SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /_/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/_/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/_/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
/_/ $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
<PAGE>
MID-IOWA FINANCIAL CORP.
123 West Second Street North
Newton, Iowa 50208
(515) 792-6236
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on January 20, 1997
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Mid-Iowa Financial Corp. ("Mid-Iowa" or the "Company") will be
held at the office of Mid-Iowa Savings Bank, located at 123 West 2nd Street
North, Newton, Iowa on January 20, 1997 at 5:00 P.M., local time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon the
election of two directors of the Company and such other matters as may properly
come before the Meeting, or any adjournments thereof. The Board of Directors is
not aware of any other business to come before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on November 25, 1996
are the stockholders entitled to vote at the Meeting, and any adjournments
thereof. A complete list of stockholders entitled to vote at the Meeting will be
available for inspection by stockholders at the offices of the Company during
the ten days prior to the Meeting as well as at the Meeting.
You are requested to complete, sign and date the enclosed Proxy Card
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed envelope. The Proxy Card will not be used if you attend and vote
at the Meeting in person.
By Order of the Board of Directors
/s/ Kevin D. Ulmer
Kevin D. Ulmer
President and Chief
Executive Officer
Newton, Iowa
December 19, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
MID-IOWA FINANCIAL CORP.
123 West Second Street North
Newton, Iowa 50208
(515) 792-6236
ANNUAL MEETING OF STOCKHOLDERS
January 20, 1997
This Proxy Statement is furnished in connection with the solicitation
on behalf of the Board of Directors of Mid-Iowa Financial Corp., ("Mid-Iowa" or
the "Company"), the holding company for Mid-Iowa Savings Bank, FSB (the "Bank"),
of proxies to be used at the Annual Meeting of Stockholders of the Company (the
"Meeting") which will be held at Mid-Iowa Savings Bank located at 123 West 2nd
Street, North, Newton, Iowa on January 20, 1997 at 5:00 P.M., local time, and
all adjournments or postponements of the Meeting. The accompanying Notice of
Meeting, proxy card and this Proxy Statement are first being mailed to
stockholders on or about December 19, 1996. Certain information provided herein
relates to the Bank, a wholly owned subsidiary and predecessor of the Company.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the election of two directors of the Company.
Voting Rights and Proxy Information
All shares of Company common stock, par value $.01 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for the Board of Directors'
nominees. The Company does not know of any matters, other than as described in
the Notice of Meeting, that are to come before the Meeting. If any other matters
are properly presented at the Meeting for action, the persons named in the
enclosed form of proxy will have the discretion to vote on such matters in
accordance with their best judgment.
Directors shall be elected by a plurality of the votes present in
person or represented by proxy at the Meeting and entitled to vote on the
election of directors. In all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented by
proxy at the Meeting and entitled to vote on the matter shall be the act of the
stockholders. Proxies marked as abstaining with respect to a proposal have the
same effect as votes against the proposal. Broker non-votes have no effect on
the vote. One-third of the shares of the Company's Common Stock present, in
person or represented by proxy, shall constitute a quorum for purposes of the
Meeting. Abstentions and broker non-votes are counted for purposes of
determining a quorum.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting; or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered to Gary R. Hill,
Secretary, Mid-Iowa Financial Corp., 123 West Second Street North, Newton, Iowa
50208.
<PAGE>
Voting Securities and Principal Holders Thereof
Stockholders of record as of the close of business on November 25, 1996
will be entitled to one vote for each share then held. As of that date, the
Company had 1,650,880 shares of Common Stock issued and outstanding. The
following table sets forth information regarding share ownership of (i) those
persons or entities known by management to beneficially own more than five
percent of the Company's Common Stock and (ii) all directors and executive
officers as a group. The share amounts set forth below and elsewhere in this
Proxy Statement reflect the Company's 100% stock dividend paid on February 24,
1995.
Shares Beneficially Percent of
Beneficial Owner Owned Class
- ---------------- ----- -----
Kevin D. Ulmer
123 West Second Street North
Newton, Iowa 50208(1) 109,136 6.61%
Gary R. Hill
123 West Second Street North
Newton, Iowa 50208(2) 94,532 5.67
Jerome H. and Susan B. Davis
11 Baldwin Farms North
Greenwich, Connecticut 06831(3) 103,752 6.28
I.S.B. Bancorporation, Inc.
