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_________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to __________
Commission file number 0-20464
MID-IOWA FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 42-1389053
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 WEST SECOND STREET NORTH, NEWTON, IOWA 50208
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(515) 792-6236
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past twelve months (or for such shorter period
that the Registrant was required to file such reports), and (2)
has been subject to such requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B contained herein, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year ended
September 30, 1997 were $10.4 million.
As of December 12, 1997, the Registrant had issued and
outstanding 1,711,380 net shares of Common Stock. The aggregate
market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the average of the closing
price of such stock on the Nasdaq Market as of December
12, 1997, was $14.2 million. (The exclusion from such amount of
the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an
affiliate of the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
PART II of Form 10-KSB--Portions of 1997 Annual Report to
Stockholders.
PART III of Form 10-KSB--Portions of Proxy Statement for
the 1998 Annual Meeting of Stockholders.
================================================================
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
- ---------------------------------
GENERAL
Mid-Iowa Financial Corp. (the "Company" or "Mid-Iowa") is
a Delaware corporation which was organized in 1992 by Mid-Iowa
Savings Bank, FSB (the "Bank") for the purpose of becoming a
savings and loan holding company. The Company owns all of the
outstanding stock of the Bank issued on October 13, 1992, in
connection with the completion of the Bank's conversion from the
mutual to the stock form of organization (the "Conversion").
The Company issued 408,000 (not restated for stock dividends)
shares of Common Stock at a price of $10.00 per share in the
Conversion. The Bank was initially chartered as an Iowa state
chartered savings and loan association in 1913. The Bank
converted to a federal mutual charter in 1991 and changed its
name to Mid-Iowa Savings Bank, FSB. The Bank amended its charter
in October 1992 in connection with the Conversion to become a
federal stock savings bank. All references to the Company,
unless otherwise indicated refer to the Bank and its
subsidiaries on a consolidated basis. The Company's Common
Stock is quoted on the Nasdaq System under the symbol "MIFC".
The Company and the Bank are subject to comprehensive
regulation, examination and supervision by the Office of Thrift
Supervision, Department of the Treasury ("OTS") and by the
Federal Deposit Insurance Corporation ("FDIC"). The Bank is a
member of the Federal Home Loan Bank ("FHLB") System and its
deposits are backed by the full faith and credit of the United
States Government and are insured by the Savings Association
Insurance Fund ("SAIF") to the maximum extent permitted by the
FDIC.
Mid-Iowa's primary market area of Jasper County and West
Des Moines, Iowa is serviced by its two offices in Newton and
offices in Baxter, Colfax, Monroe, Prairie City and West Des
Moines. The Company opened a branch facility in West Des
Moines, Iowa in September of 1997. At September 30, 1997, Mid-
Iowa had assets of $128.0 million, deposits of $89.4 million and
stockholders' equity of $12.1 million.
The Company, through its wholly-owned subsidiary, Mid-Iowa
Security Corporation ("Mid-Iowa Security") offers real estate
brokerage services and is involved in the development of a
residential subdivision located in Newton, Iowa. The Bank,
through its wholly-owned subsidiary, Center of Iowa Investments,
Limited ("CII"), offers mutual funds, annuities, discount
securities brokerage services, credit reporting and collection
services. See "-- Subsidiary Activities."
Mid-Iowa has been, and intends to continue to be, a
financial corporation that offers a variety of financial
services to meet the needs of the families in the communities it
serves. The Company attracts retail deposits from the general
public and uses such deposits, together with borrowings and
other funds, to invest in primarily one- to four-family
residential mortgage loans and mortgage-backed and related
securities, and to a lesser extent, consumer, commercial real
estate, and commercial business loans. Most loans are presently
originated in the Company's primary market area, Jasper County
and West Des Moines, Iowa; to a lesser extent loans are also
originated in other parts of Iowa, including Des Moines and
Cedar Rapids, Iowa, as well as Omaha, Nebraska. See "-- Lending
Activities" and "-- Non-Performing Assets and Classified Loans."
The Company also invests in U.S. Government and agency
obligations and other permissible investments and occasionally
purchases loan participations.
The Company's revenues are derived from interest on
mortgage loans, mortgage-backed and related securities,
investments and consumer loans, income from service charges and
loan originations, loan servicing fee income and income from the
sale of mutual funds, annuities, discount securities brokerage
services, real estate brokerage services, real estate
development and credit reporting and collection services through
the service corporation subsidiaries of the Company and the
Bank. Mid-Iowa's operations are materially affected by general
economic conditions, the monetary and fiscal policies of the
federal government and the policies of the various regulatory
authorities, including the OTS
1<PAGE>
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and the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). Its results of operations are largely
dependent upon its net interest income, which is the difference
between the interest it receives on its loan portfolio and its
investment securities portfolio and the interest it pays on its
deposit accounts and borrowings.
Mid-Iowa's main office is located at 123 West Second
Street North, Newton, Iowa. The Company's telephone number is
(515) 792-6236.
MARKET AREA
Mid-Iowa offers a range of retail banking services
primarily to the residents of Jasper County and West Des Moines,
Iowa, through the Company's two offices located in Newton and
offices in Baxter, Colfax, Monroe, Prairie City and West Des
Moines. Mid-Iowa considers its primary market area to be Jasper
County and West Des Moines.
Newton, Iowa, is a city located approximately 35 miles
east of the Iowa capital of Des Moines, in the center of Jasper
County, Iowa. Jasper County has a population of approximately
35,000 persons. Newton is an industrial community with a
population of approximately 15,000 people. The major employer
is the Maytag Corporation, headquartered in Newton, which
employs approximately 3,000 employees in Newton. Other major
employers are Newton Manufacturing Company, the Vernon Company,
Cline Tool and Service Company, Thombert, Inc., Walmart and
Skiff Medical Center.
At September 30, 1997, 86% of the Company's real estate
mortgage loans (excluding mortgage-backed and related
securities) were secured by properties located in Iowa. The
remaining loans, a mix of single family and commercial real
estate loans, are primarily located throughout the United
States, including the midwest, the northwest, the middle-
Atlantic states, and the pacific northwest. At September 30,
1997, all of these out-of-state loans and loan participations
were performing in accordance with their repayment terms. See
"- Non-Performing Assets and Classified Assets" and "-
Originations, Purchases, Sales and Servicing of Loans and
Mortgage-Backed and Related Securities."
LENDING ACTIVITIES
General. Historically, the Company has originated fixed-
rate one- to four-family mortgage loans. In the mid 1980s, the
Company introduced adjustable rate mortgage ("ARM") loans and
short-term loans for retention in its portfolio, in order to
increase the percentage of loans with more frequent repricing or
shorter maturities, and in some cases higher yields, than fixed-
rate mortgage loans. The Company has continued, however, to
originate fixed-rate mortgage loans in response to customer
demand.
While the Company primarily focuses its lending activities
on the origination of loans secured by first mortgages on owner-
occupied, one- to four-family residences, it also originates
consumer, commercial real estate, commercial business, and a
limited amount of residential construction loans in its primary
market area. At September 30, 1997, the Company's gross real
estate loan and mortgage-backed and related securities portfolio
totaled $57.6 million, of which $46.1 million were comprised of
one- to four- family first mortgage loans and $30.5 million were
comprised of mortgage-backed and related securities held for
investment and available for sale.
Senior lending officers have authority to approve up to
$10,000 of consumer and commercial business loans. Otherwise,
the approval of the reviewing loan officer and one of two senior
officers of the Company is required. First mortgage residential
mortgage loans require the approval of two officers, one of whom
must be the Company's President or Executive Vice President.
Loans in excess of $100,000, up to the Company's lending limit,
require the approval of the reviewing loan officer and the
President. Loans in excess of $500,000 require the approval of
the Board of Directors.
The aggregate amount of loans that the Company is
permitted to make under applicable federal regulations to any
one borrower, including related entities, is generally the
greater of 15% of unimpaired capital and surplus or $500,000.
See "Regulation -- Federal Regulation of Savings Associations."
At September 30, 1997, the maximum
2<PAGE>
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amount which the Company could have lent to any one borrower and
the borrower's related entities was approximately $1.4 million.
At September 30, 1997, the Company had no loans with outstanding
balances in excess of this amount. At September 30, 1997, the
principal balance of the largest amount outstanding to any one
borrower, or group of related borrowers, was approximately $1.1
million which consisted of one commercial real estate loan
secured by property located in the Company's primary market area.
Each of these loans was performing in accordance with its
respective repayment terms at September 30, 1997. At that date,
there were no other loans with a principal balance in excess of
$500,000.
Loan Portfolio Composition. The following information
sets forth the composition of the Company's loan and mortgage-
backed and related securities portfolios in dollar amounts and
in percentages (before deductions for loans in process, deferred
fees and discounts and allowance for losses on loans) as of the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1997 1996 1997
--------------- --------------- ----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans and mortgage-
backed and related securities:
One- to four-family . . . . . . . $46,107 47.2% $45,986 50.4% $45,293 51.6%
Commercial. . . . . . . . . . . . 10,150 10.4 7,708 8.5 5,151 5.9
Construction. . . . . . . . . . . 1,339 1.4 884 1.0 919 1.0
Mortgage-backed securities held
for sale . . . . . . . . . . . . 4,368 4.5 4,373 4.8 837 1.0
Mortgage-backed and related
securities . . . . . . . . . . . 26,180 26.8 23,974 26.3 28,139 32.1
Total real estate loans
and mortgage-backed and
related securities held
for investment . . . . . . . 88,144 90.3 82,925 90.9 80,339 91.6
------- ------ ------- ----- ------- -----
Other Loans:
- -----------
Consumer Loans:
Second mortgage. . . . . . . . . 4,498 4.6 3,143 3.4 2,847 3.2
Automobile . . . . . . . . . . . 1,407 1.4 1,342 1.5 1,377 1.6
Home equity. . . . . . . . . . . 1,177 1.2 740 .8 483 .5
Student. . . . . . . . . . . . . 306 .3 479 .5 537 .6
Unsecured. . . . . . . . . . . . 175 .2 161 .2 163 .2
Deposit account. . . . . . . . . 181 .2 142 .2 186 .2
Other. . . . . . . . . . . . . . 351 .4 297 .3 84 .1
------- ------ ------- ----- ------- -----
Total consumer loans. . . . . 8,095 8.3 6,304 6.9 5,677 6.4
Commercial business loans . . . . 1,394 1.4 1,982 2.2 1,723 2.0
------- ------ ------- ----- ------- -----
Total other loans . . . . . . 9,489 9.7 8,286 9.1 7,400 8.4
------- ------ ------- ----- ------- -----
Total loans and mortgage-
backed and related
securities. . . . . . . . . . 97,633 100.0% 91,211 100.0% 87,739 100.0%
===== ===== =====
Less:
- ----
Loans in process. . . . . . . . . 276 550 598
Deferred fees and discounts . . . 89 72 71
Allowance for losses on loans . . 302 274 248
------- ------- -------
Total loans and mortgage-
backed securities receivable,
net . . . . . . . . . . . . . $96,966 $90,315 $86,822
======= ======= =======
</TABLE>
3 <PAGE>
<PAGE>
The following table shows the composition of the Company's
loan and mortgage-backed and related securities portfolios by
fixed and adjustable rate at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1997 1996 1997
--------------- --------------- ----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate:
One- to four-family. . . . . . . $15,526 15.9% $12,340 13.5% $15,831 18.0%
Commercial . . . . . . . . . . . 5,280 5.4 6,319 6.9 2,590 3.0
Mortgage-backed and related
securities . . . . . . . . . . 2,256 2.3 1,873 2.1 3,008 3.4
Total fixed-rate real estate
loans and mortgage-backed
and related securities . . . 23,062 23.6 20,532 22.5 21,429 24.4
Consumer. . . . . . . . . . . . . 6,918 7.1 5,403 5.9 5,194 5.9
Commercial business . . . . . . . 1,394 1.4 1,982 2.2 1,723 2.0
Total fixed-rate loans and
mortgage-backed and
related securities. . . . . . 31,374 32.1 27,917 30.6 28,346 32.3
Adjustable-Rate Loans:
Real estate:
One- to four-family. . . . . . . 30,581 31.3 33,646 36.9 29,462 33.6
Commercial . . . . . . . . . . . 4,870 5.0 1,389 1.5 2,561 2.9
Construction . . . . . . . . . . 1,339 1.4 884 1.0 919 1.0
Mortgage-backed securities
held for sale. . . . . . . . . 4,368 4.5 4,373 4.8 837 1.0
Mortgage-backed and related
securities held for
investment . . . . . . . . . . 23,924 24.5 22,101 24.2 25,131 28.6
------- ----- ------- ----- ------- -----
Total adjustable-rate real
estate loans and mortgage-
backed and related
securities . . . . . . . . . 65,082 66.7 62,393 68.4 58,910 67.1
------- ----- ------- ----- ------- -----
Consumer. . . . . . . . . . . . . 1,177 1.2 901 1.0 483 .6
------- ----- ------- ----- ------- -----
Total adjustable-rate loans
and mortgage-backed and
related securities . . . . . 66,259 67.9 63,294 69.4 59,393 67.7
------- ----- ------- ----- ------- -----
Total loans and mortgage-
backed and related
securities . . . . . . . . . 97,633 100.0% 91,211 100.0% 87,739 100.0%
------- ===== ------- ===== ------- =====
Less:
Loans in process. . . . . . . . . 276 550 598
Deferred fees and discounts . . . 89 72 71
Allowance for losses on loans . . 302 274 248
------- ------- -------
Total loans and mortgage-
backed securities receivable,
net. . . . . . . . . . . . . $96,966 $90,315 $86,822
======= ======= =======
</TABLE>
4<PAGE>
<PAGE>
The following schedule illustrates the interest rate
sensitivity of the Company's gross loan and mortgage-backed and
related securities portfolio at September 30, 1997. Mortgages
and mortgage-backed and related securities which have adjustable
or renegotiable interest rates are shown as maturing in the
period during which the contract is due. The schedule does not
reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-------------------------------------
One- to four-family
and mortgage-
backed securities Commercial Construction Consumer Business Total
------------------- ---------------- ----------------- ---------------- ---------------- --------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------------------- ----------------- ----------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Years Ending
September 30,
- -------------
1998 (1). . . $ 1,279 7.27% $ 256 9.39% $1,339 8.95% $1,799 9.08% $ 70 9.36% $ 4,743 8.58%
1999 and 2000 2,872 8.08 587 9.40 -- 4,133 8.82 161 9.41 7,753 8.60
2001 and 2002 3,350 9.22 702 8.69 -- 2,163 9.02 194 8.70 6,409 9.08
2003 and 2007 11,021 8.48 2,413 8.87 -- -- 679 8.50 14,113 8.55
2008 and 2017 39,984 7.70 6,192 8.88 -- -- 290 8.90 46,466 7.86
2018 and
thereafter 18,149 7.62 -- -- -- -- -- 18,149 7.62
------- ------- ------ ------ ------ -------
$76,655 $10,150 $1,339 $8,095 $1,394 $97,633
======= ======= ====== ====== ====== =======
<FN>
___________
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</FN>
</TABLE>
5<PAGE>
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The total amount of loans and mortgage-backed securities
due after September 30, 1998 which have predetermined interest
rates is $29.9 million, while the total amount of loans due
after such dates which have floating or adjustable interest
rates is $63.0 million.
One- to Four-Family Residential Mortgage Lending.
Residential loan originations are generated by the Company's
marketing efforts, its present customers, walk-in customers and
referrals from real estate agents, builders and loan brokers.
The Company focuses its lending efforts primarily on the
origination of loans secured by first mortgages on owner-
occupied, one- to four-family residences. See "- Originations,
Purchases, Sales and Servicing of Loans and Mortgage-Backed and
Related Securities." At September 30, 1997, the Company's one-
to four-family residential mortgage loans and mortgage-backed
and related securities (all of which are collateralized by one-
to four-family loans) totaled $76.7 million, or approximately
78.5%, of the Company's gross loan and mortgage-backed and
related securities portfolio.
The Company currently originates fixed-rate monthly
payment loans and ARM loans. During the year ended September
30, 1997, the Company originated $8.3 million of fixed-rate real
estate loans. During the same period, the Company originated
$3.9 million of adjustable-rate, one- to four-family real estate
loans. The Company's one- to four-family residential mortgage
originations are primarily in its market area.
The Company generally makes ARMs in amounts up to 80% of
the appraised value of the security property although the
Company will loan in amounts up to 97% provided that private
mortgage insurance is obtained in an amount sufficient to reduce
the Company's exposure at or below the 80% loan-to-value level.
The Company currently offers one, three and five year ARM loans
with an interest rate margin over the one-year Treasury Bill
Index. These loans provide for up to a 2.0% annual cap and a
lifetime cap and floor of 6.0% from the initial rate. As a
consequence of using caps, the interest rates on these loans may
not be as rate sensitive as is the Company's cost of funds.
Historically, the initial rate used for the loan has been below
the fully-indexed rate and is established by the Company in
accordance with market and competitive factors. The Company has
not experienced difficulty with the payment history for these
loans.
From time to time the Company has originated ARMs which
are convertible into fixed-rate loans during stated time
periods. Presently, the Company originates only nonconvertible
ARMs. The Company's ARMs do not permit negative amortization of
principal. Borrowers of adjustable rate loans are qualified at
the fully-indexed rate.
Due to consumer demand, the Company also offers fixed-
rate, 15- and 30-year mortgage loans that conform to secondary
market sales standards (i.e., Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association
("GNMA") or Federal Home Loan Mortgage Corporation ("FHLMC")
standards). Interest rates charged on these fixed-rate loans
are competitively priced on a daily basis according to market
conditions. Residential loans generally do not include
prepayment penalties. Federal Housing Administration ("FHA")
and Veterans' Administration ("VA") fixed rate loans have been
originated to be sold in the secondary market. The Company
generally sells such loans servicing released. The Company
reserves the right to discontinue, adjust or create new lending
programs to respond to its needs and to competitive factors.
