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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number 0-20464
MID-IOWA FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 42-1389053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 West Second Street North, Newton, Iowa 50208
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 792-6236
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
twelve months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such requirements for the past
90 days. YES X NO
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year ended September 30,
1996 were $9.3 million.
As of December 13, 1996, the Registrant had issued and outstanding
1,655,880 net shares of Common Stock. The aggregate market value of the voting
stock held by non-affiliates of the Registrant, computed by reference to the
average of the closing price of such stock on the Nasdaq Market as of December
13, 1996, was $7.8 million. (The exclusion from such amount of the market value
of the shares owned by any person shall not be deemed an admission by the
Registrant that such person is an affiliate of the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
PART II of Form 10-KSB--Portions of 1996 Annual Report to Stockholders.
PART III of Form 10-KSB--Portions of Proxy Statement for the 1997
Annual Meeting of Stockholders.
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<PAGE>
PART I
Item 1. Description of Business
General
Mid-Iowa Financial Corp. (the "Company" or "Mid-Iowa") is a Delaware
corporation which was organized in 1992 by Mid-Iowa Savings Bank, FSB (the
"Bank") for the purpose of becoming a savings and loan holding company. The
Company owns all of the outstanding stock of the Bank issued on October 13,
1992, in connection with the completion of the Bank's conversion from the mutual
to the stock form of organization (the "Conversion"). The Company issued 408,000
shares of Common Stock at a price of $10.00 per share in the Conversion. The
Bank was initially chartered as an Iowa state chartered savings and loan
association in 1913. The Bank converted to a federal mutual charter in 1991 and
changed its name to Mid-Iowa Savings Bank, FSB. The Bank amended its charter in
October 1992 in connection with the Conversion to become a federal stock savings
bank. All references to the Company, unless otherwise indicated refer to the
Bank and its subsidiaries on a consolidated basis. The Company's Common Stock is
quoted on the Nasdaq System under the symbol "MIFC".
The Company and the Bank are subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision, Department of
the Treasury ("OTS") and by the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposits are backed by the full faith and credit of the United States Government
and are insured by the Savings Association Insurance Fund ("SAIF") to the
maximum extent permitted by the FDIC.
Mid-Iowa's primary market area, Jasper County, Iowa is serviced by its
two offices in Newton and offices in Baxter, Colfax, Monroe and Prairie City.
The Company has received approval from the OTS and has started the process of
opening a branch facility in West Des Moines, Iowa. At September 30, 1996,
Mid-Iowa had assets of $115.8 million, deposits of $82.9 million and
stockholders' equity of $10.6 million.
The Company, through its wholly-owned subsidiary, Mid-Iowa Security
Corporation ("Mid-Iowa Security") offers real estate brokerage services and is
involved in the development of a residential subdivision located in Newton,
Iowa. The Bank, through its wholly-owned subsidiary, Center of Iowa Investments,
Limited ("CII"), offers mutual funds, annuities, discount securities brokerage
services, credit reporting and collection services. See "-- Subsidiary
Activities."
Mid-Iowa has been, and intends to continue to be, a financial
corporation that offers a variety of financial services to meet the needs of the
families in the communities it serves. The Company attracts retail deposits from
the general public and uses such deposits, together with borrowings and other
funds, to invest in primarily one- to four-family residential mortgage loans and
mortgage-backed and related securities, and to a lesser extent, consumer,
commercial real estate, and commercial business loans. Most loans are presently
originated in the Company's primary market area, Jasper County; to a lesser
extent loans are also originated in other parts of Iowa, including Des Moines
and Cedar Rapids, Iowa, as well as Omaha, Nebraska. See "-- Lending Activities"
and "-- Non-Performing Assets and Classified Loans."
The Company also invests in U.S. Government and agency obligations and
other permissible investments and occasionally purchases loan participations.
The Company's revenues are derived from interest on mortgage loans,
mortgage-backed and related securities, investments and consumer loans, income
from service charges and loan originations, loan servicing fee income and income
from the sale of mutual funds, annuities, discount securities brokerage
services, real estate brokerage services, real estate development and credit
reporting and collection services through the service corporation subsidiaries
of the Company and the Bank. Mid-Iowa's operations are materially affected by
general
1
<PAGE>
economic conditions, the monetary and fiscal policies of the federal government
and the policies of the various regulatory authorities, including the OTS and
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
Its results of operations are largely dependent upon its net interest income,
which is the difference between the interest it receives on its loan portfolio
and its investment securities portfolio and the interest it pays on its deposit
accounts and borrowings.
Mid-Iowa's main office is located at 123 West Second Street North,
Newton, Iowa. The Company's telephone number is (515) 792-6236.
Market Area
Mid-Iowa offers a range of retail banking services primarily to the
residents of Jasper County, Iowa, through the Company's two offices located in
Newton and offices in Baxter, Colfax, Monroe and Prairie City. Mid-Iowa
considers its primary market area to be Jasper County.
Newton, Iowa, is a city located approximately 35 miles east of the Iowa
capital of Des Moines, in the center of Jasper County, Iowa. Jasper County has a
population of approximately 35,000 persons. Newton is an industrial community
with a population of approximately 15,000 people. The major employer is the
Maytag Corporation, headquartered in Newton, which employs approximately 3,000
employees in Newton. Other major employers are Newton Manufacturing Company, the
Vernon Company, Cline Tool and Service Company, Thombert, Inc., Walmart and
Skiff Medical Center.
At September 30, 1996, 86% of the Company's real estate mortgage loans
(excluding mortgage-backed and related securities) were secured by properties
located in Iowa. The remaining loans, a mix of single family and commercial real
estate loans, are primarily located throughout the United States, including the
midwest, the northwest, the middle-Atlantic states, and the pacific northwest.
At September 30, 1996, all of these out-of-state loans and loan participations
were performing in accordance with their repayment terms. See "- Non-Performing
Assets and Classified Assets" and "- Originations, Purchases, Sales and
Servicing of Loans and Mortgage-Backed and Related Securities."
Lending Activities
General. Historically, the Company has originated fixed-rate one- to
four-family mortgage loans. In the mid 1980s, the Company introduced adjustable
rate mortgage ("ARM") loans and short-term loans for retention in its portfolio,
in order to increase the percentage of loans with more frequent repricing or
shorter maturities, and in some cases higher yields, than fixed-rate mortgage
loans. The Company has continued, however, to originate fixed-rate mortgage
loans in response to customer demand.
While the Company primarily focuses its lending activities on the
origination of loans secured by first mortgages on owner-occupied, one- to
four-family residences, it also originates consumer, commercial real estate,
commercial business, and a limited amount of residential construction loans in
its primary market area. At September 30, 1996, the Company's gross real estate
loan and mortgage-backed and related securities portfolio totaled $82.9 million,
of which $46.9 million were comprised of one- to four- family first mortgage
loans and $28.3 million were comprised of mortgage-backed and related securities
held for investment and available for sale.
Senior lending officers have authority to approve up to $10,000 of
consumer and commercial business loans. Otherwise, the approval of the reviewing
loan officer and one of two senior officers of the Company is required. First
mortgage residential mortgage loans require the approval of two officers, one of
whom must be the Company's President or Executive Vice President. Loans in
excess of $100,000, up to the Company's lending limit, require the approval of
the reviewing loan officer and the President. Loans in excess of $500,000
require the approval of the Board of Directors.
2
<PAGE>
The aggregate amount of loans that the Company is permitted to make
under applicable federal regulations to any one borrower, including related
entities, is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation -- Federal Regulation of Savings Associations." At
September 30, 1996, the maximum amount which the Company could have lent to any
one borrower and the borrower's related entities was approximately $1.6 million.
At September 30, 1996, the Company had no loans with outstanding balances in
excess of this amount. At September 30, 1996, the principal balance of the
largest amount outstanding to any one borrower, or group of related borrowers,
was approximately $851,066 which consisted of two commercial real estate loans
secured by property located in the Company's primary market area. Each of these
loans was performing in accordance with its respective repayment terms at
September 30, 1996. At that date, there were no other loans with a principal
balance in excess of $450,000.
Loan Portfolio Composition. The following information sets forth the
composition of the Company's loan and mortgage-backed and related securities
portfolios in dollar amounts and in percentages (before deductions for loans in
process, deferred fees and discounts and allowance for losses on loans) as of
the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- -----------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans and mortgage-backed
and related securities:
One- to four-family......................... $ 45,986 50.4% $ 45,293 51.6% $42,773 50.1%
Commercial.................................. 7,708 8.5 5,151 5.9 4,773 5.6
Construction................................ 884 1.0 919 1.0 530 .6
Mortgage-backed securities
held for sale.............................. 4,373 4.8 837 1.0 851 1.0
Mortgage-backed and related
securities................................. 23,974 26.3 28,139 32.1 29,497 34.6
-------- ------ -------- ------ ------- ------
Total real estate loans and mortgage-
backed and related securities held
for investment......................... 82,925 90.9 80,339 91.6 78,424 91.9
-------- ------ -------- ------ ------- ------
Other Loans:
Consumer Loans:
Second mortgage............................ 3,143 3.4 2,847 3.2 3,000 3.5
Automobile................................. 1,342 1.5 1,377 1.6 1,445 1.7
Home equity................................ 740 .8 483 .5 415 .5
Student.................................... 479 .5 537 .6 496 .6
Unsecured.................................. 161 .2 163 .2 190 .2
Deposit account............................ 142 .2 186 .2 140 .1
Other...................................... 297 .3 84 .1 58 .1
-------- ------ -------- ----- ------- ------
Total consumer loans.................... 6,304 6.9 5,677 6.4 5,744 6.7
Commercial business loans................... 1,982 2.2 1,723 2.0 1,177 1.4
-------- ------ -------- ----- ------- ------
Total other loans....................... 8,286 9.1 7,400 8.4 6,921 8.1
-------- ------ -------- ----- ------- ------
Total loans and mortgage-backed and
related securities..................... 100.0% 87,739 100.0% 85,345 100.0%
===== ===== =====
Less:
Loans in process............................ 550 598 408
Deferred fees and discounts................. 72 71 67
Allowance for losses on loans............... 274 248 253
-------- -------- -------
Total loans and mortgage-
backed securities receivable, net...... $ 90,315 $ 86,822 $84,617
======== ======== =======
</TABLE>
3
<PAGE>
The following table shows the composition of the Company's loan and
mortgage-backed and related securities portfolios by fixed and adjustable rate
at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------
1996 1995 1994
---------------- ----------------- ----------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate:
One- to four-family........................ $ 12,340 13.5% $ 15,831 18.0% $13,921 16.3%
Commercial................................. 6,319 6.9 2,590 3.0 2,547 3.0
Mortgage-backed and related securities 1,873 2.1 3,008 3.4 3,773 4.4
-------- --- ------- ----- -------- -----
Total fixed-rate real estate
loans and mortgage-backed and
related securities...................... 20,532 22.5 21,429 24.4 20,241 23.7
Consumer.................................... 5,403 5.9 5,194 5.9 5,297 6.2
Commercial business......................... 1,982 2.2 1,723 2.0 1,177 1.4
-------- ------ -------- ----- ------- -----
Total fixed-rate loans and mortgage-
backed and related securities.......... 27,917 30.6 28,346 32.3 26,715 31.3
-------- ------ -------- ----- ------- -----
Adjustable-Rate Loans:
Real estate:................................
One- to four-family........................ 33,646 36.9 29,462 33.6 28,852 33.8
Commercial................................. 1,389 1.5 2,561 2.9 2,226 2.6
Construction............................... 884 1.0 919 1.0 530 .6
Mortgage-backed securities held for sale 4,373 4.8 837 1.0 851 1.0
Mortgage-backed and related securities
held for investment....................... 22,101 24.2 25,131 28.6 25,724 30.2
-------- ------- -------- ---- ------- -----
Total adjustable-rate real estate
loans and mortgage-backed and
related securities..................... 62,393 68.4 58,910 67.1 58,183 68.2
-------- ------ -------- ----- ------- -----
Consumer.................................... 901 1.0 483 .6 447 .5
-------- ------ -------- ------- ------- ------
Total adjustable-rate loans
and mortgage-backed and
related securities..................... 63,294 69.4 59,393 67.7 58,630 68.7
-------- ------ -------- ------ -------
Total loans and mortgage-backed
and related securities................. 91,211 100.0% 87,739 100.0% 85,345 100.0%
-------- ===== -------- ===== ------- =====
Less:
Loans in process............................ 550 598 408
Deferred fees and discounts................. 72 71 67
Allowance for losses on loans............... 274 248 253
-------- -------- -------
Total loans and mortgage-
backed securities receivable, net...... $ 90,315 $ 86,822 $84,617
======== ======== =======
</TABLE>
4
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Company's gross loan and mortgage-backed and related securities portfolio at
September 30, 1996. Mortgages and mortgage-backed and related securities which
have adjustable or renegotiable interest rates are shown as maturing in the
period during which the contract is due. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
---------------------------------------------------------
One- to four-family
and mortgage-
backed securities Commercial Construction Consumer
------------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Years Ending
September 30,
1997 (1).............. $ 1,544 6.77% $ 101 9.25% $ 884 9.35% $ 1,930 7.92%
1998 and 1999......... 3,477 7.89 215 7.90 -- -- 1,768 8.31
2000 and 2001......... 4,068 8.68 830 8.74 -- -- 1,931 9.12
2002 to 2006.......... 13,455 8.72 1,070 8.81 -- -- 308 8.95
2007 to 2016.......... 49,381 7.93 4,805 9.01 -- -- 367 9.64
2017 and thereafter 2,408 7.60 687 8.76 -- -- -- --
-------- ------- --------- ---------
$ 74,333 $ 7,708 $ 884 $ 6,304
======== ======= ========= =========
Commercial
business Total
------------------ ------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Due During
Years Ending
September 30,
1997 (1).............. $ 794 8.44% $ 5,253 7.93%
1998 and 1999......... 377 9.27 5,837 8.11
2000 and 2001......... 138 8.81 6,967 8.81
2002 to 2006.......... 246 9.00 15,079 8.74
2007 to 2016.......... 413 10.49 54,966 8.06
2017 and thereafter -- -- 3,095 7.86
-------- --------
$ 1,968 $ 91,197
======== ========
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</TABLE>
5
<PAGE>
The total amount of loans due after September 30, 1997 which have
predetermined interest rates is $19.4 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $66.6
million.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Company's marketing efforts, its present
customers, walk-in customers and referrals from real estate agents, builders and
loan brokers. The Company focuses its lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied, one- to
four-family residences. See "- Originations, Purchases, Sales and Servicing of
Loans and Mortgage-Backed and Related Securities." At September 30, 1996, the
Company's one- to four-family residential mortgage loans and mortgage-backed and
related securities (all of which are collateralized by one- to four-family
loans) totaled $75.2 million, or approximately 82.5%, of the Company's gross
loan and mortgage-backed and related securities portfolio.
The Company currently originates fixed-rate monthly payment loans and
ARM loans. During the year ended September 30, 1996, the Company originated
$12.7 million of fixed-rate real estate loans. During the same period, the
Company originated $8.1 million of adjustable-rate, one- to four-family real
estate loans. The Company's one- to four-family residential mortgage
originations are primarily in its market area.
The Company generally makes ARMs in amounts up to 80% of the appraised
value of the security property although the Company will loan in amounts up to
97% provided that private mortgage insurance is obtained in an amount sufficient
to reduce the Company's exposure at or below the 80% loan-to-value level. The
Company currently offers one, three and five year ARM loans with an interest
rate margin over the one-year Treasury Bill Index. These loans provide for up to
a 2.0% annual cap and a lifetime cap and floor of 6.0% from the initial rate. As
a consequence of using caps, the interest rates on these loans may not be as
rate sensitive as is the Company's cost of funds. Historically, the initial rate
used for the loan has been below the fully-indexed rate and is established by
the Company in accordance with market and competitive factors. The Company has
not experienced difficulty with the payment history for these loans.
From time to time the Company has originated ARMs which are convertible
into fixed-rate loans during stated time periods. Presently, the Company
originates only nonconvertible ARMs. The Company's ARMs do not permit negative
amortization of principal. Borrowers of adjustable rate loans are qualified at
the fully-indexed rate.
Due to consumer demand, the Company also offers fixed-rate, 15- and
30-year mortgage loans that conform to secondary market sales standards (i.e.,
Federal National Mortgage Association ("FNMA"), Government National Mortgage
Association ("GNMA") or Federal Home Loan Mortgage Corporation ("FHLMC")
standards). Interest rates charged on these fixed-rate loans are competitively
priced on a daily basis according to market conditions. Residential loans
generally do not include prepayment penalties. Federal Housing Administration
("FHA") and Veterans' Administration ("VA") fixed rate loans have been
originated to be sold in the secondary market. The Company generally sells such
loans servicing released. The Company reserves the right to discontinue, adjust
or create new lending programs to respond to its needs and to competitive
factors.
In underwriting one- to four-family residential real estate loans,
Mid-Iowa evaluates both the borrower's ability to make monthly payments and the
value of the property securing the loan. Most properties securing real estate
loans made by Mid-Iowa are appraised by an independent fee appraiser approved
and qualified by management. Mid-Iowa generally requires borrowers to obtain an
attorney's title opinion, and fire and casualty insurance in an amount not less
than the amount of the loan. Real estate loans originated by the Company
generally contain a "due on sale" clause allowing the Company to declare the
unpaid principal balance due and payable upon the sale of the security property.
Construction Lending. The Company engages in limited amounts of
construction lending to individuals for the construction of their residences
and, on rare occasions, to builders for the construction of single family homes
6
<PAGE>
in the Company's primary market area. At September 30, 1996, the Company had
$884,000 of outstanding construction loans.
Construction loans to individuals for their residences are structured
to be converted to permanent loans at the end of the construction phase, which
typically runs for six to 12 months. During the construction phase, the borrower
pays interest only. These construction loans have rates and terms which match
the one- to four-family permanent loans then offered by the Company, except that
a higher loan fee is typically charged to the construction borrower. Residential
construction loans are generally underwritten pursuant to the same guidelines
used for originating permanent residential loans. At September 30, 1996, the
Company had eight construction loans for one- to four-family residences
totalling $598,000 and two construction loans for commercial real estate
totalling $286,000.