L.B.T. Bancorporation
First Liberty Bancorp
Winnebago County Bancorporation
4201 Westown Parkway
Suite 320
West Des Moines, Iowa 50266(4) 121,000 7.33
Directors and executive officers
of Mid-Iowa and the Bank
as a group (7 persons)(5) 401,826 23.36
- --------------
(1) Includes 81,476 shares held directly, 4,844 shares held by Mr. Ulmer's
spouse and 3,616 shares held by Mr. Ulmer's minor children, with respect
to which shares Mr. Ulmer may be deemed to have sole or shared voting and
investment power. The amount includes 4,896 restricted shares of Common
Stock granted to Mr. Ulmer under the Company's Management Recognition and
Retention Plan (the "MRP"). The amount reported also includes 9,600 shares
of Common Stock held by the Bank's Profit Sharing Plan and 9,600 shares of
Common Stock held by the Bank's Retirement Plan. Mr. Ulmer is one of three
trustees for both plans.
(2) Includes 38,266 shares held directly, 19,350 shares held by Mr. Hill's
spouse and 2,400 shares held by Mr. Hill's minor children, with respect to
which Mr. Hill may be deemed to have sole or shared voting and investment
power. This amount includes 2,448 restricted shares of Common Stock
granted to Mr. Hill under the MRP. This amount includes an option to
purchase 15,316 shares of Common Stock granted under the Stock Option
Plan, which is currently exercisable. The amount reported also includes
9,600 shares of Common Stock held by the Bank's Profit Sharing Plan and
9,600 shares of Common Stock held by the Bank's Retirement Plan. Mr. Hill
is one of three trustees for both plans.
(3) As reported in a joint statement as of August 7, 1995, on Amendment No. 2
to Schedule 13D under the Securities Exchange Act of 1934, as amended. Mr.
Jerome H. Davis and Ms. Susan B. Davis reported shared voting and
dispositive power as to all of such shares.
(4) Beneficial owners represent four one-bank holding companies which
beneficially own 83,000, 2000, 30,000 and 6,000 shares, respectively. The
companies report joint ownership of these shares due to their existing
management and ownership structures.
(5) Includes shares held directly, as well as jointly with family members or
held by trust, with respect to which shares the listed individuals or
group members may be deemed to have sole or shared voting and investment
powers. This amount includes awards of 7,344 restricted shares of Common
Stock granted to executive officers under the MRP which have not yet
vested. This amount also includes 9,600 shares held by the Bank's Profit
Sharing Plan and 9,600 shares held by the Bank's Retirement Plan over
which each of three directors are deemed to have shared voting and
investment power as a result of their positions as trustees of both plans.
The amount reported above also includes options to purchase 69,172 shares
of Common Stock granted to directors and executive officers under the
Stock Option Plan which options are currently exercisable. The amount
reflected above excludes shares held by family members that do not live in
the same household as such officers and directors, with respect to which
beneficial ownership is expressly disclaimed.
2
<PAGE>
I. ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently composed of six members,
each of whom is also a director of the Bank, and, assuming Dr. Carney Loucks'
election at the Meeting, will consist of seven members thereafter. Directors are
generally elected to serve for three-year terms or until their respective
successors are elected and qualified. The directors are divided into three
classes, and approximately one-third of the directors are elected annually.
The table below sets forth certain information regarding the
composition of the Company's Board of Directors, including each director's term
of office. The Board of Directors acting as the nominating committee has
recommended and approved Dr. Carney D. Loucks and Mr. Ralph W. McAdoo as
nominees for director of the Bank and Company for terms of three years to expire
in January 2000. It is intended that the proxies solicited on behalf of the
Board of Directors (other than proxies in which the vote is withheld as to a
nominee) will be voted at the Meeting FOR the election of the nominees. If a
nominee is unable to serve, the shares represented by all valid proxies will be
voted for the election of such substitute nominee as the Board of Directors may
recommend. At this time, the Board of Directors knows of no reason why any
nominee might be unable to serve if elected. Except as disclosed herein, there
are no arrangements or understandings between any director or nominee and any
other person pursuant to which the nominee was selected.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned at
Director Term to November 25, Percent of
Name Age(1) Position(s) Held in the Company Since(2) Expire 1996 (3) Class (3)
- ---- ------ ------------------------------- -------- ------- ----------------- ----------
NOMINEES
--------
<S> <C> <C> <C> <C> <C> <C>
Carney D. Loucks 46 Director of the Company and the Bank -- 2000 (4) -- --%
Ralph W. McAdoo 72 Director of the Company and the Bank 1975 2000 (4) 50,688 (5) 3.05
DIRECTORS CURRENTLY IN OFFICE
-----------------------------
Kevin D. Ulmer 45 Director, President and Chief Executive 1990 1998 109,136 (5)(6) 6.61
Officer of the Company and the Bank
John E. Carl 55 Director of the Company and the Bank 1984 1998 21,250 1.28
David E. Sandeen 52 Director of the Company and the Bank 1985 1998 46,848 2.82
Gary R. Hill 49 Director, Executive Vice President, 1986 1999 94,532 (5)(6) 5.67
Secretary and Treasurer of the
Company and the Bank
John Switzer 71 Director of the Company and the Bank 1972 1999 35,692 2.15
John McConeghey 73 Director Emeritus of the Company 1968 1997 82,080 4.91
and the Bank
(footnotes on the following page)
</TABLE>
3
<PAGE>
- ----------------
(1) As of September 30, 1996.
