SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 1999
First Federal Bankshares, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-25509 42-1485449
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(State or other jurisdiction of (Commission (IRS employer
incorporation or organization) File Number) Identification No.)
329 Pierce Street, Sioux City Iowa 51101
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(Address of principal executive offices)
Registrant's telephone number, including area code: (712) 277-0200
Not Applicable
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(Former name of former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 13, 1999, First Federal Bankshares, Inc. (the "Registrant") and
its bank subsidiary, First Federal Bank (the "Bank"), headquartered in Sioux
City, Iowa, completed the acquisition of Mid-Iowa Financial Corp. and its
subsidiary, Mid-Iowa Savings Bank, FSB, headquartered in Newton, Iowa. The
Registrant reported on such acquisition in a current report on Form 8-K dated
April 29, 1999. Pro forma financial information related to such acquisition was
unavailable to the Registrant at the time of the filing of the Form 8-K. Such
pro forma financial information is filed herewith as Exhibits 99.1, 99.2 and
99.3 pursuant to Item 7(a)(4) of Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following Exhibits are filed as part of this report:
Exhibit 99.1: Mid-Iowa Financial Corp. historical audited consolidated
financial statements as of and for the fiscal year ended September 30,
1998.
Exhibit 99.2: Mid-Iowa Financial Corp. historical unaudited consolidated
condensed balance sheets as of March 31, 1999 and 1998 and historical
unaudited consolidated condensed statements of income and cash flows
for the six months ended March 31, 1999 and 1998.
Exhibit 99.3: Registrant's pro forma combined consolidated condensed
balance sheet as of March 31, 1999 and statements of operations for
the fiscal year ended June 30, 1998 and for the nine months ended
March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to this current report to be
signed on its behalf by the undersigned, hereunto duly authorized.
First Federal Bankshares, Inc.
DATE: June 28, 1999 By: /s/ Katherine A. Bousquet
-------------------------------
Katherine A. Bousquet,
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Exhibit 99.1
Consolidated Financial Statements of Mid-Iowa Financial Corp.
as of and for the year ended September 30, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mid-Iowa Financial Corp.
Newton, Iowa:
We have audited the accompanying consolidated balance sheets of Mid-Iowa
Financial Corp. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mid-Iowa Financial
Corp. and subsidiaries as of September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents (note 1) $ 15,457,949 3,563,299
Securities available for sale (note 2) 4,994,247 4,982,662
Securities held to maturity (fair value of $50,380,170
in 1998 and $48,231,573 in 1997) (notes 3 and 7) 49,793,789 47,767,121
Loans held for resale 49,900 --
Loans receivable, net (notes 4, 5 and 8) 71,435,579 66,417,985
Accrued interest receivable 1,017,122 867,663
Federal Home Loan Bank stock, at cost 1,800,000 1,650,000
Real estate 135,438 33,865
Office properties and equipment, net (note 6) 2,630,366 2,587,127
Intangibles, net 10,872 12,978
Prepaid expenses and other assets 191,663 134,051
------------ ------------
Total assets $147,516,925 128,016,751
============ ============
<PAGE>
September 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 7) $ 96,352,659 89,377,718
Borrowed funds (note 8) 36,000,000 25,000,000
Advance payments by borrowers for taxes and insurance 162,572 179,982
Accrued interest payable 939,041 945,890
Accounts payable and accrued expenses 302,188 452,033
------------ ------------
Total liabilities 133,756,460 115,955,623
------------ ------------
Stockholders' equity (note 11):
Common stock, $.01 par value; authorized 2,000,000
shares; 1,741,148 and 1,729,880 shares issued and 17,411 17,299
outstanding in 1998 and 1997, respectively
Additional paid-in capital 3,147,692 3,040,211
Retained earnings, partially restricted 10,553,062 9,298,166
Treasury stock, at cost (51,792 shares in 1997) -- (325,600)
Unrealized gain on securities available for sale, net of taxes 42,300 31,052
------------ ------------
Total stockholders' equity 13,760,465 12,061,128
------------ ------------
Commitments and contingencies (note 14)
Total liabilities and stockholders' equity $147,516,925 128,016,751
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans $ 5,788,795 5,309,865 4,880,247
Securities available for sale 276,202 327,497 259,975
Securities held to maturity 3,246,933 3,069,225 2,831,439
Other 494,143 256,768 255,898
----------- ----------- -----------
Total interest income 9,806,073 8,963,355 8,227,559
----------- ----------- -----------
Interest expense:
Deposits (note 7) 4,102,644 3,787,690 3,710,324
Borrowed funds 1,978,758 1,557,800 1,229,114
----------- ----------- -----------
Total interest expense 6,081,402 5,345,490 4,939,438
----------- ----------- -----------
Net interest income 3,724,671 3,617,865 3,288,121
Provision for losses on loans (note 5) 60,000 81,000 36,000
----------- ----------- -----------
Net interest income after
provision for losses on loans 3,664,671 3,536,865 3,252,121
----------- ----------- -----------
Noninterest income:
Gain on sale of other assets 25,484 24,233 33,227
Fees and service charges 394,571 365,413 325,193
Commissions 927,963 852,247 740,527
Other income -- 221,000 --
----------- ----------- -----------
Total noninterest income 1,348,018 1,462,893 1,098,947
----------- ----------- -----------
<PAGE>
Years ended September 30,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Noninterest expense:
Compensation, payroll taxes,
and employee benefits (note 10) 1,301,300 1,191,590 1,119,610
Office properties and equipment 379,853 261,599 243,225
Deposit insurance premiums 55,714 75,724 188,325
Special deposit insurance assessment (note 13) -- -- 530,421
Data processing services 168,569 147,468 134,574
Other real estate (income) expense, net (3,566) (12,118) 2,340
Other 1,178,976 994,860 896,799
----------- ----------- -----------
Total noninterest expense 3,080,846 2,659,123 3,115,294
----------- ----------- -----------
Income before taxes on income 1,931,843 2,340,635 1,235,774
Taxes on income (note 9) 600,000 790,800 411,200
----------- ----------- -----------
Net income $ 1,331,843 1,549,835 824,574
=========== =========== ===========
Earnings per common share:
Basic $ .78 .93 .49
=========== =========== ===========
Diluted $ .73 .89 .47
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Recognition
Additional and Unrealized
Common paid-in Retained retention gains
stock capital earnings plan (losses), net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1995 8,395 3,049,634 7,197,953 (3,672) 8,673
Net income -- -- 824,574 -- --
Repurchase of common stock
(72,700 shares) -- -- -- -- --
Exercise of options
(50,328 shares) 503 110,240 -- -- --
Amortization of recognition
and retention plan -- -- -- 3,672 --
Dividends paid ($.10 per share) -- -- (135,049) -- --
Stock dividend (100%) 8,401 (17,251) (5,400) -- --
Change in unrealized gain on
securities available for sale -- -- -- -- (851)
----------- ----------- ----------- ----------- -----------
Balance as of September 30, 1996 17,299 3,142,623 7,882,078 -- 7,822
Net income -- -- 1,549,835 -- --
Repurchase of common stock
(7,500 shares) -- -- -- -- --
Exercise of options
(27,208 shares) -- (102,412) -- -- --
Dividends paid ($.08 per share) -- -- (133,747) -- --
Change in unrealized gain on
securities available for sale -- -- -- -- 23,230
----------- ----------- ----------- ----------- -----------
Balance as of September 30, 1997 $ 17,299 3,040,211 9,298,166 -- 31,052
Net income -- -- 1,331,843 -- --
Exercise of options
(63,060 shares) 112 107,481 60,000 -- --
Dividends paid ($.08 per share) -- -- (136,947) -- --
Change in unrealized gain on
securities available for sale -- -- -- -- 11,248
----------- ----------- ----------- ----------- -----------
Balance as of September 30, 1998 $ 17,411 3,147,692 10,553,062 -- 42,300
=========== =========== =========== =========== ===========
<PAGE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Treasury
stock Total
----------- -----------
<S> <C> <C>
Balance as of September 30, 1995 -- 10,260,983
Net income -- 824,574
Repurchase of common stock
(72,700 shares) (462,950) (462,950)
Exercise of options
(50,328 shares) -- 110,743
Amortization of recognition
and retention plan -- 3,672
Dividends paid ($.10 per share) -- (135,049)
Stock dividend (100%) 14,250 --
Change in unrealized gain on
securities available for sale -- (851)
----------- -----------
Balance as of September 30, 1996 (448,700) 10,601,122
Net income -- 1,549,835
Repurchase of common stock