In underwriting one- to four-family residential real
estate loans, Mid-Iowa evaluates both the borrower's ability to
make monthly payments and the value of the property securing the
loan. Most properties securing real estate loans made by Mid-
Iowa are appraised by an independent fee appraiser approved and
qualified by management. Mid-Iowa generally requires borrowers
to obtain an attorney's title opinion, and fire and casualty
insurance in an amount not less than the amount of the loan.
Real estate loans originated by the Company generally contain a
"due on sale" clause allowing the Company to declare the unpaid
principal balance due and payable upon the sale of the security
property.
Construction Lending. The Company engages in limited
amounts of construction lending to individuals for the
construction of their residences and, on rare occasions, to
builders for the construction of single family homes in the
Company's primary market area. At September 30, 1997, the
Company had $1.3 million of outstanding construction loans.
6<PAGE>
<PAGE>
Construction loans to individuals for their residences are
structured to be converted to permanent loans at the end of the
construction phase, which typically runs for six to 12 months.
During the construction phase, the borrower pays interest only.
These construction loans have rates and terms which match the
one- to four-family permanent loans then offered by the Company,
except that a higher loan fee is typically charged to the
construction borrower. Residential construction loans are
generally underwritten pursuant to the same guidelines used for
originating permanent residential loans. At September 30, 1997,
the Company had six construction loans for one- to four-family
residences totaling $724,000 and two construction loans for
commercial real estate totaling $615,000.
Construction loans are generally made up to a maximum
loan-to-value ratio of 80% based upon an appraisal. Because of
the uncertainties inherent in estimating construction costs and
the market for the project upon completion, however, it is
relatively difficult to evaluate accurately the total loan funds
required to complete a project, the related loan-to-value ratios
and the likelihood of ultimate success of the project.
Construction loans to borrowers other than owner occupants also
involve many of the same risks discussed below regarding
commercial real estate loans and tend to be more sensitive to
general economic conditions than many other types of loans.
Prior to making a commitment to fund a construction loan,
the Company requires an appraisal of the property. The
Company's construction loan policy provides for the inspection
of properties by Company personnel at the commencement of
construction and prior to disbursement of funds during the term
of the construction loan.
Mortgage-backed and related securities. Mid-Iowa has a
substantial portfolio of mortgage-backed and related securities
which it holds for investment. Such securities can serve as
collateral for borrowings and, through repayments, as a source
of liquidity. For information regarding the carrying and market
values of Mid-Iowa's mortgage-backed and related securities
portfolio, see Notes 2 and 3 of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders
attached hereto as Exhibit 13. Under the Company's risk-based
capital requirement, mortgage-backed and related securities have
a risk weight of 20% (or 0% in the case of GNMA securities) in
contrast to the 50% risk weight assigned to residential loans.
See "Regulation."
At September 30, 1997, the Company's holdings of mortgage-
backed and related securities, including those available for
sale, totaled $30.5 million, or 31.3%, of the Company's gross
loan and mortgage-backed and related securities portfolio.
Consistent with the Company's asset/liability policy, most of
the mortgage-backed and related securities purchased by the
Company in recent periods carry adjustable interest rates or are
for short or intermediate effective terms.
As part of its mortgage-backed and related security
portfolio, the Company has also purchased investment grade or
federal agency guaranteed collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs")
having adjustable interest rates or effective terms to maturity
of seven years or less. Such securities are derived by
reallocating cash flows from mortgage pass-through securities or
from pools of mortgage loans. The CMOs and REMICs acquired by
the Company are not interest only, or principal only or residual
interests.
Because federal agency mortgage-backed and related
securities generally carry a yield approximately 50 to 100 basis
points below that of the corresponding type of residential loan,
in the event that these purchases increase, the Company's asset
yields could be adversely affected. Due to the existence of the
federal agency guarantee on the Company's mortgage-backed and
related securities and the availability of adjustable rate
mortgage-backed and related securities, the Company's interest
rate risk and credit risk would not necessarily be increased by
a future increase in mortgage-backed and related securities
volume. The Company will evaluate mortgage-backed and related
securities acquisitions in the future based on its
asset/liability objectives, market conditions and its alternate
investment opportunities.
7<PAGE>
<PAGE>
The following table sets forth the balance outstanding on
the Company's mortgage-backed and related securities at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation . . . $ 1,788 $ 1,163 $ 1,573
Federal National Mortgage Association. . . . 5,360 6,251 7,268
Government National Mortgage Association . . 14,004 10,785 12,125
Collateralized Mortgage Obligations. . . . . 9,396 10,148 8,010
------- ------- -------
Total. . . . . . . . . . . . . . . . . . $30,548 $28,347 $28,976
======= ======= =======
</TABLE>
Commercial Real Estate Lending. The Company has from time
to time engaged in commercial real estate lending, including
multi-family lending, in its market area and has purchased whole
commercial loans and participation interests in loans from other
financial institutions secured by properties located in Iowa,
Colorado, Tennessee and Wisconsin. At September 30, 1997, the
Company had $10.1 million of commercial real estate loans, which
represented 10.4% of the Company's gross loan and mortgage-
backed and related securities portfolio. At September 30, 1997,
all of the Company's commercial real estate portfolio was
performing in accordance with its terms. At September 30, 1997,
73% of the Company's commercial real estate loan portfolio was
secured by properties located in the State of Iowa.
The Company originates commercial real estate loans and
purchases whole loans and participation interests in commercial
real estate loans. The Company's commercial real estate loan
portfolio is secured primarily by apartment buildings, office
buildings, retail stores, nursing homes, churches and
warehouses. Commercial real estate loans may have terms up to
30 years. Generally, the loans are made in amounts up to 75% of
the appraised value of the security property. The underwriting
standards employed by the Company for commercial real estate
loans include a review of the financial condition of the
borrower, the borrower's credit history, and the reliability and
predictability of the net income generated by the property
securing the loan. The Company generally requires the
submission of personal financial statements and personal
guarantees of the borrowers. Appraisals on properties securing
commercial real estate loans originated by the Company are
performed by independent appraisers selected by Mid-Iowa.
Loans secured by commercial real estate properties are
generally larger and involve a greater degree of credit risk
than one- to four-family residential mortgage loans. Because
payments on loans secured by commercial real estate properties
are often dependent on the successful operation or management of
the properties, repayment of such loans may be subject to
adverse conditions in the real estate market or the economy. If
the cash flow from the project is reduced (for example, if
leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired.
Consumer Lending. Mid-Iowa offers a variety of secured
consumer loans, including home equity, second mortgage
(including home improvement) and automobile loans and loans
secured by savings deposits. In addition, Mid-Iowa offers other
secured and unsecured consumer loans, including Visa and
Mastercard credit cards. At September 30, 1997, the Company's
consumer loan portfolio totaled $8.1 million, or 8.3%, of its
gross loan and mortgage-backed and related securities portfolio.
The Company currently originates most of its consumer loans in
its primary market area. The Company originates consumer loans
on both a direct and indirect basis. Direct loans are made when
the Company extends credit directly to the borrower. Indirect
loans are obtained when the Company purchases loan contracts
from retailers of goods or services which have extended credit
to their customers. The only indirect lending by Mid-Iowa is
with selected automobile dealers located in the Company's
lending area. The Company underwrites each indirect loan in
accordance with its normal consumer loan standards.
8<PAGE>
<PAGE>
Consumer loan terms vary according to the type and value
of collateral. The underwriting standards employed by the
Company for consumer loans include an application, a
determination of the applicant's payment history on other debts
and an assessment of ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the
applicant is a primary consideration, the underwriting process
also includes a comparison of the value of the security, if any,
in relation to the proposed loan amount.
The largest component of Mid-Iowa's consumer loan
portfolio consists of second mortgage loans. At September 30,
1997, second mortgage loans totaled $4.5 million, or
approximately 4.6%, of the Company's gross loan and mortgage-
backed and related securities portfolio. Loans secured by
second mortgages, together with loans secured by all prior
liens, are limited to 100% or less of the appraised value of the
property securing the loan and generally have maximum terms that
do not exceed seven years.
Consumer loans may entail greater credit risk than do
residential mortgage loans, particularly in the case of consumer
loans which are unsecured or are secured by rapidly depreciable
assets, such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as
a result of the greater likelihood of damage, loss or
depreciation. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans. At
September 30, 1997, $17,000, or .21%, of the consumer loan
portfolio was non-performing. There can be no assurance that
delinquencies will not increase in the future.
Commercial Business Lending. The Company originates a
limited number of commercial business loans. At September 30,
1997, approximately $1.4 million, or 1.4%, of the Company's
total loans and mortgage-backed and related securities portfolio
was comprised of commercial business loans. Mid-Iowa's
commercial business lending activities consist primarily of
loans to agricultural borrowers in its primary market area.
The Company recognizes the generally increased risks
associated with commercial business lending. Mid-Iowa's
commercial business lending policy emphasizes credit file
documentation and analysis of the borrower's character, capacity
to repay the loan, the adequacy of the borrower's capital and
collateral as well as an evaluation of the industry conditions
affecting the borrower. Analysis of the borrower's past,
present and future cash flows is also an important aspect of
Mid-Iowa's credit analysis.
Unlike residential mortgage loans, which generally are
made on the basis of the borrower's ability to make repayment
from his or her employment and other income and which are
secured by real property whose value tends to be more easily
ascertainable, commercial business loans typically are made on
the basis of the borrower's ability to make repayment from the
cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the
business itself (which, in turn, is likely to be dependent upon
the general economic environment). The Company's commercial
business loans are generally secured by business assets.
However, the collateral securing the loans may depreciate over
time, may be difficult to appraise and may fluctuate in value
based on the success of the business. At September 30, 1997,
all of Mid-Iowa's commercial business loan portfolio was
performing in accordance with its terms.
<PAGE>
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS AND
MORTGAGE-BACKED AND RELATED SECURITIES
Real estate loans are primarily originated by Mid-Iowa's
staff of salaried loan officers. In addition, Mid-Iowa
originates residential loans through brokers secured by
properties located in Des Moines and Cedar Rapids, Iowa, Omaha,
Nebraska and other markets. While these brokers underwrite
these loans pursuant to the Company's underwriting guidelines,
the Company reviews the underlying documentation and relies on
its own underwriting process in determining whether to grant or
deny a loan.
9<PAGE>
<PAGE>
While the Company originates both adjustable-rate and
fixed-rate loans, its ability to generate loans is dependent
upon the relative customer demand for loans in its market.
Demand is affected by the interest rate environment.
Mid-Iowa has a substantial portfolio of fixed-rate and
adjustable-rate mortgage-backed and related securities which it
purchases and holds for investment consistent with its
asset/liability objectives. At September 30, 1997, mortgage-
backed and related securities, including securities held for
sale, totaled $30.5 million, or 31.3% of Mid-Iowa's total loan
and mortgage-backed and related securities portfolio. See
"- Mortgage-backed and related securities."
At September 30, 1997, the Company had 17 groups of whole
loans and loan participations totaling $6.7 million secured by
property located outside the Company's primary market area.
These loans and participation interests are secured by
properties located in the midwest, the northwest, the middle-
Atlantic states and pacific northwest. At September 30, 1997,
none of these loans was included in the Company's non-performing
assets as a non-performing loan. See "- Non-Performing Assets
and Classified Assets."
From time to time, the Company has sold whole loans and
loan participations. Sales of whole loans and loan
participations generally have been beneficial to the Company
since these sales usually generate income at the time of sale
and provide funds for additional lending and other investments.
Otherwise, the Company typically retains its fixed rate one- to
four-family loans because such loans are originated for
retention consistent with the Company's asset/liability
objectives.
With the exception of FHA and VA loans, when loans are
sold the Company typically retains the responsibility for
collecting and remitting loan payments, making certain that real
estate tax payments are made on behalf of borrowers, and
otherwise servicing the loans. The Company receives a servicing
fee for performing these services. The amount of servicing fees
received by the Company varies but is generally calculated on
the basis of the outstanding principal amount of the loans
serviced. The servicing fee is earned and recognized as income
as loan payments are received. The Company services for others
mortgage loans that it originated and sold amounting to
approximately $2.4 million at September 30, 1997.
In periods of economic uncertainty, the Company's ability
to originate large dollar volumes of real estate loans may be
substantially reduced or restricted, with a resultant decrease
in related loan origination fees, other fee income and operating
earnings.
10<PAGE>
<PAGE>
The following table shows the loan origination, purchase
and repayment activities of the Company for the periods
indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------
1997 1996 1995
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family. . . . . $ 3,944 $ 7,397 $ 2,879
- commercial . . . . . . . . . -- 80 1,453
Non-real estate consumer . . . . . . . . . 1,117 630 204
Total adjustable-rate . . . . . . . 5,061 8,107 4,536
Fixed rate:
Real estate - one- to four-family. . . . . 5,977 4,149 6,539
- commercial . . . . . . 2,284 2,155 778
Non-real estate - consumer . . . . . . . . 5,602 3,831 1,764
- commercial business. . . 2,137 2,535 578
Total fixed-rate. . . . . . . . . . 16,000 12,670 9,659
Total loans originated. . . . . . . 21,061 20,777 14,195
Purchases:
Fixed rate mortgage-backed and
related securities. . . . . . . . . . . . 1,010 -- --
Adjustable rate mortgage-backed and
related securities. . . . . . . . . . . . 4,861 3,937 1,187
Total purchased . . . . . . . . . . 5,871 3,937 1,187
Sales and Repayments:
- --------------------
Real estate loans. . . . . . . . . . . . . -- 2,415 1,371
Mortgage-backed and related securities. . -- -- --
Total sales . . . . . . . . . . . . -- 2,415 1,371
Principal repayments . . . . . . . . . . . 20,965 18,822 11,011
Total reductions. . . . . . . . . . 20,965 21,237 12,382
Increase (decrease) in other items, net. . 684 16 (795)
------- ------- -------
Net increase. . . . . . . . . . . . $ 6,651 $ 3,493 $ 2,205
======= ======= =======
</TABLE>
NON-PERFORMING ASSETS AND CLASSIFIED ASSETS
When a borrower fails to make a required payment on real
estate secured loans, consumer loans and commercial business
loans within 20, 11 and ten days, respectively, after the
payment is due, the Company generally institutes collection
procedures by mailing a notice and calling the customer. The
customer is contacted again when the payment continues to be an
additional five to ten days past due and in the case of real
estate loans, when 60 days past due, a right to cure notice is
sent. In most cases, delinquencies are cured promptly; however,
the Company will meet with the borrower in order to determine
the reason for the delinquency and to effect a cure, and, where
appropriate, reviews the condition of the property and the
financial circumstances of the borrower. Based upon the results
of any such investigation, the Company may: (i) accept a
repayment program which under appropriate circumstances could
involve an extension for the arrearage from the borrower; (ii)
seek evidence, in the form of a listing contract, of efforts by
the borrower to sell the property if the borrower has stated
that he is attempting to sell; (iii) attempt to involve the
private mortgage insurer in a work-out of the loan; or (iv)
initiate foreclosure proceedings.
Generally, when a loan becomes delinquent 90 days or more
or when the collection of principal and/or interest become
doubtful, the Company will place the loan on a non-accrual
status and, as a result, interest income receivable is charged
to an allowance which is established by a charge to interest
income. Future interest income is recognized
11<PAGE>
<PAGE>
on a cash basis only, until, in management's opinion, the
borrower's ability to make periodic interest and principal
payments has been
normalized.
The following table sets forth information concerning
delinquent mortgage and other loans at September 30, 1997. The
amounts presented represent the total remaining principal
balances of the related loans, rather than the actual payment
amounts which are overdue and are reflected as a percentage of
loans in the related portfolio.
<TABLE>
<CAPTION>
Loans Delinquent For:
-------------------------------------------------------------------------------
30-59 days 60-89 days 90 days and over
------------------------- ----------------------- -----------------------
Number Amount Percent Number Amount Percent Number Amount Percent
------------------------- ----------------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family. . . 17 $1,029 2.23% -- $ -- -- % -- $ -- --%
Consumer . . . . . . . . 28 145 1.79 10 9 .11 4 17 .21
---- ------ ---- ----- ---- ----
Total. . . . . . . . . . 45 $1,174 2.17% 10 $ 9 .02% 4 $ 17 .03%
==== ====== ==== ===== ==== ====
</TABLE>
The table below sets forth the gross amounts and categories
of non-performing assets in the Company's loan portfolio. For
all years presented, the Company has had no troubled debt
restructurings (which involve forgiving a portion of interest or
principal on any loans or making loans at a rate materially less
than that of market rates) or accruing loans delinquent more
than 90 days. Foreclosed assets include assets acquired in
settlement of loans.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-performing assets
Non-accruing loans:
One- to four-family . . . . . . . $ -- $ 142 $ 138 $ -- $ --
Commercial real estate. . . . . . -- -- -- -- --
Consumer. . . . . . . . . . . . . 17 9 3 33 17
----- ----- ----- ----- ------
Total . . . . . . . . . . . . . 17 151 141 33 17
----- ----- ----- ----- ------
Foreclosed assets:
One- to four-family . . . . . . . -- -- -- -- 172
Commercial real estate. . . . . . -- -- -- -- --
----- ----- ----- ----- ------
Total . . . . . . . . . . . . . -- -- -- -- 172
----- ----- ----- ----- ------
Total non-performing assets . . $ 17 $ 151 $ 141 $ 33 $ 189
===== ====== ===== ===== ======
Total non-performing assets as a
percentage of total assets. . . .01% .13% .13% .03% .20%
===== ====== ===== ===== ======
</TABLE>
For the year ended September 30, 1997, net interest income
which would have been recorded had the non-accruing loans been
current in accordance with their original terms amounted to
$3,200. No interest income was recognized on such loans for the
year ended September 30, 1997.