(2) Includes service as a director of the Bank.
(3) Amount includes shares held directly and jointly with certain family
members or held by trusts of which the named individual is a trustee,
with respect to which shares the listed individuals or group members
may be deemed to have sole or shared voting and investment power. This
amount also includes options to purchase 15,316, 4,896 and 19,584
shares of Common Stock held by Messrs. Hill, Carl, and McConeghey
respectively, and an option to purchase 9,792 shares of Common Stock
held by each remaining director who is not a full-time employee, which
options are currently exercisable. The amount reported above excludes
shares held by family members that do not live in the same household as
such officers and directors, with respect to which beneficial ownership
is expressly disclaimed.
(4) Assuming the individual is elected at the Meeting.
(5) This amount includes 9,600 shares held by the Bank's Profit Sharing
Plan and 9,600 shares held by the Bank's Retirement Plan for which
Directors McAdoo, Ulmer and Hill are trustees.
(6) The amount reported above includes 4,896 and 2,448 restricted shares of
Common Stock granted to Messrs. Ulmer and Hill, respectively, under the
MRP.
The principal occupation of each director of the Company is set forth
below. All directors have held their present position for at least five years
unless otherwise indicated.
Carney D. Loucks has been nominated by the Company's Board of Directors
for a three-year term. Dr. Loucks has been a self-employed orthodontist in
Newton and Grinnell, Iowa for the past 13 years.
Ralph W. McAdoo has been a Director of the Bank since 1977 and of the
Company since its formation. Mr. McAdoo retired as President and Secretary of
the Bank in January 1990, and served the Bank in various capacities since 1967.
Kevin D. Ulmer is President and Chief Executive Officer of the Bank and
the Company, positions he has held with the Bank since January of 1990 and with
the Company since its formation. He joined the Bank in September of 1989 as
Executive Vice President. Prior to joining the Bank, Mr. Ulmer served as
President of First Federal Savings and Loan Association of York, Nebraska from
1986 to 1989.
John E. Carl has served as a Director of the Bank since 1984, and of
the Company since its formation. He is the majority owner of Central Iowa
Broadcasting, a company operating radio and television stations located in
Newton and Grinnell, Iowa.
David E. Sandeen has been a Director of the Bank since 1985, and of the
Company since its formation. He is the President of Midwest Manufacturing Co., a
manufacturer of auto parts, headquartered in Kellogg, Iowa, and President of
JBK/CREST Engineering Co., a specialty machining shop, located in Brookland
Park, Minnesota.
Gary R. Hill has been a Director of the Bank since 1986, and of the
Company since its formation. He presently serves the Bank and the Company as
Executive Vice President, Secretary and Treasurer. Mr. Hill has been with the
Bank since 1981.
John Switzer has been a Director of the Bank since 1972 and of the
Company since its formation. Prior to his retirement in 1993, he was a furniture
retailer in Newton, Iowa and an advertising executive with the Vernon Company,
also located in Newton.
4
<PAGE>
John McConeghey currently serves as a Director Emeritus of the Company
and Bank. He was Chairman of the Board of the Bank from 1984 to January 1996 and
of the Company since its formation to January 1996. McConeghey retired in 1984
as a marketing executive for Newton Manufacturing Co., a manufacturing firm,
located in Newton, Iowa and continues to serve as director emeritus of Newton
Manufacturing Co.