(7,500 shares) (47,812) (47,812)
Exercise of options
(27,208 shares) 170,912 68,500
Dividends paid ($.08 per share) -- (133,747)
Change in unrealized gain on
securities available for sale -- 23,230
----------- -----------
Balance as of September 30, 1997 (325,600) 12,061,128
Net income -- 1,331,843
Exercise of options
(63,060 shares) 325,600 493,193
Dividends paid ($.08 per share) -- (136,947)
Change in unrealized gain on
securities available for sale -- 11,248
----------- -----------
Balance as of September 30, 1998 -- 13,760,465
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,331,843 1,549,835 824,574
Origination of loans held for sale (314,800) -- --
Proceeds from sale of loans held for sale 264,900 -- 309,867
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 167,069 108,104 103,594
Amortization of recognition
and retention plan benefits -- -- 3,672
Amortization of premiums and discounts
on loans and mortgage-backed securities (74,208) (67,570) (64,019)
Provision for losses on loans 60,000 81,000 36,000
Gain on sale of real estate, net (22,509) (23,230) (33,227)
Increase in accrued interest receivable (149,459) (38,069) (22,861)
(Decrease) increase in accrued interest payable (6,849) 101,433 36,267
(Decrease) increase in current taxes on income (98,237) (50,795) 49,168
Deferred taxes on income 11,000 185,905 (153,934)
Other, net (126,978) (462,679) 581,330
------------ ------------ ------------
Net cash provided by operating activities 1,041,772 1,383,934 1,670,431
------------ ------------ ------------
Cash flows from investing activities: Securities available for sale:
Purchases (500,000) (388,439) (2,607,612)
Principal repayments of mortgage-backed securities 501,736 413,544 545,044
Securities held to maturity:
Proceeds from maturities 16,161,677 6,538,323 7,062,151
Purchases (24,712,342) (13,708,139) (12,341,227)
Principal repayments of mortgage-backed securities 6,626,807 3,706,386 4,025,149
Net change in loans (5,191,807) (4,376,114) (4,312,278)
Proceeds from sale of real estate 13,338 26,623 75,000
Capitalized real estate costs -- -- (5,440)
Purchase of office properties and equipment, net (210,308) (1,727,780) (208,206)
Purchase of Federal Home Loan Bank stock (300,000) (325,000) (425,000)
Proceeds on sale of Federal Home Loan Bank stock 150,000 -- --
------------ ------------ ------------
Net cash used in investing activities (7,460,899) (9,840,596) (8,192,419)
------------ ------------ ------------
<PAGE>
<CAPTION>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in deposits $ 6,974,941 6,505,755 4,200,511
Receipt of borrowed funds 26,000,000 26,500,000 23,000,000
Payments on borrowed funds (15,000,000) (22,000,000) (20,500,000)
(Decrease) increase in advance payments
by borrowers for taxes and insurance (17,410) (19,939) 39,529
Stock options exercised 493,193 68,500 110,743
Payments to acquire treasury stock -- (47,812) (462,950)
Dividends paid (136,947) (133,747) (135,049)
------------ ------------ ------------
Net cash provided by financing activities 18,313,777 10,872,757 6,252,784
------------ ------------ ------------
Net increase (decrease)
in cash and cash equivalents 11,894,650 2,416,095 (269,204)
Cash and cash equivalents at beginning of year 3,563,299 1,147,204 1,416,408
------------ ------------ ------------
Cash and cash equivalents at end of year $ 15,457,949 3,563,299 1,147,204
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest, net of interest capitalized of $30,872 in 1997 $ 6,088,251 4,903,171 4,375,153
Taxes on income 625,513 516,527 460,866
Noncash investing and financing activities -
Reclassification of securities from
held to maturity to available for sale -- 2,079,143 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies
Description of the Business
Mid-Iowa Financial Corp., headquartered in Newton, Iowa, is a savings and
loan holding company comprised of a federally chartered stock
savings bank operating offices in Central Iowa; a real estate
brokerage and development company; and a company which provides
credit reporting and collection services, sells investment products,
and provides discount securities brokerage. Mid-Iowa Financial Corp.
was organized as a Delaware Corporation in June 1992 at the
direction of Mid-Iowa Savings Bank for the purpose of becoming a
savings and loan holding company, as part of the Mid-Iowa Savings
Bank conversion from a mutual to a stock institution.
Mid-Iowa Financial Corp. is primarily a retail banking operation offering
loans, deposits, and related financial services to customers in its
market area. Loans primarily consist of single-family residential
mortgage loans, commercial loans, and consumer loans.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Mid-Iowa
Financial Corp. and its wholly owned subsidiaries, Mid-Iowa Security
Corporation and Mid-Iowa Savings Bank (the Bank), and the Bank's
wholly owned subsidiary, Center of Iowa Investments, Limited
(collectively the Company).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Concentrations of Credit Risk
The Company originates residential and commercial real estate loans
primarily in its central Iowa market area. Although the Company has a
diversified loan portfolio, a substantial portion of its borrowers'
ability to repay their loans is dependent upon economic conditions in
the Company's market areas.
<PAGE>
Earnings Per Share
Basic earnings per share computations for the years ended September 30,
1998, 1997 and 1996, were determined by dividing net income by the
weighted-average number of common share amounts outstanding during
the years then ended. Diluted earnings per common share amounts are
computed by dividing net income by the weighted-average number of
common shares and all dilutive common shares outstanding during the
year.
The following was used in the computation of net income per common share
on both a basic and diluted basis for the years ended September 30,
1998, 1997, and 1996.
<TABLE>
<CAPTION>
September 30,
----------------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Basic EPS computation:
Net income $1,331,843 1,549,835 824,574
Weighted-average common shares outstanding 1,718,243 1,670,834 1,699,252
Basic EPS $ 0.78 0.93 0.49
Diluted EPS computation:
Net income $1,331,843 1,549,835 824,574
Weighted-average common shares outstanding 1,718,243 1,670,834 1,699,252
Incremental option shares using treasury
stock method 115,500 66,207 66,590
Diluted shares outstanding 1,833,743 1,737,041 1,765,842
Diluted EPS $ 0.73 0.89 0.47
</TABLE>
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company includes all short-term
investments with original maturities of three months or less at date
of purchase in cash and cash equivalents. Amounts of interest bearing
deposits included as cash equivalents were $15,071,769 and $3,104,940
at September 30, 1998 and 1997, respectively.
Securities Available for Sale
Securities to be held for indefinite periods of time, including
securities the Company intends to utilize as part of its
asset/liability management strategy and may sell in response to
changes in interest rates; changes in prepayment risk; liquidity
needs; and when needed to increase regulatory capital or other
similar factors, are classified as available for sale.
Securities available for sale are recorded at fair value. The aggregate
unrealized gains or losses, net of the income tax effect, are
recorded as a component of stockholders' equity.
<PAGE>
Discounts and premiums on securities available for sale are
accreted/amortized using the interest method. The timing of the
accretion/amortization for mortgage-backed securities is adjusted for
actual prepayment experience.
Gainor loss is recognized using the specific identification method, and
is reflected in the statements of operations.
Securities Held to Maturity
Securities which the Company intends to hold until maturity are stated at
cost, adjusted for accretion of discount and amortization of
premiums computed using the interest method. The timing of the
amortization and accretion for mortgage-backed securities are
adjusted for actual prepayment experience. The Company has the
ability, and it is management's intent, to hold these securities to
maturity.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to operations.
Loans Receivable
Loans are stated at the principal amounts outstanding, net of unearned
income, deferred loan fees, and discounts. Unearned income, net
deferred loan fees, and discounts on loans which are probable of
collection are amortized over the terms of the loans using the
interest method.
Interest on loans is accrued and credited to operations, based primarily
on the principal amount outstanding.
The Company did not adopt Statement of Financial Accounting Standards
(SFAS) No. 122, "Accounting for Mortgage Servicing Rights," because
the adoption would not have a material effect on the financial
position or the statement of operations.