Construction loans are generally made up to a maximum loan-to-value
ratio of 80% based upon an appraisal. Because of the uncertainties inherent in
estimating construction costs and the market for the project upon completion,
however, it is relatively difficult to evaluate accurately the total loan funds
required to complete a project, the related loan-to-value ratios and the
likelihood of ultimate success of the project. Construction loans to borrowers
other than owner occupants also involve many of the same risks discussed below
regarding commercial real estate loans and tend to be more sensitive to general
economic conditions than many other types of loans.
Prior to making a commitment to fund a construction loan, the Company
requires an appraisal of the property. The Company's construction loan policy
provides for the inspection of properties by Company personnel at the
commencement of construction and prior to disbursement of funds during the term
of the construction loan.
Mortgage-backed and related securities. Mid-Iowa has a substantial
portfolio of mortgage-backed and related securities which it holds for
investment. Such securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. For information regarding the carrying and
market values of Mid-Iowa's mortgage-backed and related securities portfolio,
see Notes 2 and 3 of the Notes to Consolidated Financial Statements in the
Annual Report to Stockholders attached hereto as Exhibit 13. Under the Company's
risk-based capital requirement, mortgage-backed and related securities have a
risk weight of 20% (or 0% in the case of GNMA securities) in contrast to the 50%
risk weight assigned to residential loans. See "Regulation."
At September 30, 1996, the Company's holdings of mortgage-backed and
related securities, including those available for sale, totalled $28.4 million,
or 31.1%, of the Company's gross loan and mortgage-backed and related securities
portfolio. Consistent with the Company's asset/liability policy, most of the
mortgage-backed and related securities purchased by the Company in recent
periods carry adjustable interest rates or are for short or intermediate
effective terms.
As part of its mortgage-backed and related security portfolio, the
Company has also purchased investment grade or federal agency guaranteed
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") having adjustable interest rates or effective terms to
maturity of seven years or less. Such securities are derived by reallocating
cash flows from mortgage pass-through securities or from pools of mortgage
loans. The CMOs and REMICs acquired by the Company are not interest only, or
principal only or residual interests.
Because federal agency mortgage-backed and related securities generally
carry a yield approximately 50 to 100 basis points below that of the
corresponding type of residential loan, in the event that these purchases
increase, the Company's asset yields could be adversely affected. Due to the
existence of the federal agency guarantee on the Company's mortgage-backed and
related securities and the availability of adjustable rate mortgage-backed and
related securities, the Company's interest rate risk and credit risk would not
necessarily be increased by a future increase in mortgage-backed and related
securities volume. The Company will evaluate mortgage-backed and related
securities acquisitions in the future based on its asset/liability objectives,
market conditions and its alternate investment opportunities.
7
<PAGE>
The following table sets forth the balance outstanding on the Company's
mortgage-backed and related securities at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------
1996 1995 1994
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation............... $ 1,163 $ 1,573 $ 1,749
Federal National Mortgage Association................ 6,251 7,268 8,311
Government National Mortgage Association............. 10,785 12,125 11,828
Collateralized Mortgage Obligations.................. 10,148 8,010 8,460
--------- --------- ---------
Total............................................. $ 28,347 $ 28,976 $ 30,348
========= ========= =========
</TABLE>
Commercial Real Estate Lending. The Company has from time to time
engaged in commercial real estate lending, including multi-family lending, in
its market area and has purchased whole commercial loans and participation
interests in loans from other financial institutions secured by properties
located in Iowa, Colorado and Tennessee. At September 30, 1996, the Company had
$7.7 million of commercial real estate loans, which represented 8.5% of the
Company's gross loan and mortgage-backed and related securities portfolio. At
September 30, 1996, all of the Company's commercial real estate portfolio was
performing in accordance with its terms. At September 30, 1996, 68% of the
Company's commercial real estate loan portfolio was secured by properties
located in the State of Iowa.
The Company originates commercial real estate loans and purchases whole
loans and participation interests in commercial real estate loans. The Company's
commercial real estate loan portfolio is secured primarily by apartment
buildings, office buildings, retail stores, nursing homes, churches and
warehouses. Commercial real estate loans may have terms up to 30 years.
Generally, the loans are made in amounts up to 75% of the appraised value of the
security property. The underwriting standards employed by the Company for
commercial real estate loans include a review of the financial condition of the
borrower, the borrower's credit history, and the reliability and predictability
of the net income generated by the property securing the loan. The Company
generally requires the submission of personal financial statements and personal
guarantees of the borrowers. Appraisals on properties securing commercial real
estate loans originated by the Company are performed by independent appraisers
selected by Mid-Iowa.
Loans secured by commercial real estate properties are generally larger
and involve a greater degree of credit risk than one- to four-family residential
mortgage loans. Because payments on loans secured by commercial real estate
properties are often dependent on the successful operation or management of the
properties, repayment of such loans may be subject to adverse conditions in the
real estate market or the economy. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired.
Consumer Lending. Mid-Iowa offers a variety of secured consumer loans,
including home equity, second mortgage (including home improvement) and
automobile loans and loans secured by savings deposits. In addition, Mid-Iowa
offers other secured and unsecured consumer loans, including Visa and Mastercard
credit cards. At September 30, 1996, the Company's consumer loan portfolio
totaled $6.3 million, or 6.9%, of its gross loan and mortgage-backed and related
securities portfolio. The Company currently originates most of its consumer
loans in its primary market area. The Company originates consumer loans on both
a direct and indirect basis. Direct loans are made when the Company extends
credit directly to the borrower. Indirect loans are obtained when the Company
purchases loan contracts from retailers of goods or services which have extended
credit to their customers. The only indirect lending by Mid-Iowa is with
selected automobile dealers located in the Company's lending area. The Company
underwrites each indirect loan in accordance with its normal consumer loan
standards.
8
<PAGE>
Consumer loan terms vary according to the type and value of collateral.
The underwriting standards employed by the Company for consumer loans include an
application, a determination of the applicant's payment history on other debts
and an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
The largest component of Mid-Iowa's consumer loan portfolio consists of
second mortgage loans. At September 30, 1996, second mortgage loans totaled $3.1
million, or approximately 3.4%, of the Company's gross loan and mortgage-backed
and related securities portfolio. Loans secured by second mortgages, together
with loans secured by all prior liens, are limited to 100% or less of the
appraised value of the property securing the loan and generally have maximum
terms that do not exceed seven years.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At September 30, 1996, $9,000, or .1%, of the consumer loan
portfolio was non-performing. There can be no assurance that delinquencies will
not increase in the future.
Commercial Business Lending. The Company originates a limited number of
commercial business loans. At September 30, 1996, approximately $2.0 million, or
2.2%, of the Company's total loans and mortgage-backed and related securities
portfolio was comprised of commercial business loans. Mid-Iowa's commercial
business lending activities consist primarily of loans to agricultural borrowers
in its primary market area.
The Company recognizes the generally increased risks associated with
commercial business lending. Mid- Iowa's commercial business lending policy
emphasizes credit file documentation and analysis of the borrower's character,
capacity to repay the loan, the adequacy of the borrower's capital and
collateral as well as an evaluation of the industry conditions affecting the
borrower. Analysis of the borrower's past, present and future cash flows is also
an important aspect of Mid-Iowa's credit analysis.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, is likely to be dependent upon the general economic
environment). The Company's commercial business loans are generally secured by
business assets. However, the collateral securing the loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based on the
success of the business. At September 30, 1996, all of Mid-Iowa's commercial
business loan portfolio was performing in accordance with its terms.
Originations, Purchases, Sales and Servicing of Loans and Mortgage-backed and
Related Securities
Real estate loans are primarily originated by Mid-Iowa's staff of
salaried loan officers. In addition, Mid- Iowa originates residential loans
through brokers secured by properties located in Des Moines and Cedar Rapids,
Iowa, Omaha, Nebraska and other markets. While these brokers underwrite these
loans pursuant to the Company's underwriting guidelines, the Company reviews the
underlying documentation and relies on its own underwriting process in
determining whether to grant or deny a loan.
9
<PAGE>
While the Company originates both adjustable-rate and fixed-rate loans,
its ability to generate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the interest rate environment.
Mid-Iowa has a substantial portfolio of fixed-rate and adjustable-rate
mortgage-backed and related securities which it purchases and holds for
investment consistent with its asset/liability objectives. At September 30,
1996, mortgage-backed and related securities, including securities held for
sale, totaled $4.4 million, or 4.8% of Mid-Iowa's total loan and mortgage-backed
and related securities portfolio. See "- Mortgage-backed and related
securities."
At September 30, 1996, the Company had 18 groups of whole loans and
loan participations totalling $6.0 million secured by property located outside
the Company's primary market area. These loans and participation interests are
secured by properties located in the midwest, the northwest, the middle-Atlantic
states and pacific northwest. At September 30, 1996, none of these loans was
included in the Company's non-performing assets as a non-performing loan. See "-
Non-Performing Assets and Classified Assets."
From time to time, the Company has sold whole loans and loan
participations. Sales of whole loans and loan participations generally have been
beneficial to the Company since these sales usually generate income at the time
of sale and provide funds for additional lending and other investments.
Otherwise, the Company typically retains its fixed rate one- to four-family
loans because such loans are originated for retention consistent with the
Company's asset/liability objectives.
With the exception of FHA and VA loans, when loans are sold the Company
typically retains the responsibility for collecting and remitting loan payments,
making certain that real estate tax payments are made on behalf of borrowers,
and otherwise servicing the loans. The Company receives a servicing fee for
performing these services. The amount of servicing fees received by the Company
varies but is generally calculated on the basis of the outstanding principal
amount of the loans serviced. The servicing fee is earned and recognized as
income as loan payments are received. The Company services for others mortgage
loans that it originated and sold amounting to approximately $2.8 million at
September 30, 1996.
In periods of economic uncertainty, the Company's ability to originate
large dollar volumes of real estate loans may be substantially reduced or
restricted, with a resultant decrease in related loan origination fees, other
fee income and operating earnings.
10
<PAGE>
The following table shows the loan origination, purchase and repayment
activities of the Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family............................ $ 7,397 $ 2,879 $ 13,105
- commercial................................... 80 1,453 1,851
Non-real estate consumer..................................... 630 204 290
Total adjustable-rate................................. 8,107 4,536 15,246
Fixed rate:
Real estate - one- to four-family............................ 4,149 6,539 2,055
- commercial................................... 2,155 778 --
Non-real estate - consumer................................... 3,831 1,764 3,081
- commercial business........................ 2,535 578 2,197
Total fixed-rate...................................... 12,670 9,659 7,333
Total loans originated................................ 20,777 14,195 22,579
Purchases:
Fixed rate mortgage-backed and related securities............ -- -- --
Adjustable rate mortgage-backed and related securities........ 3,937 1,187 5,297
Total purchased....................................... 3,937 1,187 5,297
Sales and Repayments:
Real estate loans............................................ 2,415 1,371 2,273
Mortgage-backed and related securities...................... -- -- --
Total sales........................................... 2,415 1,371 2,273
Principal repayments......................................... 18,822 11,011 20,716
Total reductions...................................... 21,237 12,382 22,989
Increase (decrease) in other items, net...................... 16 (795) 647
--------- --------- ----------
Net increase.......................................... $ 3,493 $ 2,205 $ 5,534
========= ========= ==========
</TABLE>
Non-Performing Assets and Classified Assets
When a borrower fails to make a required payment on real estate secured
loans, consumer loans and commercial business loans within 20, 11 and ten days,
respectively, after the payment is due, the Company generally institutes
collection procedures by mailing a notice and calling the customer. The customer
is contacted again when the payment continues to be an additional five to ten
days past due and in the case of real estate loans, when 60 days past due, a
right to cure notice is sent. In most cases, delinquencies are cured promptly;
however, the Company will meet with the borrower in order to determine the
reason for the delinquency and to effect a cure, and, where appropriate, reviews
the condition of the property and the financial circumstances of the borrower.
Based upon the results of any such investigation, the Company may: (i) accept a
repayment program which under appropriate circumstances could involve an
extension for the arrearage from the borrower; (ii) seek evidence, in the form
of a listing contract, of efforts by the borrower to sell the property if the
borrower has stated that he is attempting to sell; (iii) attempt to involve the
private mortgage insurer in a work-out of the loan; or (iv) initiate foreclosure
proceedings.
Generally, when a loan becomes delinquent 90 days or more or when the
collection of principal and/or interest become doubtful, the Company will place
the loan on a non-accrual status and, as a result, interest income receivable is
charged to an allowance which is established by a charge to interest income.
Future interest income
11
<PAGE>
is recognized on a cash basis only, until, in management's opinion, the
borrower's ability to make periodic interest and principal payments has been
normalized.
The following table sets forth information concerning delinquent
mortgage and other loans at September 30, 1996. The amounts presented represent
the total remaining principal balances of the related loans, rather than the
actual payment amounts which are overdue and are reflected as a percentage of
loans in the related portfolio.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------------------------------------------------------------
30-59 days 60-89 days 90 days and over
-------------------------------- -------------------------------- ------------------------------
Number Amount Percent Number Amount Percent Number Amount Percent
------ ------ ------- ------ ------ ------- ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family.... 19 $ 495 1.08% 1 $ 35 .08% 4 $ 142 .31%
Consumer............... 16 87 1.38 4 7 .11 3 9 .14
---- ------ ---- ------ ---- -------
Total.................. 35 $ 582 1.11% 5 $ 42 .08% 7 $ 151 .29%
==== ====== ==== ====== ==== =======
</TABLE>
The table below sets forth the gross amounts and categories of
non-performing assets in the Company's loan portfolio. For all years presented,
the Company has had no troubled debt restructurings (which involve forgiving a
portion of interest or principal on any loans or making loans at a rate
materially less than that of market rates) or accruing loans delinquent more
than 90 days. Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing assets
Non-accruing loans:
One- to four-family......................... $ 142 $ 138 $ -- $ -- $ 174
Commercial real estate...................... -- -- -- -- --
Consumer.................................... 9 3 33 17 3
-------- -------- ------- -------- ---------
Total..................................... 151 141 33 17 177
-------- -------- ------- -------- ---------
Foreclosed assets:
One- to four-family......................... -- -- -- 172 201
Commercial real estate...................... -- -- -- -- 295
-------- -------- ------- -------- ---------
Total..................................... -- -- -- 172 496
-------- -------- ------- -------- ---------
Total non-performing assets............... $ 151 $ 141 $ 33 $ 189 $ 673
======== ======== ======= ======== =========
Total non-performing
assets as a percentage
of total assets............................. .13% .13% .03% .20% .72%
======== ======== ======= ======== =========
</TABLE>
For the year ended September 30, 1996, net interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $7,062. No interest income was recognized on
such loans for the year ended September 30, 1996.
Non-accruing loans. As of September 30, 1996, the Company had $151,000
in net book value of non-accruing loans consisting primarily of one- to
four-family loans.
Foreclosed Assets. The Company had no foreclosed real estate owned at
September 30, 1996.
12
<PAGE>
Other Loans of Concern. In addition to the non-performing loans set
forth in the tables above, as of September 30, 1996 there was also an aggregate
of $142,000 in net book value of loans classified by the Company with respect to
which known information about the possible credit problems of the borrowers or
the cash flows of the security properties have caused management to have some
doubts as to the ability of the borrowers to comply with present loan repayment
terms and which may result in the future inclusion of such items in the
non-performing asset categories. The balance of these loans "of concern"
consisted of consumer loans.
As of September 30, 1996, there were no other loans not included on the
table or discussed above where known information about the possible credit
problems of borrowers caused management to have serious doubts as to the ability
of the borrower to comply with present loan repayment terms and which may result
in disclosure of such loans in the future.
Classified Assets. Federal regulations provide for the classification
of loans and other assets such as debt and equity securities considered by the
OTS to be of lesser quality as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current retained
earnings and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the savings association will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. A savings association's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the savings association's Regional Director at the regional
OTS office, who may order the establishment of additional general or specific
loss allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Company regularly
reviews the loans and other assets in its portfolio to determine whether any
loans require classification in accordance with applicable regulations. On the
basis of management's monthly review of its assets, at September 30, 1996, the
Company had classified $291,000 of its assets as substandard, no assets as
doubtful and $2,000 of its assets as loss. Such classified assets at September
30, 1996 included $151,000 of non-performing loans and $142,000 of the other
loans of concern, discussed above.
Allowance for Losses on Loans. The allowance for loan losses is
established through a provision for loan losses based on management's evaluation
of the risk inherent in its loan portfolio and changes in the nature and volume
of its loan activity. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers among other
matters, the estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of the related loan balance, net of any specific loan loss provision
(which is charged-off at the time of transfer), or fair value at the date of
foreclosure. Valuations are periodically updated by management and a specific
provision for losses on such property is established by a charge to operations
if the carrying value of the property exceeds its estimated fair value.
13
<PAGE>
Although management believes that it uses the best information
available to determine the allowances, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances are the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. At September 30, 1996, the Company had a total allowance for losses on
loans of $274,000, or .44%, of total loans (excluding mortgage-backed and
related securities). See "Regulation - Federal Regulation of Savings
Associations".