Non-accruing loans. As of September 30, 1997, the Company
had $17,000 in net book value of non-accruing loans consisting
primarily of consumer loans.
Foreclosed Assets. The Company had no foreclosed real
estate owned at September 30, 1997.
12<PAGE>
<PAGE>
Other Loans of Concern. In addition to the non-performing
loans set forth in the tables above, as of September 30, 1997
there was also an aggregate of $127,000 in net book value of
loans classified by the Company with respect to which known
information about the possible credit problems of the borrowers
or the cash flows of the security properties have caused
management to have some doubts as to the ability of the
borrowers to comply with present loan repayment terms and which
may result in the future inclusion of such items in the non-
performing asset categories. The balance of these loans "of
concern" consisted of consumer loans.
As of September 30, 1997, there were no other loans not
included on the table or discussed above where known information
about the possible credit problems of borrowers caused
management to have serious doubts as to the ability of the
borrower to comply with present loan repayment terms and which
may result in disclosure of such loans in the future.
Classified Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity
securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss." An asset is considered
"substandard" if it is inadequately protected by the current
retained earnings and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the savings
association will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve
is not warranted.
When a savings association classifies problem assets as
either substandard or doubtful, it may establish general
allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When a
savings association classifies problem assets as "loss," it is
required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to
charge-off such amount. A savings association's determination
as to the classification of its assets and the amount of its
valuation allowances is subject to review by the savings
association's Regional Director at the regional OTS office, who
may order the establishment of additional general or specific
loss allowances.
In accordance with its classification of assets policy,
the Company regularly reviews the loans and other assets in its
portfolio to determine whether any loans require classification
in accordance with applicable regulations. On the basis of
management's monthly review of its assets, at September 30,
1997, the Company had classified $121,000 of its assets as
substandard, no assets classified as doubtful and $23,000 of
assets classified as loss. Such classified assets at September
30, 1997 included $17,000 of non-performing loans and $127,000
of the other loans of concern, discussed above.
Allowance for Losses on Loans. The allowance for loan
losses is established through a provision for loan losses based
on management's evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans
of which full collectibility may not be reasonably assured,
considers among other matters, the estimated fair value of the
underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in
providing for an adequate loan allowance.
Real estate properties acquired through foreclosure are
recorded at the lower of the related loan balance, net of any
specific loan loss provision (which is charged-off at the time
of transfer), or fair value at the date of foreclosure.
Valuations are periodically updated by management and a specific
provision for losses on such property is established by a charge
to operations if the carrying value of the property exceeds its
estimated fair value.
13<PAGE>
<PAGE>
Although management believes that it uses the best
information available to determine the allowances, unforeseen
market conditions could result in adjustments and net earnings
could be significantly affected if circumstances differ
substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances are
the result of periodic loan, property and collateral reviews and
thus cannot be predicted in advance. At September 30, 1997, the
Company had a total allowance for losses on loans of $302,000,
or .45%, of total loans (excluding mortgage-backed and related
securities). See "Regulation - Federal Regulation of Savings
Associations".
The following table sets forth an analysis of the
Company's allowance for loan losses.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period. . . . . . . $273,819 $248,028 $253,306
Charge-offs:
One- to four-family. . . . . . . . . . . . -- -- --
Commercial . . . . . . . . . . . . . . . . -- -- --
Consumer . . . . . . . . . . . . . . . . . 54,387 19,390 44,707
-------- -------- --------
Total Chargeoffs. . . . . . . . . . . . . . 54,387 19,390 44,707
-------- -------- --------
Recoveries:
One- to four-family. . . . . . . . . . . . -- -- --
Consumer . . . . . . . . . . . . . . . . . 1,520 9,181 6,429
Total Recoveries . . . . . . . . . . . . . 1,520 9,181 6,429
Net charge-offs. . . . . . . . . . . . . . . 52,867 10,209 38,278
Additions charged to operations. . . . . . . 81,000 36,000 33,000
-------- -------- --------
Balance at end of period . . . . . . . . . .$301,952 $273,819 $248,028
======== ======== ========
Ratio of net charge-offs during the
period to average loans outstanding
during the period. . . . . . . . . . . . . .09% .02% .07%
Allowance for loan losses to total
non-performing assets at end of period. . 1,776.19 181.34 175.91
Allowance for loan losses to non-performing
loans at end of period. . . . . . . . . . 1,766.19 181.34 175.91
Allowance for loan losses to total loans
at end of period . . . . . . . . . . . . .45 .44 .43
</TABLE>
14
<PAGE>
The distribution of the Company's allowance for losses on
loans at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------
1997 1996 1997
--------------------- --------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
--------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family. . . . . . . $160,142 68.73% $139,173 73.17% $143,383 77.08%
Commercial real estate . . . . . 55,869 15.13 50,943 12.26 45,560 8.77
Construction or development. . . 1,000 2.00 1,000 1.41 1,000 1.56
Consumer . . . . . . . . . . . . 73,399 12.07 68,571 10.03 53,121 9.66
Commercial business . . . . . . 11,542 2.08 14,132 3.13 4,964 2.93
-------- ------ -------- ------ -------- ------
Total. . . . . . . . . . . . $301,952 100.00% $273,819 100.00% $248,028 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
INVESTMENT ACTIVITIES
Mid-Iowa must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may
increase or decrease depending upon the availability of funds
and comparative yields on investments in relation to the return
on loans. Historically, the Company has maintained its liquid
assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet
requirements of normal daily activities, repayment of maturing
debt and potential deposit outflows. As of September 30, 1997,
the Company's liquidity ratio (liquid assets as a percentage of
net withdrawable savings deposits and current borrowings) was
6.5%. See "Regulation - Liquidity."
Federally chartered savings institutions have the
authority to invest in various types of liquid assets, including
United States Treasury obligations, securities of various
federal agencies, certain certificates of deposit of insured
banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also
invest their assets in commercial paper, investment grade
corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Generally, the investment policy of the Company is to
invest funds among various categories of investments and
maturities based upon the Company's asset/liability management
policies, investment quality and marketability, liquidity needs
and performance objectives.
At September 30, 1997, the Company's interest-bearing
deposits in other financial institutions totaled $3.1 million,
or 2.4% of its total assets, and investment securities totaled
$22.2 million, or 17.3% of its total assets. As of such date,
the Company also had a $1.7 million investment in the common
stock of the FHLB of Des Moines in order to satisfy the
requirement for membership in such institution. It is the
Company's general policy to purchase investment securities which
are U.S. Government securities and federal agency obligations,
state and local government obligations, commercial paper, short-
term corporate debt securities and overnight federal funds. At
September 30, 1997, the average term to maturity or repricing of
the investment securities portfolio was 4.1 years.
OTS regulations restrict investments in corporate debt and
equity securities by the Company. These restrictions include
prohibitions against investments in the debt securities of any
one issuer in excess of 15% the Company's unimpaired capital and
unimpaired surplus as defined by federal regulations, which
totaled approximately $1.8 million as of September 30, 1997,
plus an additional 10% if the investments are fully secured by
readily marketable collateral. See "Regulation - Federal
Regulation of Savings Associations" for a discussion of
additional restrictions on the Company's investment activities.
15<PAGE>
<PAGE>
The following table sets forth the composition of the
Company's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------
1997 1996 1997
--------------- --------------- ---------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------ ----- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with
other financial institutions. . . $ 3,445 100.00% $ 810 100.0% $ 1,174 100.0%
======= ====== ======= ===== ======= =====
Investment securities:
Federal agency obligations. . . . $18,974 79.55% $17,991 81.1% $13,929 78.7%
State and local government
obligations . . . . . . . . . . 3,227 13.53 2,867 12.9 2,858 16.2
------- ------ ------- ----- ------- -----
Subtotal. . . . . . . . . . . 22,201 93.08 20,858 94.0 16,787 94.9
FHLB stock . . . . . . . . . . . . 1,650 6.92 1,325 6.0 900 5.1
------- ------ ------- ----- ------- -----
Total investment securities
and FHLB stock. . . . . . . . . $23,851 100.00% $22,183 100.0% $17,687 100.0%
Average remaining life or term to
repricing, excluding FHLB stock
and other marketable equity
securities. . . . . . . . . . . . 4.1 years 3.8 years 3.3 years
</TABLE>
The composition and maturities of the investment securities
portfolio, excluding FHLB of Des Moines stock are indicated in
the following table.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------
1 Year 1 to 5 5 to 10 Over Total Investment
or Less Years Years 10 Years Securities
---------- ---------- ---------- ---------- ------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations. .$4,949 $6,608 $7,417 $ -- $18,974 $19,018
State and local government
obligations . . . . . . . . 312 1,040 1,875 -- 3,227 3,378
------ ------ ------ ----- ------- -------
Total investment securities .$5,261 $7,648 $9,292 $ -- $22,201 $22,396
====== ====== ====== ===== ======= =======
Weighted average yield . . . 7.62% 6.17% 6.41% --% 6.61%
====== ====== ====== ===== =======
</TABLE>
The Company's investment securities portfolio at September
30, 1997 contained neither tax-exempt securities nor securities
of any issuer with an aggregate book value in excess of 10% of
the Company's retained earnings, excluding those issued by the
United States Government, or its agencies.
Mid-Iowa's investment security portfolio is managed in
accordance with a written investment policy adopted by the Board
of Directors and implemented by its Investment Committee,
consisting of the Company's President and Treasurer. At the
present time, Mid-Iowa does not have any investments that are
held for trading purposes.
The OTS maintains guidelines regarding management
oversight and accounting treatment for securities, including
investment securities, loans, mortgage-backed and related
securities and derivative securities. The guidelines require
thrift institutions to reduce the carrying value of securities
to the lesser of cost or market value unless it can be
16<PAGE>
<PAGE>
demonstrated that a class of securities is intended to be held
to maturity. As of September 30, 1997, the Company held $26.2
million and $22.2 million, respectively, of principal amount of
mortgage-backed and related securities and investment securities
which the Company intends to hold until maturity. As of such
date, these securities had a market value of $26.5 million and
$22.4 million, respectively.
SOURCES OF FUNDS
General. The Company's primary sources of funds are
deposits, amortization and prepayment of loan principal
(including interest earned on mortgage-backed and related
securities), interest earned on or maturation of investment
securities and short-term investments, and funds provided from
operations.
Borrowings will be used to compensate for reductions in
deposits or deposit inflows at less than projected levels, and
may be used on a longer-term basis to support expanded lending
activities.
Deposits. Mid-Iowa offers a variety of deposit accounts
having a wide range of interest rates and terms. The Company's
deposits consist of passbook accounts, club accounts, money
market deposit accounts, NOW and checking accounts, and
certificate accounts ranging in terms from three months to eight
years. The Company primarily solicits deposits from its market
area and does not use brokers to obtain deposits. The Company
relies primarily on competitive pricing policies, advertising,
and customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by
general economic conditions, changes in money market and
prevailing interest rates, and competition.
The variety of deposit accounts offered by the Company has
allowed it to be competitive in obtaining funds and to respond
with flexibility to changes in consumer demand. The Company has
become more susceptible to short-term fluctuations in deposit
flows, as customers have become more interest rate conscious.
The Company manages the pricing of its deposits in keeping with
its asset/liability management and profitability objectives.
Based on its experience, the Company believes that its passbook
savings, money market deposit accounts, and NOW accounts are
relatively stable sources of deposits. However, the ability of
the Company to attract and maintain certificates of deposits,
and the rates paid on these deposits, has been and will continue
to be significantly affected by market conditions.
The following table sets forth the savings flows at the
Company during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Opening balance. . . . . . . . . . . . . . . $ 82,872 $ 78,671 $78,883
Deposits . . . . . . . . . . . . . . . . . . 165,470 130,584 95,445
Withdrawals. . . . . . . . . . . . . . . . . 161,419 128,746 97,865
Interest credited. . . . . . . . . . . . . . 2,455 2,363 2,208
-------- -------- -------
Ending balance . . . . . . . . . . . . . . . $ 89,378 $ 82,872 $78,671
======== ======== =======
Net increase (decrease). . . . . . . . . . . $ 6,506 $ 4,201 $ (212)
======== ======== =======
Percent increase (decrease). . . . . . . . . 7.85% 5.34% (.27)%
======== ======== =======
</TABLE>
17<PAGE>
<PAGE>
The following table sets forth the dollar amount of
deposits in the various types of deposit programs offered by the
Company for the periods indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1997 1996 1997
--------------- --------------- ----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Range:
- -------------------
Market Rate Accounts . . . . . . . $17,572 19.66 $13,421 16.10% $ 4,735 6.01%
Passbook Accounts 2.15-2.25% . . . 5,798 6.49 6,050 7.30 6,668 8.48
NOW Accounts 1.02-1.05%. . . . . . 5,992 6.70 4,951 6.07 4,457 5.67
------- ------ ------- ------ ------- ------
Total Non-Certificates . . . . . . 29,362 32.85 24,422 29.47 15,860 20.16
------- ------ ------- ------ ------- ------
Certificates of Deposit:
0.00 - 3.99% . . . . . . . . . . 4,590 5.14 6,408 7.73 7,693 9.78
4.00 - 5.99% . . . . . . . . . . 43,982 49.21 49,285 59.47 24,988 31.76
6.00 - 7.99% . . . . . . . . 11,444 12.81 2,756 3.33 30,120 38.29
8.00 - 9.99% . . . . . . . . -- -- 1 -- 10 .01
------- ------ ------- ------ ------- ------
Total Certificates of Deposit 60,016 67.15 58,450 70.53 62,811 79.84
------- ------ ------- ------ ------- ------
Total Deposits . . . . . . . . $89,378 100.00% $82,872 100.00% $78,671 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table shows rate and maturity information
for the Company's certificates of deposit as of September 30,
1997.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997. . . . . . . . $1,459 $15,359 $ 3,110 $ -- $19,928 33.21%
March 31, 1998 . . . . . . . . . 1,372 13,211 1,997 -- 16,580 27.63
June 30, 1998. . . . . . . . . . 687 4,640 1,085 -- 6,412 10.68
September 30, 1998 . . . . . . . 980 2,452 2,041 -- 5,473 9.12
December 31, 1998. . . . . . . . 15 1,285 256 -- 1,556 2.59
March 31, 1999 . . . . . . . . . 39 1,177 750 -- 1,966 3.28
June 30, 1999. . . . . . . . . . 37 755 1,359 -- 2,151 3.58
September 30, 1999 . . . . . . . 1 1,351 80 -- 1,432 2.39
December 31, 1999. . . . . . . . -- 527 67 -- 594 .99
March 31, 2000 . . . . . . . . . -- 753 106 -- 859 1.43
June 30, 2000. . . . . . . . . . -- 563 -- -- 563 .94
September 30, 2000 . . . . . . . -- 384 15 -- 399 .66
December 31, 2000. . . . . . . . -- 158 4 -- 162 .27
Thereafter . . . . . . . . . . . -- 1,366 574 -- 1,940 3.23
------ ------- ------- ----- ------- ------
Total . . . . . . . . . . . $4,590 $43,982 $11,444 $ -- $60,016 100.00%
====== ======= ======= ===== ======= ======
Percent of total. . . . . . 7.65% 73.28% 19.07% --%
====== ======= ======= =====
</TABLE>
18
<PAGE>
<PAGE>
The following table indicates the amount of the Company's
certificates of deposit by time remaining until maturity as of
September 30, 1997.
<TABLE>
<CAPTION>
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------ ------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000. . . . . . . . $15,077 $12,825 $11,331 $11,056 $50,289
Certificates of deposit of
$100,000 or more . . . . . . 4,063 2,155 423 566 7,207
Public funds (1) . . . . . . . 789 1,600 131 -- 2,520
------- ------- ------- ------- -------
Total certificates of
deposit. . . . . . . . . . . $19,929 $16,580 $11,885 $11,622 $60,016
======= ======= ======= ======= =======
<FN>
_______________
(1) Deposits from governmental and other public entities.
</FN>
</TABLE>
The following tables sets forth the maximum month-end
balance and average balance of FHLB advances and other
borrowings during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances and other borrowings . . . . . $25,000 $20,500 $18,000
Average Balance:
FHLB advances and other borrowings . . . . . $27,625 $19,250 $14,375
Weighted average interest rate of
FHLB advances. . . . . . . . . . . . . . . 5.64% 5.61% 5.78%
</TABLE>
The following table sets forth certain information as to
the Company's FHLB advances and other borrowings at the dates
indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
----- ------ ------
(In thousands)
<S> <C> <C> <C>
FHLB advances. . . . . . . . . . . . . . . . $25,000 $20,500 $18,000
------- ------- -------
Total borrowings . . . . . . . . . . . . . $25,000 $20,500 $18,000
======= ======= =======
Weighted average interest rate
of FHLB advances . . . . . . . . . . . . . 5.70% 5.64% 5.94%
</TABLE>
19<PAGE>
<PAGE>
SUBSIDIARY ACTIVITIES
As a federally chartered savings bank, the Bank is
permitted by OTS regulations to invest up to 2% of its assets,
or $2.6 million at September 30, 1997, in the stock of, or loans
to, service corporation subsidiaries. As of such date, the net
book value of the Bank's investment in and loans to its service
corporations was approximately $116,000. The Bank may invest an
additional 1% of its assets in service corporations where such
additional funds are used for inner-city or community
development purposes.