Allowances for Losses on Loans and Real Estate
The allowances for losses on loans and real estate are maintained at
amounts considered adequate to provide for such losses. The allowance
for losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration
numerous factors, including current economic conditions, prior loan
loss experience, the composition of the loan portfolio, and
management's estimate of anticipated credit losses.
<PAGE>
Real estate, acquired through foreclosure, is carried at the lower of
cost or fair value less estimated selling costs. When a property is
acquired through foreclosure or a loan is considered impaired, any
excess of the loan balance over fair value of the property is charged
to the allowance for losses on loans. Costs relating to the
development and improvement of property are capitalized, whereas
those relating to holding the property are charged to expense. An
allowance for losses on real estate is provided when it is determined
that the investment in real estate is greater than its estimated fair
value. There were no provisions and no charge-offs for real estate in
the years ended September 30, 1998, 1997, and 1996.
The accrual of interest income on any loan is discontinued (generally
when a loan becomes 90 days delinquent) when, in the opinion of
management, there is reasonable doubt as to the timely collection of
interest or principal. When interest accruals are discontinued,
accrued interest receivable is charged to income. Subsequent
interest income is not recognized on such loans until collected.
Loan Origination Fees and Related Costs
Mortgage loan origination fees and certain direct loan origination costs,
if material, are deferred, and the net fee or cost is recognized in
operations using the interest method. Direct loan origination costs
for other loans are expensed, as such costs are not material in
amount.
Financial Instruments with Off Balance Sheet Risk
In the normal course of business to meet the financing needs of its
customers, the Company is a party to financial instruments with off
balance sheet risk, which principally include commitments to extend
credit. The Company's exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend credit
is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it
does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements (see note 4). The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the
counterparty.
<PAGE>
Carrying Costs of Real Estate Held for Development
Interest costs and real estate taxes applicable to real estate held for
development are capitalized during the period that such real estate
is in the process of development. Prior to the time that development
activities commence and after such time as the real estate is ready
for sale, interest and real estate taxes are charged to operations as
incurred. There was no capitalized interest for the years ended
September 30, 1998, 1997, and 1996.
Office Properties and Equipment
Office properties and equipment are recorded at cost, and depreciation is
provided principally using the straight-line method over the
estimated useful lives of the related assets, which range from 5 to
40 years.
Maintenance and repairs are charged against income. Expenditures for
improvements are capitalized and subsequently depreciated. The cost
and accumulated depreciation of properties retired or otherwise
disposed of are eliminated from the asset and accumulated
depreciation accounts. Related profit or loss from such transactions
is credited or charged to income.
During the year ended September 30, 1997, approximately $31,000 in
interest expense related to the construction of a branch facility was
capitalized.
Taxes on Income
The Company files a consolidated federal income tax return. Federal
income taxes are allocated based on taxable income or loss included
in the consolidated return. For state tax purposes, the Bank files a
franchise tax return and the other entities file a corporate income
tax return.
The Company utilizes the asset and liability method for taxes on income,
and deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that
includes the enactment date.
Stock Option Plan
The Company provides pro forma net income and pro forma earnings per
share disclosures for material employee stock option grants made
after 1996 as if the fair-value-based method, which recognizes as
expense over the vesting period the fair value of stock-based awards
at the date of grant, had been applied.
<PAGE>
Effect of New Accounting Standards
SFAS No. 130, Reporting Comprehensive Income, will be effective for the
Company for the year beginning October 1, 1998, and establishes the
standards for the reporting and display of comprehensive income in
the financial statements. Comprehensive income represents net income
and certain amounts reported directly in stockholders' equity, such
as the net unrealized gain or loss on available-for-sale securities.
The Company will adopt SFAS No. 130 when required.
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, will be effective for the Company for the year
beginning October 1, 1998, and establishes disclosure requirements
for segment operations. The Company expects to adopt SFAS No. 131
when required.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, will be effective for the Company for the
year beginning October 1, 1998, and revises the disclosure
requirements for pension and other postretirement benefit plans. The
Company expects to adopt SFAS No. 132 when required.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, will be effective for the Company for the year beginning
October 1, 1999. Management is evaluating the impact the adoption of
SFAS No. 133 will have on the Company's consolidated financial
statements. The Company expects to adopt SFAS No. 133 when required
Fair Value of Financial Instruments
The Company's fair value estimates, methods, and assumptions for its
financial instruments are set forth below:
Cash and Cash Equivalents, Accrued Interest Receivable, Advance Payments
by Borrowers for Taxes and Insurance, and Accrued Interest Payable
The recorded amount approximates fair value due to the short-term
nature of the instruments.
Securities Available for Sale and Securities Held to Maturity
The fair value of securities is estimated based on bid prices
published in financial newspapers, bid quotations received from
securities dealers, or quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
commercial, real estate, and installment.
<PAGE>
The fair value of a loan is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the subsidiary banks'
historical experience with repayments for each loan classification,
modified as required by an estimate of the effect of current economic
and lending conditions. The effect of nonperforming loans is
considered in assessing the credit risk inherent in the fair value
estimate.
Federal Home Loan Bank (FHLB) Stock
The value of FHLB stock is equivalent to its carrying value, as the
stock is redeemable at par value.
Deposits
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, and NOW accounts, is
equal to the amount payable on demand. The fair value of certificates
of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities. The fair value
estimates do not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
Borrowed Funds
The fair value of borrowed funds is based on the discounted value of
contractual cash flows.
Off Balance Sheet Instruments
The fair value of commitments to extend credit and commitments to
purchase or sell loans is estimated using the difference between
current levels of interest rates and committed rates. The fair value
of letters of credit is based on fees currently charged for similar
agreements. Management estimates the fair value of commitments to
purchase or sell loans approximates the carrying value, as
applicable.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. Because no market exists for a significant portion of the
subsidiary bank's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
<PAGE>
(2) Securities Available for Sale
Securities available for sale at September 30, 1998 and 1997, were as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Mortgage-backed securities:
Federal National Mortgage
Association (FNMA) $ 729,667 11,962 -- 741,629
Government National Mortgage
Association (GNMA) 971,817 17,873 1,797 987,893
Federal Home Loan Mortgage
Corporation (FHLMC) 121,388 3,405 -- 124,793
Government backed collateralized
mortgage obligations 2,007,130 16,690 -- 2,023,820
Other investment securities 1,100,112 23,500 7,500 1,116,112
---------- ---------- ---------- ----------
$4,930,114 73,430 9,297 4,994,247
========== ========== ========== ==========
1997:
Mortgage-backed securities:
FNMA $ 930,039 16,286 -- 946,325
GNMA 1,247,358 28,971 -- 1,276,329
FHLMC 150,508 4,878 -- 155,386
Government backed collateralized
mortgage obligations 2,007,298 -- 17,538 1,989,760
Other investment securities 600,112 14,750 -- 614,862
---------- ---------- ---------- ----------
$4,935,315 64,885 17,538 4,982,662
========== ========== ========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
At September 30, 1998 and 1997, the net valuation amount of $42,300 and
$31,052, respectively, was reflected as a component of stockholders'
equity, including the effect of taxes on income of $21,833 and
$16,295, respectively.
There were no sales of securities available for sale during 1998, 1997,
and 1996.
At September 30, 1998 and 1997, accrued interest receivable for
securities available for sale totaled $14,911 and $17,508,
respectively.
<PAGE>
(3) Securities Held to Maturity
Securities held to maturity at September 30, 1998 and 1997, were as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
U.S. agency securities $18,929,802 198,778 -- 19,128,580
Mortgage-backed and related securities:
FNMA 3,854,778 61,532 9,017 3,907,293
GNMA 9,691,297 206,239 -- 9,897,536
FHLMC 3,234,465 47,459 -- 3,281,924
Government backed collateralized
mortgage obligations 9,081,190 5,777 105,619 8,981,348
Nontaxable municipal bonds 5,002,257 181,232 -- 5,183,489
----------- ------- ------- ----------
$49,793,789 701,017 114,636 50,380,170
=========== ======= ======= ==========
1997:
U.S. agency securities $18,359,588 105,899 62,302 18,403,185
Mortgage-backed and related securities:
FNMA 4,414,248 69,766 6,047 4,477,967
GNMA 12,727,233 321,803 5,293 13,043,743
FHLMC 1,633,085 1,264 126 1,634,223
Government backed collateralized
mortgage obligations 7,405,811 -- 111,191 7,294,620
Taxable municipal bonds 509,552 39,193 -- 548,745
Nontaxable municipal bonds 2,717,604 117,533 6,047 2,829,090
----------- ------- ------- ----------
$47,767,121 655,458 191,006 48,231,573
=========== ======= ======= ==========
</TABLE>
<PAGE>
The amortized cost and estimated fair value of securities held to
maturity at September 30, 1998, are shown below by contractual
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
----------- ----------
<S> <C> <C>
Due in 1 year or less $ 50,000 50,112
Due after 1 year through 5 years 5,230,197 5,328,409
Due after 5 years, but less than 10 years 15,378,333 15,629,774
Due after 10 years 3,273,529 3,303,774
Mortgage-backed and related securities 25,861,730 26,068,101
----------- ----------
$49,793,789 50,380,170
=========== ==========
</TABLE>
There were no sales of securities held to maturity during the years ended
September 30, 1998, 1997, or 1996.