The following table sets forth an analysis of the Company's allowance
for loan losses.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1996 1995 1994
-------- ` ------- --------
<S> <C> <C> <C>
Balance at beginning of period...................... $ 248,028 $ 253,306 $ 274,329
Charge-offs:
One- to four-family................................ -- -- --
Commercial......................................... -- -- --
Consumer........................................... 19,390 44,707 84,451
--------- --------- ---------
Total Chargeoffs.................................... 19,390 44,707 84,451
Recoveries:
One- to four-family................................ -- -- --
Consumer........................................... 9,181 6,429 16,928
--------- --------- ---------
Total Recoveries................................... 9,181 6,429 16,928
--------- --------- ---------
Net charge-offs...................................... 10,209 38,278 67,523
Additions charged to operations...................... 36,000 33,000 46,500
--------- --------- ---------
Balance at end of period............................. $ 273,819 $ 248,028 $ 253,306
========= ========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period......... .02% .07% .13%
Allowance for loan losses to total
non-performing assets at end of period............. 181.34 175.91 767.59
Allowance for loan losses to non-performing
loans at end of period.............................. 181.34 175.91 767.59
Allowance for loan losses to total loans at end
of period.......................................... .44 .43 .47
</TABLE>
14
<PAGE>
The distribution of the Company's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------
1996 1995 1994
------------------------- -------------------------- --------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family..................... $139,173 73.17% $143,383 77.08% $149,844 77.77%
Commercial real estate.................. 50,943 12.26 45,560 8.77 47,058 88.68
Construction or
development............................ 1,000 1.41 1,000 1.56 -- .97
Consumer................................ 68,571 10.03 53,121 9.66 53,401 10.44
Commercial business.................... 14,132 3.13 4,964 2.93 3,003 2.14
-------- ------- -------- ------ -------- ------
Total............................... $273,819 100.00% $248,028 100.00% $253,306 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Investment Activities
Mid-Iowa must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Company has maintained its
liquid assets above the minimum requirements imposed by the OTS regulations and
at a level believed adequate to meet requirements of normal daily activities,
repayment of maturing debt and potential deposit outflows. As of September 30,
1996, the Company's liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 6.91%.
See "Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Company is to invest funds
among various categories of investments and maturities based upon the Company's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.
At September 30, 1996, the Company's interest-bearing deposits in other
financial institutions totaled $810,000, or .68% of its total assets, and
investment securities totaled $22.2 million or 19.2% of its total assets. As of
such date, the Company also had a $1,325,000 investment in the common stock of
the FHLB of Des Moines in order to satisfy the requirement for membership in
such institution. It is the Company's general policy to purchase investment
securities which are U.S. Government securities and federal agency obligations,
state and local government obligations, commercial paper, short-term corporate
debt securities and overnight federal funds. At September 30, 1996, the average
term to maturity or repricing of the investment securities portfolio was 3.8
years.
OTS regulations restrict investments in corporate debt and equity
securities by the Company. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% the
Company's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totaled approximately $1.6 million as of September 30, 1996,
plus an additional 10% if the investments are fully secured by readily
15
<PAGE>
marketable collateral. See "Regulation - Federal Regulation of Savings
Associations" for a discussion of additional restrictions on the Company's
investment activities.
The following table sets forth the composition of the Company's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- ---------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with other
financial institutions................. $ 810 100.0% $ 1,174 100.0% $ 1,864 100.0%
======== ===== ======== ===== ======== =====
Investment securities:
Federal agency obligations............. $ 17,991 81.1% $ 13,929 78.7% $ 8,459 71.0%
State and local government obligations 2,867 12.9 2,858 16.2 2,851 23.9
-------- ------ -------- ------ --------- -----
Subtotal........................... 20,858 94.0 16,787 94.9 11,310 94.9
FHLB stock.............................. 1,325 6.0 900 5.1 604 5.1
-------- ------ -------- ----- -------- -----
Total investment securities
and FHLB stock....................... $ 22,183 100.0% $ 17,687 100.0% $ 11,914 100.0%
======== ===== ======== ===== ======== =====
Average remaining life or term to
repricing, excluding FHLB stock and
other marketable equity securities..... 3.8 years 3.3 years 4.7 years
</TABLE>
The composition and maturities of the investment securities portfolio,
excluding FHLB of Des Moines stock are indicated in the following table.
<TABLE>
<CAPTION>
At September 30, 1996
------------------------------------------------------------------------------------
Over Over
1 Year 1 to 5 5 to 10 Over Total Investment
or Less Years Years 10 Years Securities
---------- ---------- ---------- ---------- -------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations $ 3,941 $ 5,495 $ 8,555 $ -- $ 17,991 $ 17,830
State and local government
obligations................ -- 548 2,018 301 2,867 2,986
-------- --------- --------- --------- --------- ---------
Total investment securities $ 3,941 $ 6,043 $ 10,573 $ 301 $ 20,858 $ 20,816
========= ========= ========== ========= ========= ==========
Weighted average yield....... 7.12% 6.67% 6.32% 5.33% 6.73%
======== ========= ========== ========= =========
</TABLE>
The Company's investment securities portfolio at September 30, 1996
contained neither tax-exempt securities nor securities of any issuer with an
aggregate book value in excess of 10% of the Company's retained earnings,
excluding those issued by the United States Government, or its agencies.
16
<PAGE>
Mid-Iowa's investment security portfolio is managed in accordance with
a written investment policy adopted by the Board of Directors and implemented by
its Investment Committee, consisting of the Company's President and Treasurer.
At the present time, Mid-Iowa does not have any investments that are held for
trading purposes.
The OTS maintains guidelines regarding management oversight and
accounting treatment for securities, including investment securities, loans,
mortgage-backed and related securities and derivative securities. The guidelines
require thrift institutions to reduce the carrying value of securities to the
lesser of cost or market value unless it can be demonstrated that a class of
securities is intended to be held to maturity. As of September 30, 1996, the
Company held $24.0 million and $20.2 million, respectively, of principal amount
of mortgage-backed and related securities and investment securities which the
Company intends to hold until maturity. As of such date, these securities had a
market value of $24.0 million and $20.2 million, respectively.
Sources of Funds
General. The Company's primary sources of funds are deposits,
amortization and prepayment of loan principal (including interest earned on
mortgage-backed and related securities), interest earned on or maturation of
investment securities and short-term investments, and funds provided from
operations.
Borrowings will be used to compensate for reductions in deposits or
deposit inflows at less than projected levels, and may be used on a longer-term
basis to support expanded lending activities.
Deposits. Mid-Iowa offers a variety of deposit accounts having a wide
range of interest rates and terms. The Company's deposits consist of passbook
accounts, club accounts, money market deposit accounts, NOW and checking
accounts, and certificate accounts ranging in terms from three months to eight
years. The Company primarily solicits deposits from its market area and does not
use brokers to obtain deposits. The Company relies primarily on competitive
pricing policies, advertising, and customer service to attract and retain these
deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.
The variety of deposit accounts offered by the Company has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Company has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. The Company manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Company believes that its passbook savings, money market deposit
accounts, and NOW accounts are relatively stable sources of deposits. However,
the ability of the Company to attract and maintain certificates of deposits, and
the rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
17
<PAGE>
The following table sets forth the savings flows at the Company during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Opening balance....................... $ 78,671 $ 78,883 $ 78,899
Deposits.............................. 130,584 95,445 82,990
Withdrawals........................... 128,746 97,865 85,154
Interest credited..................... 2,363 2,208 2,148
--------- --------- ---------
Ending balance........................ $ 82,872 $ 78,671 $ 78,883
========= ========= =========
Net increase (decrease)............... 4,201 $ (212) $ (16)
========= ========= =========
Percent increase (decrease)........... 5.34% (.27)% (.02)%
======== ========= =========
</TABLE>
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Company for the periods
indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------
1996 1995 1994
--------------------- -------------------- -----------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Range:
Market Rate Accounts......................... $ 13,421 16.10% $ 4,735 6.01% $ 4,603 5.83%
Passbook Accounts 2.15-2.25%................. 6,050 7.30 6,668 8.48 8,108 10.28
NOW Accounts 1.02-1.05%...................... 4,951 6.07 4,457 5.67 4,835 6.13
-------- ------- -------- -------- ------- -------
Total Non-Certificates....................... 24,422 29.47 15,860 20.16 17,546 22.24
-------- ------- -------- -------- ------- -------
Certificates of Deposit:
0.00 - 3.99%............................... 6,408 7.73 7,693 9.78 14,975 18.99
4.00 - 5.99%............................... 49,285 59.47 24,988 31.76 39,335 49.89
6.00 - 7.99%............................... 2,756 3.33 30,120 38.29 6,642 8.42
8.00 - 9.99%............................... 1 -- 10 .01 365 .46
-------- ------- -------- -------- ------- -------
Total Certificates of Deposit................ 58,450 70.53 62,811 79.84 61,337 77.76
-------- ------- -------- -------- ------- -------
Total Deposits............................... $ 82,872 100.00% $ 78,671 100.00% $78,883 100.00%
======== ======= ======== ====== ======= =======
</TABLE>
18
<PAGE>
The following table shows rate and maturity information for the
Company's certificates of deposit as of September 30, 1996.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996......................... $ 2,008 $ 11,725 $ 111 $ -- $13,844 23.69%
March 31, 1997............................ 2,002 11,621 185 -- 13,808 23.62
June 30, 1997............................. 866 7,581 436 1 8,884 15.20
September 30, 1997........................ 1,418 6,689 292 -- 8,399 14.37
December 31, 1997......................... 33 3,102 150 -- 3,285 5.62
March 31, 1998............................ 22 1,757 442 -- 2,221 3.80
June 30, 1998............................. 26 1,443 605 -- 2,074 3.55
September 30, 1998........................ 33 720 255 -- 1,008 1.72
December 31, 1998......................... -- 231 23 -- 254 .43
March 31, 1999............................ -- 623 50 -- 673 1.15
June 30, 1999............................. -- 376 -- -- 376 .64
September 30, 1999........................ -- 361 75 -- 436 .75
December 31, 1999......................... -- 479 66 -- 545 .93
Thereafter................................ -- 2,577 66 -- 2,643 4.52
-------- --------- --------- ------- ------- -------
Total................................ $ 6,408 $ 49,285 $ 2,756 $ 1 $58,450 100.00%
======= ======== ======== ====== ====== ======
Percent of total..................... 10.96% 84.32% 4.72% 0.00%
======== ========= ========= =======
</TABLE>
19
<PAGE>
The following table indicates the amount of the Company's certificates
of deposit by time remaining until maturity as of September 30, 1996.
<TABLE>
<CAPTION>
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
--------- ------ -------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000 $ 11,141 $ 8,848 $ 16,661 $ 12,521 $ 49,171
Certificates of deposit of $100,000 or more 2,016 3,310 422 863 6,611
Public funds(1)......................... 687 1,650 200 131 2,668
--------- --------- --------- --------- --------
Total certificates of deposit........... $ 13,844 $ 13,808 $ 17,283 $ 13,515 $ 58,450
========= ========= ========= ========= ========
- ---------------
(1) Deposits from governmental and other public entities.
</TABLE>
The following tables sets forth the maximum month-end balance and
average balance of FHLB advances and other borrowings during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances and other borrowings............................. $ 20,500 $ 18,000 $ 10,750
Average Balance:
FHLB advances and other borrowings............................. $ 19,250 $ 14,375 $ 5,854
Weighted average interest rate of FHLB advances................ 5.61% 5.78% 4.28%
</TABLE>
The following table sets forth certain information as to the Company's
FHLB advances and other borrowings at the dates indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances.................................................. $ 20,500 $ 18,000 $ 10,750
--------- --------- ---------
Total borrowings............................................. $ 20,500 $ 18,000 $ 10,750
========= ========= =========
Weighted average interest rate
of FHLB advances.............................................. 5.64% 5.94% 4.88%
</TABLE>
20
<PAGE>
Subsidiary Activities
As a federally chartered savings bank, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $2.3 million at September 30,
1996, in the stock of, or loans to, service corporation subsidiaries. As of such
date, the net book value of the Bank's investment in and loans to its service
corporations was approximately $91,000. The Bank may invest an additional 1% of
its assets in service corporations where such additional funds are used for
inner-city or community development purposes.
Center of Iowa Investments ("CII"), the Bank's wholly owned subsidiary,
markets mutual funds, annuities, and discount securities brokerage services to
the Company's customer. CII recognized net income of $13,700, for the 1996
fiscal year.
In addition to the Bank, the Company directly owns Mid-Iowa Security,
which conducts real estate brokerage services and owns Quail Ridge development,
a single-family residential development located in Newton, Iowa, consisting of
36 developed residential lots and 15 acres of additional land. At September 30,
1996, one residential lot and 5 acres of land remain to be sold. At September
30, 1996, Mid-Iowa Security's investment in Quail Ridge development was
$260,000. Mid-Iowa Security maintains a $43,000 general valuation allowance
allocated to Quail Ridge. Mid-Iowa Security recognized net income of $55,000 for
the 1996 fiscal year.
Competition
Mid-Iowa faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other commercial banks, savings associations, credit
unions and mortgage bankers making loans secured by real estate located in the
Company's market area. Commercial banks and finance companies provide strong
competition in consumer lending. The Company competes for real estate and other
loans principally on the basis of the quality of services it provides to
borrowers, interest rates and loan fees it charges, and the types of loans it
originates.
The Company attracts all of its deposits through its retail banking
offices, primarily from the communities in which those retail banking offices
are located; therefore, competition for those deposits is principally from other
commercial banks, savings associations and credit unions located in the same
communities. The Company competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges at each.
The Company serves primarily Jasper County, Iowa. There are ten
commercial banks and no other savings associations which compete for deposits
and loans in Jasper Country. Mid-Iowa estimates its share of the residential
mortgage loan market to be approximately 30% and its share of the savings
deposit base to be approximately 20% in Jasper County.
Regulation
General. The Bank is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight extending to all its operations. The Bank is a member
of the FHLB of Des Moines and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As
the savings and loan holding company of the Bank, the Company also is subject to
federal regulation and oversight. The purpose of the regulation of the Company
and other holding companies is to protect subsidiary savings associations. The
Bank is a member of the SAIF and the deposits of the Bank are insured by the
FDIC. As a result, the FDIC has certain regulatory and examination authority
over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
21
<PAGE>
Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, the Bank is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The last regular OTS
and FDIC examinations of the Bank were as of June 28, 1993 and September 22,
1995, respectively. All federal savings associations are subject to a
semi-annual assessment, based upon the association's total assets, to fund the
operations of the OTS. The Bank's OTS assessment for the fiscal year ended
September 30, 1996 was $35,300.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Bank is prescribed by federal laws, and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. At September 30, 1996, the Bank was in compliance with the
noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
September 30, 1996, the Bank's lending limit under this restriction was $1.4
million. The Bank is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
Under the Federal Deposit Insurance Act, the FDIC is required to set
semi-annual assessments for SAIF- insured institutions to maintain the
designated reserve ratio of the SAIF at 1.25% of estimated insured deposits or
at a higher percentage of estimated insured deposits that the FDIC determines to
be justified for that year by circumstances raising a significant risk of
substantial future losses to the SAIF.
Under the risk-based deposit insurance assessment system adopted by the
FDIC, the assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to regulators for the date closest to the last day of the
seventh month preceding the semi-annual assessment period,
22
<PAGE>
institutions are assigned to one of three capital groups -- well capitalized,
adequately capitalized or undercapitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis of supervisory
evaluations by the institution's primary supervisory authority and such other
information as the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance fund.
For the past several semi-annual periods, institutions with
SAIF-assessable deposits, like the Bank, have been required to pay higher
deposit insurance premiums than institutions with deposits insured by the Bank
Insurance Fund (the "BIF"). In order to recapitalize the SAIF and address the
premium disparity, the recently-enacted Deposit Insurance Funds Act of 1996
authorized the FDIC to impose a one-time special assessment on institutions with
SAIF-assessable deposits based on the amount determined by the FDIC to be
necessary to increase the reserve levels of the SAIF to the designated reserve
ratio of 1.25% of insured deposits. Institutions were assessed at the rate of
65.7 basis points based on the amount of their SAIF-assessable deposits as of
March 31, 1995. As a result of the special assessment the Bank incurred an
after-tax expense of $355,000 during the quarter ended September 30, 1996.
The FDIC has proposed a new assessment schedule for SAIF deposit
insurance pursuant to which the assessment rate for well-capitalized
institutions with the highest supervisory ratings would be reduced to zero and
institutions in the lowest risk assessment classification will be assessed at
the rate of 0.27% of insured deposits. Until December 31, 1999, however,
SAIF-insured institutions, will be required to pay assessments to the FDIC at
the rate of 6.4 basis points to help fund interest payments on certain bonds
issued by the Financing Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period, BIF
members will be assessed for these obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be assessed at the same
rate for FICO payments.
Regulatory Capital Requirements. Federally insured savings
associations, such as the Bank, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital. At September 30, 1996, CII, a
wholly owned subsidiary of the Bank, had $6,200 of goodwill qualifying as an
intangible asset and which was deducted from the Bank's tangible capital.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. As of September 30, 1996, the Bank did not have any
investments or advances to its subsidiaries that are excluded from regulatory
capital.
At September 30, 1996, the Bank had tangible capital of $9.0 million,
or 7.9%, of adjusted total assets, which is approximately $7.3 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit
23
<PAGE>
card relationships. As a result of the prompt corrective action provisions
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio. At September
30, 1996, the Bank had no intangibles which were subject to these tests.
At September 30, 1996, the Bank had core capital equal to $9.0 million,
or 7.9%, of adjusted total assets, which is $5.6 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk- weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS also is authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At September 30, 1996, the Bank had
$9.0 million of capital instruments (none of which qualify as supplementary
capital) and $274,000 of general loss reserves, which was less than 1.25% of
risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank did not have any
such exclusions from capital and assets at September 30, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by FNMA or FHLMC.
OTS risk-based capital requirements require savings institutions with
more than a "normal" level of interest rate risk to maintain additional total
capital. A savings institution's interest rate risk is measured in terms of the
sensitivity of its "net portfolio value" to changes in interest rates. Net
portfolio value is defined, generally, as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings institution
is considered to have a "normal" level of interest rate risk exposure if the
decline in its net portfolio value after an immediate 200 basis point increase
or decrease in market interest rates (whichever results in the greater decline)
is less than two percent of the current estimated economic value of its assets.
A savings institution with a greater than normal interest rate risk is required
to deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS calculates the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Institutions
with less than $300 million in assets and a risk-based capital ratio above 12%,
like the Bank, generally are exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS will require any exempt
institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers.