Meetings and Committees of the Board of Directors
Meetings and Committees of the Company. Meetings of the Company's Board
of Directors are generally held on a monthly basis. The Board of Directors met
12 times during the fiscal year ended September 30, 1996. During the 1996 fiscal
year, no incumbent directors of the Company attended fewer than 75% of the total
number of Board meetings and committee meeting held by the committees of the
Board of Directors on which they served. The Company's directors are not paid a
fee for serving on the Company's Board.
The Company has standing Executive, Audit and Stock Option Committees.
The Executive Committee is composed of Directors Ulmer, Carl and
Sandeen. The Executive Committee meets, as necessary, to consider matters of
general importance to Mid-Iowa. All decisions of the Executive Committee are
ratified by the Board of Directors. The Executive Committee met one time during
fiscal 1996.
The Audit Committee is composed of all non-employee directors. The
Audit Committee reviews audit reports and related matters to ensure effective
compliance with regulatory and internal policies and procedures. This committee
met once during fiscal 1996.
The Stock Option Committee is composed of Directors Carl, McAdoo and
Switzer. The Stock Option Committee is responsible for administering the
Company's employee plans. The Stock Option Committee met one time during fiscal
1996.
The entire Board of Directors acts as a nominating committee for
selecting nominees for election as directors. Nominations of persons for
election to the Board of Directors may be made only by or at the direction of
the Board of Directors or by any stockholder entitled to vote for the election
of directors who complies with the notice procedures set forth in the Bylaws of
the Company. Pursuant to the Company's Bylaws, nominations by stockholders must
be delivered in writing to the Secretary of the Company at least 30 days prior
to the date of the annual meeting.
Meetings and Committees of the Bank. Meetings of the Bank's Board of
Directors are generally held on a monthly basis. The Board of Directors met 12
times during the fiscal year ended September 30, 1996. During fiscal 1996, no
incumbent director of the Bank attended fewer than 75% of the aggregate of the
total number of Board meetings and the total number of meetings held by the
committees of the Board of Directors on which he served. Board fees are $600 per
member per month for Directors whom are non-employees.
The Board of Directors has various committees. The principal committees
include Executive, Pension Administration, Audit and Compensation Committees.
Directors do not receive compensation for service on or attendance at committee
meetings.
The Executive Committee of the Board of Directors generally acts in
lieu of the full Board of Directors between board meetings. The current members
of this committee are Directors Carl, Ulmer and Sandeen. The committee met once
during fiscal 1996.
The Pension Administration Committee consists of Directors McAdoo,
Ulmer and Hill and meets as needed to establish and implement the investment
policies of the employee benefit plans maintained by the Bank. The committee met
once during fiscal 1996.
5
<PAGE>
The Compensation Committee establishes compensation levels for the
Bank's staff. The current members of this committee are Directors McAdoo, Carl
and Switzer. The committee met once during fiscal 1996.
Executive Compensation
The Company has not paid any compensation to its executive officers
since its formation. The Company does not presently anticipate paying any
compensation to such persons.
The following table sets forth information regarding compensation paid
by the Company and the Bank to their Chief Executive Officer. No other executive
officer was paid in excess of $100,000 during this period.
<TABLE>
<CAPTION>
==============================================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------------
---------------------------------------
Annual Compensation Awards Payouts
---------------------------------------
- -------------------------------------------------------------------------------------------------------------
Restricted
Name and Other Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevin D. Ulmer 1996 $82,980 $22,426 $ -- $ -- -- $ -- $12,739
President and
CEO 1995 80,048 32,943 -- -- -- -- 13,715
1994 77,250 33,802 -- -- -- -- 13,056
==============================================================================================================================
(1) Includes the Bank's contribution of $3,095, $3,328 and $3,264 under the
Bank's Profit Sharing Plan and $9,284, $9,985 and $9,792 under the Bank's
Retirement Plan for Mr. Ulmer for fiscal 1996, 1995 and 1994,
respectively. Also includes $360 in term life insurance premiums paid by
the Company during fiscal 1996 on behalf of Mr. Ulmer.
</TABLE>
The following table provides information as to stock options exercised by
the Company's Chief Executive Officer during fiscal 1996 and the value of the
options held by the Chief Executive Officer on September 30, 1996.