At September 30, 1998 and 1997, accrued interest receivable for
securities held to maturity totaled $500,667 and $381,238,
respectively.
<PAGE>
(4) Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Real estate loans:
One- to four-family $47,232,641 46,107,239
Commercial 13,461,213 10,150,075
Construction 1,057,538 1,338,796
----------- -----------
61,751,392 57,596,110
----------- -----------
Other loans:
Second mortgages 4,966,545 4,497,874
Commercial business 1,600,196 1,394,076
Automobile 1,736,376 1,405,748
Home equity 1,536,990 1,176,502
Student 327,568 306,162
Unsecured consumer 157,019 174,704
Loans on deposits 109,816 180,639
Other 275,939 352,423
10,710,449 9,488,228
----------- -----------
72,461,841 67,084,338
----------- -----------
Less:
Loans in process 647,286 275,553
Deferred loan fees 71,748 88,848
Allowance for losses on loans 307,228 301,952
----------- -----------
Total loans receivable $71,435,579 66,417,985
=========== ===========
</TABLE>
<PAGE>
At September 30, 1998 and 1997, net accrued interest on loans
receivable totaled $499,489 and $473,270, respectively.
At September 30, 1998, the Bank was committed to originate $915,850 of
fixed rate loans at interest rates ranging from 6.8 to 7.5 percent.
In addition, the Bank's customers had unused lines of credit totaling
approximately $2,822,000 at September 30, 1998.
Loan customers of the Bank include certain executive officers and
directors and their related interests and associates. All loans to
this group were made in the ordinary course of business at
prevailing terms and conditions. Such loans at September 30, 1998
and 1997, amounted to $238,420 and $258,243, respectively. During
the year ended September 30, 1998, repayments totaled $19,823.
The amount of loans serviced by the Bank for the benefit of others was
$1,325,044, $2,401,830, and $2,785,992 at September 30, 1998, 1997,
and 1996, respectively.
(5) Allowance for Losses on Loans
A summary of the allowance for losses on loans follows:
September 30,
----------------------------------------
1998 1997 1996
--------- --------- ---------
Balance at beginning of year $ 301,952 273,819 248,028
Provision for losses 60,000 81,000 36,000
Charge-offs (58,922) (54,387) (29,599)
Recoveries 4,198 1,520 19,390
--------- --------- ---------
Balance at end of year $ 307,228 301,952 273,819
========= ========= =========
At September 30, 1998, 1997, and 1996, the Company had nonaccrual loans
of approximately $126,000; $17,092; and $151,000 and restructured
loans of $-0-; $24,000; and $54,000, respectively. The allowance for
loan losses related to these impaired loans was approximately
$17,300; $4,000; and $7,500, respectively. The average balances of
such loans for the years ended September 30, 1998, 1997, and 1996,
were $128,750; $95,500; and $119,750, respectively. For the years
ended September 30, 1998, 1997, and 1996, interest income which would
have been recorded under the original terms of such loans was
approximately $4,400; $3,200; and $10,300, respectively, with $-0-;
$1,900; and $3,250, respectively, recorded.
As of September 30, 1998, there were no material commitments to lend
additional funds to customers whose loans were classified as
nonaccrual or restructured.
<PAGE>
(6) Office Properties and Equipment
At September 30, 1998 and 1997, the cost and accumulated depreciation
of office properties and equipment were as follows:
1998 1997
---------- ----------
Land $ 442,399 442,399
Buildings and improvements 2,856,942 2,708,891
Furniture and fixtures 868,194 805,936
4,167,535 3,957,226
Less accumulated depreciation 1,537,169 1,370,099
---------- ----------
$2,630,366 2,587,127
========== ==========
(7) Deposits
A summary of deposits at September 30, 1998 and 1997, is as follows:
1998 1997
----------- -----------
Balance by account type:
NOW accounts $ 5,831,078 5,992,220
Passbook 5,473,380 5,798,282
Money market 17,940,818 17,571,218
Certificates of deposit 67,107,383 60,015,998
----------- -----------
$96,352,659 89,377,718
=========== ===========
At September 30, 1998, the scheduled maturities of certificates of
deposit were as follows:
1999 $58,111,784
2000 5,179,184
2001 2,235,354
2002 1,328,062
2003 and thereafter 252,999
-----------
$67,107,383
===========
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $14,200,000 and
$9,700,000 at September 30, 1998 and 1997, respectively.
Deposit accounts in excess of $100,000 are not covered by federal deposit
insurance.
<PAGE>
Interest expense on deposits consisted of the following:
September 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
NOW accounts $ 42,040 39,145 37,278
Savings accounts 647,625 580,565 429,754
Certificates of deposit 3,427,566 3,176,534 3,253,557
4,117,231 3,796,244 3,720,589
Less penalties on early withdrawals 14,587 8,554 10,265
---------- ---------- ----------
Net interest expense $4,102,644 3,787,690 3,710,324
========== ========== ==========
At September 30, 1998 and 1997, accrued interest payable on deposits
totaled $939,041 and $939,893, respectively.
At September 30, 1998 and 1997, the Bank had mortgage-backed and other
investment securities with a carrying value of approximately
$21,717,000 and $24,704,000, respectively, pledged as collateral for
deposits.
(8) Borrowed Funds
At September 30, 1998 and 1997, borrowed funds consisted of the
following:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
interest rate 1998 interest rate 1997
------------- ---- ------------- ----
<S> <C> <C> <C> <C>
FHLB (A):
Maturity in fiscal year ending September 30:
1998 - % $ - 5.72 $16,000,000
1999 5.50 5,000,000 5.48 4,000,000
2000 5.86 1,000,000 5.83 5,000,000
2001 5.76 7,000,000 - -
2002 5.33 6,000,000 - -
2008 5.45 17,000,000 - -
Amount drawn on line of credit (B) - - Variable -
----------- -----------
$36,000,000 $25,000,000
=========== ===========
</TABLE>
<PAGE>
(A) Advances from the FHLB are secured by stock in the FHLB. In
addition, the Bank has agreed to maintain unencumbered additional
security in the form of certain residential mortgage loans
aggregating no less than 150 percent of outstanding advances.
(B) Line of credit with the FHLB with a limit of $10,000,000, was
cancelled by the Bank on March 31, 1998.
At September 30, 1998 and 1997, accrued interest payable on advances
from the FHLB and other borrowings totaled $-0- and $5,997,
respectively.
(9) Taxes on Income
Taxes on income are comprised as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- ----------------------------------
Federal State Total Federal State Total Federal State Total
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $516,000 73,000 589,000 537,800 67,000 604,800 495,000 70,200 565,200
Deferred 9,000 2,000 11,000 162,000 24,000 186,000 (134,000) (20,000) (154,000)
-------- -------- -------- -------- -------- -------- -------- -------- --------
$525,000 75,000 600,000 699,800 91,000 790,800 361,000 50,200 411,200
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Taxes on income differ from the "expected" amounts computed by applying
the federal income tax rate of 34 percent to income before taxes on
income for the following reasons:
September 30,
-------------------------------------
1998 1997 1996
--------- --------- ---------
Computed "expected" taxes on income $ 656,826 795,827 420,170
State taxes, net of federal benefit 49,500 60,060 33,146
Tax-exempt interest (50,000) (38,000) (34,000)
Reduction of valuation allowance -- (10,000) (17,000)
Other (56,326) (17,087) 8,884
--------- --------- ---------
$ 600,000 790,800 411,200
========= ========= =========
Effective rate 31.1% 33.8% 33.3%
========= ========= =========
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
September 30,
-----------------------
1998 1997
--------- ---------
Deferred tax assets:
Loan and real estate loss allowance $ 129,000 136,000
--------- ---------
Total gross deferred tax assets 129,000 136,000
Less valuation allowance -- --
--------- ---------
Deferred tax assets net of allowance 129,000 136,000
--------- ---------
Deferred tax liabilities:
Unrealized gain on securities held for sale 21,833 16,295
Tax bad debt reserve 179,000 179,000
Other 11,000 7,000
--------- ---------
Total gross deferred tax liabilities 211,833 202,295
--------- ---------
Net deferred tax liability $ (82,833) (66,295)
========= =========
Based upon the Company's level of historical taxable income and
anticipated future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible
differences.