24
<PAGE>
On September 30, 1996, the Bank had total capital of $9.3 million
(including $9.0 million in core capital and $.3 million in qualifying
supplementary capital) and risk-weighted assets of $45.8 million; or total
capital of 20.3% of risk-weighted assets. This amount was $5.7 million above the
8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS generally is required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions or requirements on associations with
respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its mutual
to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account (see "--Regulatory Capital
Requirements").
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Bank meets the requirements
for a Tier 1 association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations that before and
after the proposed distribution meet their current minimum capital requirements,
may make capital distributions of up to 75% of net income over the most recent
four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Company, the Bank also is required to
give the OTS 30 days' notice prior to declaring any dividend on its stock. The
OTS may object to the distribution during that 30-day period based on safety and
soundness concerns. See "- Regulatory Capital Requirements."
Liquidity. All savings associations, including the Bank, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily
25
<PAGE>
balance of net withdrawable deposit accounts and current borrowings. Penalties
may be imposed upon associations for violations of either liquid asset ratio
requirement. At September 30, 1996, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 6.9% and a short-term liquid
assets ratio of 1.1%.
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At September 30, 1996, the Bank met the
test and has always met the test since its inception.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the BIF. If such an association has
not yet requalified or converted to a national bank, its new investments and
activities are limited to those permissible for both a savings association and a
national bank, and it is limited to national bank branching rights in its home
state. In addition, the association is immediately ineligible to receive any new
FHLB borrowings and is subject to national bank limits for payment of dividends.
If such association has not requalified or converted to a national bank within
three years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in prepayment
penalties. If any association that fails the QTL test is controlled by a holding
company, then within one year after the failure, the holding company must
register as a bank holding company and become subject to all restrictions on
bank holding companies. See "- Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of the Bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by the Bank. An unsatisfactory rating
may be used as the basis for the denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was last examined for
CRA compliance in January 1996 and received a rating of "satisfactory."
26
<PAGE>
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the Bank
include the Company and any company which is under common control with the Bank.
In addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The Bank's subsidiaries are not deemed affiliates, however;
the OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See
"-Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law. The stock of the Company is registered with the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non- interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 1996, the Bank was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "-Liquidity."
27
<PAGE>
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Des
Moines, which is one of 12 regional FHLBs, that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB, which are
subject to the oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined
by the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
As a member of the FHLB, the Bank is required to purchase and maintain
stock in the FHLB of Des Moines. At September 30, 1996, the Bank had $1,325,000
in FHLB stock, which was in compliance with this requirement. For the year ended
September 30, 1996, dividends paid by the FHLB of Des Moines to the Bank totaled
$78,900.
Federal and State Taxation. Savings associations such as the Bank that
meet certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation
can be made as to whether the Bank will meet the 60% test for subsequent taxable
years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to
28
<PAGE>
6% of such loans outstanding at the end of the taxable year or the greater of
(i) the amount deductible under the experience method or (ii) the amount which
when added to the bad debt deduction for "non-qualifying loans" equals the
amount by which 12% of the amount comprising savings accounts at year-end
exceeds the sum of surplus, undivided profits and reserves at the beginning of
the year. At September 30, 1996, the 6% and 12% limitations did not restrict the
percentage bad debt deduction available to the Bank. It is not expected that
these limitations would be a limiting factor in the foreseeable future.
Legislation enacted in August 1996 repealed the percentage of taxable
income method of calculating the bad debt reserve. Savings institutions, like
the Bank, which have previously used that method are required to recapture into
taxable income post-1987 reserves in excess of the reserves calculated under the
experience method over a six-year period beginning with the first taxable year
beginning after December 31, 1995. The start of such recapture may be delayed
until the third taxable year beginning after December 31, 1995 if the dollar
amount of the institution's residential loan originations in each year is not
less than the average dollar amount of residential loan originated in each of
the six most recent years disregarding the years with the highest and lowest
originations during such period. For purposes of this test, residential loan
originations would not include refinancings and home equity loans.
Beginning with the first taxable year beginning after December 31,
1995, savings institutions, such as the Bank, will be treated the same as
commercial banks. Institutions with $500 million or more in assets will be able
to take a tax deduction only when a loan is actually charged off. Institutions
with less than $500 million in assets will still be permitted to make deductible
bad debt additions to reserves, but only using the experience method. The Bank
is expected to recapture approximately $480,000 of its tax bad debt reserves.
The recapture will not have any effect on the Company's net income because the
related tax expense has already been accrued.
Under the experience method, the bad debt deduction is an amount
determined under a formula based generally on the bad debts actually sustained
by a savings institution over a period of years. Under the percentage of taxable
income method, the bad debt reserve deduction for qualifying real property loans
was computed as 8% of the thrift's taxable income. The maximum deduction could
be taken as long as not less than 60% of the total dollar amount of the assets
of an institution fell within certain designated categories. If the amount of
qualifying assets fell below 60%, the institution would get no deduction and
would generally be required to include existing reserves in income over a four
year period.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental tax equal to .12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1996, the Bank's excess for tax purposes totaled
approximately $1.8 million.
29
<PAGE>
The Company and its subsidiaries, including the Bank, file consolidated
federal income tax returns on a fiscal year basis using the accrual method of
accounting. Savings associations, such as the Bank, that file federal income tax
returns as part of a consolidated group are required by applicable Treasury
regulations to reduce their taxable income for purposes of computing the
percentage bad debt deduction for losses attributable to activities of the
non-savings association members of the consolidated group that are functionally
related to the activities of the savings association member.
The tax returns of the Company and its subsidiaries have not been
audited by the IRS with respect to consolidated federal income tax returns
subsequent to 1988. With respect to prior years examined by the IRS, all
deficiencies have been satisfied. In the opinion of management, any examination
of still open returns (including returns of subsidiaries and predecessors of, or
entities merged into, the Company) would not result in a deficiency which could
have a material adverse effect on the financial condition of the Bank and its
consolidated subsidiaries.
Iowa Taxation. The Bank currently files an Iowa franchise tax return.
The Company, its non-bank subsidiaries and the Bank's subsidiaries file Iowa
corporation tax returns on a fiscal year end basis.
Iowa imposes a franchise tax on the taxable income of stock savings
banks. The tax rate is 5%, which may effectively be increased, in individual
cases, by application of a minimum tax provision. Taxable income under the
franchise tax is generally similar to taxable income under the federal corporate
income tax, except that, under the Iowa franchise tax, no deduction is allowed
for Iowa franchise tax payments and taxable income includes interest on state
and municipal obligations. Interest on U.S. obligations is taxable under the
Iowa franchise tax and under the federal corporate income tax.
Taxable income under the Iowa corporate income tax is generally similar
to taxable income under the federal corporate income tax, except that, under the
Iowa tax, no deduction is allowed for Iowa income tax payments; interest from
state and municipal obligations is included in income; interest from U.S.
obligations is excluded from income; and 50% of federal corporate income tax is
excluded from income. The Iowa corporate income tax rates range from 6% to 12%
and may be effectively increased, in individual cases, by application of a
minimum tax provision.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
Employees
At September 30, 1996, the Company and its subsidiaries had a total of
41 employees, including 7 part-time employees. The Company's employees are not
represented by any collective bargaining group. Management considers its
employee relations to be satisfactory.
30
<PAGE>
Executive Officers of the Company
The executive officers of the Company, each of whom is currently an
executive officer of the Bank, are identified below. The executive officers of
the Company are elected annually by the Company's Board of Directors. The Bank
has entered into employment agreements with two of its executive officers.
Name Position With Holding Company
---- -----------------------------
Kevin D. Ulmer President and Chief Executive Officer
Gary R. Hill Executive Vice President, Secretary and Treasurer
Item 2. Properties
The Company conducts its business at its main office and five other
locations in its primary market area. The following table sets forth information
relating to each of the Company's offices as of September 30, 1996.
The Company owns each of its offices except Prairie City, which is
leased. The total net book value of the Company's premises and equipment
(including land, building and leasehold improvements and furniture, fixtures and
equipment) at September 30, 1996 was $967,000. See Note 6 of Notes to
Consolidated Financial Statements in the Annual Report to Stockholders attached
hereto as Exhibit 13.
<TABLE>
<CAPTION>
Net Book
Square Value
Total Footage at
Date Square Leased to September 30,
Location Acquired Footage Others 1996
- -------- -------- ------- -------- ------------
<S> <C> <C> <C> <C>
Main Office:
123 W. 2nd St. North 1955 18,400 6,800 $486,897
215-217 W. 2nd St. 1984 5,800 11,600 165,559
North
Branch Offices:
1907 1st Avenue E. 1977 1,270 -- 153,290
Newton, Iowa
15 E. Howard St. 1978 1,080 -- 50,564
Colfax, Iowa
108 E. Washington 1979 2,500 -- 64,828
Monroe, Iowa
100 State St. 1982 770 -- 37,497
Baxter, Iowa
101 W. Jefferson (1) 600 -- 8,816
Prairie City, Iowa
$967,451
========
- -----------
(1) This building is leased through July 1, 1997.
</TABLE>
31
<PAGE>
The Company has received approval from OTS and has started the process
of opening a branch facility in West Des Moines, Iowa.
The Company uses a service bureau for an on-line data base of depositor
and borrower customer information. The net book value of the data processing and
computer equipment utilized by the Company at September 30, 1996 was $90,600.
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal
actions arising in the normal course of its business. While the ultimate outcome
of these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Information under the caption "Price Range of Common Stock" in the
Company's 1996 Annual Report to Stockholders is herein incorporated by
reference.
Item 6. Management's Discussion and Analysis of Plan of Operation
Information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1996 Annual
Report to Stockholders is herein incorporated by reference.
Item 7. Financial Statements
Information under the caption "Consolidated Financial Statements" in
the Company's 1996 Annual Report to Stockholders is herein incorporated by
reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no current report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change in
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
32
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Information concerning directors, executive officers, promoters and
control persons of the Registrant is incorporated herein by reference from the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1996, the
Registrant complied with all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders, a copy of which will be filed not later than 120 days
after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
33
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Reference to
Prior Filing
or Exhibit
Regulation Number
S-B Exhibit Attached
Number Document Hereto
- ----------- ----------------------------- -----------
2 Plan of acquisition, reorganization
arrangement, liquidation or succession *
3 Articles of Incorporation and Bylaws *
4 Instruments defining the rights of
security holders, including indentures:
Common Stock Certificate *
9 Voting trust agreement None
10 Material contracts:
Stock Option and Incentive Plan *
Management Recognition and Retention
Plan *
Employment Agreements:
Kevin D. Ulmer *
Gary R. Hill *
11 Statement re: computation of per
share earnings None
13 Annual Report to Security Holders 13
16 Letter on change in certifying
accountant None
18 Letter on change in accounting
principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters
submitted to vote of security holders None
23 Consent of Accountants 23
24 Power of Attorney None
27 Financial Data Schedule 27
34
<PAGE>
28 Information from reports furnished to
state insurance regulatory authorities None
99 Additional exhibits None
- --------------------
* Filed as exhibits to the Company's S-1 registration statement filed on
June 24, 1992, (File No. 33-48838) pursuant to Section 5 of the Securities Act
of 1933. All of such previously filed documents are hereby incorporated herein
by reference in accordance with Item 601 of Regulation S-B.
(b) Reports on Form 8-K:
None.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MID-IOWA FINANCIAL CORP.
Date: December 19, 1996 By:/s/ Kevin D. Ulmer
------------------------
Kevin D. Ulmer (Duly
Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ Kevin D. Ulmer By:/s/ Gary R. Hill
--------------------------- --------------------------------
Kevin D. Ulmer, President, Gary R. Hill, Executive Vice
Chief Executive Officer President, Secretary, Treasurer and
and Director (Principal Director (Principal Financial
Executive and Operating and Accounting Officer)
Officer)
Date: December 19, 1996 Date: December 19, 1996
By:/s/ John E. Carl By:/s/ Ralph W. McAdoo
-------------------------- ---------------------------------
John E. Carl, Director Ralph W. McAdoo, Director
Date: December 19, 1996 Date: December 19, 1996
By:/s/ David E. Sandeen By:/s/ John Switzer
-------------------------- ---------------------------------
David E. Sandeen, Director John Switzer, Director
Date: December 19, 1996 Date: December 19, 1996
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
[LOGO]
MID-IOWA FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
President's Message................................................ 1
Selected Consolidated Financial Information........................ 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 3
Consolidated Financial Statements.................................. 16
Stockholder Information............................................ 42
Corporate Information.............................................. 43
<PAGE>
[MID-IOWA FINANCIAL LETTERHEAD]
December 19, 1996
Dear Stockholder:
I am pleased to report to you that our fiscal year ended September 30, 1996, our
fourth year as a publicly held company, was another year of growth and
profitability. Net income for the fiscal year, excluding the one time charge for
the special FDIC assessment, was $1,180,000 or $.67 per common share. Total
assets increased to $116 million at September 30, 1996.
A stock dividend of 100% was paid during the year and we continued our record of
paying a cash dividend in each consecutive quarter, since the second quarter
1993.
Our strong performance allows us to continue planned and controlled growth as we
develop new products and services for our customers.
We are proceeding with plans for a branch facility in West Des Moines, which
represents a new market for us. We continue to add new products and services for
our customers.
Your Board and management are dedicated to continuing to build value in
Mid-Iowa. We will remain focused on the needs of our customers and the
communities we serve.
On behalf of our Board of Directors, thank you for your continued support and
your investment in Mid-Iowa.
Sincerely,
/s/ Kevin D. Ulmer
Kevin D. Ulmer
President and Chief
Executive Officer
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ----------------------------------
Total assets................................. $ 115,804 $108,221 $100,562 $ 92,221 $ 93,270
Loans receivable, net........................ 62,123 57,847 54,269 48,342 45,398
Securities available for sale................ 4,974 837 851 969 --
Mortgage-backed and related
securities held for investment.............. 23,974 28,139 29,497 29,990 30,282
Investment securities........................ 20,258 16,787 11,310 6,885 3,836
Deposits..................................... 82,872 78,671 78,883 78,899 85,035
Total borrowings............................. 20,500 18,000 10,750 3,000 2,041
Stockholder's equity - partially restricted.. 10,601 10,261 9,770 9,167 5,046
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
- -------------------------
Total interest income........................ $ 8,228 $ 7,330 $ 6,211 $ 6,538 $ 7,172
Total interest expense....................... 4,939 4,492 3,347 3,632 4,692
--------- --------- -------- --------- ---------
Net interest income....................... 3,288 2,838 2,864 2,906 2,480
Provision for losses on loans................ 36 33 46 60 255
--------- --------- -------- --------- ---------
Net interest income after
provision for losses on loans........... 3,252 2,805 2,818 2,846 2,225
Fees and service charges..................... 325 314 428 377 328
Gain on loans, mortgage-backed
and investment securities.................. 33 14 25 -- 25
Other noninterest income..................... 741 650 449 755 822
Total noninterest expense.................... 3,115 2,394 2,247 2,388 2,383
--------- --------- -------- --------- ---------
Income before taxes on income and
cumulative effect of accounting changes.... 1,236 1,389 1,473 1,590 1,017
Taxes on income.............................. 411 462 470 587 344
Cumulative effect of accounting changes...... -- -- 64 -- --
--------- --------- -------- --------- ---------
Net income................................... $ 825 $ 927 $ 1,067 $ 1,003 $ 673
========= ========= ======== ========= =========
Earnings per common share(1)................. $ .47 $ .52 $ .58 $ .52 $ --
Cash dividends per common share(1)........... $ .08 $ .08 $ .07 $ .05 $ --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
- -----------
Average interest rate spread................... 2.54% 2.32% 2.72% 2.87% 2.65%
Net interest margin(2)......................... 2.97 2.74 3.07 3.27 2.92
Ratio of operating expense to
average total assets(3)....................... 2.16 1.79 1.97 1.92 1.81
Average interest-earning assets to
average interest-bearing liabilities.......... 109.55 109.61 109.81 109.78 104.67
Non-performing assets to total
assets at end of period....................... .13 .13 .03 .20 .72
Stockholder's equity to total assets at
end of period................................. 9.15 9.48 9.72 9.94 5.42
Return on assets (net income to
average total assets)......................... .73 .88 1.14 1.10 .75
Return on stockholder's equity
(net income to average
stockholder's equity)......................... 7.79 9.25 11.38 11.35 14.35
Stockholder's equity-to-assets ratio
(average stockholder's equity to
average total assets)......................... 9.36 9.61 9.98 9.67 5.21
Number of full-service offices................. 6 6 6 6 6
- ---------
(1) As adjusted for Mid-Iowa Financial Corp.'s 100% stock dividends paid on
February 24, 1995 and January 25, 1996.
(2) Net interest income divided by average interest-earning assets.
(3) Excludes the expenses of the subsidiaries of Mid-Iowa Savings Bank, F.S.B.
Such ratios, including such expenses would be 2.76%, 2.30%, 2.39%, 2.61%
and 2.65% for the years ended September 30, 1996, 1995, 1994, 1993 and
1992, respectively.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Mid-Iowa Financial Corp. ("Mid-Iowa" or the "Company") was formed in
June of 1992 by Mid-Iowa Savings Bank, F.S.B. (the "Bank") to become the thrift
institution holding company of the Bank. The acquisition of the Bank by the
Company was consummated on October 13, 1992 in connection with the Bank's
conversion from the mutual to the stock form (the "Conversion").
The primary business of the Company has historically consisted of
attracting deposits from the general public and providing financing for the
purchase of residential properties. The operations of the Company are
significantly affected by prevailing economic conditions as well as by
government policies and regulations relating to monetary and fiscal affairs,
housing and financial institutions.
The Company's net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-backed and related
securities and investments, and the average 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
3
<PAGE>
Company, like other thrift institutions, 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.