Center of Iowa Investments ("CII"), the Bank's wholly
owned subsidiary, markets mutual funds, annuities, and discount
securities brokerage services to the Company's customer. CII
recognized net income of $23,000, for the 1997 fiscal year.
In addition to the Bank, the Company directly owns Mid-
Iowa Security, which conducts real estate brokerage services and
owns Quail Ridge development, a single-family residential
development located in Newton, Iowa, consisting of 36 developed
residential lots and 15 acres of additional land. At September
30, 1997, one residential lot and five acres of land remain to
be sold. At September 30, 1997, Mid-Iowa Security's investment
in Quail Ridge development was $74,000. Mid-Iowa Security
maintains a $39,000 general valuation allowance allocated to
Quail Ridge. Mid-Iowa Security recognized net income of $57,000
for the 1997 fiscal year.
COMPETITION
Mid-Iowa faces strong competition, both in originating
real estate and other loans and in attracting deposits.
Competition in originating real estate loans comes primarily
from other commercial banks, savings associations, credit unions
and mortgage bankers making loans secured by real estate located
in the Company's market area. Commercial banks and finance
companies provide strong competition in consumer lending. The
Company competes for real estate and other loans principally on
the basis of the quality of services it provides to borrowers,
interest rates and loan fees it charges, and the types of loans
it originates.
The Company attracts all of its deposits through its
retail banking offices, primarily from the communities in which
those retail banking offices are located; therefore, competition
for those deposits is principally from other commercial banks,
savings associations and credit unions located in the same
communities. The Company competes for these deposits by
offering a variety of deposit accounts at competitive rates,
convenient business hours, and convenient branch locations with
interbranch deposit and withdrawal privileges at each.
The Company serves primarily Jasper County, Iowa. There
are ten commercial banks and no other savings associations which
compete for deposits and loans in Jasper Country. Mid-Iowa
estimates its share of the residential mortgage loan market to
be approximately 30% and its share of the savings deposit base
to be approximately 20% in Jasper County.
REGULATION
General. The Bank is a federally chartered savings bank,
the deposits of which are federally insured and backed by the
full faith and credit of the United States Government.
Accordingly, the Bank is subject to broad federal regulation and
oversight extending to all its operations. The Bank is a member
of the FHLB of Des Moines and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As the savings and loan
holding company of the Bank, the Company also is subject to
federal regulation and oversight. The purpose of the regulation
of the Company and other holding companies is to protect
subsidiary savings associations. The Bank is a member of the
SAIF and the deposits of the Bank are insured by the FDIC. As a
result, the FDIC has certain regulatory and examination
authority over the Bank.
Certain of these regulatory requirements and restrictions
are discussed below or elsewhere in this document.
20<PAGE>
<PAGE>
Federal Regulation of Savings Associations. The OTS has
extensive authority over the operations of savings associations.
As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by
the OTS and the FDIC. All federal savings associations are
subject to a semi-annual assessment, based upon the
association's total assets, to fund the operations of the OTS.
The Bank's OTS assessment for the fiscal year ended September
30, 1997 was $36,900.
The OTS also has extensive enforcement authority over all
savings institutions and their holding companies, including the
Bank and the Company. This enforcement authority includes,
among other things, the ability to assess civil money penalties,
to issue cease-and-desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may
be initiated for violations of laws and regulations and unsafe
or unsound practices. Other actions or inactions may provide
the basis for enforcement action, including misleading or
untimely reports filed with the OTS. Except under certain
circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching
authority of the Bank is prescribed by federal laws, and it is
prohibited from engaging in any activities not permitted by such
laws. For instance, no savings institution may invest in non-
investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of
total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide.
At September 30, 1997, the Bank was in compliance with the noted
restrictions.
The Bank's general permissible lending limit for loans-to-
one-borrower is equal to the greater of $500,000 or 15% of
unimpaired capital and surplus (except for loans fully secured
by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).
At September 30, 1997, the Bank's lending limit under this
restriction was $1.8 million. The Bank is in compliance with
the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies,
has adopted guidelines establishing safety and soundness
standards on such matters as loan underwriting and
documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits.
Any institution which fails to comply with these standards must
submit a compliance plan. A failure to submit a plan or to
comply with an approved plan will subject the institution to
further enforcement action.
Insurance of Accounts and Regulation by the FDIC. The
Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and
such insurance is backed by the full faith and credit of the
United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any
activity the FDIC determines by regulation or order to pose a
serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in
an unsafe or unsound condition.
Under the Federal Deposit Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured
institutions to maintain the designated reserve ratio of the
SAIF at 1.25% of estimated insured deposits or at a higher
percentage of estimated insured deposits that the FDIC
determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the
SAIF.
Under the risk-based deposit insurance assessment system
adopted by the FDIC, the assessment rate for an insured
depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory
evaluations. Based on the data reported to regulators for the
date closest to the last day of the seventh month preceding the
semi-annual assessment period, institutions are assigned to one
of three capital groups -- well capitalized, adequately
capitalized or undercapitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis
of supervisory evaluations by the institution's primary
supervisory authority and such other information as the FDIC
determines to be relevant to
21<PAGE>
<PAGE>
the institution's financial condition and the risk posed to the
deposit insurance fund. Mid-Iowa currently is classified as
well capitalized under this assessment system.
Regulatory Capital Requirements. Federally insured
savings associations, such as the Bank, are required to maintain
a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations.
These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The OTS is
also authorized to impose capital requirements in excess of
these standards on individual associations on a case-by-case
basis.
The capital regulations require tangible capital of at
least 1.5% of adjusted total assets (as defined by regulation).
Tangible capital generally includes common stockholders' equity
and retained income, and certain noncumulative perpetual
preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital. At
September 30, 1997, CII, a wholly owned subsidiary of the Bank,
had $5,800 of goodwill qualifying as an intangible asset and
which was deducted from the Bank's tangible capital.
The OTS regulations establish special capitalization
requirements for savings associations that own subsidiaries. In
determining compliance with the capital requirements, all
subsidiaries engaged solely in activities permissible for
national banks or engaged in certain other activities solely as
agent for its customers are "includable" subsidiaries that are
consolidated for capital purposes in proportion to the
association's level of ownership. For excludable subsidiaries
the debt and equity investments in such subsidiaries are
deducted from assets and capital. As of September 30, 1997, the
Bank did not have any investments or advances to its
subsidiaries that are excluded from regulatory capital.
At September 30, 1997, the Bank had tangible capital of
$9.8 million, or 7.8%, of adjusted total assets, which is
approximately $7.9 million above the minimum requirement of 1.5%
of adjusted total assets in effect on that date.
The capital standards also require core capital equal to
at least 3% of adjusted total assets. Core capital generally
consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action
provisions discussed below, however, a savings association must
maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At September 30, 1997, the
Bank had no intangibles which were subject to these tests.
At September 30, 1997, the Bank had core capital equal to
$9.8 million, or 7.8%, of adjusted total assets, which is $6.0
million above the minimum leverage ratio requirement of 3% as in
effect on that date.
The OTS risk-based requirement requires savings
associations to have total capital of at least 8% of risk-
weighted assets. Total capital consists of core capital, as
defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments
that do not qualify as core capital and general valuation loan
and lease loss allowances up to a maximum of 1.25% of risk-
weighted assets. Supplementary capital may be used to satisfy
the risk-based requirement only to the extent of core capital.
The OTS also is authorized to require a savings association to
maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional
activities. At September 30, 1997, the Bank had $9.8 million of
capital instruments (none of which qualify as supplementary
capital) and $301,000 of general loss reserves, which was 19.4%
of risk-weighted assets.
Certain exclusions from capital and assets are required to
be made for the purpose of calculating total capital. Such
exclusions consist of equity investments (as defined by
regulation) and that portion of land loans and nonresidential
construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank
did not have any such exclusions from capital and assets at
September 30, 1997.
22<PAGE>
<PAGE>
In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet items, will be
multiplied by a risk weight, ranging from 0% to 100%, based on
the risk inherent in the type of asset. For example, the OTS
has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more
than 90 days delinquent and having a loan to value ratio of not
more than 80% at origination unless insured to such ratio by an
insurer approved by FNMA or FHLMC.
OTS risk-based capital requirements require savings
institutions with more than a "normal" level of interest rate
risk to maintain additional total capital. A savings
institution's interest rate risk is measured in terms of the
sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the
present value of expected cash inflows from existing assets and
off-balance sheet contracts less the present value of expected
cash outflows from existing liabilities. A savings institution
is considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an
immediate 200 basis point increase or decrease in market
interest rates (whichever results in the greater decline) is
less than two percent of the current estimated economic value of
its assets. A savings institution with a greater than normal
interest rate risk is required to deduct from total capital, for
purposes of calculating its risk-based capital requirement, an
amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate
risk and the normal level of interest rate risk, multiplied by
the economic value of its total assets.
The OTS calculates the sensitivity of a savings
institution's net portfolio value based on data submitted by the
institution in a schedule to its quarterly Thrift Financial
Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from a savings institution's
total capital is based on the institution's Thrift Financial
Report filed two quarters earlier. Institutions with less than
$300 million in assets and a risk-based capital ratio above 12%,
like the Bank, generally are exempt from filing the interest
rate risk schedule with their Thrift Financial Reports.
However, the OTS will require any exempt institution that it
determines may have a high level of interest rate risk exposure
to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of
interest rate risk as compared to its peers.
On September 30, 1997, the Bank had total capital of $10.1
million (including $9.8 million in core capital and $300,000 in
qualifying supplementary capital) and risk-weighted assets of
$52.2 million; or total capital of 19.4% of risk-weighted
assets. This amount was $5.9 million above the 8% requirement
in effect on that date.
The OTS and the FDIC are authorized and, under certain
circumstances required, to take certain actions against savings
associations that fail to meet their capital requirements. The
OTS generally is required to take action to restrict the
activities of an "undercapitalized association" (generally
defined to be one with less than either a 4% core capital ratio,
a 4% Tier 1 risked-based capital ratio or an 8% risk-based
capital ratio). Any such association must submit a capital
restoration plan and until such plan is approved by the OTS may
not increase its assets, acquire another institution, establish
a branch or engage in any new activities, and generally may not
make capital distributions. The OTS is authorized to impose the
additional restrictions that are applicable to significantly
undercapitalized associations.
Limitations on Dividends and Other Capital Distributions.
OTS regulations impose various restrictions or requirements on
associations with respect to their ability to pay dividends or
make other distributions of capital. OTS regulations prohibit
an association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount
required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.
The OTS utilizes a three-tiered approach to permit
associations, based on their capital level and supervisory
condition, to make capital distributions which include
dividends, stock redemptions or repurchases, cash-out mergers
and other transactions charged to the capital account (see "--
Regulatory Capital Requirements").
Generally, Tier 1 associations, which are associations
that before and after the proposed distribution meet their fully
phased-in capital requirements, may make capital distributions
during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core
23<PAGE>
<PAGE>
or risk-based capital exceeds its fully phased-in capital
requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a
Tier 2 association. However, a Tier 1 association deemed to be
in need of more than normal supervision by the OTS may be
downgraded to a Tier 2 or Tier 3 association as a result of such
a determination. The Bank meets the requirements for a Tier 1
association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations
that before and after the proposed distribution meet their
current minimum capital requirements, may make capital
distributions of up to 75% of net income over the most recent
four quarter period.
Tier 3 associations (which are associations that do not
meet current minimum capital requirements) that propose to make
any capital distribution and Tier 2 associations that propose to
make a capital distribution in excess of the noted safe harbor
level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital
distribution within the safe harbor provisions and Tier 1
associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such
distribution. As a subsidiary of the Company, the Bank also is
required to give the OTS 30 days' notice prior to declaring any
dividend on its stock. The OTS may object to the distribution
during that 30-day period based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
Liquidity. All savings associations, including the Bank,
are required to maintain an average daily balance of liquid
assets equal to a certain percentage of the sum of its average
daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. This liquid asset ratio
requirement may vary from time to time (between 4% and 10%)
depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid
asset ratio is 4%.
Penalties may be imposed upon associations for violations
of liquid asset ratio requirement. At September 30, 1997, the
Bank was in compliance with an overall liquid asset ratio of
6.5%.
Accounting. An OTS policy statement applicable to all
savings associations clarifies and re-emphasizes that the
investment activities of a savings association must be in
compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its
classification of and accounting for loans and securities (i.e.,
whether held for investment, sale or trading) with appropriate
documentation. The Bank is in compliance with these amended
rules.
The OTS has adopted an amendment to its accounting
regulations, which may be made more stringent than GAAP by the
OTS, to require that transactions be reported in a manner that
best reflects their underlying economic substance and inherent
risk and that financial reports must incorporate any other
accounting regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations,
including the Bank, are required to meet a qualified thrift
lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at
least 65% of its portfolio assets (as defined by regulation) in
qualified thrift investments on a monthly average for nine out
of every 12 months on a rolling basis. Such assets primarily
consist of residential housing related loans and investments.
At September 30, 1997, the Bank met the test and has always met
the test since its inception.
Any savings association that fails to meet the QTL test
must convert to a national bank charter, unless it requalifies
as a QTL and thereafter remains a QTL. If an association does
not requalify and converts to a national bank charter, it must
remain SAIF-insured until the BIF. If such an association has
not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for
both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In
addition, the association is immediately ineligible to receive
any new FHLB borrowings and is subject to national bank limits
for payment of dividends. If such association has not
requalified or converted to a national bank within three years
after the failure, it must divest of all investments and cease
all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding FHLB
borrowings, which may result in prepayment penalties. If any
association that fails
24<PAGE>
<PAGE>
the QTL test is controlled by a holding company, then within one
year after the failure, the holding company must register as a
bank holding company and become subject to all restrictions on
bank holding companies. See "-- Holding Company Regulation."
Community Reinvestment Act. Under the Community
Reinvestment Act ("CRA"), every FDIC insured institution has a
continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its
entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of
products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires
the OTS, in connection with the examination of the Bank, to
assess the institution's record of meeting the credit needs of
its community and to take such record into account in its
evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank. An unsatisfactory
rating may be used as the basis for the denial of an application
by the OTS.
The federal banking agencies, including the OTS, have
revised the CRA regulations and the methodology for determining
an institution's compliance with the CRA. Due to the heightened
attention being given to the CRA in the past few years, the Bank
may be required to devote additional funds for investment and
lending in its local community. The Bank was last examined for
CRA compliance in January 1996 and received a rating of
"satisfactory."
Transactions with Affiliates. Generally, transactions
between a savings association or its subsidiaries and its
affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition,
certain of these transactions, such as loans to an affiliate,
are restricted to a percentage of the association's capital.
Affiliates of the Bank include the Company and any company which
is under common control with the Bank. In addition, a savings
association may not lend to any affiliate engaged in activities
not permissible for a bank holding company or acquire the
securities of most affiliates. The Bank's subsidiaries are not
deemed affiliates, however; the OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by
case basis.
Certain transactions with directors, officers or
controlling persons are also subject to conflict of interest
regulations enforced by the OTS. These conflict of interest
regulations and other statutes also impose restrictions on loans
to such persons and their related interests. Among other
things, such loans must be made on terms substantially the same
as for loans to unaffiliated individuals.
Holding Company Regulation. The Company is a unitary
savings and loan holding company subject to regulatory oversight
by the OTS. As such, the Company is required to register and
file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association
subsidiaries which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the
subsidiary savings association.
As a unitary savings and loan holding company, the Company
generally is not subject to activity restrictions. If the
Company acquires control of another savings association as a
separate subsidiary, it would become a multiple savings and loan
holding company, and the activities of the Company and any of
its subsidiaries (other than the Bank or any other SAIF-insured
savings association) would become subject to such restrictions
unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain
the approval of the OTS prior to continuing after such failure,
directly or through its other subsidiaries, any business
activity other than those approved for multiple savings and loan
holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will
become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company
are more limited than are the activities authorized for a
unitary or multiple savings and loan holding company. See "-
Qualified Thrift Lender Test."
25<PAGE>
<PAGE>
The Company must obtain approval from the OTS before
acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a
multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings
association.
Federal Securities Law. The stock of the Company is
registered with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company is subject
to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the
Exchange Act.
Company stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of
the Company may not be resold without registration or unless
sold in accordance with certain resale restrictions. If the
Company meets specified current public information requirements,
each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System. The Federal Reserve Board
requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking
accounts). At September 30, 1997, the Bank was in compliance
with these reserve requirements. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements that may be
imposed by the OTS. See "-Liquidity."
Savings associations are authorized to borrow from the
Federal Reserve Bank "discount window," but Federal Reserve
Board regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of
the FHLB of Des Moines, which is one of 12 regional FHLBs, that
administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for
its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations
of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the
board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB. In addition, all long-
term advances are required to provide funds for residential home
financing.
Under federal law the FHLBs are required to provide funds
for the resolution of troubled savings associations and to
contribute to low- and moderately priced housing programs
through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level
of FHLB dividends paid and could continue to do so in the
future. These contributions could also have an adverse effect
on the value of FHLB stock in the future. A reduction in value
of the Bank's FHLB stock may result in a corresponding reduction
in the Bank's capital.
As a member of the FHLB, the Bank is required to purchase
and maintain stock in the FHLB of Des Moines. At September 30,
1997, the Bank had $1.7 million in FHLB stock, which was in
compliance with this requirement. For the year ended September
30, 1997, dividends paid by the FHLB of Des Moines to the Bank
totaled $100,630.
Federal and State Taxation. Savings associations such as
the Bank that meet certain definitional tests relating to the
composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be
taken as a deduction in computing taxable income for federal
income tax purposes (for taxable years beginning before December
31, 1995) the amount of the bad debt reserve deduction for "non-
qualifying loans" is computed under the experience method. The
amount of the bad debt reserve deduction for "qualifying real
property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or
the percentage of taxable income method (based on an annual
election).