<PAGE>
(10) Employee Benefit Plans
Defined Contribution Retirement Plan
The Bank and its subsidiaries maintain two defined contribution
retirement plans for their employees. Under one plan, the Bank
contributes 9 percent of the participants' earnings. Under the second
plan, the participants contribute from 0 to 12 percent and the Bank
matches 50 percent of the contribution up to 3 percent. Plan expense
for the years ended September 30, 1998, 1997, and 1996, was $111,871,
$112,822, and $79,247, respectively.
Management Recognition and Retention Plan
In connection with its stock conversion, the Bank established a
management recognition and retention plan as a method of providing
directors and key officers of the Bank with a proprietary interest in
the Bank in a manner designed to encourage such persons to remain
with the Bank. The Bank contributed funds to the plan to acquire in
the aggregate up to 3 percent of the common stock issued in the
offering. During 1996, all rights in the plan became fully vested.
Stock Incentive Plan
The Company has a stock incentive plan under which up to 211,047 shares
of common stock are reserved for issuance pursuant to options or
other awards which may be granted to officers, key employees, and
certain nonaffiliated directors of the Company. The exercise price of
each option equals the market price of the Company's stock on the
date of grant. The option's maximum term is ten years, with vesting
occurring at the time the options are granted.
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for its stock options in the
financial statements. Had compensation cost for the Company's stock
incentive plan been determined consistent with SFAS 123, the
Company's net income and earnings per share for options granted in
1997 would have been reduced to the pro forma amounts indicated
below:
1998 1997
---- ----
Net income:
As reported $1,331,843 1,549,835
Pro forma 1,331,843 1,177,397
Basic earnings per share:
As reported $ .78 .93
Pro forma .78 .68
Diluted earnings per share:
As reported $ .73 .89
Pro forma .73 .64
The fair value of each option grant has been estimated using the
Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997: dividend yield
of 1.00 percent; expected volatility of 26.00 percent; risk free
interest rate of 6.10 percent; and expected life of 6 years. There
were no options granted in 1998.
<PAGE>
A summary of the status of the Company's stock incentive plan as of
September 30, 1998, 1997, and 1996, and the activity during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- -------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 260,756 $6.58 78,964 $2.08 137,088 $2.08
Granted - - 209,000 7.75 - -
Exercised (63,060) 4.20 (27,208) 2.52 (53,228) 2.08
Repurchased and canceled (4,000) 7.75 - - (4,896) 2.08
Outstanding at end of year 193,696 6.46 260,756 6.58 78,964 2.08
======= ==== ======= ==== ====== ====
Weighted-average fair
value of options granted
during the year $ - $2.70 $ -
==== ==== ====
</TABLE>
(11) Stockholders' Equity
In order to grant a priority to eligible account holders in the event of
future liquidation, the Bank, at the time of its stock conversion,
established a liquidation account in an amount equal to the
regulatory capital as of December 31, 1991. In the event of future
liquidation of the Bank, eligible account holders who continue to
maintain their deposit accounts shall be entitled to receive a
distribution from the liquidation account. The total amount of the
liquidation account will be decreased as the balances of eligible
account holders are reduced subsequent to the conversion, based on an
annual determination of such balances.
Regulatory Capital Requirements
The Financial Institution Reform, Recovery, and Enforcement Act of 1989
(FIRREA) and the capital regulations of the Office of Thrift
Supervision (OTS) promulgated thereunder require institutions to have
a minimum regulatory tangible capital equal to 1.5 percent of total
assets; a minimum 3 percent core capital ratio; and, after December
31, 1992, a minimum 8 percent risk-based capital ratio. These capital
standards set forth in the capital regulations must generally be no
less stringent than the capital standards applicable to national
banks. FIRREA also specifies the required ratio of housing-related
assets in order to qualify as a savings institution. The Bank met the
regulatory capital requirements at September 30, 1998 and 1997.
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established additional capital requirements which require
regulatory action against depository institutions in one of the
undercapitalized categories defined in implementing regulations.
Institutions such as the Bank, which are defined as well capitalized,
must generally have a leverage capital (core) ratio of at least 5
percent, a tier 1 risk-based capital ratio of at least 6 percent, and
a total risk-based capital ratio of at least 10 percent. FDICIA also
provides for increased supervision by federal regulatory agencies,
increased reporting requirements for insured depository institutions,
and other changes in the legal and regulatory environment for such
institutions. The Bank met the regulatory capital requirements at
September 30, 1998 and 1997.
The Bank's capital amounts and ratios as of September 30, 1998, were as
follows:
<TABLE>
<CAPTION>
For capital To be well capitalized
adequacy under prompt corrective
Actual purposes action provisions
------------------------------ ---------------------------- -----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 11,157,881 7.68% $ 2,180,742 1.5% $ 7,269,141 5.0%
Core capital 11,157,881 7.68 4,361,484 3.0 7,269,141 5.0
Risk-based capital 11,483,337 19.21 4,782,440 8.0 5,978,051 10.0
</TABLE>
At September 30, 1998 and 1997, the Bank had federal income tax bad debt
reserves of approximately $1,785,000, which constitute allocations to
bad debt reserves for federal income tax purposes for which no
provision for taxes on income had been made. If such allocations are
charged for other than bad debt losses, taxable income is created to
the extent of the charges. The Bank's retained earnings at September
30, 1998 and 1997, were partially restricted because of the effect of
these tax bad debt reserves.
<PAGE>
Dividend Restrictions
Federal regulations impose certain limitations on the payment of
dividends and other capital distributions by the Bank. Under the
regulations, a savings institution, such as the Bank, that will meet
the fully phased-in capital requirements (as defined by the OTS
regulations) subsequent to a capital distribution is generally
permitted to make such capital distribution without OTS approval so
long as they have not been notified of the need for more than normal
supervision by the OTS. The Bank has not been so notified and,
therefore, may make capital distributions during a calendar year
equal to net income plus 50 percent of the amount by which the Bank's
capital exceeds the fully phased-in capital requirement as measured
at the beginning of the calendar year. A savings institution with
total capital in excess of current minimum capital requirements but
not in excess of the fully phased-in requirements is permitted by the
new regulations to make, without OTS approval, capital distributions
of between 25 and 75 percent of its net income for the previous four
quarters, less dividends already paid for such period. A savings
institution that fails to meet current minimum capital requirements
is prohibited from making any capital distributions without prior
approval from the OTS.
<PAGE>
(12) Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments (as
described in note 1) at September 30, 1998 and 1997, were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- ---------------------------
Recorded Fair Recorded Fair
amount value amount value
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $15,457,949 15,457,949 3,563,299 3,563,299
Securities available for sale 4,994,247 4,994,247 4,982,662 4,982,662
Securities held to maturity 49,793,789 50,380,170 47,767,121 48,231,573
Loans, net 71,435,479 72,972,766 66,417,985 67,619,505
FHLB stock 1,800,000 1,800,000 1,650,000 1,650,000
Accrued interest receivable 1,017,122 1,017,122 867,663 867,663
Financial liabilities:
Deposits 96,352,659 96,448,925 89,377,718 89,434,588
Borrowed funds 36,000,000 35,469,911 25,000,000 24,857,404
Advance payments by borrowers
for taxes and insurance 162,572 162,572 179,982 179,982
Accrued interest payable 939,041 939,041 945,890 945,890
=========== =========== =========== ===========
<CAPTION>
Notional Unrealized Notional Unrealized
value gain (loss) value gain (loss)
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Off balance sheet instruments:
Commitments to extend credit $ 915,850 -- 1,626,000 --
Lines of credit to customers 2,822,000 -- 2,614,000 --
Line of credit unused by the Company -- -- 10,000,000 --
=========== =========== =========== ===========
</TABLE>
(13) Special Deposit Insurance Assessment
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the Act)
was signed into law. The Act imposed a one-time special assessment of
65.7 basis points of the deposits held as of March 31, 1995, to
capitalize the Savings Association Insurance Fund (SAIF). All of the
deposits of the Bank are SAIF-insured. The Bank incurred a one-time
pre-tax expense of $530,421 that is recorded in the Bank's statement
of operations for the year ended September 30, 1996.