<TABLE>
<CAPTION>
========================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
-------------------------------------------------------------------
Shares
Name Acquired Value Realized Exercisable Unexercisable
on Exercise (#) ($) (#) (#) Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kevin D. 45,628 $256,258 -- -- $ -- $ --
Ulmer
========================================================================================================================
(1) Represents the aggregate market value of the option (market price of the Common Stock less the exercise price).
</TABLE>
6
<PAGE>
Employment Agreements
In October 1992, the Bank entered into an employment agreement with
Kevin D. Ulmer for a three year term. The employment agreement provides for an
annual base salary as determined by the Board of Directors, but not less than
Mr. Ulmer's salary immediately preceding the conversion of the Bank from mutual
to stock form. Salary increases are reviewed not less often than annually
thereafter, and are subject to the sole discretion of the Board of Directors.
The employment contract provides for an automatic extension for one additional
year upon authorization by the Board of Directors at the end of each year. The
contract provides for termination upon the employee's death, for cause or in
certain events specified by Office of Thrift Supervision regulations. The
employment contract is terminable by the employee upon 90 days' notice to the
Bank. The employment contract provides for payment to the employee in the event
there is a change in control of the Company or the Bank, as defined in such
agreement, where employment terminates involuntarily in connection with such
change in control or within 12 months thereafter, of the employee's salary
through the end of the contract and an additional amount representing the
employee's salary for the immediately preceding year, provided that payments
under the agreement may not exceed an amount that would cause certain adverse
tax consequences to the Bank and the employee under Section 280G of the Internal
Revenue Code of 1986, as amended. Such termination payment is also provided on a
similar basis in the event of a voluntary termination of employment in
connection with a change in control that was at any time opposed by the Bank's
or the Company's Board of Directors. Assuming a change in control were to take
place as of the date hereof, the aggregate amount payable to Mr. Ulmer pursuant
to this change in control provision would be approximately $354,435. The
contract provides, among other things, for participation in an equitable manner
in employee benefits applicable to executive personnel.
Certain Transactions
The Bank's current loan policy provides that no loans will be made to
officers and directors. Under prior loan policies, a loan was made to Gary R.
Hill in the ordinary course of business and on the same terms, including
collateral, but excluding interest rate, and conditions as those of comparable
transactions prevailing at the time, and which does not involve more than normal
risk of collectibility or present other unfavorable features. Mr. Hill received
an adjustable rate residential loan which adjusts approximately 2% below market
rates. The highest amount of such indebtedness outstanding during the last
fiscal year was $65,550 and the balance and interest rate at September 30, 1996
were $62,631 and 5.25%, respectively.
INDEPENDENT AUDITORS
The Board of Directors has renewed the Company's arrangement for KPMG
Peat Marwick LLP to be its auditors for the 1997 fiscal year. A representative
of KPMG Peat Marwick LLP is expected to attend the Annual Meeting to respond to
appropriate questions and will have an opportunity to make a statement if he or
she so desires.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for the next Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's main office, 123 West
Second Street North, Newton, Iowa no later than August 15, 1997. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Securities Exchange Act of 1934, as amended.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
7
<PAGE>
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Company and/or the Bank may
solicit proxies personally or by telegraph or telephone without additional
compensation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kevin D. Ulmer
Kevin D. Ulmer
President and Chief Executive Officer
Newton, Iowa
December 19, 1996
8
REVOCABLE PROXY
MID-IOWA FINANCIAL CORP.
ANNUAL MEETING OF STOCKHOLDERS, JANUARY 20, 1997
The undersigned hereby appoints the Board of Directors of Mid-Iowa
Financial Corp. (the "Company"), and its survivor, with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held on
January 20, 1997 at Mid-Iowa Savings Bank, located at 123 West 2nd Street
North, Newton, Iowa at 5:00 P.M., Newton, Iowa time, and at any and all
adjournments thereof, as follows:
I. The election as directors of all nominees listed below. /_/ FOR /_/ WITHHELD
CARNEY D. LOUCKS RALPH W. MCADOO
INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL
NOMINEE, INSERT THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.
________________________________________________________________
The Board of Directors recommends a vote "FOR" the listed proposal.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
at any adjournment thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this Proxy,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice of the Meeting, a Proxy Statement and the
Company's Annual Report to Stockholders for the fiscal year ended September 30,
1996.
Dated: ________________________________
_______________________________________
PRINT NAME OF STOCKHOLDER
_______________________________________
PRINT NAME OF STOCKHOLDER
Please sign exactly as your name
appears on the envelope in which this
card was mailed. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held jointly,
each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
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