The Company's net income is also affected by, among other things, gains
and losses on sales of loans and foreclosed assets, provisions for possible loan
losses, service charges and other fees, commissions received from subsidiary
operations, operating expenses and income taxes. Mid-Iowa Security Corporation,
a wholly-owned subsidiary of the Company, generates revenues primarily by
providing real estate brokerage services. Center of Iowa Investments, Limited, a
wholly-owned subsidiary of the Bank, generates revenues by providing credit
reporting, collection services and by sale of insurance, annuities, mutual fund
and other investment products to its customers as well as providing discount
securities brokerage services.
Financial Condition
Total assets increased by $7.6 million to $115.8 million for the year
ended September 30, 1996 compared to $108.2 million for the year ended September
30, 1995. Total loans receivable increased to $62.1 million at September 30,
1996 from $57.8 million at September 30, 1995. In response to customer demand,
the Company originated $20.8 million of loans during fiscal 1996, including
$12.7 million in fixed-rate mortgage loans and $8.1 million in adjustable-rate
mortgage ("ARM") loans. The Company's customers refinancing existing mortgage
loans accounted for approximately $2.5 million of these originations. Total
mortgage-backed and related securities decreased to $28.3 million (including
mortgage-backed securities available for sale) at September 30, 1996 from $29.0
million at September 30, 1995. Investment securities increased $4.1 million to
$20.9 million at September 30, 1996, from $16.8 million at September 30, 1995.
The increases in loans receivable and investment securities were funded
primarily by proceeds received from an increase in Federal Home Loan Bank
("FHLB") borrowings.
Total deposits increased $4.2 million to $82.9 million at September 30,
1996. FHLB advances increased $2.5 million to $20.5 million at September 30,
1996 as compared to $18.0 million at September 30, 1995. Stockholders' equity
increased $300,000 to $10.6 million at September 30, 1996.
Results of Operations
The Company's results of operations depend primarily on the level of
its net interest income and noninterest income and the level of its operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and interest rates earned or paid on them.
During the year ended September 30, 1996, the Company's operating
strategy to improve its profitability and capital position continued to
emphasize (i) maintenance of the Company's asset quality, (ii) asset-liability
management, (iii) management of operating expenses to improve operating income,
and (iv) expanding loan originations.
Comparison of Fiscal Years Ended September 30, 1996 and September 30, 1995
General. The Company's net income decreased by $102,000 to $825,000 in
fiscal year 1996 from net income of $927,000 in fiscal 1995. The primary reasons
for this decrease were the increase in non-interest expense of $720,000
partially offset by an increase of $447,000 in net interest income and an
increase of $121,000 in non-interest income. The increase in non-interest
expense was due primarily to a one time FDIC assessment of $530,000, discussed
below.
Interest Income. Interest income increased $900,000 to $8.2 million for
fiscal 1996 from $7.3 million for fiscal 1995 primarily as a result of an
increase in the average yield on interest-earning assets of 55 basis points to
7.62% at September 30, 1996 from 7.07% at September 30, 1995, and, to a lesser
extent, the $5.6 million increase in the average balance of interest earning
assets. The increase in the average yield was caused primarily by the
4
<PAGE>
general increase in interest rates on adjustable rate mortgage loans resulting
in an increase in yield on the Company's loans to 8.12% at September 30, 1996
from 7.43% at September 30, 1995.
Interest Expense. Interest expense increased $400,000 to $4.9 million
in fiscal 1996 from $4.5 million in fiscal 1995 due primarily to an increase in
the average balances of the Company's FHLB borrowings and an increase in
interest rates paid on advances to 5.88% at September 30, 1996 from 5.78% at
September 30, 1995.
Net Interest Income. Net interest income increased $500,000 to $3.3
million at September 30, 1996 from $2.8 million at September 30, 1995. The
Company's average spread (the mathematical difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities) increased
to 2.64% for the year ended September 30, 1996 from 2.32% for the year ended
September 30, 1995. The Company's net interest margin (net interest income
divided by average interest-earning assets) increased to 3.01% at September 30,
1996 from 2.74% at September 30, 1995.
While the interest rate environment of recent years has proven
beneficial to most financial institutions, including the Company, increases in
market rates of interest generally adversely affect the net income of most
financial institutions. Because the Company's liabilities generally reprice more
quickly than its assets, interest margins will likely decrease if interest rates
rise.
Non-Performing Assets and Provision for Losses on Loans. Management
establishes specific reserves for estimated losses on loans when it determines
that losses are anticipated on these loans. The Company calculates any allowance
for possible loan losses based upon its ongoing evaluation of pertinent factors
underlying the types and qualify of its loans. These factors include but are not
limited to the current and anticipated economic conditions, including
uncertainties in the national real estate market which may affect the Company's
purchased loans, the level of classified assets, historical loan loss
experience, a detailed analysis of individual loans for which full
collectibility may not be assured, a determination of the existence and fair
value of the collateral, the ability of the borrower to repay and the guarantees
securing such loans.
Management, as a result of this review process, recorded provisions for
losses on loans in the amount of $36,000 for the year ended September 30, 1996
as compared to $33,000 for the year ended September 30, 1995. The Company's
allowance for losses on loans at September 30, 1996 was $274,000 as compared to
$248,000 at September 30, 1995. Total non-performing assets at September 30,
1996 increased to $151,000, or .13% of total assets, from $142,000, or .13% of
total assets, at September 30, 1995.
The Company will continue to monitor and adjust its allowance on loans
as management's analysis of its loan portfolio and economic conditions dictate.
However, although the Company maintains its allowance for losses on loans at a
level which it considers to be adequate to provide for potential losses, there
can be no assurance that such losses will not exceed the estimated amounts or
that the Company will not be required to make additional substantial additions
to its allowance for losses on loans in the future.
Noninterest Income. Noninterest income, consisting primarily of income
generated from the Bank's subsidiaries, increased $120,000 to $1.1 million for
the year ended September 30, 1996 from $980,000 for the year ended September 30,
1995. The increase was due primarily to an increase of $91,000 in other
noninterest income, consisting primarily of commissions from the real estate
subsidiary and a gain in the sale of real estate in the real estate subdivision
of $33,000. Other noninterest income generated by the subsidiaries totalled
$692,000 and $611,000 for the years ended September 30, 1996 and 1995,
respectively.
Noninterest Expenses. Noninterest expenses increased $720,000 to $3.1
million for the year ended September 30, 1996 as compared to $2.4 million for
the year ended September 30, 1995. The increase was primarily due to a one time
assessment of $530,000 by FDIC and a $120,000 increase in other noninterest
expense. The assessment was levied by the FDIC on all institutions with deposits
insured by the Savings Association Insurance
5
<PAGE>
Fund (the "SAIF") in order to recapitalize the SAIF. The assessment, set by the
FDIC at 0.65% of SAIF-insured deposits as of March 31, 1995, was paid on
November 27, 1996. As a result of the SAIF recapitalization legislation, the
Company's deposit insurance premiums will decline from the current 0.23% of
insured deposits to 0.06% of insured deposits commencing on January 1, 1997.
Noninterest expense attributable to the Bank's subsidiaries totalled $625,000
and $512,000 in fiscal 1996 and 1995, respectively.
Income Taxes. Income taxes for fiscal 1996 decreased to $411,000 due to
an $153,000 decrease in taxable income and the use of certain capital loss
carry-forwards for tax purposes in the prior year.
Comparison of Fiscal Years Ended September 30, 1995 and September 30, 1994
General. The Company's net income decreased by $140,000 to $927,000 in
fiscal 1995 from net income of $1.1 million in fiscal 1994. The primary reasons
for this decrease were the increase in non-interest expense of $140,000 and the
absence of a $64,000 benefit from the cumulative effect of accounting changes
due to the adoption of Statements of Financial Accounting Standards ("SFAS") No.
109 in the prior fiscal year, partially offset by a $76,000 increase in other
non-interest income.
Interest Income. Interest income increased $1.1 million to $7.3 million
for fiscal 1995 from $6.2 million for fiscal 1994 primarily as a result of
increase in the average yield on interest-earning assets of 41 basis points to
7.07% at September 30, 1995 from 6.66% at September 30, 1994 and, to a lesser
extent, the $10.4 million increase in the average balance of interest-earning
assets. The increase in the average yield was caused primarily by the general
increase in interest rates resulting in an increase in yield on the Company's
loans, primarily ARM loans, and on the mortgage-backed and related securities
portfolio to 6.67% for the year ended September 30, 1995 from 6.11% for the year
ended September 30, 1994.
Interest Expense. Interest expense increased $1.2 million to $4.5
million in fiscal 1995 from $3.3 million in fiscal 1994 due primarily to an
increase in the average level of and the interest rates paid on the Company's
FHLB borrowings and an increase in interest rates paid on deposits to 4.56% at
September 30, 1995 from 3.92% at September 30, 1994, reflecting general
increases in market interest rates.
Net Interest Income. Net interest income remained relatively unchanged
at $2.8 million for both fiscal 1995 and fiscal 1994. The Company's average
spread (the mathematical difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities) decreased to 2.32% for the year
ended September 30, 1995 from 2.72% for the year ended September 30, 1994. The
Company's net interest margin (net interest income divided by average
interest-earning assets) decreased to 2.74% at September 30, 1995 from 3.07% at
September 30, 1994.
Non-Performing Assets and Provision for Losses on Loans. Management
establishes specific reserves for estimated losses on loans when it determines
that losses are anticipated on these loans. The Company calculates any allowance
for possible loan losses based upon its ongoing evaluation of pertinent factors
underlying the types and quality of its loans. These factors include but are not
limited to the current and anticipated economic conditions, including
uncertainties in the national real estate market which may affect the Company's
purchased loans, the level of classified assets, historical loan loss
experience, a detailed analysis of individual loans for which full
collectibility may not be assured, a determination of the existence and fair
value of the collateral, the ability of the borrower to repay and the guarantees
securing such loans.
Management, as a result of this review process, recorded provisions for
losses on loans in the amount of $33,000 for the year ended September 30, 1995,
as compared to $46,500 for the year ended September 30, 1994. The Company's
allowance for losses on loans at September 30, 1995 was $248,000 as compared to
$253,000 at September 30, 1994. Total non-performing assets at September 30,
1995 increased to $142,000, or 0.13% of total assets, from $33,000, or 0.03% of
total assets, at September 30, 1994.
6
<PAGE>
Noninterest Income. Noninterest income, consisting primarily of income
generated from the Bank's subsidiaries, increased $76,000 to $978,000 for the
year ended September 30, 1995 from $902,000 for the year ended September 30,
1994. The increase was due primarily to an increase of $166,000 in other
noninterest income, consisting primarily of commissions from the real estate
subsidiary which was partially offset by a $114,000 decrease in fees and service
charges due primarily to reduced loan originations. Other noninterest income
generated by the Bank's subsidiaries totalled $611,000 and $416,000 for the
years ended September 30, 1995 and 1994, respectively.
Noninterest Expenses. Noninterest expenses increased $148,000 to $2.4
million for the year ended September 30, 1995 as compared to $2.2 million for
the year ended September 30, 1994. The increase was primarily as a result of a
$140,000 increase in other non-interest expenses, mostly commission expense from
the real estate subsidiary reflecting increased sales activity. Noninterest
expense attributable to the Bank's subsidiaries totalled $512,000 and $381,000
in fiscal 1995 and 1994, respectively.
Income Taxes. Income taxes for fiscal 1995 decreased to $462,000 from
$470,000 in fiscal 1994 due to an $85,000 decrease in taxable income and the use
of certain capital loss carry-forwards for tax purposes in the prior year.
Change in Accounting Principles. The Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in the fiscal
year ended September 30, 1994. As a result, mortgage-backed securities with a
market value of $851,448, which were previously classified as held for sale,
were classified as available for sale. In connection therewith, the Company
established a valuation allowance of $26,715 as a component of stockholders'
equity, net of the effect of taxes on income of $15,000. In November 1995,
$2,079,143 of additional securities were transferred to available for sale, as
permitted by "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities."
Effective October 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." As a result, a cumulative effect of $37,000 of
the change in accounting for taxes on income was reported in the fiscal 1994
consolidated statement of operations.
Asset Liability Management
Interest Rate Gap. The matching of assets and liabilities may be
analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within that time
period. The interest rate sensitivity gap is defined as the difference between
the amount of interest-earning assets anticipated, based upon certain
assumptions, to mature or reprice within a specific time period and the amount
of interest-bearing liabilities anticipated, based upon certain assumptions, to
mature or reprice within that time period. A gap is considered positive when the
amount of interest rate sensitive assets exceed the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income while a
positive gap would tend to adversely affect net interest income. Management
believes that the Company will experience more favorable results during periods
of declining (or low) interest rates than during periods of rising (or high)
interest rates.
Since the mid 1980's, the Company's asset-liability management strategy
has been directed toward reducing the Company's exposure to fluctuations in
interest rates. In order to properly monitor interest rate risk, the Board of
Directors in 1989 created an Asset/Liability Committee composed principally of
its President and the chief lending, savings and finance department officers,
which meets quarterly to review the Company's interest rate risk position. The
principal responsibilities of this Committee are to assess the Company's
asset/liability mix and
7
<PAGE>
recommend strategies to the Board that will enhance income while managing the
Company's vulnerability to changes in interest rates.
At September 30, 1996, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $1.3 million, representing a negative cumulative
one-year gap ratio of 1.10% as compared to a negative cumulative gap ratio of
8.09% and 2.24% at September 30, 1995 and 1994, respectively.
The Company's asset liability management strategy emphasizes the
purchase of mortgage-backed and related securities and investment securities
with adjustable rates or estimated maturities of seven years or less, and the
origination of adjustable rate loans and short- and intermediate-term
non-residential loans. These types of loans and investment products have shorter
terms to maturity and tend to reprice more frequently than do longer term
fixed-rate mortgage loans, yet can provide a positive margin over the Company's
cost of funds.
In the future, the Company intends, subject to market conditions, to
continue to stress the origination of intermediate-term and ARM loans and
commercial business and consumer loans.
As part of its asset-liability management strategy, the Company has
also emphasized low-rate, long-term core deposits. Consumer passbook savings
accounts, money market deposit accounts and NOW accounts amounted to $24.4
million, or 29.5% of the Company's total deposits, as of September 30, 1996.
Based on its experience, the Company's certificates of deposit have been a
relatively stable source of long-term funds as such certificates are generally
renewed upon maturity since the Company has established long-term banking
relationships with its customers. The Company also maintains a substantial
portfolio of short-term liquid assets. As of September 30, 1996, the Company had
$4.9 million of investment securities and interest-bearing deposits with other
financial institutions that mature within one year.
In managing its asset-liability mix, Mid-Iowa may, at times, depending
on the relationship between long and short term interest rates, market
conditions and consumer preference, place greater emphasis on maximizing its net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to improve its spread. Management believes
that the increased net income resulting from a mismatch in the maturity of its
asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased
vulnerability to sudden and unexpected increases in interest rates which can
result from such a mismatch.
8
<PAGE>
The following table sets forth the repricing dates of the Company's
interest-earning assets and interest-bearing liabilities at September 30, 1996.
The Company's interest rate sensitivity "gap" is defined as the amount by which
assets repricing within the respective periods exceed liabilities repricing
within such periods. One- to four-family fixed-rate mortgage loans are assumed
to prepay at an annual rate of 6% for the first five years and from 7% to 30%
per year during the subsequent periods, depending on the stated interest rate.
Adjustable-rate mortgage loans are assumed to prepay at a rate of 12% per year.
Second mortgage loans and all other loans are assumed to prepay at annual rates
of 12%. Passbook accounts are assumed to be withdrawn at annual rates of 17%,
17%, 17% and 17%, respectively, during the period shown. Money market deposit
accounts are assumed to decay at annual rates of 79% in the first period shown
and 31% per period during the subsequent periods. Finally, transaction accounts
are assumed to decay at annual rates of 37%, 32%, 17% and 17% respectively, in
each of the periods shown.
<TABLE>
<CAPTION>
Maturing or Repricing
-------------------------------------------------------------------------------
Over 1-3 Over 3-5 Over
Within One Year Years Years 5 Years Total
--------------------- ----- ----- ------- -----
Amount Rate Amount Amount Amount Amount
------ ---- ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate one- to four-family (including
mortgage-backed and related securities),
commercial real estate and construction
loans.................................. $ 3,103 8.18% $ 5,353 $ 5,073 $ 7,003 $ 20,532
Adjustable rate one- to four- family
(including mortgage-backed and
related securities), mortgage-
backed securities held for sale,
commercial real estate and
construction loans..................... 56,836 7.39 5,576 -- -- 62,412
Other securities........................ 4,930 6.20 5,746 4,807 6,700 22,183
Commercial loans........................ 570 9.16 542 532 324 1,968
Consumer loans.......................... 3,331 8.07 2,700 273 -- 6,304
-------- ----- ------- ------- ------- --------
Total interest-earning assets...... 68,770 7.44 19,917 10,685 14,027 113,399
-------- ----- ------- ------- ------- --------
Transaction accounts.................... 2,970 .90 3,050 1,211 796 8,027
Savings deposits........................ 10,522 3.29 2,217 1,388 2,667 16,794
Certificates of Deposit................. 45,049 5.15 10,213 3,119 69 58,450
Borrowings.............................. 11,500 5.61 6,000 3,000 -- 20,500
-------- ----- ------- ------- ------- --------
Total interest-bearing liabilities.. 70,041 4.77 21,480 8,718 3,532 103,771
-------- ----- ------- ------- ------- --------
Interest-earning assets less
interest-bearing liabilities........... $ (1,271) 2.67% $(1,563) $ 1,967 $10,495 $ 9,628
======== ===== ======= ======= ======= ========
Difference as a percent of interest-
earning assets......................... (1.12)% (1.38)% 1.73% 9.25% 8.49%
======== ======= ======= ======= ========
Cumulative interest rate sensitivity gap $ (1,271) $(2,834) $ (867) $ 9,628 $ 9,628
======== ======= ======= ======= ========
Cumulative interest rate sensitivity gap
as a percent of total assets........... (1.10)% (2.45)% (.75)% 8.31% 8.31%
======== ======= ======= ======= ========
</TABLE>
9
<PAGE>
The following table sets forth the interest rate sensitivity of the
Company's assets and liabilities, at the periods presented on the basis of the
factors and assumptions set forth above.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1996 1995 1994
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Fixed rate residential (including mortgage-
backed and related securities), commercial
real estate and construction loans............................ $ 3,103 $ 2,910 $ 2,708
Adjustable rate residential (including
mortgage-backed and related securities and
mortgage-backed securities held for sale),
commercial real estate and construction
loans......................................................... 56,836 50,908 50,076
Commercial business loans...................................... 570 879 609
Consumer loans................................................. 3,331 2,976 2,976
Investment securities and other................................ 4,930 5,135 3,524
-------- -------- ----------
Total interest rate sensitive assets
repricing within one year................................ 68,770 62,809 59,893
-------- -------- ----------
NOW accounts................................................... 2,970 1,649 1,744
Savings deposits............................................... 10,522 5,077 4,936
Certificates of deposit........................................ 45,049 52,833 44,651
-------- -------- ----------
Total deposits............................................ 58,541 59,559 51,361
Borrowings..................................................... 11,500 12,000 10,750
-------- -------- ----------
Total interest rate sensitive
liabilities repricing within one year.................... 70,041 71,559 62,111
-------- -------- ----------
Gap............................................................ $ (1,271) $ (8,750) $ (2,218)
======== ======== ==========
Interest rate sensitive assets repricing
within one year/interest rate sensitive
liabilities repricing within one year......................... 98.19% 87.77% 96.43%
Gap as a percent of total interest-earning assets.............. (1.12)% (8.28)% (2.25)%
Gap as a percent of total assets............................... (1.10)% (8.09)% (2.21)%
</TABLE>
Net Portfolio Value. The Office of Thrift Supervision (the "OTS")
provides a Net Portfolio Value ("NPV") approach to the quantification of
interest rate risk. This approach calculates the difference between the present
value of expected cash flows from assets and the present value of expected cash
flows from liabilities, as well as cash flows from off-balance sheet contracts.