26<PAGE>
<PAGE>
Under the experience method, the bad debt reserve
deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings
association over a period of years.
The percentage of specially computed taxable income that
is used to compute a savings association's bad debt reserve
deduction under the percentage of taxable income method (the
"percentage bad debt deduction") is 8%. The percentage bad debt
deduction thus computed is reduced by the amount permitted as a
deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method
permits qualifying savings associations to be taxed at a lower
effective federal income tax rate than that applicable to
corporations generally (approximately 31.3% assuming the maximum
percentage bad debt deduction).
Under the percentage of taxable income method, the
percentage bad debt deduction cannot exceed the amount necessary
to increase the balance in the reserve for "qualifying real
property loans" to an amount equal to 6% of such loans
outstanding at the end of the taxable year or the greater of (i)
the amount deductible under the experience method or (ii) the
amount which when added to the bad debt deduction for "non-
qualifying loans" equals the amount by which 12% of the amount
comprising savings accounts at year-end exceeds the sum of
surplus, undivided profits and reserves at the beginning of the
year. At September 30, 1997, the 6% and 12% limitations did not
restrict the percentage bad debt deduction available to the
Bank. It is not expected that these limitations would be a
limiting factor in the foreseeable future.
Legislation enacted in August 1996 repealed the percentage
of taxable income method of calculating the bad debt reserve.
Savings institutions, like the Bank, which have previously used
that method are required to recapture into taxable income post-
1987 reserves in excess of the reserves calculated under the
experience method over a six-year period beginning with the
first taxable year beginning after December 31, 1995. The start
of such recapture may be delayed until the third taxable year
beginning after December 31, 1995 if the dollar amount of the
institution's residential loan originations in each year is not
less than the average dollar amount of residential loan
originated in each of the six most recent years disregarding the
years with the highest and lowest originations during such
period. For purposes of this test, residential loan
originations would not include refinancings and home equity
loans.
Beginning with the first taxable year beginning after
December 31, 1995, savings institutions, such as the Bank, are
being treated the same as commercial banks. Institutions with
$500 million or more in assets will be able to take a tax
deduction only when a loan is actually charged off.
Institutions with less than $500 million in assets will still be
permitted to make deductible bad debt additions to reserves, but
only using the experience method. The Bank is expected to
recapture approximately $480,000 of its tax bad debt reserves.
The recapture will not have any effect on the Company's net
income because the related tax expense has already been accrued.
Under the experience method, the bad debt deduction is an
amount determined under a formula based generally on the bad
debts actually sustained by a savings institution over a period
of years. Under the percentage of taxable income method, the
bad debt reserve deduction for qualifying real property loans
was computed as 8% of the thrift's taxable income. The maximum
deduction could be taken as long as not less than 60% of the
total dollar amount of the assets of an institution fell within
certain designated categories. If the amount of qualifying
assets fell below 60%, the institution would get no deduction
and would generally be required to include existing reserves in
income over a four year period.
In addition to the regular income tax, corporations,
including savings associations such as the Bank, generally are
subject to a minimum tax. An alternative minimum tax is imposed
at a minimum tax rate of 20% on alternative minimum taxable
income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less
any available exemption. The alternative minimum tax is imposed
to the extent it exceeds the corporation's regular income tax
and net operating losses can offset no more than 90% of
alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings
associations such as the Bank, are also subject to an
environmental tax equal to .12% of the excess of alternative
minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the
environmental tax) over $2 million.
27<PAGE>
<PAGE>
To the extent earnings appropriated to a savings
association's bad debt reserves for "qualifying real property
loans" and deducted for federal income tax purposes exceed the
allowable amount of such reserves computed under the experience
method and to the extent of the association's supplemental
reserves for losses on loans ("Excess"), such Excess may not,
without adverse tax consequences, be utilized for the payment of
cash dividends or other distributions to a shareholder
(including distributions on redemption, dissolution or
liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1997, the Bank's excess for tax
purposes totaled approximately $1.8 million.
The Company and its subsidiaries, including the Bank, file
consolidated federal income tax returns on a fiscal year basis
using the accrual method of accounting. Savings associations,
such as the Bank, that file federal income tax returns as part
of a consolidated group are required by applicable Treasury
regulations to reduce their taxable income for purposes of
computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association
members of the consolidated group that are functionally related
to the activities of the savings association member.
The tax returns of the Company and its subsidiaries have
not been audited by the IRS with respect to consolidated federal
income tax returns subsequent to 1988. With respect to prior
years examined by the IRS, all deficiencies have been satisfied.
In the opinion of management, any examination of still open
returns (including returns of subsidiaries and predecessors of,
or entities merged into, the Company) would not result in a
deficiency which could have a material adverse effect on the
financial condition of the Bank and its consolidated
subsidiaries.
Iowa Taxation. The Bank currently files an Iowa franchise
tax return. The Company, its non-bank subsidiaries and the
Bank's subsidiaries file Iowa corporation tax returns on a
fiscal year end basis.
Iowa imposes a franchise tax on the taxable income of
stock savings banks. The tax rate is 5%, which may effectively
be increased, in individual cases, by application of a minimum
tax provision. Taxable income under the franchise tax is
generally similar to taxable income under the federal corporate
income tax, except that, under the Iowa franchise tax, no
deduction is allowed for Iowa franchise tax payments and taxable
income includes interest on state and municipal obligations.
Interest on U.S. obligations is taxable under the Iowa franchise
tax and under the federal corporate income tax.
Taxable income under the Iowa corporate income tax is
generally similar to taxable income under the federal corporate
income tax, except that, under the Iowa tax, no deduction is
allowed for Iowa income tax payments; interest from state and
municipal obligations is included in income; interest from U.S.
obligations is excluded from income; and 50% of federal
corporate income tax is excluded from income. The Iowa
corporate income tax rates range from 6% to 12% and may be
effectively increased, in individual cases, by application of a
minimum tax provision.
Delaware Taxation. As a Delaware holding company, the
Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual fee to
the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
EMPLOYEES
At September 30, 1997, the Company and its subsidiaries
had a total of 44 employees, including eight part-time
employees. The Company's employees are not represented by any
collective bargaining group. Management considers its employee
relations to be satisfactory.
28<PAGE>
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each of whom is
currently an executive officer of the Bank, are identified
below. The executive officers of the Company are elected
annually by the Company's Board of Directors. The Bank has
entered into employment agreements with two of its executive
officers.
Name Position With Holding Company
-------- ------------------------------
Kevin D. Ulmer President and Chief Executive Officer
Gary R. Hill Executive Vice President, Secretary and
Treasurer
ITEM 2. PROPERTIES
- -------------------
The Company conducts its business at its main office and
five other locations in its primary market area. The following
table sets forth information relating to each of the Company's
offices as of September 30, 1997.
The Company owns each of its offices except Prairie City,
which is leased. The total net book value of the Company's
premises and equipment (including land, building and leasehold
improvements and furniture, fixtures and equipment) at September
30, 1997 was $2.6 million. See Note 6 of Notes to Consolidated
Financial Statements in the Annual Report to Stockholders
attached hereto as Exhibit 13.
<TABLE>
<CAPTION>
Square Net Book
Total Footage Value at
Date Square Leased to September 30,
Location Acquired Footage Others 1997
- -------- -------- ------- --------- -------------
<S> <C> <C> <C> <C>
Main Office:
123 W. 2nd St. North 1955 18,400 6,800 $478,889
215-217 W. 2nd St. North 1984 5,800 11,600 133,374
Branch Offices:
1907 1st Avenue E.
Newton, Iowa 1977 1,270 -- 149,492
15 E. Howard St.
Colfax, Iowa 1978 1,080 -- 37,662
108 E. Washington
Monroe, Iowa 1979 2,500 -- 70,679
100 State St.
Baxter, Iowa 1982 770 -- 30,812
101 W. Jefferson
Prairie City, Iowa (1) 600 -- 5,726
West Des Moines Branch
3900 Westown Parkway
West Des Moines, Iowa 1997 12,000 -- 1,680,493
$2,587,127
==========
<FN>
_______________
(1) This building is leased through July 1, 2000.
</FN>
</TABLE>
29<PAGE>
<PAGE>
The Company uses a service bureau for an on-line data base
of depositor and borrower customer information. The net book
value of the data processing and computer equipment utilized by
the Company at September 30, 1997 was $110,000.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is involved as plaintiff or defendant in
various legal actions arising in the normal course of its
business. While the ultimate outcome of these proceedings
cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing Company
in the proceedings, that the resolution of these proceedings
should not have a material effect on Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matter was submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
quarter ended September 30, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ----------------------------------------------------------
Information under the caption "Price Range of Common
Stock" in the Company's 1997 Annual Report to Stockholders is
herein incorporated by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF
OPERATION
- ---------------------------------------------------------
Information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in
the Company's 1997 Annual Report to Stockholders is herein
incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS
- ------------------------------
Information under the caption "Consolidated Financial
Statements" in the Company's 1997 Annual Report to Stockholders
is herein incorporated by reference.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
- -----------------------------------------------------------
There has been no current report on Form 8-K filed within
24 months prior to the date of the most recent financial
statements reporting a change in accountants and/or reporting
disagreements on any matter of accounting principle or financial
statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
- ---------------------------------------------------------------
Information concerning directors, executive officers,
promoters and control persons of the Registrant is incorporated
herein by reference from the Company's definitive Proxy
Statement for the 1998 Annual Meeting of Stockholders, a copy of
which will be filed not later than 120 days after the close of
the fiscal year.
30<PAGE>
<PAGE>
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to
file with the SEC reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended September 30, 1997, the Registrant complied
with all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial
owners.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
Information concerning executive compensation is
incorporated herein by reference from the Company's definitive
Proxy Statement for the 1998 Annual Meeting of Stockholders, a
copy of which will be filed not later than 120 days after the
close of the fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
Information concerning security ownership of certain
beneficial owners and management is incorporated herein by
reference from the Company's definitive Proxy Statement for the
1998 Annual Meeting of Stockholders, a copy of which will be
filed not later than 120 days after the close of the fiscal
year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information concerning certain relationships and
transactions is incorporated herein by reference from the
Company's definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders, a copy of which will be filed not later than
120 days after the close of the fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS:
<TABLE>
<CAPTION> Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
- ----------- -------- ---------------
<S> <C> <C>
2 Plan of acquisition, reorganization arrangement,
liquidation or succession *
3 Articles of Incorporation and Bylaws *
4 Instruments defining the rights of security
holders, including indentures:
Common Stock Certificate *
9 Voting trust agreement None
10 Material contracts:
1992 Stock Option and Incentive Plan *
Management Recognition and Retention Plan *
1997 Stock Option Plan **
Employment Agreements:
Kevin D. Ulmer *
Gary R. Hill *
11 Statement re: computation of per share earnings None
13 Annual Report to Security Holders 13
16 Letter on change in certifying accountant None
18 Letter on change in accounting principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to
vote of security holders None
23 Consent of Accountants 23
24 Power of Attorney None
27 Financial Data Schedule 27
28 Information from reports furnished to state
insurance regulatory authorities None
99 Additional exhibits None
<FN>
_______________
* Filed as exhibits to the Company's S-1 registration statement filed on June
24, 1992, (File No. 33-48838) pursuant to Section 5 of the Securities Act of
1933. All of such previously filed documents are hereby incorporated herein
by reference in accordance with Item 601 of Regulation S-B.
** Filed as an exhibit to the Company's Form S-8 registration statement filed on
March 27, 1997 (File No. 333-24049).
</FN>
</TABLE>
(b) REPORTS ON FORM 8-K:
None. <PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MID-IOWA FINANCIAL CORP.
Date: December 15, 1997 By: /s/ Kevin D. Ulmer
-----------------------------
Kevin D. Ulmer (Duly
Authorized Representative)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /s/ Kevin D. Ulmer By:/s/ Gary R. Hill
--------------------------- ------------------------
Kevin D. Ulmer, President, Gary R. Hill, Executive Vice
Chief Executive Officer and President, Secretary,
Director (Principal Executive Treasurer and Director
and Operating Officer) (Principal Financial and
Accounting Officer)
Date: December 15, 1997 Date: December 15, 1997
By: /s/ John E. Carl By:/s/ Ralph W. McAdoo
--------------------------- ------------------------
John E. Carl, Director Ralph W. McAdoo, Director
Date: December 15, 1997 Date: December 15, 1997
By: /s/ David E. Sandeen By:/s/ John Switzer
--------------------------- ------------------------
David E. Sandeen, Director John Switzer, Director
Date: December 15, 1997 Date: December 15, 1997
By: /s/ Carey D. Loucks
---------------------------
Carey D. Loucks, Director
Date: December 15, 1997
<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 15
Stockholder Information 42
Corporate Information 43
<PAGE>
<PAGE>
[MID-IOWA FINANCIAL LETTERHEAD]
December 18, 1997
Dear Stockholder:
I am pleased to report to you that our fiscal year ended
September 30, 1997, our fifth year as a publicly held company,
was a year of record profitability. Net income for the fiscal
year was $1.5 million, representing the highest net income in
our history. We are also pleased with our growth during the
fiscal year as total assets increased to $128 million at
September 30, 1997 representing 10.5% growth for the Company.
We continued our record of paying a cash dividend each
consecutive quarter since the second quarter of 1993. Our
strong performance allows us to continue to grow as we develop
new products and services for our customers. As planned, we
opened a new branch at 39th and Westown Parkway in West Des
Moines during the fiscal year.
Ralph McAdoo will retire from our Board of Directors at the
conclusion of the Annual Meeting in January. Ralph began his
employment with Mid-Iowa in 1967 and served for many years as
President of the Company. Following his retirement in 1990,
Ralph continued to serve on our Board. I join our Directors,
employees, stockholders and customers in thanking Ralph for 30
years of outstanding service and dedication to Mid-Iowa. No
individual is more associated with the great traditions of
Mid-Iowa than is Ralph McAdoo.
Your Board and Management are committed to continuing to
build value in Mid-Iowa. Our Management and employees 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>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets . . . . . . . . . . . $128,017 $115,804 $108,221 $100,562 $ 92,221
Loans receivable, net. . . . . . . 66,418 62,123 57,847 54,269 48,342
Securities available for sale. . . 4,983 4,974 837 851 969
Mortgage-backed and related
securities held for investment. . 26,180 23,974 28,139 29,497 29,990
Investment securities. . . . . . . 21,587 20,258 16,787 11,310 6,885
Deposits . . . . . . . . . . . . . 89,378 82,872 78,671 78,883 78,899
Total borrowings . . . . . . . . . 25,000 20,500 18,000 10,750 3,000
Stockholder's equity -
partially restricted . . . . . . 12,061 10,601 10,261 9,770 9,167
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income. . . . . . . $ 8,963 $ 8,228 $ 7,330 $ 6,211 $ 6,538
Total interest expense . . . . . . 5,345 4,939 4,492 3,347 3,632
-------- -------- -------- -------- --------
Net interest income . . . . . . . 3,618 3,288 2,838 2,864 2,906
Provision for losses on loans. . . 81 36 33 46 60
-------- -------- -------- -------- --------
Net interest income after
provision for losses on loans . 3,537 3,252 2,805 2,818 2,846
Fees and service charges . . . . . 365 325 314 428 377
Gain on loans, mortgage-backed
and investment securities. . . . 24 33 14 25 --
Other noninterest income . . . . . 1,073 741 650 449 755
Total noninterest expense. . . . . 2,653 3,115 2,394 2,247 2,388
-------- -------- -------- -------- --------
Income before taxes on income
and cumulative effect of
accounting changes . . . . . . . 2,341 1,236 1,389 1,473 1,590
Taxes on income. . . . . . . . . . 797 411 462 470 587
Cumulative effect of accounting
changes . . . . . . . . . . . . -- -- -- 64 --
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . $ 1,550 $ 825 $ 927 $ 1,067 $ 1,003
======== ======== ======== ======== ========
Earnings per common share(1) . . . $ .90 $ .47 $ .52 $ .58 $ .52
Cash dividends per common share(1) $ .08 $ .08 $ .08 $ .07 $ .05
</TABLE>
1<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
Average interest rate spread . . . . 2.63% 2.54% 2.32% 2.72 2.87%
Net interest margin(2) . . . . . . . 3.04 2.97 2.74 3.07 3.27
Ratio of operating expense to
average total assets(3) . . . . . . 1.57 2.16 1.79 1.97 1.92
Average interest-earning assets
to average interest-bearing
liabilities . . . . . . . . . . . . 108.95 109.55 109.61 109.81 109.78
Non-performing assets to total
assets at end of period . . . . . . .01 .13 .13 .03 .20
Stockholder's equity to total assets
at end of period . . . . . . . . . 9.42 9.15 9.48 9.72 9.94
Return on assets (net income to
average total assets) . . . . . . . 1.27 .73 .88 1.14 1.10
Return on stockholder's equity
(net income to average
stockholder's equity) . . . . . . . 13.70 7.79 9.25 11.38 11.35
Stockholder's equity-to-assets
ratio (average stockholder's
equity to average total assets) . . 9.27 9.36 9.61 9.98 9.67
Number of full-service offices . . . 7 6 6 6 6
<FN>
- ---------------
(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 2.18%, 2.76%, 2.30%, 2.39% and 2.61% for the years
ended September 30, 1997, 1996, 1995, 1994, and 1993,
respectively.
</FN>
</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 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.
3<PAGE>
<PAGE>
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. The Company
also opened a new branch at 39th and Westown Parkway in West Des
Moines, Iowa during the fiscal year ended September 30, 1997.