<PAGE>
(14) Commitments and contingencies
The Company is involved with various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial statements.
(15) Mid-Iowa Financial Corp. (Parent Company Only) Financial Information
The Parent Company's principal asset is its 100 percent ownership of the
Bank and its subsidiary. Following are the condensed financial
statements for the Parent Company:
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Condensed Balance Sheets
------------------------
Cash $ 790,539 781,075
Securities available for sale 1,318,866 1,065,257
Securities held to maturity 200,000 200,000
Accrued interest receivable 10,441 11,261
Investment in nonbank subsidiary 260,301 206,184
Investment in Bank 11,203,704 9,846,219
Prepaid expenses and other assets 4,999 5,218
----------- -----------
Total assets $13,788,850 12,115,214
=========== ===========
Accrued expenses and other liabilities $ 28,385 54,086
----------- -----------
Common stock 17,411 17,299
Additional paid-in capital 3,147,692 3,040,211
Retained earnings 10,553,062 9,298,166
Treasury stock -- (325,600)
Unrealized gain on securities available for sale, net 42,300 31,052
----------- -----------
Total stockholders' equity 13,760,465 12,061,128
----------- -----------
Total liabilities and stockholders' equity $13,788,850 12,115,214
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Condensed Statements of Operations
----------------------------------
Interest income $ 90,826 109,130 103,040
Other income 33,316 221,000 --
Equity in net income of subsidiaries 1,329,399 1,383,352 816,027
Other expenses (149,525) (80,772) (97,993)
----------- ----------- -----------
Income before income tax expense (benefit) 1,304,016 1,632,710 821,074
Income tax (benefit) expense (27,827) 82,875 (3,500)
----------- ----------- -----------
Net income $ 1,331,843 1,549,835 824,574
=========== =========== ===========
<CAPTION>
Years ended September 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Condensed Statements of Cash Flows
----------------------------------
Operating activities:
Net income $ 1,331,843 1,549,835 824,574
Equity in net income of subsidiaries (1,329,399) (1,383,352) (816,027)
Amortization 420 (88) (248)
Change in assets and liabilities:
Decrease in accrued interest receivable 820 344 3,178
(Decrease) increase in current taxes on income (7,703) 26,766 (27,412)
Other, net (11,878) (4,670) 6,642
----------- ----------- -----------
Net cash (used in) provided by operating activities (15,897) 188,835 (9,293)
----------- ----------- -----------
Investing activities:
Securities available for sale:
Purchase of securities available for sale (500,000) (388,439) (100,000)
Proceeds from sale of subsidiary stock -- 200,000 --
Principal repayments on mortgage-backed
securities available for sale 229,114 140,600 126,456
Net change in loans -- 155,000 --
----------- ----------- -----------
Net cash (used in) provided by investing activities (270,886) 107,161 26,456
----------- ----------- -----------
Financing activities:
Payments to acquire treasury stock -- (47,812) (462,950)
Stock options exercised 433,193 68,500 110,743
Net dividends (paid) received (136,946) 366,253 164,951
----------- ----------- -----------
Net cash provided by (used in) financing activities 296,247 386,941 (187,256)
----------- ----------- -----------
Net increase (decrease) in cash 9,464 682,937 (170,093)
Cash at beginning of year 781,075 98,138 268,231
----------- ----------- -----------
Cash at end of year $ 790,539 781,075 98,138
=========== =========== ===========
</TABLE>
<PAGE>
(16) Proposed Transaction
On August 17, 1998 the Company announced the execution of a definitive
agreement to be acquired by a newly formed holding company that will
be the successor of First Federal Savings Bank of Siouxland and First
Federal Bankshares, M.H.C. The transaction is subject to regulatory
and shareholder approvals and is anticipated to result in payment to
Mid-Iowa Financial Corp. shareholders of approximately $29,000,000.
Exhibit 99.2
Unaudited Consolidated Condensed Balance Sheets as of
March 31, 1999 and 1998 and Unaudited Consolidated Condensed
Statements of Income and Cash Flows for the six months
ended March 31, 1999 and 1998
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1999 1998
------------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $31,556,827 $15,457,949
Securities available for sale 4,822,336 4,994,247
Securities held to maturity 41,325,246 49,793,789
Loans held for resale - 49,900
Loans receivable, net 68,247,102 71,435,579
Real estate, net 54,991 135,438
Office properties and equipment, net 2,621,003 2,630,366
Federal Home Loan Bank stock 1,800,000 1,800,000
Accrued interest receivable 894,174 1,017,122
Intangibles, net 9,818 10,872
Prepaid expenses and other assets 149,040 191,663
------------------------------------
Total assets $151,480,537 $147,516,925
====================================
Liabilities
Deposits $101,152,728 $96,352,659
Borrowed funds 34,000,000 36,000,000
Advance payments by borrowers for
taxes and insurance 175,521 162,572
Accrued interest payable 846,980 939,041
Accounts payable and accrued expenses 341,224 302,188
------------------------------------
Total liabilities 136,516,453 133,756,460
------------------------------------
Stockholders' equity
Common stock 18,207 17,411
Additional paid-in capital 3,652,631 3,147,692
Retained earnings 11,250,238 10,553,062
Accumulated other comprehensive income 43,008 42,300
------------------------------------
Total stockholders' equity 14,964,084 13,760,465
------------------------------------
Total liabilities and stockholders' equity $151,480,537 $147,516,925
====================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $1,368,772 $1,463,420 $2,796,168 $2,875,185
Mortgage-backed and related securities 393,098 458,496 814,722 945,151
Investment securities 339,745 479,803 848,790 945,612
Other 249,624 102,894 362,103 151,116
----------------------------------------------------------------
Total interest income 2,351,239 2,504,613 4,821,783 4,917,064
----------------------------------------------------------------
Interest expense:
Deposits 997,270 1,030,538 2,060,072 2,060,059
Other borrowings 481,076 521,744 987,792 977,448
----------------------------------------------------------------
Total interest expense 1,478,346 1,552,282 3,047,864 3,037,507
----------------------------------------------------------------
Net interest income 872,893 952,331 1,773,919 1,879,557
Provision for losses on loans 15,000 15,000 30,000 30,000
----------------------------------------------------------------
Net interest income after provision 857,893 937,331 1,743,919 1,849,557
----------------------------------------------------------------
Noninterest income:
Fees and service charges 112,441 90,025 226,995 179,206
Gain (loss) on sale of other assets - 24,509 - 24,509
Other, primarily commissions 295,968 203,069 582,602 384,119
----------------------------------------------------------------
Total noninterest income 408,409 317,603 809,597 587,834
----------------------------------------------------------------
<PAGE>
<CAPTION>
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest expense:
Compensation and benefits 355,591 326,991 663,710 646,465
Office properties and equipment 99,019 95,033 192,064 186,057
Federal insurance premiums 14,850 14,217 27,306 27,311
Data processing services 48,797 42,809 92,895 82,837
Expense on real estate, net (1,137) (1,260) (13,383) (1,771)
Other 371,488 282,482 678,890 533,512
----------------------------------------------------------------
Total noninterest expense 888,608 760,272 1,641,482 1,474,411
----------------------------------------------------------------
Income before taxes on income 377,694 494,662 912,034 962,980
Taxes on income 154,500 165,274 330,000 282,800
----------------------------------------------------------------
Net income $223,194 $329,388 $582,034 $680,180
================================================================
Per share data:
Basic earnings per share $0.12 $0.19 $0.33 $0.40
================================================================
Diluted earnings per share $0.12 $0.18 $0.30 $0.38
================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended March 31,
1999 1998
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $582,034 $680,180
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Origination of loans held for sale (150,000) (153,400)
Proceeds from sale of loans held for sale 199,900 102,400
Depreciation 80,479 82,800
Amortization (47,983) (82,763)
Provision for loan losses 30,000 30,000
Net (gain) loss on sale of real estate (11,225) (24,509)
Decrease (increase) in accrued interest receivable 122,948 (48,419)
Decrease in accrued interest payable (92,061) (34,591)
Increase (decrease) in taxes payable 329,331 (46,679)
Provision for deferred taxes on income 324 31,112
Other, net (167,563) (185,999)
----------------------------------
Net cash provided by operating activities 876,184 350,132
----------------------------------
Cash flows from investing activities:
Purchase of investment securities (15,124,745) (20,100,000)
Purchase of investment securities AFS - (500,000)
Proceeds from maturities of investments 13,000,000 8,761,677
Principal collected on mortgage-backed and related securities 10,642,325 3,035,623
Principal collected on investment securities available for sale 172,943 -
Net change in loans to customers 3,158,477 (5,190,215)
Proceeds from sale of real estate 196,915 13,057
Real estate acquired by foreclosure - (89,514)
Purchase of office properties and equipment (71,116) (111,103)
Purchase of Federal Home Loan Bank Stock - (300,000)
----------------------------------
Net cash provided by (used in) investing activities 11,974,799 (14,480,475)
----------------------------------
<PAGE>
<CAPTION>
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended March 31,
1999 1998
----------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net change in deposits 4,800,069 7,159,928
Proceeds from borrowed funds - 11,000,000
Repayment of borrowed funds (2,000,000) -
Advances from borrowers for taxes and insurance 12,949 32,874
Proceeds from exercise of stock options 505,735 300,204
Dividends paid (70,858) (67,764)
----------------------------------
Net cash provided by financing activities 3,247,895 18,425,242
----------------------------------
Net increase in cash and cash equivalents 16,098,878 4,294,899
Cash and cash equivalents at beginning of period 15,457,949 3,563,299
----------------------------------
Cash and cash equivalents at end of period $31,556,827 $7,858,198
==================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MID-IOWA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, the Consolidated Financial Statements contain
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial condition of Mid-Iowa Financial Corp. as of
March 31, 1999 and 1998 and the results of its operations and cash flows
for the nine months ended March 31, 1999 and 1998.