OTS regulations use net market value methodology to measure the
interest rate risk exposure of thrift institutions. Under OTS regulations, an
institution's "normal" level of interest rate risk in the event of an assumed
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Thrift institutions with
greater than "normal" interest rate exposure must take a deduction from their
total capital available to meet their risk-based capital requirement. The amount
of that deduction is one-half of the difference between (i) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (ii)
its "normal" level of exposure which
10
<PAGE>
is 2% of the present value of its assets. Because of the Bank's asset size and
level of risk-based capital, the Bank is exempt from this requirement. As of
September 30, 1996, a change in interest rates of positive 200 basis points
would have resulted in a 23% decrease in NPV (as a percentage of the net present
value of the Bank's assets), while a change in interest rates of negative 200
basis points would have resulted in a 16% increase in NPV (as a percentage of
the net present value of the Bank's assets).
Presented below, as of September 30, 1996, is an analysis of the Bank's
interest rate risk as calculated by the OTS, measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 400 basis points. As illustrated in the table, NPV
is more sensitive to rising rates than declining rates. This occurs principally
because, as rates rise, the market value of fixed-rate loans declines due to
both the rate increase and slowing prepayments. When rates decline, the Bank
does not experience a significant rise in market value for these loans because
borrowers prepay at relatively high rates.
Change in At September 30, 1996
Interest Rate ---------------------
(Basis Points) $ Change % Change
-------------- -------- --------
(Dollars in Thousands)
+400 $ (6,047) (51)
+300 (4,342) (37)
+200 (2,674) (23)
+100 (1,178) (10)
0
-100 808 7
-200 1,345 11
-300 2,127 18
-400 3,149 27
Management reviews the OTS measurements on a quarterly basis. In
addition to monitoring selected measures on NPV, management also monitors
effects on net interest income resulting from increases or decreases in rates.
This measure is used in conjunction with NPV measures to identify excessive
interest rate risk.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing tables. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARM loans, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase.
In addition, the previous tables do not necessarily indicate the impact
of general interest rate movements on the Company's net interest income because
the repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Company's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and at
different volumes.
11
<PAGE>
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------
1996 1995
---------------------------------- ---------------------------------
Yield/Rate at Average Interest Average Interest
September 30, Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
1996 Balance Paid Rate Balance Paid Rate
-------------- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................... 8.28% $ 60,104 $ 4,880 8.12% $ 56,092 $4,165 7.43%
Mortgage-backed and related
securities (including securities
available for sale)................ 6.68 28,238 1,896 6.71 30,110 2,008 6.67
Investment securities............... 6.95 18,747 1,195 6.37 15,266 951 6.23
Other interest-earning assets....... 6.46 2,194 256 11.67 2,225 206 9.26
-------- ------- ------ -------- ------ ----
Total interest-earning assets....... 7.62% $109,283 $ 8,227 7.53 $103,693 $7,330 7.07%
-------- ------- ----- -------- ------ ----
Interest-bearing liabilities:
NOW accounts........................ 0.90% $ 4,694 $ 37 0.79% $ 4,867 $ 43 .88%
Savings deposits.................... 3.29 15,112 430 2.85 12,194 296 2.43
Certificates of deposit............. 5.19 60,402 3,243 5.37 62,770 3,300 5.26
---- -------- ------- ------ -------- ------ ------
Total deposits..................... 4.48 80,208 3,710 4.63 79,831 3,639 4.56
Borrowings........................... 5.61 20,917 1,229 5.88 14,771 853 5.78
---- -------- ------- ------ -------- ------ ------
Total interest-bearing liabilities... 4.70 101,125 4,939 4.88 94,602 4,492 4.75
---- -------- ------- ------ -------- ------ ------
Net interest income; interest
rate spread......................... 2.92% $ 3,288 2.64% $2,838 2.32%
==== ======= ====== ====== ======
Net earning assets/net yield on
average interest earning assets..... $ 8,158 3.01% $ 9,091 2.74%
======== ====== ======== ======
Average interest-earning assets to
average interest-bearing liabilities 108.07% 109.61%
====== ======
</TABLE>
<PAGE>
<TABLE>
Year Ended September 30,
----------------------------------
1994
---------------------------------
Average Interest
Outstanding Earned/ Yield
Balance Paid Rate
------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable.................... $51,330 $3,760 $7.33%
Mortgage-backed and related
securities (including securities
available for sale)................ 29,373 1,796 6.11
Investment securities............... 10,102 520 5.15
Other interest-earning assets....... 2,425 136 5.61
------- ----- -----
Total interest-earning assets....... $93,230 $6,212 6.66%
------- ------ ----
Interest-bearing liabilities:
NOW accounts........................ $ 5,083 $ 47 .92%
Savings deposits.................... 13,534 303 2.24
Certificates of deposit............. 60,427 2,746 4.54
------- ------ ----
Total deposits..................... 79,044 3,096 3.92
Borrowings........................... 5,854 251 4.29
------- ------ ----
Total interest-bearing liabilities... 84,898 3,347 3.94
------- ------ ----
Net interest income; interest
rate spread......................... $2,865 2.72%
====== ====
Net earning assets/net yield on
average interest earning assets..... $ 8,332 3.07%
======= ====
Average interest-earning assets to
average interest-bearing liabilities 109.81%
======
</TABLE>
12
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the increase
related to higher outstanding balances and that due to the levels and volatility
of interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate (i.e., changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
--------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
--------------------- Increase ------------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans....................................... $ 316 $ 398 $ 714 $ 336 $ 70 $ 406
Mortgage-backed and related
securities (including mortgage-
backed securities available
for sale).................................. (155) 43 (112) (207) 419 212
Investment securities....................... 223 21 244 296 86 382
Other interest earning assets............... 39 11 50 (46) 165 119
------- ----- ------- ------ ------- ------
Total interest-earning assets........... $ 423 $ 473 $ 896 $ 379 $ 740 $1,119
======= ===== ======= ====== ======= ======
Interest-bearing liabilities:
NOW accounts................................ $ (32) $ 26 $ (6) $ (3) $ (1) $ (4)
Savings deposits............................ 107 27 134 (32) 25 (7)
Certificates of deposit..................... (82) 25 (57) 73 481 554
Borrowings.................................. 334 42 376 397 205 602
------- ----- ------- ------ ------- ------
Total interest-bearing
liabilities............................ $ 327 $ 120 $ 447 $ 435 $ 710 $1,145
======= ===== ======= ====== ======= ======
Net change in interest income................ $ 449 $ (26)
======= ======
</TABLE>
Liquidity and Capital Resources
The Company's sources of funds are deposits, sales of mortgage loans,
amortization and repayment of loan principal and mortgage-backed and related
securities and, to a lesser extent, maturation of investments and funds from
other operations. While maturing investments are predictable, deposit flows and
loan repayments are influenced by interest rates, general economic conditions,
and competition making it less predictable. The Company attempts to price its
deposits to achieve its asset/liability objectives discussed above, giving
consideration to local market conditions. The Company also has the ability to
supplement deposits with longer term and/or less expensive alternate sources of
funds including FHLB advances. In this regard, the Company had outstanding
advances from the FHLB of Des Moines in the amount of $20.5 million at September
30, 1996 compared to $18.0 million at September 30, 1995, and had the capacity
to borrow up to an additional $21.0 million.
Federal regulations historically have required the Bank to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based on economic conditions and savings flows, and is currently
13
<PAGE>
5% of net withdrawable savings deposits and borrowings payable on demand or in
one year or less during the preceding calendar month. Liquid assets for purposes
of this ratio include cash, certain time deposits, U.S. government and certain
corporate securities and other obligations generally having remaining maturities
of less than five years. The Bank has historically maintained its liquidity
ratio at levels in excess of those required. At September 30, 1996, the amount
of the Bank's liquidity was $6.5 million, resulting in a liquidity ratio of
6.9%. At September 30, 1995, the Bank's liquidity totaled $11.1 million,
resulting in a liquidity ratio of 11.4%.
The primary investing activities of the Company are lending and
purchasing mortgage-backed and related securities and investment securities.
Liquidity management is both a daily and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing deposits, and (iv) the
objectives of its asset/liability management program. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Company requires additional funds,
beyond its internal ability to generate, it has additional borrowing capacity
with the FHLB of Des Moines and collateral eligible for repurchase agreements.
The Company uses its liquidity resources principally to meet on-going
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity,
and to meet operating expenses.
At September 30, 1996, the Company had $168,000 of loan commitments and
an additional $2.5 million available to customers under existing lines of
credit.
Certificates of deposit scheduled to mature in one year or less at
September 30, 1996, totaled $45.0 million. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Company, however, there can be no assurance that the Company can retain all
such deposits.
Management believes that loan repayments and other sources of funds
will be adequate to meet and exceed the Company's foreseeable short- and
long-term liquidity needs.
The Company's liquidity, represented by cash, is a combination of its
operating, investing, and financing activities. These activities are summarized
below for the years indicated.
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1996 1995 1994
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income..................................................... $ 825 $ 927 $ 1,067
Adjustment to reconcile net income to net cash
provided by (used in) operating activities................... 845 (362) (169)
------- ------- --------
Net cash provided by (used in) operating activities............ 1,670 565 898
Net cash provided by (used in) investment activities........... (8,192) (7,838) (9,815)
Net cash provided by (used in) financing activities............ 6,253 6,574 7,338
------- ------- --------
Net increase (decrease) in cash and cash equivalents........... (269) (699) (1,579)
Cash at beginning of year...................................... 1,416 2,115 3,694
------- ------- --------
Cash at end of year............................................ $ 1,147 $ 1,416 $ 2,115
======= ======= ========
</TABLE>
The primary investing activities of the Company include investing in
loans, investment securities and mortgage-backed and related securities. The
purchases are funded primarily from loan repayments, maturities of securities
and deposits and increases in customer deposit liabilities. During the year
ended September 30, 1996, purchases of investment securities totalled $15.0
million, while loans receivable increased $4.3 million. Customer deposits
increased $4.2 million in fiscal 1996. During the year ended September 30, 1995,
purchases of investment
14
<PAGE>
securities totalled $8.9 million, while loans receivable increased $3.6 million.
Customer deposits decreased $212,000 in fiscal 1995. In the event that
investment and mortgage-backed and related securities purchases increase in the
future, the Company's net interest spread and income may be adversely affected
as these assets typically yield less than loans receivable.
At September 30, 1996, the Bank had tangible and core capital of $9.0
million, or 7.9% of adjusted total assets, respectively, which was approximately
$7.3 million and $5.6 million above the minimum requirements of 1.5% and 3.0%,
respectively, of adjusted total assets in effect on that date. On September 30,
1996, the Bank had risk-based capital of $9.3 million (including $9.0 million in
core capital), or 20.3% of risk-weighted assets of $45.8 million. This amount
was $5.7 million above the 8% requirement in effect on that date. The Bank is
presently in compliance with the fully phased-in capital requirements.
The Company paid a quarterly cash dividend of $.04 per share (or $.02
as adjusted for the 100% stock dividend discussed below) in the first quarter of
fiscal 1996 and $.02 per share in each of the final three quarters of fiscal
1996. To the extent future dividends are considered by the Board of Directors,
the availability of funds to pay such dividends are subject to regulatory and
other restrictions and considerations. In addition, the Company acquired 72,700
shares of its common stock in open market purchases during fiscal 1996 pursuant
to its stock repurchase program. The Company also declared a 100% stock dividend
which was paid on January 25, 1996 to stockholders of record on January 8, 1996.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, however, nearly all the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Impact of New Accounting Standards
SFAS 123, "Accounting for Stock-Based Compensation," was effective for
awards granted in fiscal years that begin after December 15, 1994, and
disclosure requirements are effective for the Company's fiscal years beginning
October 1, 1996. SFAS 123 establishes a fair value based method of accounting
for stock-based compensation plans. The Company has not granted any awards since
December 15, 1994, therefore SFAS 123 did not apply for the year ending
September 30, 1996.
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," will be effective for transactions
occurring after December 31, 1996. SFAS 125 establishes a basis for developing
consistent and operational standards for dealing with transfers and servicing of
financial assets and extinguishment of liabilities.
The Company expects to adopt SFAS 123 and 125 when required, and
management believes adoption will not have a material effect on the financial
position and results of operations, nor will adoption require additional capital
resources.
15
<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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investment securities to adopt the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115 and
changed its method of accounting for taxes on income to adopt the provisions of
SFAS 109. SFAS 115 was adopted on September 30, 1994, and SFAS 109 was adopted
on October 1, 1993.
KPMG Peat Marwick LLP
Des Moines, Iowa
November 13, 1996
16
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30,
--------------------------
1996 1995
---- ----
Assets
------
Cash and cash equivalents (note 1) $ 1,147,204 1,416,408
Securities available for sale (note 2) 4,974,408 837,169
Securities held to maturity (note 3) 44,231,879 44,926,293
Loans held for sale - 309,867
Loans receivable, net (notes 4 and 5) 62,122,871 57,846,593
Accrued interest receivable 829,594 806,733
Federal Home Loan Bank stock, at cost 1,325,000 900,000
Real estate 37,306 73,639
Office properties and equipment, net (note 6) 967,451 862,839
Intangibles, net 15,085 16,636
Prepaid expenses and other assets 153,247 224,995
------------- ----------
Total assets $ 115,804,045 108,221,172
============= ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 7) $ 82,871,963 78,671,452
Borrowed funds (note 8) 20,500,000 18,000,000
Advance payments by borrowers for taxes
and insurance 199,921 160,392
Accrued interest payable 844,457 808,190
Accounts payable and accrued expenses (note 13) 786,582 320,155
------------ ----------
Total liabilities 105,202,923 97,960,189
------------ ----------
Stockholders' equity (note 11):
Common stock, $1 par value; authorized 2,000,000
shares; 1,729,880 shares issued; 839,526 shares
outstanding 17,299 8,395
Additional paid-in capital 3,142,623 3,049,634
Retained earnings, partially restricted 7,882,078 7,197,953
Treasury stock, at cost (71,500 shares) (448,700) -
Unrealized management recognition and retention
plan (note 10) - (3,672)
Unrealized gain on securities available for sale 7,822 8,673
---------- ----------
Total stockholders' equity 10,601,122 10,260,983
---------- ----------
Total liabilities and stockholders'
equity $ 115,804,045 108,221,172
============= ===========
See accompanying notes to consolidated financial statements.
17
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30,
-------------------------
1996 1995 1994
---- ---- ----
Interest income:
Loans $4,880,247 4,165,512 3,759,751
Securities available for sale 259,975 50,799 48,258
Securities held to maturity 2,831,439 2,907,699 2,267,736
Other 255,898 206,329 135,644
---------- --------- ---------
Total interest income 8,227,559 7,330,339 6,211,389
---------- --------- ---------
Interest expense:
Deposits (note 7) 3,710,324 3,639,420 3,096,083
Borrowed funds 1,229,114 852,849 250,607
---------- --------- ---------
Total interest expense 4,939,438 4,492,269 3,346,690
---------- --------- ---------
Net interest income 3,288,121 2,838,070 2,864,699
Provision for losses on loans (note 5) 36,000 33,000 46,500
---------- --------- ---------
Net interest income after
provision for losses on loans 3,252,121 2,805,070 2,818,199
---------- --------- ---------
Noninterest income:
Gain on sale of securities - 14,166 66,862
Gain on sale of other assets 33,227 - 16,673
Fees and service charges 325,193 314,127 428,024
Loss on securities available for sale - - (41,715)
Other, primarily commissions 740,527 650,078 432,296
Total noninterest income 1,098,947 978,371 902,140
Noninterest expense:
Compensation, payroll taxes, and
employee benefits (note 10) 1,119,610 1,082,289 1,090,129
Office properties and equipment 243,225 229,082 216,017
Deposit insurance premiums 188,325 183,945 182,309
Special deposit insurance assessment
(note 13) 530,421 - -
Data processing services 134,574 126,601 123,097
Other real estate expense, net 2,340 (3,960) (2,445)
Other 896,799 776,934 637,413
--------- --------- ---------
Total noninterest expense 3,115,294 2,394,891 2,246,520
--------- --------- ---------
Income before taxes on income
effect of accounting changes 1,235,774 1,388,550 1,473,819
Taxes on income (note 9) 411,200 462,000 470,200
--------- --------- ---------
Net income before cumulative
effect of accounting changes $ 824,574 926,550 1,003,619
Cumulative effect of a change in the
method of accounting for investment
securities, net of taxes on income
(note 1) - - 26,715
Cumulative effect of a change in
the method of accounting for taxes
on income (note 9) - - 37,000
---------- --------- ---------
Net income $ 824,574 926,550 1,067,334
========== ========= =========
Earnings per common share - primary
and fully diluted:
Net income before cumulative effect
of accounting changes $ 0.47 0.52 0.54
Cumulative effect of change in
accounting for investment securities - - 0.01
Cumulative effect of change in
accounting for taxes on income - - 0.02
---------- --------- ---------
Earnings per common share $ 0.47 0.52 0.57
========== ========= =========
See accompanying notes to consolidated financial statements.