FINANCIAL CONDITION
Total assets increased by $12.2 million to $128.0 million
for the year ended September 30, 1997 compared to $115.8 million
for the year ended September 30, 1996. Total loans receivable
increased to $66.4 million at September 30, 1997 from $62.1
million at September 30, 1996. In response to customer demand,
the Company originated $21.0 million of loans during fiscal year
1997, including $16.0 million in fixed-rate mortgage loans and
$5.0 million in adjustable-rate mortgage ("ARM") loans. The
Company's customers refinancing existing mortgage loans
accounted for approximately $3.6 million of these originations.
Total mortgage-backed and related securities increased to $30.5
million (including mortgage-backed securities available for
sale) at September 30, 1997, from $28.3 million at September 30,
1996. Investment securities increased $1.3 million to $22.2
million at September 30, 1997 from $20.9 million at September
30, 1996. The increases in loans receivable and investment
securities were funded primarily by proceeds received from an
increase in deposits of $6.5 million from $82.9 million at
September 30, 1996 to $89.4 million at September 30, 1997 and by
an increase in Federal Home Loan Bank (FHLB) borrowings of $4.5
million from $20.5 million at September 30, 1996 to $25.0
million at September 30, 1997.
Stockholders' equity increased $1.4 million to $12.0
million at September 30, 1997 from $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, 1997, 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, 1997 AND
SEPTEMBER 30, 1996
General. The Company's net income increased by $725,000 to
$1.5 million in fiscal year 1997 from net income of $825,000 in
fiscal 1996. The primary reasons for this increase were the
decrease in non-interest expense of $455,000, an increase of
$330,000 in net interest income and an increase of $360,000 in
non-interest income. The decrease in non-interest expense was
due primarily to a one time FDIC assessment of $530,000 in the
year ended September 30, 1996 and a decrease in the FDIC
insurance rate from .23% of deposits to .06% of deposits
effective January 1, 1997.
Interest Income. Interest income increased $800,000 to
$9.0 million for fiscal 1997 from $8.2 million for fiscal 1996
primarily as a result of an increase in interest-earning assets
of $10.1 million at September 30, 1997. The increase was
partially offset by a decrease in the average yield on interest
earning assets from 7.62% at September 30, 1996 to 7.52% at
September 30, 1997.
4<PAGE>
<PAGE>
Interest Expense. Interest expense increased $400,000 to
$5.3 million in fiscal 1997 from $4.9 million in fiscal 1996 due
primarily to an increase in the average balances of the
Company's deposits and FHLB borrowings and an increase in
interest rates paid on deposits to 4.89% at September 30, 1997
from 4.48% at September 30, 1996.
Net Interest Income. Net interest income increased
$300,000 to $3.6 million at September 30, 1997 from $3.3 million
at September 30, 1996. The Company's average spread (the
mathematical difference between the yield on interest-earning
assets and the cost of interest-bearing liabilities) decreased
to 2.63% for the year ended September 30, 1997 from 2.64% for
the year ended September 30, 1996. The Company's net interest
margin (net interest income divided by average interest-earning
assets) increased to 3.04% at September 30, 1997 from 3.01% at
September 30, 1996.
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 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 $81,000 for the
year ended September 30, 1997 as compared to $36,000 for the
year ended September 30, 1996. The Company's allowance for
losses on loans at September 30, 1997 was $302,000 as compared
to $274,000 at September 30, 1996. Total nonperforming assets
at September 30, 1997 decreased to $17,000, or .1% of total
assets, from $151,000, or .13% of total assets, at September 30,
1996.
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, in view of the continued uncertainties in the economy
generally and the regulatory uncertainty pertaining to reserve
levels for the thrift industry generally, 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 $400,000 to $1.5 million for the year ended September
30, 1997 from $1.1 million for the year ended September 30,
1996. The increase was due primarily to restitution in the
amount of $221,000 paid to the Company from certain outside
investors found by the Office of Thrift Supervision to have
violated the OTS Change in Control Laws and Regulations and from
increased commissions income of the real estate brokerage
operation conducted through a subsidiary of the Company. Other
noninterest income generated by the subsidiaries totaled
$820,000 and $692,000 for the years ended September 30, 1997 and
1996, respectively.
Noninterest Expenses. Noninterest expenses decreased
$400,000 to $2.7 million for the year ended September 30, 1997
as compared to $3.1 million for the year ended September 30,
1996. The decrease was primarily due to a one time assessment
of $530,000 by the FDIC in the year ended September 30, 1996 and
a $130,000 increase in other noninterest expense in the year
ended September 30, 1997. The assessment was levied by the FDIC
on all institutions with deposits insured by the Savings
Association Insurance Fund (the "SAIF") in order to recapitalize
the SAIF. The
5<PAGE>
<PAGE>
assessment, set by the FDIC at .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 declined from the current .23% of insured
deposits to .06% of insured deposits commencing on January 1,
1997. Noninterest expense attributable to the Bank's
subsidiaries totaled $702,000 and $625,000 in fiscal 1997 and
1996, respectively.
Income Taxes. Income taxes for fiscal 1997 increased to
$791,000 due to a $1.1 million increase in taxable income.
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 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.
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 totaled
$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 Fund (the "SAIF") in order to recapitalize the SAIF.
The assessment, set by the FDIC at .65% of SAIF-insured deposits
as of March 31, 1995, was
6<PAGE>
<PAGE>
paid on November 27, 1996. Noninterest expense attributable to
the Bank's subsidiaries totaled $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.
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 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
recommend strategies to the Board that will enhance income while
managing the Company's vulnerability to changes in interest
rates.
At September 30, 1997, total interest-bearing liabilities
maturing or repricing within one year exceeded total interest-
earning assets maturing or repricing in the same period by $9.8
million, representing a negative cumulative one-year gap ratio
of 7.65% as compared to a negative cumulative gap ratio of 1.10%
and 8.09% at September 30, 1996 and 1995, 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 $29.4 million, or 32.3% of
the Company's total deposits, as of September 30, 1997. 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, 1997, the
Company had $5.3 million of investment securities and
interest-bearing deposits with other financial institutions that
mature within one year.
7<PAGE>
<PAGE>
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.
The following table sets forth the repricing dates of the
Company's interest-earning assets and interest-bearing
liabilities at September 30, 1997. 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 5
Within One Year Years Years 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 . . . . . . . $ 3,040 8.11% $ 5,106 $ 6,122 $ 8,794 $ 23,062
Adjustable rate one- to four-
family (including mortgage-
backed and related securities),
mortgage-backed securities held
for sale, commercial real estate
and construction loans. . . . . . 55,989 7.39 4,019 -- -- 60,008
Other securities . . . . . . . . . 6,155 6.20 3,235 4,304 11,602 25,296
Commercial loans . . . . . . . . . 1,612 9.40 1,989 2,020 1,143 6,764
Consumer loans . . . . . . . . . . 4,412 9.08 3,683 -- -- 8,095
------- ---- -------- ------- ------- --------
Total interest-earning assets . 71,208 7.47 18,032 12,446 21,539 123,225
------- ---- -------- ------- ------- --------
Transaction accounts . . . . . . . 2,213 0.65 5,431 1,186 550 9,380
Savings deposits . . . . . . . . . 14,315 3.51 2,226 1,378 2,600 20,519
Certificates of Deposit. . . . . . 48,479 5.48 9,433 2,056 47 60,015
Borrowings . . . . . . . . . . . . 16,000 5.70 5,000 4,000 -- 25,000
------- ---- -------- ------- ------- --------
Total interest-bearing
liabilities . . . . . . . . . 81,007 5.04 22,090 8,620 3,197 114,914
------- ---- -------- ------- ------- --------
Interest-earning assets less
interest-bearing liabilities. . . $(9,799) 2.43% $ (4,058) $ 3,826 $18,342 $ 8,311
======= ==== ======== ======= ======= ========
<PAGE>
Difference as a percent of
interest-earning assets . . . . . (7.95)% (3.29) 3.10% 14.88% 6.74%
======= ======== ======= ======= ========
Cumulative interest rate
sensitivity gap . . . . . . . . . $(9,799) $(13,857) $(10,031) $ 8,311 $ 8,311
======= ======== ======= ======= ========
Cumulative interest rate
sensitivity gap as a percent
of total assets . . . . . . . . . (7.65)% (10.82)% (7.84)% 6.49% 6.49%
======= ======== ======= ======= ========
</TABLE>
8<PAGE>
<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,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Fixed rate residential (including mortgage-
backed and related securities), commercial
real estate and construction loans. . . . . . $ 3,040 $ 3,103 $ 2,910
Adjustable rate residential (including
mortgage-backed and related securities and
mortgage-backed securities held for sale),
commercial real estate and construction
loans . . . . . . . . . . . . . . . . . . . 55,989 56,836 50,908
Commercial business loans. . . . . . . . . . 1,612 570 879
Consumer loans . . . . . . . . . . . . . . . 4,412 3,331 2,976
Investment securities and other. . . . . . . 6,155 4,930 5,135
--------- --------- ---------
Total interest rate sensitive assets
repricing within one year. . . . . . . . 71,208 68,770 62,809
--------- --------- ---------
NOW accounts . . . . . . . . . . . . . . . . 2,213 2,970 1,649
Savings deposits . . . . . . . . . . . . . . 14,315 10,522 5,077
Certificates of deposit. . . . . . . . . . . 48,479 45,049 52,833
--------- --------- ---------
Total deposits . . . . . . . . . . . . . 58,541 59,559
Borrowings . . . . . . . . . . . . . . . . . 16,000 11,500 12,000
--------- --------- ---------
Total interest rate sensitive
liabilities repricing within one year. . 81,007 70,041 71,559
--------- --------- ---------
Gap. . . . . . . . . . . . . . . . . . . . . $ (9,799) $ (1,271) $ (8,750)
========= ========= =========
Interest rate sensitive assets repricing
within one year/interest rate sensitive
liabilities repricing within one year . . . 87.90% 98.19% 87.77%
Gap as a percent of total interest-earning
assets . . . . . . . . . . . . . . . . . . (8.61)% (1.12)% (8.28)%
Gap as a percent of total assets . . . . . . (7.65)% (1.10)% (8.09)%
</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
9<PAGE>
<PAGE>
results in the greater pro forma decrease in NPV) and (ii) its
"normal" level of exposure which 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, 1997, a change in interest rates of positive
200 basis points would have resulted in a 20% 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 an 11% increase in NPV (as a percentage
of the net present value of the Bank's assets).
Presented below, as of September 30, 1997, 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.
<TABLE>
<CAPTION>
Change in At September 30, 1997
Interest Rate -----------------------
(Basis Points) $ Change % Change
-------------- -------- --------
(Dollars in Thousands)
<S> <C> <C>
+400 $(5,837) (47)%
+300 (4,063) (33)
+200 (2,435) (20)
+100 (1,035) (8)
0
-100 653 5
-200 1,375 11
-300 2,316 19
-400 3,554 29
</TABLE>
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.
10<PAGE>
<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,
------------------------------
1997
------------------------------
Yield/Rate at Average Interest
September 30, Outstanding Earned/ Yield/
1997 Balance Paid Rate
------------- ---------- -------- ------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . 8.35% $ 64,474 $ 5,310 8.24%
Mortgage-backed and related
securities (including
securities available
for sale). . . . . . . . . . 6.89 29,628 1,967 6.64
Investment securities . . . . 6.60 23,616 1,572 6.66
Other interest-earning
assets . . . . . . . . . . . 5.25 1,455 115 7.90
-------- -------- -----
Total interest-earning
assets . . . . . . . . . . . 7.55% $119,173 $ 8,964 7.52%
-------- -------- -----
Interest-bearing liabilities:
NOW accounts. . . . . . . . . 0.66% $ 5,627 $ 39 0.69%
Savings deposits. . . . . . . 3.00 19,410 581 2.99
Certificates of deposit . . . 5.50 59,048 3,168 5.37
----- -------- -------- -----
Total deposits . . . . . . . 4.66 84,085 3,788 4.50
Borrowings . . . . . . . . . . 5.70 25,300 1,558 6.16
----- -------- -------- -----
Total interest-bearing
liabilities . . . . . . . . . 4.89 109,385 5,346 4.89
----- -------- -------- -----
Net interest income;
interest rate spread. . . . . 2.66% $ 3,618 2.63%
===== ======== =====
Net earning assets/net yield
on average interest-earning
assets. . . . . . . . . . . . $ 9,788 3.04%
======== =====
Average interest-earning
assets to average interest-
bearing liabilities . . . . . 108.95%
======
<PAGE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1996 1995
------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . $ 60,104 $ 4,880 8.12% $ 56,092 $ 4,165 7.43%
Mortgage-backed and related
securities (including
securities available
for sale). . . . . . . . . . 28,238 1,896 6.71 30,110 2,008 6.67
Investment securities . . . . 18,747 1,195 6.37 15,266 951 6.23
Other interest-earning
assets . . . . . . . . . . . 2,194 256 11.67 2,225 206 9.26
-------- -------- ----- -------- -------- -----
Total interest-earning
assets . . . . . . . . . . . $109,283 $ 8,227 7.53 $103,693 $ 7,330 7.07
-------- -------- ----- -------- -------- -----
Interest-bearing liabilities:
NOW accounts. . . . . . . . . $ 4,694 $ 37 0.79% $ 4,867 $ 43 .88%
Savings deposits. . . . . . . 15,112 430 2.85 12,194 296 2.43
Certificates of deposit . . . 60,402 3,243 5.37 62,770 3,300 5.26
-------- -------- ----- -------- -------- -----
Total deposits . . . . . . . 80,208 3,710 4.63 79,831 3,639 4.56
Borrowings . . . . . . . . . . 20,917 1,229 5.88 14,771 853 5.78
-------- -------- ----- -------- -------- -----
Total interest-bearing
liabilities . . . . . . . . . 101,125 4,939 4.88 94,602 4,492 4.75
-------- -------- ----- -------- -------- -----
Net interest income;
interest rate spread. . . . . $ 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>
11<PAGE>
<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,
------------------------------------------------------------
1997 vs 1996 1996 vs 1995
----------------------------- -----------------------------
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 . . . . . . . . . . $ 191 $ 75 $ 265 $ 316 $ 398 $ 714
Mortgage-backed and related
securities (including
mortgage-backed securities
available for sale). . . 86 (20) 66 (155) 43 (112)
Investment securities . . 176 60 236 223 21 244
Other interest earning
assets . . . . . . . . . (68) (77) (145) 39 11 50
------ ------ ------ ------ ------ ------
Total interest-earning
assets . . . . . . . . $ 385 $ 38 $ 423 $ 423 $ 473 $ 896
====== ====== ====== ====== ====== ======
Interest-bearing liabilities:
NOW accounts. . . . . . . $ 5 $ (5) $ -- $ (32) $ 26 $ (6)
Savings deposits. . . . . (11) 28 17 107 27 134
Certificates of deposit . 32 -- 32 (82) 25 (57)
Borrowings. . . . . . . . 282 57 340 334 42 376
------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities. . . . . . $ 308 $ 80 $ 388 $ 327 $ 120 $ 447
====== ====== ====== ====== ====== ======
Net change in interest
income . . . . . . . . . $ 35 $ 449
====== ======
</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 $25.0 million at September 30, 1997
compared to $20.5 million at September 30, 1996, and had the
capacity to borrow up to an additional $25.0 million.
12<PAGE>
<PAGE>
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 4% 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, 1997, the amount of the Bank's liquidity was $5.9
million, resulting in a liquidity ratio of 6.5%. At September
30, 1996, the Bank's liquidity totaled $6.5 million, resulting
in a liquidity ratio of 6.9%.
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, 1997, the Company had $1.6 million of loan
commitments and an additional $2.6 million available to
customers under existing lines of credit.
Certificates of deposit scheduled to mature in one year or
less at September 30, 1997, totaled $48.4 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.
<PAGE>
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,
------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . $ 1,550 $ 825 $ 927
Adjustment to reconcile net income to net cash
provided by (used in) operating activities . . . (166) 845 (362)
-------- -------- --------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . 1,384 1,670 565
Net cash provided by (used in) investment
activities . . . . . . . . . . . . . . . . . . . (9,841) (8,192) (7,838)
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . 10,873 6,253 6,574
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . 2,416 (269) (699)
Cash at beginning of year. . . . . . . . . . . . . 1,147 1,416 2,115
-------- -------- --------
Cash at end of year. . . . . . . . . . . . . . . . $ 3,563 $ 1,147 $ 1,416
======== ======== ========
</TABLE>
13<PAGE>
<PAGE>
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, 1997, purchases of investment securities
totaled $15.0 million, while loans receivable increased $4.3
million. Customer deposits increased $6.5 million in fiscal
1997. During the year ended September 30, 1996, purchases of
investment securities totaled $14.1 million, while loans
receivable increased $4.3 million. Customer deposits increased
$4.2 million in fiscal 1996. 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, 1997, the Bank had tangible and core
capital of $9.8 million, or 7.8% of adjusted total assets,
respectively, which was approximately $7.9 million and $6.0
million above the minimum requirements of 1.5% and 3.0%,
respectively, of adjusted total assets in effect on that date.
On September 30, 1997, the Bank had risk-based capital of $10.1
million (including $9.8 million in core capital), or 19.4% of
risk-weighted assets of $52.2 million. This amount was $5.9
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 $.02 per
share in each of the quarters of fiscal year 1996. For a
tabular presentation of the dividends declared on the Company's
common stock for the past two fiscal years, see "Price Range of
and Dividends on Common Stock" below. 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 7,500 shares of its common stock
in open market purchases during fiscal 1997 pursuant to its
stock repurchase program. The Company also issued 27,208 shares
of stock to facilitate the exercise of stock options for
employees.
