.4%
REQUIRED 13,535 8.0%
------- -----
EXCESS $24,408 14.4%
======= =====
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
GENERAL - The Company's net income for the three months ended December 31, 1997
was $854 compared with $1,098 the three months ended December 31, 1996.
NET INTEREST INCOME - The Company's net interest income is primarily dependent
upon the difference or "spread" between the yield earned on loans and
investments and the rate paid on deposits and borrowings, as well as the
relative amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. The Company, like other savings
institution holding companies, is subject to interest rate risk to the degree
that its interest-bearing liabilities mature or reprice at different times, or
on a different basis, than its interest-earning assets.
Net interest income for the three month period ended December 31, 1997 was
$2,503, representing a 13.0% increase from the three month period ended December
31, 1996. Interest-bearing assets and liabilities increased from December 31,
1996 to December 31, 1997. (Interest-bearing assets increased by $50,423, or
15.4%, while interest-bearing liabilities increased by $49,603, or 15.9%.) Total
interest income increased by 14.4% to $7,005, while interest expense increased
15.2% to $4,502.
INTEREST INCOME - Interest income for the three months ended December 31, 1997
was $7,005 compared with $6,122 for the three months ended December 31, 1996,
representing an increase of $883 or 14.4%.
The Bank's interest on loans receivable increased $1,248 during the three months
ended December 31, 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 December 31, 1997 was approximately
$67,155 greater than such loans at December 31, 1996.
Interest on mortgage-related securities decreased $83. The Bank's investment in
mortgage-related securities declined in the quarter ended December 31, 1997.
Income from the investment portfolio, FHLB stock and cash and cash equivalents
decreased $282. The decline is due to a decrease in the average investment
securities, FHLB stock and interest-earning cash during the quarter ended
December 31, 1997 when compared to the December 31, 1996 quarter.
INTEREST EXPENSE - Interest expense for the three months ended December 31, 1997
was $4,502 compared with $3,907 for the three months ended December 31, 1996,
representing an increase of $595 or 15.2%. The increased interest expense for
the period was the result of growth in the deposits of $37,603, from $224,783 at
December 31, 1996 to $262,386 at December 31, 1997, as well as an increased
amount of borrowings of $12,000, from $87,500 at December 31, 1996 to $99,500 at
December 31, 1997.
14
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
three months ended December 31, 1997 and 1996, respectively, the Bank recorded a
provision for loan losses of $16 and $25.
In addition to the provision for loan loss described above, the Bank recorded an
additional $309,000 as a general valuation allowance to absorb possible credit
losses within the loan portfolio utilizing the practices and methods of
Commercial Federal Bank, in accordance with the terms of the Reorganization and
Merger Agreement as set forth in note 2 to the financial statements.
OTHER INCOME - Other income for the three month period ended December 31, 1997
was $2,039 compared with $1,850 for the three months ended December 31, 1996,
representing an increase of $189.
At December 31, 1997, the Bank was servicing approximately $1,311,429 of
mortgage loans for others. At December 31, 1996, the Bank was servicing
approximately $1,246,918 of mortgage loans for others. The Bank's total
servicing portfolio for others increased $64,511, or 5.2%. Net loan servicing
fees decreased $53 from $786 for the quarter ended December 31, 1996 to $733 for
the quarter ended December 31, 1997. This results from gross loan servicing fees
increasing $21, and amortization of loan servicing rights increasing $74.
Revenue from service fees and other charges to customers increased $179, from
$704 for the quarter ended December 31, 1996 to $883 for the quarter ended
December 31, 1997. Gains on sale of loans increased $125, from $291 for the
quarter ended December 31, 1996 to $416 for the quarter ended December 31, 1997.
A primary source of the increase in service fees from customers is the Bank's
checking account programs. The number of checking accounts increased from
approximately 16,400 at December 31, 1996 to approximately 19,000 at December
31, 1997. In addition to enhancing service fee income, the checking account
programs provide a source of low-cost deposits for the Bank.
Loans held for sale increased $6,362, or 39.2%, to $22,583 at December 31, 1997,
compared to $16,221 at December 31, 1996. Sales of loans held for sale increased
$13,758, or 27.0%, from $50,897 for the quarter ended December 31, 1996 to
$64,655 for the quarter ended December 31, 1997. Gain on the sale of loans
increased from $291 for the quarter ended December 31, 1996 to $416 for the
quarter ended December 31, 1997. Although the Company reduces the level of
market risk by obtaining commitments to sell loans at fixed prices, it cannot
eliminate all such risks.
OTHER EXPENSE - Other expenses for the three months ended December 31, 1997
totaled $2,811 compared to $2,247 for the three months ended December 31, 1996.
Other expenses consisted of compensation related expenses, building and
maintenance expenses, federal
15
insurance premiums, audit and OTS examination fees, and other general and
administrative expenses.
Salaries and employee benefits increased from $1,129 in the December 31, 1996
quarter to $1,563 in the December 31, 1997 quarter. Included in the December 31,
1997 quarter are $272,800 of compensation expenses for bonus, directors
retirement and vacation pay which will be payable to directors, officers and
employees of the Bank upon closing of the reorganization and merger.
Office occupancy, supplies and data processing expenses collectively increased
$17 in the December 31, 1997 quarter compared to the December 31, 1996 quarter.
In addition to general increases in costs of services, the December 31, 1997
quarter includes the costs of ten 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 $57, from $96 for the quarter ended
December 31, 1996 to $39 for the quarter ended December 31, 1997.
Loan servicing expenses increased from $66 for the quarter ended December 31,
1996 to $72 for the quarter ended December 31, 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 December 31, 1997
was $552 which represents an effective tax rate of 39.3%. Income tax expense for
the three months ended December 31, 1996 was $695 which represents an effective
tax rate of 38.8%.
16
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
On January 13, 1998 a Form 8-K (Item 7), dated December 18,
1997, was filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mid Continent Bancshares, Inc.
February 3, 1998 /s/ Richard T. Pottorff
- ---------------- ------------------------
Date Richard T. Pottorff
President
Chief Executive Officer
February 3, 1998 /s/ Larry R. Goddard
- ---------------- ---------------------
Date Larry R. Goddard
Executive Vice President
Chief Financial Officer
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