18
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Recognition
Additional and
Common paid-in Retained retention
stock capital earnings plan
------- --------- --------- --------
Balance at September 30, 1993 $ 4,080 3,580,431 5,958,801 (29,376)
Net income - - 1,067,334 -
Repurchase of common stock
(19,380 shares) - - - -
Amortization of recognition
and retention plan - - - 17,136
Dividends paid ($.14 per share) - - 123,108
Stock dividend (20%) 339 (346,882) (332,312) -
Change in unrealized loss on
securities available for sale - - - -
------- --------- --------- -------
Balance at September 30, 1994 4,419 3,233,549 6,570,715 (12,240)
Net income - - 926,550 -
Repurchase of common stock
(22,092 shares) - - - -
Amortization of recognition
and retention plan - - - 8,568
Dividends paid ($.16 per share) - - 131,783
Stock dividend (100%) 3,976 (183,915) (167,529) -
Change in unrealized gain on
securities available for sale - - - -
------- --------- -------- -------
Balance as of September 30, 1995 8,395 3,049,634 7,197,953 (3,672)
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 - - - -
Balance as of September 30, 1996 $17,299 3,142,623 7,882,078 -
======= ========= ========= =======
<PAGE>
Unrealized
gains Treasury
(losses) stock Total
-------- ----- -----
Balance at September 30, 1993 - (346,800) 9,167,136
Net income - - 1,067,334
Repurchase of common stock
(19,380 shares) - (332,055) (332,055)
Amortization of recognition
and retention plan - - 17,136
Dividends paid ($.14 per share) - - (123,108)
Stock dividend (20%) - 678,855 -
Change in unrealized loss on
securities available for sale (26,715) - (26,715)
------ --------- ---------
(26,715) - 9,769,728
Balance at September 30, 1994 - - 926,550
Net income
Repurchase of common stock
(22,092 shares) - (347,468) (347,468)
Amortization of recognition
and retention plan - - 8,568
Dividends paid ($.16 per share) - - (131,783)
Stock dividend (100%) - 347,468 -
Change in unrealized gain on
securities available for sale 35,388 - 35,388
------ ------- -------
<PAGE>
Balance as of September 30, 1995 8,673 - 10,260,983
Net income - - 824,574
Repurchase of common stock
(72,700 shares) - (462,950) (462,950)
Exercise of options
(50,328 shares) - - 110,743
Amortization of recognition
and retention plan - - 3,672
Dividends paid ($.10 per share) - - (135,049)
Stock dividend (100%) - 14,250 -
Change in unrealized gain on
securities available for sale (851) - (851)
------ ------- ----------
Balance as of September 30, 1996 7,822 (448,700) 10,601,122
===== ======== ==========
See accompanying notes to consolidated financial statements.
19
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30,
--------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 824,574 926,550 1,067,334
Origination of loans held for sale - (1,198,503) (1,583,984)
Proceeds from sale of loans held
for sale 309,867 1,016,507 1,483,279
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 103,594 94,529 76,135
Amortization of recognition and
retention plan benefits 3,672 8,568 17,136
Amortization of premiums and
discounts on loans and mortgage-
backed securities (64,019) (43,286) 31,597
Provision for losses on loans
and real estate 36,000 33,000 46,500
(Gain) loss on sale of real
estate, net (33,227) (67,363) 1,781
Gain on sale of securities - (14,166) (66,862)
Increase in accrued interest
receivable (22,861) (241,672) (89,386)
Increase in accrued interest
payable 36,267 117,316 22,974
Increase (decrease) in current
taxes on income 49,168 (37,705) (10,384)
Deferred taxes on income (153,934) 37,000 (19,000)
Other, net 581,330 (65,023) (78,696)
Net cash provided by operating
activities 1,670,431 565,752 898,424
Cash flows from investing activities:
Proceeds from maturities of time
deposits - - 50,000
Securities available for sale:
Proceeds from sales - 136,164 487,245
Purchases (2,607,612) - -
Principal repayments of mortgage-
backed securities 545,044 - -
Securities held to maturity:
Proceeds from maturities 7,062,151 2,250,000 834,025
Proceeds from sales - - 454,617
Purchases (12,341,227) (8,934,343) (11,374,017)
Principal repayments of mortgage-
backed securities 4,025,149 2,616,336 5,712,882
Net change in loans to customers (4,312,278) (3,610,665) (5,972,991)
Proceeds from sale of real estate 75,000 148,900 209,720
Capitalized real estate costs (5,440) (14,553) (3,472)
Purchase of office properties and
equipment, net (208,206) (134,019) (190,497)
Purchase of Federal Home Loan Bank
(FHLB) stock (425,000) (296,000) (23,400)
-------- -------- -------
Net cash used in investing
activities (8,192,419) (7,838,180) (9,815,888)
========== ========== ==========
20
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended September 30,
----------------------------------
1996 1995 1994
Cash flows from financing activities:
Net change in deposits $ 4,200,511 (212,033) (15,122)
Receipt of borrowed funds 23,000,000 18,000,000 7,750,000
Payments on borrowed funds (20,500,000) 10,750,000 -
Decrease in advance payments by
borrowers for taxes and insurance 39,529 15,495 58,238
Stock options exercised 110,743 - -
Payments to acquire treasury stock (462,950) (347,468) (332,055)
Dividends paid (135,049) (131,783) (123,108)
----------- --------- ---------
Net cash provided by financing
activities 6,252,784 6,574,211 7,337,953
----------- --------- ---------
Net decrease in cash and cash
equivalents (269,204) (698,217) (1,579,511)
Cash and cash equivalents at
beginning of year 1,416,408 2,114,625 3,694,136
----------- --------- ---------
Cash and cash equivalents at end of year $ 1,147,204 1,416,408 2,114,625
=========== ========= =========
Supplemental disclosures:
Cash paid during the year for:
Interest $ 4,903,171 4,375,153 3,323,716
Taxes on income 516,527 460,866 492,584
Noncash investing and financing
activities -
Reclassification of securities from
held to maturity to available for
sale 2,079,143 - -
Contract sales of real estate owned - - 14,300
=========== ========= =========
See accompanying notes to consolidated financial statements.
21
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 (see note 11).
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.
Earnings Per Share
Earnings per share - primary is computed using the 1,699,252
weighted average common shares outstanding, as restated, and
giving effect to additional shares assumed to be issued in
relation to the Company's stock options. Such additional shares
are assumed to be issued after acquisition of shares at the
average price per share for the period under the treasury stock
method with the assumed proceeds from exercise of outstanding
stock options and were 65,485 for the year ended September 30,
1996.
22 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Earnings Per Share, Continued
Earnings per share - fully diluted is computed in a similar manner
but using the ending price per share for the period. Such
additional shares were 66,590 for the year ended September 30,
1996.
Prior years earnings per share computations have been restated to
reflect the 1996, 1995, and 1994 stock splits effected as
dividends (see note 13).
The earnings per share computations for the year ended September
30, 1995, were determined by dividing net earnings by the
restated weighted average number of common shares outstanding
during the year which was 847,327.
The earnings per share computations for the year ended September
30, 1994 were determined by dividing net earnings by the 926,794
restated weighted average number of common shares outstanding
during the year.
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
$810,165 and $1,173,617 at September 30, 1996 and 1995,
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.
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.
Gain or loss is recognized using the specific identification
method, and reflected in the statements of operations.
In November 1995, the Financial Accounting Standards Board (FASB)
announced it would permit a one-time reclassification of
investment securities in conjunction with the issuance of a
special report entitled A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity
Securities. The Company transferred securities held to maturity
with amortized cost of $2,079,143 to securities available for
sale. Unrealized gains related to the securities transferred were
$17,130.
23 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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. These
investments are not carried at the lower of cost or market, as
the Company has the ability, and it is management's intent, to
hold them to maturity.
Net gains or losses are shown in the statements of operations. Gain
or loss is recognized using the specific identification method.
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 a method that approximates 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," for the year ended September 30, 1996, 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.
Real estate, acquired through foreclosure, is carried at the lower
of cost or fair value. When a property is acquired through
foreclosure or a loan is considered an in-substance foreclosure,
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,
1996, 1995, and 1994.
24 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Allowances for Losses on Loans and Real Estate, Continued
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.
The Company adopted SFAS 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." Under
the Company's credit policies, all loans with interest more than 90
days in arrears and restructured loans are considered to meet the
definition of impaired loans under SFAS 114 and 118. Loan
impairment is measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate
except, where more practical, at the observable market price of the
loan or the fair value of the collateral if the loan is collateral
dependent. The adoption of SFAS 114 and 118 did not have a material
effect on the financial position or results of operations of the
Company.
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
The Company is a party to financial instruments with off balance
sheet risk in the normal course of business to meet the financing
needs of its customers, 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 conditions 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.
25 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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, 1996, 1995, and 1994.
Office Properties and Equipment
Office properties and equipment are recorded at cost, and
depreciation is provided principally by 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.
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.
Effective October 1, 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes." Under the asset and liability
method of SFAS 109, 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. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Effect of New Financial Accounting Standards
SFAS 123, "Accounting for Stock-Based Compensation," was effective
for awards granted in fiscal years that begin after December 15,
1994, and disclosure requirements are effective for the Company's
fiscal years beginning October 1, 1996. SFAS 123 establishes a fair
value based method of accounting for stock-based compensation
plans. The Company has not granted any awards since December 15,
1994, therefore SFAS 123 did not apply for the year ending
September 30, 1996.
26 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Effect of New Financial Accounting Standards, Continued
SFAS 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," will be effective for
transactions occurring after December 31, 1996. SFAS 125
establishes a basis for developing consistent and operational
standards for dealing with transfers and servicing of financial
assets and extinguishment of liabilities.
The Company expects to adopt SFAS 123 and 125 when required, and
management believes adoption will not have a material affect on the
financial position and results of operations, nor will adoption
require additional capital resources.
Fair Value of Financial Instruments
SFAS 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its
financial instruments. Fair value estimates, methods, and
assumptions 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.
The fair value of loans 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.
FHLB Stock
The value of FHLB stock is equivalent to its carrying value, as
the stock is redeemable at par value.
27 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Fair Value of Financial Instruments, Continued
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.
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.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform with the current year presentation.
28 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Securities Available for Sale
Securities available for sale at September 30, 1996 and 1995, were
as follows:
1996
------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---- ----- ------ -----
Mortgage-backed securities:
Federal National Mortgage
Association (FNMA) $1,113,568 8,838 - 1,122,406
Government National Mortgage
Association (GNMA) 1,051,711 11,670 - 1,063,381
Federal Home Loan Mortgage
Corporation (FHLMC) 189,729 4,920 - 194,649
Collateralized mortgage 2,007,436 - (14,936) 1,992,500
obligations
Other investment securities 600,112 1,360 - 601,472
---------- ------ ------ ---------
$4,962,556 26,788 (14,936) 4,974,408
========== ====== ====== =========
1995
------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---- ----- ------ -----
Mortgage-backed securities -
GNMA $ 823,896 13,243 - 837,139
The amortized cost and estimated fair value of securities available
for sale at September 30, 1996, 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.
Estimated
Amortized fair
cost value
---- -----
Mortgage-backed and related $4,362,444 4,372,936
and related securities
Other investment securities 600,112 601,472
---------- ---------
$4,962,556 4,974,408
========== =========
At September 30, 1996 and 1995, the net valuation amount of $7,822
and $8,673, respectively, was reflected as a component of
stockholders' equity, including the effect of taxes on income of
$4,030 and $4,570, respectively.
29 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Securities Available for Sale, Continued
Proceeds from the sales of marketable equity securities purchased
and sold during 1996, 1995, and 1994 were $-0-, $136,164, and
$487,245 respectively, resulting in gross realized gains of $-0-,
$14,166 and $92,245 respectively.
At September 30, 1996 and 1995, accrued interest receivable for
securities available for sale totaled $16,312 and $8,448,
respectively.
Securities Held to Maturity
Securities held to maturity at September 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. agency securities $17,391,640 - (162,950) 17,228,690
Mortgage-backed and related
securities:
FNMA 5,137,356 3,863 - 5,141,219
GNMA 9,721,560 130,782 - 9,852,342
FHLMC 973,160 - (247) 972,913
Collateralized mortgage
obligations 8,141,626 - (112,394) 8,029,232
Taxable municipal bonds 547,518 53,838 - 601,356
Nontaxable municipal bonds 2,319,019 59,170 - 2,378,189
----------- ------- ------- ----------
$44,231,879 247,653 (275,591) 44,203,941
=========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. agency securities $13,928,673 - (32,640) 13,896,033
Mortgage-backed and related
securities:
FNMA 7,268,400 28,960 - 7,297,360
GNMA 11,288,411 188,962 - 11,477,373
FHLMC 1,572,933 2,535 - 1,575,468
Collateralized mortage
obligations 8,009,538 - (167,567) 7,841,971
Taxable municipal bonds 547,187 74,012 - 621,199
Nontaxable municipal bonds 2,311,151 81,360 - 2,392,511
----------- ------- ------- ----------
$44,926,293 375,829 (200,207) 45,101,915
=========== ======= ======= ==========
</TABLE>
30 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Securities Held to Maturity, Continued
The amortized cost and estimated fair value of securities held to
maturity at September 30, 1996, 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.
Estimated
Amortized fair
cost value
Due in 1 year or less $1,000,000 992,170
Due after 1 year through 5 years 5,936,736 5,977,148
Due after 5 years but less than
10 years 11,249,960 11,106,335
Due after 10 years 2,071,481 2,132,582
Mortgage-backed and related
securities 23,973,702 23,995,706
---------- ----------
$44,231,879 44,203,941
=========== ==========
There were no sales of securities held to maturity during the years
ended September 30, 1996 and 1995. Proceeds from sales of
investment securities held to maturity during the year ended
September 30, 1994 were $454,617, with no gross realized gains and
gross realized losses of $25,383 on these sales. Sales in 1994 were
required by regulatory authorities.
At September 30, 1996 and 1995, accrued interest receivable for
securities held to maturity totaled $399,350 and $439,818,
respectively.
(4) Loans Receivable
Loans receivable are summarized as follows:
September 30,
----------------------------
1996 1995
---- ----
Real estate loans:
One- to four-family $45,986,195 45,292,859
Commercial 7,862,669 5,150,654
Construction 884,437 918,939
----------- ----------
54,733,301 51,362,452
----------- ----------
Other loans:
Second mortgages 3,142,610 2,846,648
Commercial business 1,982,186 1,723,415
Automobile 1,342,476 1,377,063
Home equity 739,737 482,720
Student 478,763 537,709
Unsecured consumer 160,550 163,087
Loans on deposits 142,137 186,431
Other 297,240 84,209
---------- ----------
8,285,699 7,401,282
---------- ----------
63,019,000 58,763,734
Less:
Loans in process 549,901 597,854
Deferred loan fees 72,409 71,259
Allowance for losses on loans 273,819 248,028
----------- ----------
Total loans receivable $62,122,871 57,846,593
=========== ==========
31 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Loans Receivable, Continued
At September 30, 1996 and 1995, net accrued interest on loans
receivable totaled $389,669 and $356,007, respectively.
At September 30, 1996, the Bank was committed to originate $168,000
of fixed rate loans at interest rates ranging from 8 to 9
percent. In addition, the Bank's customers had unused lines of
credit totaling approximately $2,473,000 at September 30, 1996.
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, 1996
and 1995, amounted to $62,631 and $65,550, respectively. During
the year ended September 30, 1996, there were no new loans made
and repayments totaled $2,919.
The amount of loans serviced by the Bank for the benefit of others
was $2,785,992, $3,616,636, and $3,591,242 at September 30, 1996,
1995, and 1994, respectively.
(5) Allowance for Losses on Loans
A summary of the allowance for losses on loans follows:
September 30,
--------------------------------
1996 1995 1994
Balance at beginning of year $248,028 253,306 274,329
Provision for losses 36,000 33,000 46,500
Charge-offs (29,599) (44,707) (84,451)
Recoveries 19,390 6,429 16,928
-------- ------- -------
Balance at end of year $273,819 248,028 253,306
At September 30, 1996, 1995, and 1994, the Company had nonaccrual
loans of approximately $151,000, $142,000, and $33,000 and
restructured loans of $54,000, $56,000, and $86,000,
respectively. The allowance for loan losses related to these
impaired loans was approximately $7,500, $7,900, and $6,000,
respectively. The average balances of such loans for the years
ended September 30, 1996, 1995, and 1994 were $119,750, $106,750,
and $115,000, respectively. For the years ended September 30,
1996, 1995, and 1994, interest income which would have been
recorded under the original terms of such loans was approximately
$10,300, $5,200, and $5,570, respectively, with $3,250, $4,900,
and $3,079, respectively, recorded.