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 128, "Earnings Per Share," will be effective for the
Company for the periods ending after December 15, 1997. SFAS
128 simplifies the standards of computing earnings per share and
changes the presentation of earnings per share in the financial
statements. The Company expects to adopt SFAS 128 when
required, and management believes the adoption will not have a
material effect on disclosures of earnings per share.
14<PAGE>
<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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year
period ended September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
November 14, 1997
15<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------------
1997 1996
-------- --------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 3,563,299 $ 1,147,204
Securities available for sale (Note 2) 4,982,662 4,974,408
Securities held to maturity (fair value of
$48,231,573 in 1997 and $44,203,941 in
1996) (Note 3) 47,767,121 44,231,879
Loan receivable, net (Notes 4 and 5) 66,417,985 62,122,871
Accrued interest receivable 867,663 829,594
Federal Home Loan Bank stock, at cost 1,650,000 1,325,000
Real estate 33,865 37,306
Office properties and equipment,
net (Note 6) 2,587,127 967,451
Intangibles, net 12,978 15,085
Prepaid expenses and other assets 134,051 153,247
------------ ------------
Total assets $128,016,751 $115,804,045
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits (Note 7) $ 89,377,718 $ 82,871,963
Borrowed funds (Note 8) 25,000,000 20,500,000
Advance payments by borrowers for taxes
and insurance 179,982 199,921
Accrued interest payable 945,890 844,457
Accounts payable and accrued expenses
(Note 13) 452,033 786,582
------------ ------------
Total liabilities 115,955,623 105,202,923
------------ ------------
Stockholders' equity (Note 11):
Common stock, $1 par value; authorized
2,000,000 shares; 1,729,880 shares
issued and outstanding 17,299 17,299
Additional paid-in capital 3,040,211 3,142,623
Retained earnings, partially restricted 9,298,166 7,882,078
Treasury stock, at cost (51,792 and 71,500
shares in 1997 and 1996, respectively) (325,600) (448,700)
Unrealized gain on securities available
for sale, net 31,052 7,822
------------ ------------
Total stockholders' equity 12,061,128 10,601,122
------------ ------------
Total liabilities and stockholders'
equity $128,016,751 $115,804,045
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans $ 5,309,865 $ 4,880,247 $ 4,165,512
Securities available for sale 327,497 259,975 50,799
Securities held to maturity 3,069,225 2,831,439 2,907,699
Other 256,768 255,898 206,329
------------ ------------ ------------
Total interest income 8,963,355 8,227,559 7,330,339
------------ ------------ ------------
Interest expense:
Deposits (Note 7) 3,787,690 3,710,324 3,639,420
Borrowed funds 1,557,800 1,229,114 852,849
------------ ------------ ------------
Total interest expense 5,345,490 4,939,438 4,492,269
------------ ------------ ------------
Net interest income 3,617,865 3,288,121 2,838,070
Provision for losses on loans (Note 5) 81,000 36,000 33,000
------------ ------------ ------------
Net interest income after
provision for losses on loans 3,536,865 3,252,121 2,805,070
------------ ------------ ------------
Noninterest income:
Gain on sale of securities -- -- 14,166
Gain on sale of other assets 24,233 33,227 --
Fees and service charges 365,413 325,193 314,127
Commissions 852,247 740,527 650,078
Other income 221,000 -- --
------------ ------------ ------------
Total noninterest income 1,462,893 1,098,947 978,371
------------ ------------ ------------
Noninterest expense:
Compensation, payroll taxes, and
employee benefits (Note 10) 1,191,590 1,119,610 1,082,289
Office properties and equipment 261,599 243,225 229,082
Deposit insurance premiums 75,724 188,325 183,945
Special deposit insurance assessment
(Note 13) -- 530,421 --
Data processing services 147,468 134,574 126,601
Other real estate expense, net (12,118) 2,340 (3,960)
Other 994,860 896,799 776,934
------------ ------------ ------------
Total noninterest expense 2,659,123 3,115,294 2,394,891
------------ ------------ ------------
Income before taxes on income 2,340,635 1,235,774 1,388,550
Taxes on income (Note 9) 790,800 411,200 462,000
------------ ------------ ------------
Net income $ 1,549,835 $ 824,574 $ 926,550
============ ============ ============
Earnings per common share - primary
and fully diluted $ .90 $ .47 $ .52
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
17<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Recognition Unrealized
Additional and Gains
Common Paid-In Retained Retention (Losses), Treasury
Stock Capital Earnings Plan Net Stock Total
-------- ----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ 4,419 $ 3,233,549 $ 6,570,715 $ (12,240) $(26,715) $ -- $ 9,769,728
Net Income -- -- 926,550 -- -- -- 926,550
Repurchase of common stock
(22,092 shares) -- -- -- -- -- (347,468) (347,468)
Amortization of recognition
and retention plan -- -- -- 8,568 -- -- 8,568
Dividends paid ($.16 per share) -- -- (131,783) -- -- -- (131,783)
Stock dividend (100%) 3,976 (183,915) (167,529) -- -- 347,468 --
Change in unrealized gain on
securities available for sale -- -- -- -- 35,388 -- 35,388
-------- ----------- ----------- --------- -------- --------- -----------
Balance as of September 30, 1995 8,395 3,049,634 7,197,953 (3,672) 8,673 -- 10,260,983
Net income -- -- 824,574 -- -- -- 824,574
Repurchase of common stock
(72,700 shares) -- -- -- -- -- (462,950) (462,950)
Exercise of options
(50,328 shares) 503 110,240 -- -- -- -- 110,743
Amortization of recognition
and retention plan -- -- -- 3,672 -- -- 3,672
Dividends paid ($.10 per share) -- -- (135,049) -- -- -- (135,049)
Stock dividend (100%) 8,401 (17,251) (5,400) -- -- 14,250 --
Change in unrealized gain on
securities available for sale -- -- -- -- (851) -- (851)
-------- ----------- ----------- --------- -------- --------- -----------
Balance as of September 30, 1996 17,299 3,142,623 7,882,078 -- 7,822 (448,700) 10,601,122
Net income -- -- 1,549,835 -- -- -- 1,549,835
Repurchase of common stock
(7,500 shares) -- -- -- -- -- (47,812) (47,812)
Exercise of options
(27,208 shares) -- (102,412) -- -- -- 170,912 68,500
Dividends paid ($.08 per share) -- -- (133,747) -- -- -- (133,747)
Change in unrealized gain on
securities available for sale -- -- -- -- 23,230 -- 23,230
-------- ----------- ----------- --------- -------- --------- -----------
Balance as of September 30, 1997 $ 17,299 $ 3,040,211 $ 9,298,166 $ -- $ 31,052 $(325,600) $12,061,128
</TABLE>
18<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,549,835 $ 824,574 $ 926,550
Origination of loans held for sale -- -- (1,198,503)
Proceeds from sale of loans held
for sale -- 309,867 1,016,507
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 108,104 103,594 94,529
Amortization of recognition and
retention plan benefits -- 3,672 8,568
Amortization of premiums and
discounts on loans and mortgage-
backed securities (67,570) (64,019) (43,286)
Provision for losses on loans 81,000 36,000 33,000
Gain on sale of real estate, net (23,230) (33,227) (67,363)
Gain on sale of securities -- -- (14,166)
Increase in accrued interest
receivable (38,069) (22,861) (241,672)
Increase in accrued interest
payable 101,433 36,267 117,316
(Decrease) increase in current
taxes on income (50,795) 49,168 (37,705)
Deferred taxes on income 185,905 (153,934) 37,000
Other, net (462,679) 581,330 (65,023)
------------ ------------ ------------
Net cash provided by
operating activities 1,383,934 1,670,431 565,752
------------ ------------ ------------
Cash flows from investing activities:
Securities available for sale:
Proceeds from sales -- -- 136,164
Purchases (388,439) (2,607,612) --
Principal repayments of mortgage-
backed securities 413,544 545,044 --
Securities held to maturity:
Proceeds from maturities 6,538,323 7,062,151 2,250,000
Purchases (13,708,139) (12,341,227) (8,934,343)
Principal repayments of mortgage-
backed securities 3,706,386 4,025,149 2,616,336
Net change in loans (4,376,114) (4,312,278) (3,610,665)
Proceeds from sale of real estate 26,623 75,000 148,900
Capitalized real estate costs -- (5,440) (14,553)
Purchase of office properties and
equipment, net (1,727,780) (208,206) (134,019)
Purchase of Federal Home Loan Bank
stock (325,000) (425,000) (296,000)
------------ ------------ ------------
Net cash used in
investing activities (9,840,596) (8,192,419) (7,838,180)
------------ ------------ ------------
</TABLE>
19<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in deposits $ 6,505,755 $ 4,200,511 $ (212,033)
Receipt of borrowed funds 26,500,000 23,000,000 18,000,000
Payments on borrowed funds (22,000,000) (20,500,000) (10,750,000)
(Decrease) increase in advance payments
by borrowers for taxes and insurance (19,939) 39,529 15,495
Stock options exercised 68,500 110,743 --
Payments to acquire treasury stock (47,812) (462,950) (347,468)
Dividends paid (133,747) (135,049) (131,783)
------------ ------------ ------------
Net cash provided by
financing activities 10,872,757 6,252,784 6,574,211
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents 2,416,095 (269,204) (698,217)
Cash and cash equivalents at beginning
of year 1,147,204 1,416,408 2,114,625
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,563,299 $ 1,147,204 $ 1,416,408
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest, net of interest capitalized
of $30,872 in 1997 $ 5,213,185 $ 4,903,171 $ 4,375,153
Taxes on income 662,243 516,527 460,866
Noncash investing and financing activities:
Reclassification of securities from
held to maturity to available for sale -- 2,079,143 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
---------------------------
Mid-Iowa Financial Corp., headquartered in Newton, Iowa, is
a savings and loan holding company comprised of a federally
chartered stock savings bank operating offices in Central
Iowa; a real estate brokerage and development company; and
a company which provides credit reporting and collection
services, sells investment products, and provides discount
securities brokerage. Mid-Iowa Financial Corp. was
organized as a Delaware Corporation in June 1992 at the
direction of Mid-Iowa Savings Bank for the purpose of
becoming a savings and loan holding company, as part of the
Mid-Iowa Savings Bank conversion from a mutual to a stock
institution.
Mid-Iowa Financial Corp. is primarily a retail banking
operation offering loans, deposits, and related financial
services to customers in its market area. Loans primarily
consist of single-family residential mortgage loans,
commercial loans, and consumer loans.
Consolidation and Basis of Presentation
---------------------------------------
The consolidated financial statements include the accounts
of Mid-Iowa Financial Corp. and its wholly owned
subsidiaries, Mid-Iowa Security Corporation and Mid-Iowa
Savings Bank (the Bank), and the Bank's wholly owned
subsidiary, Center of Iowa Investments, Limited
(collectively the Company).
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentrations of Credit Risk
-----------------------------
The Company originates residential and commercial real
estate loans primarily in its central Iowa market area.
Although the Company has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay
their loans is dependent upon economic conditions in the
Company's market areas.
Earnings Per Share
------------------
Earnings per share - primary is computed using the
1,670,834 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 53,336 for the year ended September 30, 1997.
21<PAGE>
<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 66,207 for the year ended
September 30, 1997.
Prior years earnings per share computations have been
restated to reflect the 1996 and 1995 stock splits effected
as dividends (see note 11).
The earnings per share computations for the year ended
September 30, 1996, were determined by dividing net
earnings by the restated weighted-average number of common
shares outstanding during the year, which was 1,699,252.
The earnings per share computations for the year ended
September 30, 1995 were determined by dividing net earnings
by the 1,694,654 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 $3,104,940 and $810,165 at
September 30, 1997 and 1996, 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 is reflected in the statements
of operations.
22<PAGE>
<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.
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," 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
impaired, any excess of the loan balance over fair value of
the property is charged to the allowance for losses on
loans. Costs relating to the development and improvement of
property are capitalized, whereas those relating to holding
the property are charged to expense. An allowance for
losses on real estate is provided when it is determined
that the investment in real estate is greater than its
estimated fair value. There were no provisions and no
charge-offs for real estate in the years ended September
30, 1997, 1996, and 1995.
23<PAGE>
<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.
Loan Origination Fees and Related Costs
---------------------------------------
Mortgage loan origination fees and certain direct loan
origination costs, if material, are deferred, and the net
fee or cost is recognized in operations using the interest
method. Direct loan origination costs for other loans are
expensed, as such costs are not material in amount.
Financial Instruments with Off Balance Sheet Risk
-------------------------------------------------
In the normal course of business to meet the financing
needs of its customers, the Company is a party to financial
instruments with off balance sheet risk, which principally
include commitments to extend credit. The Company's
exposure to credit loss in the event of nonperformance by
the other party to the commitments to extend credit is
represented by the contractual amount of those instruments.
The Company uses the same credit policies in making
commitments as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements (see note 4). The Company evaluates each
customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's
credit evaluation of the counterparty.
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, 1997, 1996, and 1995.
24<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Office Properties and Equipment
-------------------------------
Office properties and equipment are recorded at cost,
and depreciation is provided principally using the
straight-line method over the estimated useful lives of
the related assets, which range from 5 to 40 years.
Maintenance and repairs are charged against income.
Expenditures for improvements are capitalized and
subsequently depreciated. The cost and accumulated
depreciation of properties retired or otherwise disposed
of are eliminated from the asset and accumulated
depreciation accounts. Related profit or loss from such
transactions is credited or charged to income.
During the year ended September 30, 1997, approximately
$31,000 in interest expense related to the construction
of a branch facility was capitalized.
Taxes on Income
---------------
The Company files a consolidated federal income tax
return. Federal income taxes are allocated based on
taxable income or loss included in the consolidated
return. For state tax purposes, the Bank files a
franchise tax return and the other entities file a
corporate income tax return.
The Company utilizes the asset and liability method for
taxes on income, and deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are expected
to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the
enactment date.
Stock Option Plan
-----------------
On October 1, 1996, the Company adopted SFAS 123,
"Accounting for Stock-Based Compensation," which permits
entities to record compensation expense at the date of
the grant if the current market price of the underlying
stock exceeds the exercise price, or provide pro forma
net income and pro forma earnings per share disclosures
for employee stock option grants made in 1996 and 1997
and future years as if the fair-value-based method,
which recognizes as expense over the vesting period the
fair value of stock-based awards at the date of grant,
had been applied. The Company has elected to provide
pro forma net income and pro forma earnings per share
disclosures.
25<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Effect of New Accounting Standards
----------------------------------
SFAS 128, "Earnings Per Share," will be effective for
the Company for the periods ending after December 15,
1997. SFAS 128 simplifies the standards of computing
earnings per share and changes the presentation of
earnings per share in the financial statements. The
Company expects to adopt SFAS 128 when required, and
management believes the adoption will not have a
material effect on disclosures of earnings per share.
Fair Value of Financial Instruments
-----------------------------------
The Company's fair value estimates, methods, and
assumptions for its financial instruments are set forth
below:
Cash and Cash Equivalents, Accrued Interest
Receivable, Advance Payments by Borrowers for Taxes and
Insurance, and Accrued Interest Payable
The recorded amount approximates fair value due to
the short-term nature of the instruments.
Securities Available for Sale and Securities Held
to Maturity
The fair value of securities is estimated based on
bid prices published in financial newspapers, bid
quotations received from securities dealers, or
quoted market prices of similar instruments, adjusted
for differences between the quoted instruments and the
instruments being valued.
Loans
-----
Fair values are estimated for portfolios of loans
with similar financial characteristics. Loans are
segregated by type, such as commercial, real estate, and
installment.
The fair value of a loan is calculated by discounting
scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the subsidiary banks'
historical experience with repayments for each loan
classification, modified as required by an estimate
of the effect of current economic and lending
conditions. The effect of nonperforming loans is
considered in assessing the credit risk inherent in
the fair value estimate.
Federal Home Loan Bank (FHLB) Stock
-----------------------------------
The value of FHLB stock is equivalent to its carrying
value, as the stock is redeemable at par value.
26<PAGE>
<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.
27<PAGE>
<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, 1997 and
1996, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1997:
Mortgage-backed securities:
Federal National Mortgage
Association (FNMA) $ 930,039 $16,286 $ -- $ 946,325
Government National Mortgage
Association (GNMA) 1,247,358 28,971 -- 1,276,329
Federal Home Loan Mortgage
Corporation (FHLMC) 150,508 4,878 -- 155,386
Collateralized mortgage
obligations 2,007,298 -- 17,538 1,989,760
Other investment securities 600,112 14,750 -- 614,862
---------- ------- ------- ----------
$4,935,315 64,885 17,538 4,982,662
========== ======= ======= ==========
1996:
Mortgage-backed securities:
FNMA $1,113,568 8,838 -- 1,122,406
GNMA 1,051,711 11,670 -- 1,063,381
FHLMC 189,729 4,920 -- 194,649
Collateralized mortgage
obligations 2,007,436 -- 14,936 1,992,500
Other investment securities 600,112 1,360 -- 601,472
---------- ------- ------- ----------
$4,962,556 26,788 14,936 4,974,408
========== ======= ======= ==========
</TABLE>
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
At September 30, 1997 and 1996, the net valuation amount of
$31,052 and $7,822, respectively, was reflected as a
component of stockholders' equity, including the effect of
taxes on income of $16,295 and $4,030, respectively.
28<PAGE>
<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
sold during 1997, 1996, and 1995, were $-0-, $-0-, and
$136,164, respectively, resulting in gross realized gains
of $-0-, $-0-, and $14,166, respectively.
At September 30, 1997 and 1996, accrued interest receivable
for securities available for sale totaled $17,508 and
$16,312, respectively.