Operating results for the interim periods are not necessarily indicative of
the results that may be expected for the respective fiscal years.
2. Earnings per Share of Common Stock
The Company adopted FASB No. 128 "earnings per share" effective January 1,
1998. Previous computations have been restated to conform to FASB 128.
The table below sets forth the earnings per share computation for the nine
month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Six months ended March 31, 1999
Basic EPS Diluted EPS
--------------------------------------------------
<S> <C> <C>
Weighted Avg shares 1,780,940 1,780,940
Options 86,867
- -----------------------------------------------------------------------------------------------
Total shares 1,780,940 1,920,484
Net income for the periods $ 582,034 $ 582,034
Earnings per Share $ .33 $ .30
<CAPTION>
Six months ended March 31, 1998
Basic EPS Diluted EPS
--------------------------------------------------
<S> <C> <C>
Weighted Avg shares 1,702,291 1,702,291
Options 108,565
- -----------------------------------------------------------------------------------------------
Total shares 1,702,291 1,810,856
Net income for the periods $ 680,180 $ 680,180
Earnings per Share $ .40 $ .38
</TABLE>
<PAGE>
3. Regulatory Capital Requirements
Pursuant to Office of Thrift Supervision Regulations, savings institutions
must meet three separate minimum capital-to-asset requirements. As of March
31, 1999 the Bank exceeded all current regulatory capital standards.
4. Pending Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has approved, effective for
years beginning after June 15, 1998, Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". FASB Statement No. 133 is
not expected to have a material effect on the Company's financial
statements when adopted.
5. Acquisition by First Federal Savings Bank of Siouxland
On August 17, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement"), providing for the acquisition of the
Company by First Federal Savings Bank of Siouxland ("First Federal"), a
mutual holding company headquartered in Sioux City, Iowa. The Agreement
provides for the conversion of each issued and outstanding share of the
Company's common stock into the right to receive $15.00 per share in cash
from First Federal. The acquisition was subject to, among other conditions,
the conversion of First Federal's mutual holding company from mutual to
stock form. The acquisition was completed as of the close of business on
April 13, 1999.
Exhibit 99.3
Unaudited Pro Forma Combined Consolidated Balance Sheet
as of March 31, 1999 and
Statements of Operations for the year ended
June 30, 1998 and for the nine months ended March 31, 1999
<PAGE>
FIRST FEDERAL BANKSHARES, INC AND MID-IOWA FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEETS
The following unaudited pro forma combined consolidated condensed balance sheets
as of March 31, 1999 and the statements of operations for the year ended June
30, 1998 and for the nine months ended March 31, 1999 for First Federal Savings
Bank and Mid-Iowa Financial Corp. (MIFC) give effect to the combination of First
Federal and MIFC pursuant to the Agreement and Plan of Reorganization by and
between First Federal Bankshares, M.H.C., First Federal Savings Bank of
Siouxland, Mid-Iowa Financial Corp., and Mid-Iowa Savings Bank, accounted for as
a purchase. Contemporaneously with the acquisition of MIFC, the former mutual
holding company of the Bank, First Federal Bankshares, M.H.C., converted to a
capital stock corporation. Shares of the Bank's common stock formerly held by
the mutual holding company were cancelled and each minority shareholder received
1.64696 shares of the new holding company stock for each share of Bank stock
exchanged. In connection with the conversion, First Federal Bankshares, Inc.
sold 2,635,000 shares of common stock at $10 per share. As a result of the
conversion, the non-bank assets of the mutual holding company were collapsed
into the combined entity. The proforma statements represent a combination of the
March 31, 1999 historical consolidated balance sheets and of the historical
consolidated statements of operations for the year ended June 30, 1998 and for
the nine months ended March 31, 1999. The historical consolidated statements of
operations of MIFC have been adjusted from its September 30, 1998 fiscal
year-end to present the results of its operations on a June 30, 1998 fiscal year
basis to match First Federal's reporting period. The combined historical
statements presented may not be indicative of the results that actually would
have occurred if the combination had been effected during the periods shown and
should be read in conjunction with First Federal's and MIFC's Annual Reports to
Stockholders which are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
Historical
---------------------------
As of March 31, 1999 Pro Forma
-------------------------------------------------------
First Mid-Iowa Conversion Acquisition
Federal Financial Adjustments Adjustments Combined
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 28,173,490 $ 31,556,827 $23,443,839 (1)(2) ($28,327,094) (5) $54,847,062
Securities available for sale 81,584,860 4,822,336 31,171,603 (4)(6) 117,578,799
Securities held to maturity 25,471,429 41,325,246 756,876 (2) (31,093,739)(4)(6) 36,459,812
Loans, net 391,179,076 68,247,102 909,811 460,335,989
Real estate owned 204,852 54,991 660,205 (2) 920,048
Office property and equipment 12,242,270 2,621,003 3,474 (2) 14,866,747
Federal Home Loan Bank stock 6,294,300 1,800,000 8,094,300
Accrued interest receivable 2,911,544 894,174 2,519 (2) 3,808,237
Excess of cost over fair value
of assets acquired 7,907,955 9,818 12,412,111 (5)(6) 20,329,884
Other assets 4,381,557 149,040 220,390 (2) 522,172 (5)(6) 5,273,159
------------ ------------ ----------- ------------ ------------
Total assets $560,351,333 $151,480,537 $25,087,303 ($14,405,136) $722,514,037
============ ============ =========== ============ ============
Liabilities and Stockholders' Equity:
Deposits $400,493,233 $101,152,728 $501,645,961
Borrowed funds 106,797,399 34,000,000 1,844,500 (1) (106,662) (6) 142,535,237
Other liabilities 8,734,136 1,363,725 135,222 (2) 665,610 (6) 10,898,693
------------ ------------ ----------- ------------ ------------
Total liabilities 516,024,768 136,516,453 1,979,722 558,948 655,079,891
------------ ------------ ----------- ------------ ------------
Stockholdesrs' equity:
Common stock 2,850,113 18,207 (2,801,933)(1)(3) (18,207) (5) 48,180
Additional paid in capital 8,311,484 3,652,631 25,802,045 (1)(3) (3,652,631) (5) 34,113,529
Retained earnings 33,320,194 11,250,238 1,951,969 (1) (11,250,238) (5) 35,272,163
Unearned compensation - ESOP - - (1,844,500) (1) (1,844,500)
Accumulated other
comprehensive income (155,226) 43,008 (43,008) (5) (155,226)
------------ ------------ ----------- ------------- ------------
Total stockholders' equity 44,326,565 14,964,084 23,107,581 (14,964,084) 67,434,146
------------ ------------ ----------- ------------- ------------
Total liabilities and
stockholders' equity $560,351,333 $151,480,537 $25,087,303 ($14,405,136) $722,514,037
============ ============ =========== ============= ============
</TABLE>
<PAGE>
- ------------
(1) Reflects gross proceeds of $26.4 million from the sale of subscription
shares, less expenses of the conversion of $1.5 million, less the purchase
of $1.8 million of subscription shares by the Employee Stock Ownership Plan
with a loan from First Federal Bankshares, Inc.