The amount the Company will ultimately realize from these loans
could differ materially from their carrying value because of
future developments affecting the underlying collateral or the
borrowers' ability to repay the loans. As of September 30, 1996,
there were no material commitments to lend additional funds to customers
whose loans were classified as nonaccrual or restructured.
32 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Office Properties and Equipment
At September 30, 1996 and 1995, the cost and accumulated depreciation
of office properties and equipment were as follows:
1996 1995
---- ----
Land $ 242,398 242,398
Buildings and improvements 1,298,072 1,171,017
Furniture and fixtures 688,976 607,825
---------- ---------
2,229,446 2,021,240
Less accumulated depreciation 1,261,995 1,158,401
---------- ---------
$ 967,451 862,839
========== =========
7) Deposits
A summary of deposits at September 30, 1996 and 1995, is as follows:
1996 1995
---- ----
Balance by account type:
NOW accounts $ 4,950,632 4,457,007
Passbook 6,050,137 6,668,031
Money market 13,420,926 62,811,414
----------- ----------
$82,871,963 78,671,452
=========== ==========
At September 30, 1996, the scheduled maturities of certificates of
deposit were as follows:
1997 $44,935,783
1998 8,586,445
1999 1,739,816
2000 2,569,737
2001 62,031
2002 and thereafter 556,456
-----------
$58,450,268
===========
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $9,400,000 and $7,600,000
at September 30, 1996 and 1995, respectively.
Interest expense on deposits consisted of the following:
September 30,
---------------------------------------
1996 1995 1994
---- ---- ----
NOW accounts $ 37,278 43,395 47,286
Savings accounts 429,754 296,059 302,432
Certificates of deposit 3,253,557 3,316,091 2,759,862
---------- --------- ---------
3,720,589 3,655,545 3,109,580
Less penalties on early
withdrawals 10,265 16,125 13,497
---------- --------- ---------
Net interest expense $3,710,324 3,639,420 3,096,083
========== ========= =========
At September 30, 1996 and 1995, accrued interest payable on deposits
totaled $838,789 and $792,203, respectively.
At September 30, 1996 and 1995, the Bank had mortgage-backed and other
investment securities with a carrying value of approximately
$17,630,000 and $9,765,000, respectively, pledged as collateral for
deposits.
33
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Borrowed Funds
At September 30, 1996 and 1995, borrowed funds consisted of the
following:
Weighted Weighted
average average
interest rate 1996 interest rate 1996
------------- ---- ------------- ----
FHLB (A)
Maturity in fiscal year
ending September 30:
1996 - % $ - 5.87% $ 4,000,000
1997 5.70 10,000,000 5.83 4,000,000
1998 5.70 4,000,000 5.91 2,000,000
1999 5.17 2,000,000 -
2000 5.76 3,000,000 -
Fixed rate repos - - 5.88 2,000,000
Amount drawn on line of
credit (B) Variable 1,500,000 Variable 6,000,000
----------- -----------
$20,500,000 $18,000,000
=========== ===========
(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 matures on
June 20, 1997, at which time the Bank anticipates renewing the
agreement. The line has an interest rate which fluctuates daily.
During 1996, the interest rate ranged from 5.33 percent to 6.30
percent and at September 30, 1996, was 6.18 percent. The line is
collateralized as described in (A) above.
At September 30, 1996 and 1995, accrued interest payable on advances
from the FHLB and other borrowings totaled $5,668 and $15,987,
respectively.
34
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Taxes on Income
As discussed in note 1, the Company adopted SFAS 109 as of October 1,
1993. The cumulative effect of $37,000 of the change in accounting
for taxes on income as of October 1, 1993, was reported in the 1994
consolidated statement of operations. For the year ended September
30, 1994, the effect of the change in the method of accounting on
earnings was an increase of $20,000.
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction for additions to tax bad debt reserves established for the
purpose of absorbing losses. The allowable percentage of income
deduction is 8 percent of income subject to tax before the bad debt
deduction. As part of the alternative minimum tax computation, a
preference tax of 20 percent is generally imposed on the amount by
which the bad debt deduction exceeds a bad debt deduction computed
under an experience method.
For the tax years ended September 30, 1996, 1995, and 1994, the
percentage bad debt deduction was utilized. The bad debt deductions
did not create a preference tax.
Taxes on income are comprised as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------
1996 1995
--------------------------- --------------------------
Federal State Total Federal State Total
------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Current $495,000 70,200 565,200 370,000 55,000 425,000
Deferred (134,000) (20,000) (154,000) 30,000 7,000 37,000
-------- ------- -------- ------- ------ -------
$361,000 50,200 411,200 400,000 62,000 462,000
======== ======= ======== ======= ====== =======
Years ended September 30,
---------------------------
1994
---------------------------
Federal State Total
------- ----- -----
Current 384,200 68,000 452,200
Deferred 16,000 2,000 18,000
-------- ------- --------
400,200 70,000 470,200
======== ======= ========
</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,
------------------------------------
1996 1995 1994
---- ---- ----
Computed "expected" taxes on income $420,170 472,107 501,098
State taxes, net of federal benefit 33,146 40,920 46,200
Tax-exempt interest (34,000) (37,000) (38,000)
Reduction of SFAS 109 valuation
allowance (17,000) (14,000) (32,000)
Other 8,905 (27) (7,098)
-------- -------- --------
$411,221 462,000 470,200
======== ======== ========
35 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Taxes on Income, Continued
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,
------------------------
1996 1995
---- ----
Deferred tax assets:
Loan and real estate loss allowance $118,000 106,000
Accrued deposit insurance assessment 198,000 -
Net operating loss carryover 10,000 13,000
Capital loss carryover - 14,000
---------- ----------
Total gross deferred tax assets 326,000 133,000
Less valuation allowance 10,000 27,000
---------- ----------
Deferred tax assets net of allowance 316,000 106,000
---------- ----------
Deferred tax liabilities:
Unrealized gain on securities held for sale 4,030 4,570
Tax bad debt reserve 179,000 120,000
Other 1,096 4,030
---------- ----------
Total gross deferred tax liabilities 184,126 128,600
---------- ----------
Net deferred tax asset (liability) $131,874 (22,600)
========== ==========
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.
At September 30, 1996, the nonbank subsidiaries have net operating loss
carryforwards of approximately $280,000 for Iowa corporate tax
purposes, which expire in various amounts beginning in 1998.
(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, 1996, 1995, and 1994, was $79,247,
$105,113, and $117,514, respectively.
36 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Employee Benefit Plans, Continued
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 Options
Certain officers and directors of the Bank have been granted options to
purchase common stock of the Company pursuant to the option plan. At
September 30, 1996 and 1995, options on 78,964 and 137,088 shares, as
restated, have been granted and are exercisable at a price of $2.08
per share. During 1996, options of 53,228 shares, as restated, were
exercised as options of 4,896 shares as restated, were cancelled upon
repurchase by the Company. At September 30, 1996, and 1995, 58,752
options as restated, were available to be granted in the future. If
not exercised, the options expire in 2002.
(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.
Treasury Stock
During the year ended September 30, 1996 and 1995, the Company
repurchased 72,700 and 22,092 shares, respectively, of common stock.
The Company used 1,200 shares of the repurchased stock in the
distribution of 841,226 shares of common stock in a 100 percent stock
split during the year ended September 30, 1996, and used 22,092
shares in the distribution of 419,763 shares, as restated, of common
stock in a stock split during the year ended September 30, 1995.
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, 1996 and 1995.
37 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stockholders' Equity, Continued
Regulatory Capital Requirements, Continued
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, 1996 and 1995.
The Bank's capital amounts and ratios as of September 30, 1996, were as
follows:
For capital
adequacy
Actual purposes
-------------------- ----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Tangible capital $8,996,000 7.9% $1,718,000 1.5%
Core capital 8,996,000 7.9 3,436,000 3.0
Risk-based capital 9,270,000 20.3 3,469,000 8.0
========== ====== ========== ======
To be well capitalized
under prompt corrective
action provisions
----------------------
Amount Ratio
------ -----
Tangible capital $5,727,000 5.0%
Core capital 5,727,000 5.0
Risk-based capital 4,337,000 10.0
========= =====
At September 30, 1996 and 1995, 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, 1996 and 1995, were partially restricted because of the effect of
these tax bad debt reserves.
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.
38 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments (as
described in note 1) at September 30, 1996 was as follows:
Recorded Fair
amount value
------ -----
Financial assets:
Cash and cash equivalents $ 1,147,204 1,147,204
Securities available for sale 4,974,408 4,974,408
Securities held to maturity 44,231,879 44,203,941
Loans, net 62,122,871 64,939,013
FHLB stock 1,325,000 1,325,000
Accrued interest receivable 829,594 829,594
Financial liabilities:
Deposits 82,871,963 82,683,363
FHLB advances 20,500,000 20,346,769
Advance payments by borrowers
for taxes and insurance 199,921 199,921
Accrued interest payable 844,457 844,457
======= =======
Notional Unrealized
value gain (loss)
----- -----------
Off balance sheet instruments:
Commitments to extend credit $ 168,000 -
Lines of credit to customers 2,473,000 -
Unused line of credit by the
Company 8,500,000 -
========= =======
(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 special assessment payable
by the Bank of $530,421 is included in accounts payable and accrued
expenses at September 30, 1996 and is payable on November 27, 1996.
Beginning in 1997 the premium for SAIF insured deposits will be
reduced from 23 basis points to 6.4 basis points, thus reducing
deposit insurance expense for the Bank.
(14) 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.
39 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 as of:
September 30,
--------------------------
Condensed Balance Sheets 1996 1995
------------------------ ---- ----
Cash $ 98,138 268,231
Securities available for sale 804,919 837,169
Securities held to maturity 200,000 200,000
Loan receivable 155,000 155,000
Accrued interest receivable 11,605 14,783
Investment in nonbank subsidiary 348,969 294,032
Investment in Bank 9,004,919 8,537,016
Prepaid expenses and other assets 4,265 928
----------- ----------
Total assets $10,627,815 10,307,159
=========== ==========
Accrued expenses and other
liabilities $ 26,693 46,176
----------- ----------
Common stock 17,299 8,395
Additional paid-in capital 3,142,623 3,049,634
Retained earnings 7,882,078 7,197,953
Treasury stock (448,700) -
Management recognition and
retention plan - (3,672)
Unrealized gain on securities
available for sale 7,822 8,673
------------- ------------
Total stockholders' equity 10,601,122 10,260,983
------------- ------------
Total liabilities and stockholders'
equity $10,627,815 10,307,159
============= ============
Years ended September 30,
-------------------------------
Condensed Statements of Operations 1996 1995
---------------------------------- ---- ----
Interest income $103,040 89,291
Gain on securities available for sale - 9,688
Other income - 1,478
Equity in net income of subsidiaries 816,027 905,701
Other expenses (97,993) (73,508)
----------- -------------
Income before taxes on income 821,074 932,650
Income tax (benefit) expense (3,500) 6,100
----------- -------------
Net income $824,574 926,550
=========== =============
40 (Continued)
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Mid-Iowa Financial Corp. (Parent Company Only) Financial Information,
Continued
Years ended September 30,
-------------------------
Condensed Statements of Cash Flows 1996 1995
---------------------------------- ---- ----
Operating activities:
Net income $824,574 926,550
Equity in net income of subsidiaries (816,027) (905,701)
Amortization (248) 69,267
Gain on sale of investment securities - (9,688)
Change in assets and liabilities:
Decrease (increase) in accrued interest
receivable 3,178 (6,731)
(Decrease) increase in current taxes
on income (27,412) 1,269
Other, net 6,642 4,626
-------- --------
Net cash (used in) provided by
operating activities (9,293) 79,592
-------- --------
Investing activities:
Securities available for sale:
Proceeds from sale of securities
available for sale - 88,938
Purchase of securities available
for sale (100,000) (262,250)
Proceeds from maturities of securities
available for sale - 200,000
Principal repayments on mortgage-
backed securities available for sale 126,456 -
Net change in loans to customers - (155,000)
-------- --------
Net cash provided by (used in)
investing activities 26,456 (128,312)
-------- --------
Financing activities:
Payments to acquire treasury stock (462,950) (347,468)
Stock options exercised 110,743 -
Net dividends received 164,951 368,217
-------- --------
Net cash (used in) provided by
financing activities (187,256) 20,749
-------- --------
Net decrease in cash (170,093) (27,971)
Cash at beginning of year 268,231 296,202
-------- --------
Cash at end of year $ 98,138 268,231
======== ========
41
<PAGE>
MID-IOWA FINANCIAL CORP.
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 5:00 p.m., Monday, January
20, 1997, at Mid-Iowa Savings Bank located at 123 West 2nd Street North, Newton,
Iowa.
STOCK LISTING
The Company's stock is traded over the counter, on The Nasdaq SmallCap Market
under the symbol "MIFC".
PRICE RANGE OF COMMON STOCK
The table below shows the range of high and low bid prices. These prices do not
represent actual transactions and do not include retail markups, markdowns or
commissions.
1995 1996
-------------------- -------------------
High Low High Low
First Quarter................. $3.88 $3.57 $ 7.75 $5.50
Second Quarter................ 4.50 3.50 7.75 6.75
Third Quarter................. 4.75 4.50 7.25 6.00
Fourth Quarter................ 5.50 4.75 6.50 6.00
The Company paid 100% stock dividends on February 24, 1995 to stockholders of
record on February 6, 1995 and on January 25, 1996 to stockholders of record on
January 8, 1996. The Company paid quarterly cash dividends of $.02 per share, as
adjusted for the stock dividends, for each quarter in fiscal years 1995 and
1996. Dividend payment decisions are made with consideration of a variety of
factors including earnings, financial condition, market considerations and
regulatory restrictions. Bank restrictions on dividend payments are described in
Note 13 of the Notes to Consolidated Financial Statements included in this
report.
As of November 25, 1996, the Company had approximately 400 stockholders of
record and 1,650,880 net outstanding shares of common stock.
STOCKHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT
Kevin D. Ulmer, President First Bankers Trust Company, N.A.
Mid-Iowa Financial Corp. Broadway at 12th Street
123 West Second Street North P.O. Box 3566
Newton, Iowa 50208 Quincy, Illinois 62305-3566
(515) 792-6236 (217) 228-8000
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-KSB for its fiscal
year ended September 30, 1996, with the Securities and Exchange Commission.
Copies of the Form 10-KSB annual report and the Company's quarterly reports may
be obtained without charge by contacting:
Kevin D. Ulmer, President
Mid-Iowa Financial Corp.
123 West Second Street North
Newton, Iowa 50208
(515) 792-6236
42
<PAGE>
MID-IOWA FINANCIAL CORP.
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
123 West Second Street North Telephone (515) 792-6236
Newton, Iowa 50208 Fax (515) 792-6460
DIRECTORS OF THE BOARD
David E. Sandeen
Chairman of the Board,
President, Midwest Manufacturing Co., Kellog,
Iowa and President, JBK/CREST Engineering
Co., Brookland Park, Minnesota
John W. Carl
Vice Chairman of the Board
Majority owner of Central Iowa
Broadcasting, Newton, Iowa
Gary R. Hill
Executive Vice President, Secretary and
Treasurer, Mid-Iowa Financial Corp. and Mid-
Iowa Savings Bank, F.S.B., Newton, Iowa
Kevin D. Ulmer
President and Chief Executive Officer, Mid-
Iowa Financial Corp. and Mid-Iowa Savings
Bank, F.S.B., Newton, Iowa
Ralph W. McAdoo
Retired President, Secretary and Director of
Mid-Iowa Savings Bank, F.S.B., Newton, Iowa
John Switzer
Retired Advertising Executive, Vernon
Company, Newton, Iowa
DIRECTOR EMERITUS
John P. McConeghey
Retired Marketing Executive for Newton
Manufacturing Co., Newton, Iowa
MID-IOWA FINANCIAL CORP. OFFICERS
Kevin D. Ulmer
President and Chief Executive Officer
Gary R. Hill
Executive Vice President, Secretary
and Treasurer
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
2500 Ruan Center
Des Moines, Iowa 50309
CORPORATE COUNSEL
Brierly Law Office
211 First Avenue West
Newton, Iowa 50208
SPECIAL COUNSEL
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.
Suite 700
Washington, D.C. 20036
43
Independent Auditors' Consent
The Board of Directors and Stockholders
Mid-Iowa Financial Corp.:
We consent to incorporation by reference in the Registration Statement
(No. 33-63038) on Form S-8 of Mid-Iowa Financial Corp. of our report dated
November 13, 1996, relating to the consolidated balance sheets of Mid-Iowa
Financial Corp. and subsidiaries as of September 30, 1996 and 1995, the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996,
which report appears in the September 30, 1996 annual report on Form 10-KSB of
Mid-Iowa Financial Corp. and subsidiaries.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000889134
<NAME> MID-IOWA FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 435,177
<INT-BEARING-DEPOSITS> 810,165
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,974,408
<INVESTMENTS-CARRYING> 44,231,879
<INVESTMENTS-MARKET> 44,203,941
<LOANS> 62,122,871
<ALLOWANCE> 273,819
<TOTAL-ASSETS> 115,804,045
<DEPOSITS> 82,871,963
<SHORT-TERM> 11,500,000
<LIABILITIES-OTHER> 1,830,960
<LONG-TERM> 9,000,000
0
0
<COMMON> 3,159,992
<OTHER-SE> 7,441,130
<TOTAL-LIABILITIES-AND-EQUITY> 115,804,045
<INTEREST-LOAN> 4,880,247
<INTEREST-INVEST> 3,091,414
<INTEREST-OTHER> 255,898
<INTEREST-TOTAL> 8,227,559
<INTEREST-DEPOSIT> 3,710,324
<INTEREST-EXPENSE> 1,229,114
<INTEREST-INCOME-NET> 3,288,121
<LOAN-LOSSES> 36,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,115,273
<INCOME-PRETAX> 1,235,795
<INCOME-PRE-EXTRAORDINARY> 1,235,795
<EXTRAORDINARY> 0
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<NET-INCOME> 824,574
<EPS-PRIMARY> 0.47
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<LOANS-NON> 151,107
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