(2) Reflects the inclusion of $ 2.0 million of non-bank net assets from the
mutual holding company due to the conversion.
(3) Reflects the reclass of capital accounts to conform to the Registrant's
$.01 legal par value.
(4) Reclass of MIFC held-to-maturity securities to available-for-sale, upon
completion of the acquisition.
(5) Reflects the purchase of MIFC for $28.3 million utilizing cash received
from sale of subscription shares, the elimination of MIFC's equity
accounts, merger expenses of $143,500, and recording of excess of cost over
fair value for the acquisition.
(6) Reflects purchase accounting adjustments totaling $909,811 for loans,
$77,865 for investment securities, $106,662 for FHLB advances, $690,140 for
core deposit premium, and $665,610 to record the deferred tax effect of
these adjustments.
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC AND MID-IOWA FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
Historical
----------------------------
Year ended June 30, 1998
Pro Forma
First Mid-Iowa ----------------------------------
Federal Financial Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 28,796,484 $ 5,698,106 (378,444) (2) $ 34,116,146
Mortgage-backed securities 2,713,326 1,901,067 (19,704) (3) 4,594,689
Investment securities and other
interest-earning assets 3,854,456 2,083,262 1,095 (3) 5,938,813
------------ ------------ ------------ ------------
Total interest income 35,364,266 9,682,435 (397,053) 44,649,648
------------ ------------ ------------ ------------
Interest expense:
Deposits 15,826,758 4,041,014 19,867,772
Advances from FHLB and other borrowings 5,550,478 1,908,058 7,952 (4) 7,466,488
------------ ------------ ------------ ------------
Total interest expense 21,377,236 5,949,072 7,952 27,334,260
------------ ------------ ------------ ------------
Net interest income 13,987,030 3,733,363 (405,005) 17,315,388
Provision for losses on loans 345,000 69,000 -- 414,000
------------ ------------ ------------ ------------
Net interest income after provision for losses 13,642,030 3,664,363 (405,005) 16,901,388
------------ ------------ ------------ ------------
(6)
Noninterest income:
Fees and service charges 1,392,400 385,038 -- 1,777,438
Gain on sale of branch deposits -- -- -- 0
Other income, net 1,785,078 933,527 57,548 2,776,153
------------ ------------ ------------ ------------
Total noninterest income 3,177,478 1,318,565 57,548 4,553,591
------------ ------------ ------------ ------------
<PAGE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC AND MID-IOWA FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
Historical
----------------------------
Year ended June 30, 1998
Pro Forma
First Mid-Iowa ----------------------------------
Federal Financial Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Noninterest expense:
Compensation and benefits 6,701,960 1,293,555 -- (1)(5) 7,995,515
Office property and equipment 1,500,265 350,844 -- (6) 1,851,109
Deposit insurance premiums 216,405 54,600 -- 271,005
Data processing 355,508 163,046 -- 518,554
Amortization of intangibles 108,244 -- 635,884 744,128
Other expense, net 2,645,213 1,107,447 31,588 (7) 3,784,248
------------ ------------ ------------ ------------
Total noninterest expense 11,527,595 2,969,492 667,472 15,164,559
------------ ------------ ------------ ------------
Earnings before taxes on income 5,291,913 2,013,436 (1,014,929) 6,290,420
Income taxes 1,874,000 636,000 (193,193) 2,316,807
------------ ------------ ------------ ------------
Net earnings $ 3,417,913 $ 1,377,436 ($ 821,737) $ 3,973,612
============ ============ ============ ============
Per share date: (8)
Basic earnings per share $ 1.21 $ 1.40
============ ============
Diluted earnings per share $ 1.19 $ 1.38
============ ============
Cash dividends paid per share $ 0.48 $ 0.48
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC AND MID-IOWA FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
Historical
-----------------------------
Nine months ended 3/31/99 Pro Forma
First Mid-Iowa ------------------------------------
Federal Financial Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $24,044,530 $ 4,258,288 (128,482) (2) $28,174,336
Mortgage-backed securities 1,687,373 1,281,306 (14,778) (3) 2,953,901
Investment securities and other
interest-earning assets 3,992,585 1,733,722 (2,458) (3) 5,723,849
----------- ----------- ----------- -----------
Total interest income 29,724,488 7,273,316 (145,718) 36,852,086
----------- ----------- ----------- -----------
Interest expense:
Deposits 13,037,947 3,090,503 -- 16,128,450
Advances from FHLB and other borrowings 5,030,350 1,494,786 13,912 (4) 6,539,048
----------- ----------- ----------- -----------
Total interest expense 18,068,297 4,585,289 13,912 22,667,498
----------- ----------- ----------- -----------
Net interest income 11,656,191 2,688,027 (159,630) 14,184,588
Provision for losses on loans 255,000 45,000 300,000
----------- ----------- ----------- -----------
Net interest income after provision for losses 11,401,191 2,643,027 (159,630) 13,884,588
----------- ----------- ----------- -----------
Noninterest income:
Fees and service charges 1,515,135 331,727 -- 1,846,862
Gain on sale of branch deposits 1,087,884 -- -- 1,087,884
Other income, net 1,438,100 820,484 185,309 (6) 2,443,893
----------- ----------- ----------- -----------
Total noninterest income 4,041,119 1,152,211 185,309 5,378,639
----------- ----------- ----------- -----------
<PAGE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC AND MID-IOWA FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
Historical
-----------------------------
Nine months ended 3/31/99 Pro Forma
First Mid-Iowa ------------------------------------
Federal Financial Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Noninterest expense:
Compensation and benefits 5,532,888 976,846 -- 6,509,734
Office property and equipment 1,341,543 288,526 -- 1,630,069
Deposit insurance premiums 178,512 42,137 -- 220,649
Data processing 296,357 137,319 -- 433,676
Amortization of intangibles 257,967 -- 462,733 (1) (5) 720,700
Other expense, net 2,394,251 996,099 20,659 (6) 3,411,009
----------- ----------- ----------- -----------
Total noninterest expense 10,001,518 2,440,927 483,392 12,925,837
----------- ----------- ----------- -----------
Earnings before taxes on income 5,440,792 1,354,311 (457,713) 6,337,390
Income taxes 1,982,079 470,600 (31,695) (7) 2,420,984
----------- ----------- ----------- -----------
Net earnings $ 3,458,713 $ 883,711 ($ 426,018) $ 3,916,406
=========== =========== =========== ===========
Per share date: (8)
Basic earnings per share $ 1.22 $ 1.38
=========== ===========
Diluted earnings per share $ 1.20 $ 1.36
=========== ===========
Cash dividends paid per share $ 0.48 $ 0.48
=========== ===========
</TABLE>
- -------------------
(1) Amortization of goodwill over 25 years
(2) Amortization of $910,000 loan premium over expected lives of related loans
(3) Amortization of $57,864 investments' net premium over lives of related
investments
(4) Amortization of $106,662 FHLB advance premium over lives of related
advances
(5) Amortization of $690,140 core deposit intangible over lives of related
deposits
(6) Reflects the operating results of the Mutual Holding Company
(7) Income tax effect of pro forma adjustments
(8) Earnings per share have been calculated using First Federal's historical
shares