(3) SECURITIES HELD TO MATURITY
Securities held to maturity at September 30, 1997 and 1996,
were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1997:
U.S. agency securities $18,359,588 105,899 62,302 18,403,185
Mortgage-backed and related
securities:
FNMA 4,414,248 69,766 6,047 4,477,967
GNMA 12,727,233 321,803 5,293 13,043,743
FHLMC 1,633,085 1,264 126 1,634,223
Collateralized mortgage
obligations 7,405,811 -- 111,191 7,294,620
Taxable municipal bonds 509,552 39,193 -- 548,745
Nontaxable municipal bonds 2,717,604 117,533 6,047 2,829,090
----------- ------- ------- ----------
$47,767,121 655,458 191,006 48,231,573
=========== ======= ======= ==========
1996:
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>
29<PAGE>
<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, 1997, are shown below
by contractual maturity. Expected maturities will differ
from contractual maturities because borrowers may have
the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- -------------
<S> <C> <C>
Due in 1 year or less $ 50,000 49,866
Due after 1 year through 5 years 10,821,109 10,851,686
Due after 5 years, but less than 10 years 9,733,886 9,882,587
Due after 10 years 981,749 996,881
Mortgage-backed and related securities 26,180,377 26,450,553
----------- -----------
$47,767,121 48,231,573
=========== ===========
</TABLE>
There were no sales of securities held to maturity during
the years ended September 30, 1997, 1996, or 1995. At
September 30, 1997 and 1996, accrued interest receivable
for securities held to maturity totaled $381,238 and
$399,350, respectively.
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Real estate loans:
One- to four-family $46,107,239 45,986,195
Commercial 10,150,075 7,862,669
Construction 1,338,796 884,437
----------- ----------
57,596,110 54,733,301
----------- ----------
Other loans:
Second mortgages 4,497,874 3,142,610
Commercial business 1,394,076 1,982,186
Automobile 1,405,748 1,342,476
Home equity 1,176,502 739,737
Student 306,162 478,763
Unsecured consumer 174,704 160,550
Loans on deposits 180,639 142,137
Other 352,423 297,240
----------- ----------
9,488,228 8,285,699
----------- ----------
67,084,338 63,019,000
Less:
Loans in process 275,553 549,901
Deferred loan fees 88,848 72,409
Allowance for losses on loans 301,952 273,819
----------- ----------
Total loans receivable $66,417,985 62,122,871
=========== ==========
</TABLE>
30
<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS RECEIVABLE, CONTINUED
At September 30, 1997 and 1996, net accrued interest on
loans receivable totaled $473,270 and $389,669,
respectively.
At September 30, 1997, the Bank was committed to originate
$1,626,000 of fixed rate loans at interest rates ranging
from 7 to 9 percent. In addition, the Bank's customers
had unused lines of credit totaling approximately
$2,614,000 at September 30, 1997.
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, 1997 and 1996,
amounted to $258,243 and $62,631, respectively. During
the year ended September 30, 1997, there was one new loan
made for $260,000. Repayments totaled $64,388 for the year.
The amount of loans serviced by the Bank for the benefit of
others was $2,401,830, $2,785,992, and $3,616,636 at
September 30, 1997, 1996, and 1995, respectively.
(5) ALLOWANCE FOR LOSSES ON LOANS
A summary of the allowance for losses on loans follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of year $273,819 248,028 253,306
Provision for losses 81,000 36,000 33,000
Charge-offs (54,387) (29,599) (44,707)
Recoveries 1,520 19,390 6,429
-------- ------- -------
Balance at end of year $301,952 273,819 248,028
======== ======= =======
</TABLE>
At September 30, 1997, 1996, and 1995, the Company had
nonaccrual loans of approximately $17,092; $151,000; and
$142,000 and restructured loans of $24,000; $54,000; and
$56,000, respectively. The allowance for loan losses
related to these impaired loans was approximately $4,000;
$7,500; and $7,900, respectively. The average balances
of such loans for the years ended September 30, 1997,
1996, and 1995, were $95,500; $119,750; and $106,750,
respectively. For the years ended September 30, 1997,
1996, and 1995, interest income which would have been
recorded under the original terms of such loans was
approximately $3,200; $10,300; and $5,200, respectively,
with $1,900; $3,250; and $4,900, respectively, recorded.
As of September 30, 1997, there were no material
commitments to lend additional funds to customers whose
loans were classified as nonaccrual or restructured.
31<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) OFFICE PROPERTIES AND EQUIPMENT
At September 30, 1997 and 1996, the cost and accumulated
depreciation of office properties and equipment were as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 442,399 242,398
Buildings and improvements 2,708,891 1,298,072
Furniture and fixtures 805,936 688,976
---------- ---------
3,957,226 2,229,446
Less accumulated depreciation 1,370,099 1,261,995
---------- ---------
$2,587,127 967,451
========== =========
</TABLE>
(7) DEPOSITS
A summary of deposits at September 30, 1997 and 1996, is
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance by account type:
NOW accounts $ 5,992,220 4,950,632
Passbook 5,798,282 6,050,137
Money market 17,571,218 13,420,926
Certificates of deposit 60,015,998 58,450,268
----------- ----------
$89,377,718 82,871,963
=========== ==========
</TABLE>
At September 30, 1997, the scheduled maturities of
certificates of deposit were as follows:
1998 $48,393,623
1999 7,104,176
2000 2,414,987
2001 1,774,360
2002 and thereafter 328,852
-----------
$60,015,998
===========
The aggregate amount of jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately
$9,700,000 and $9,400,000 at September 30, 1997 and 1996,
respectively.
<PAGE>
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
NOW accounts $ 39,145 37,278 43,395
Savings accounts 580,565 429,754 296,059
Certificates of deposit 3,176,534 3,253,557 3,316,091
---------- --------- ---------
3,796,244 3,720,589 3,655,545
Less penalties on early withdrawals 8,554 10,265 16,125
---------- --------- ---------
Net interest expense $3,787,690 3,710,324 3,639,420
========== ========= =========
</TABLE>
At September 30, 1997 and 1996, accrued interest payable
on deposits totaled $939,893 and $838,789, respectively.
32<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEPOSITS, CONTINUED
At September 30, 1997 and 1996, the Bank had mortgage-
backed and other investment securities with a carrying
value of approximately $24,704,278 and $17,630,000,
respectively, pledged as collateral for deposits.
(8) BORROWED FUNDS
At September 30, 1997 and 1996, borrowed funds consisted of
the following:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Interest Rate 1997 Interest Rate 1996
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
FHLB (A):
Maturity in fiscal year ending
September 30:
1997 -- % $ -- 5.70% $10,000,000
1998 5.72 16,000,000 5.70 4,000,000
1999 5.48 4,000,000 5.17 2,000,000
2000 5.83 5,000,000 5.76 3,000,000
Amount drawn on line of credit (B) Variable -- Variable 1,500,000
----------- -----------
$25,000,000 $20,500,000
=========== ===========
</TABLE>
(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 19, 1998, at which time the Bank
anticipates renewing the agreement. The line has an
interest rate which fluctuates daily. During 1997, the
interest rate ranged from 5.58 percent to 6.49 percent and
at September 30, 1997, was 6.49 percent. The line is
collateralized as described in (A) above.
At September 30, 1997 and 1996, accrued interest payable
on advances from the FHLB and other borrowings totaled
$5,997 and $5,668, respectively.
33 <PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) TAXES ON INCOME
Taxes on income are comprised as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------------
1997 1996 1995
------------------------ --------------------------- --------------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $537,800 67,000 604,800 495,000 70,200 565,200 370,000 55,000 425,000
Deferred 162,000 24,000 186,000 (134,000) (20,000) (154,000) 30,000 7,000 37,000
-------- ------ ------- -------- ------- -------- ------- ------ -------
$699,800 91,000 790,800 361,000 50,200 411,200 400,000 62,000 462,000
======== ====== ======= ======= ======= ======== ======= ====== =======
</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:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Computed "expected" taxes on income $795,827 420,170 472,107
State taxes, net of federal benefit 60,060 33,146 40,920
Tax-exempt interest (38,000) (34,000) (37,000)
Reduction of valuation allowance (10,000) (17,000) (14,000)
Other (17,087) 8,884 (27)
-------- ------- -------
$790,800 411,200 462,000
======== ======= =======
</TABLE>
34<PAGE>
<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:
<TABLE>
<CAPTION>
September 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Loan and real estate loss allowance $136,000 118,000
Accrued deposit insurance assessment -- 198,000
Net operating loss carryover -- 10,000
-------- -------
Total gross deferred tax assets 136,000 326,000
Less valuation allowance -- 10,000
-------- -------
Deferred tax assets net of allowance 136,000 316,000
-------- -------
Deferred tax liabilities:
Unrealized gain on securities held for sale 16,295 4,030
Tax bad debt reserve 179,000 179,000
Other 7,000 1,096
-------- -------
Total gross deferred tax liabilities 202,295 184,126
-------- -------
Net deferred tax (liability) asset $(66,295) 131,874
======== =======
</TABLE>
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.
(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, 1997,
1996, and 1995, was $112,822, $79,247, and $105,113,
respectively.
35<PAGE>
<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 Incentive Plan
---------------------
The Company has a stock incentive plan under which up to
278,107 shares of common stock are reserved for issuance
pursuant to options or other awards which may be granted
to officers, key employees, and certain nonaffiliated
directors of the Company. The exercise price of each
option equals the market price of the Company's stock on
the date of grant. The option's maximum term is ten
years, with vesting occurring at the time the options are
granted.
The Company applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its
plan. Accordingly, no compensation cost has been
recognized for its stock options in the financial
statements. Had compensation cost for the Company's
stock incentive plan been determined consistent with SFAS
123, the Company's net income and earnings per share for
options granted in 1997 would have been reduced to the
pro forma amounts indicated below:
Net income:
As reported $ 1,549,835
Pro forma 1,177,397
Earnings per share:
As reported $ .90
Pro forma .68
The fair value of each option grant has been estimated
using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in
1997: dividend yield of 1.00 percent; expected volatility
of 26.00 percent; risk free interest rate of 6.10 percent;
and expected life of 6 years.
36<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
Stock Incentive Plan, Continued
-------------------------------
A summary of the status of the Company's stock incentive
plan as of September 30, 1997, 1996, and 1995, and the
activity during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------ ------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 78,964 $ 2.08 137,088 $ 2.08 137,088 $ 2.08
Granted 209,000 7.75 - - - -
Exercised (27,208) (2.52) (53,228) (2.08) - -
Repurchased and canceled - - (4,896) 2.08 - -
------- ------- -------
Outstanding at end of year 260,756 6.58 78,964 2.08 137,088 2.08
======= ====== ======= ===== ======= =====
Weighted-average fair value
of options granted
during the year $ 2.70 $ - $ -
====== ===== =====
</TABLE>
(11) STOCKHOLDERS' EQUITY
In order to grant a priority to eligible account holders in
the event of future liquidation, the Bank, at the time of
its stock conversion, established a liquidation account in
an amount equal to the regulatory capital as of December
31, 1991. In the event of future liquidation of the Bank,
eligible account holders who continue to maintain their
deposit accounts shall be entitled to receive a
distribution from the liquidation account. The total amount
of the liquidation account will be decreased as the
balances of eligible account holders are reduced subsequent
to the conversion, based on an annual determination of such
balances.
Treasury Stock
--------------
During the year ended September 30, 1997 and 1996, the
Company repurchased 7,500 and 72,700 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.
37<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCKHOLDERS' EQUITY, CONTINUED
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, 1997 and
1996.
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,
1997 and 1996.
The Bank's capital amounts and ratios as of September 30,
1997, were as follows:
<TABLE>
<CAPTION>
For capital To be well capitalized
adequacy under prompt corrective
Actual purposes action provisions
-------------------- ----------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 9,819,333 7.78% $1,894,031 1.5% $6,313,436 5.0%
Core capital 9,819,333 7.78 3,788,062 3.0 6,313,436 5.0
Risk-based capital 10,121,285 19.38 4,178,712 8.0 5,223,390 10.0
</TABLE>
At September 30, 1997 and 1996, 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, 1997 and 1996, were partially restricted
because of the effect of these tax bad debt reserves.
38<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCKHOLDERS' EQUITY, CONTINUED
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.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial
instruments (as described in note 1) at September 30,
1997, were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- ------------------
Recorded Fair Recorded Fair
amount value amount value
-------- ----- --------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,563,299 3,563,299 1,147,204 1,147,204
Securities available for sale 4,982,662 4,982,662 4,974,408 4,974,408
Securities held to maturity 47,767,121 48,231,573 44,231,879 44,203,941
Loans, net 66,417,985 67,619,505 62,122,871 64,939,013
FHLB stock 1,650,000 1,650,000 1,325,000 1,325,000
Accrued interest receivable 867,663 867,663 829,594 829,594
Financial liabilities:
Deposits 89,377,718 89,234,588 82,871,963 82,683,363
FHLB advances 25,000,000 24,847,404 20,500,000 20,346,769
Advance payments by borrowers 199,921 199,921
for taxes and insurance 179,982 179,982 844,457 844,457
Accrued interest payable 945,890 945,890 -- --
---------- ---------- ---------- ----------
<CAPTION>
Recorded Fair Recorded Fair
Amount Value Amount Value
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Off balance sheet instruments:
Commitments to extend credit $ 1,626,000 -- 168,000 --
Lines of credit to customers 2,614,000 -- 2,473,000 --
Line of credit unused by the
Company 10,000,000 -- 8,500,000 --
----------- ------- --------- ------
</TABLE>
39<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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.
(15) MID-IOWA FINANCIAL CORP. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
The Parent Company's principal asset is its 100 percent
ownership of the Bank and its subsidiary. Following are
the condensed financial statements for the Parent
Company:
<TABLE>
<CAPTION>
September 30,
-----------------------
Condensed Balance Sheets 1997 1996
------------------------ -------- --------
<S> <C> <C>
Cash $ 781,075 98,138
Securities available for sale 1,065,257 804,919
Securities held to maturity 200,000 200,000
Loan receivable - 155,000
Accrued interest receivable 11,261 11,605
Investment in nonbank subsidiary 206,184 348,969
Investment in Bank 9,846,219 9,004,919
Prepaid expenses and other assets 5,218 4,265
----------- ----------
Total assets $12,115,214 10,627,815
=========== ==========
Accrued expenses and other liabilities $ 54,086 26,693
----------- ----------
Common stock 17,299 17,299
Additional paid-in capital 3,040,211 3,142,623
Retained earnings 9,298,166 7,882,078
Treasury stock (325,600) (448,700)
Unrealized gain on securities
available for sale, net 31,052 7,822
----------- ----------
Total stockholders' equity 12,061,128 10,601,122
----------- ----------
Total liabilities and stockholders'
equity $12,115,214 10,627,815
=========== ==========
</TABLE>
40<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) MID-IOWA FINANCIAL CORP. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION, CONTINUED
<TABLE>
<CAPTION>
September 30,
-------------------------------
Condensed Statements of Operations 1997 1996 1995
---------------------------------- ------ ------- -------
<S> <C> <C> <C>
Interest income $ 109,130 103,040 89,291
Gain on securities available for sale -- -- 9,688
Other income 221,000 -- 1,478
Equity in net income of subsidiaries 1,383,352 816,027 905,701
Other expenses (80,772) (97,993) (73,508)
----------- -------- --------
Income before income tax expense (benefit) 1,632,710 821,074 932,650
Income tax expense (benefit) 82,875 (3,500) 6,100
----------- -------- --------
Net income $ 1,549,835 824,574 926,550
=========== ======== ========
<CAPTION>
September 30,
-------------------------------
Condensed Statements of Cash Flows 1997 1996 1995
---------------------------------- ------ ------- -------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,549,835 824,574 926,550
Equity in net income of subsidiaries (1,383,352) (816,027) (905,701)
Amortization (88) (248) 69,267
Gain on sale of investment securities -- -- (9,688)
Change in assets and liabilities:
Decrease (increase) in accrued interest
receivable 344 3,178 (6,731)
Increase (decrease) in current taxes on
income 26,766 (27,412) 1,269
Other, net (4,670) 6,642 4,626
----------- -------- --------
Net cash provided by (used in) operating
activities 188,835 (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 (388,439) (100,000) (262,250)
Proceeds from maturities available for sale -- -- 200,000
Proceeds from sale of subsidiary stock 200,000 -- --
Principal repayments on mortgage-backed
securities available for sale 140,600 126,456 --
Net change in loans 155,000 -- (155,000)
----------- -------- --------
Net cash provided by investing activities 107,161 26,456 (128,312)
----------- -------- --------
Financing activities:
Payments to acquire treasury stock (47,812) (462,950) (347,468)
Stock options exercised 68,500 110,743 --
Net dividends received 366,253 164,951 368,217
----------- -------- --------
Net cash provided by (used in) financing
activities 386,941 (187,256) 20,749
----------- -------- --------
Net increase (decrease) in cash 682,937 (170,093) (27,971)
Cash at beginning of year 98,138 268,231 296,202
----------- -------- --------
Cash at end of year $ 781,075 98,138 268,231
=========== ======== ========
</TABLE>
41<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP.
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 5:00 p.m.,
Monday, January 19, 1998, 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 AND DIVIDENDS ON COMMON STOCK
The table below shows the range of high and low bid prices for,
and cash dividends declared on, the Company's common stock.
These prices do not represent actual transactions and do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
Dividends Dividends
High Low Declared High Low Declared
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter. . . . . . $ 6.62 $ 6.25 $ .02 $ 7.75 $ 5.50 $ .02
Second Quarter . . . . . 8.50 6.75 .02 7.75 6.75 .02
Third Quarter. . . . . . 9.00 7.38 .02 7.25 6.00 .02
Fourth Quarter . . . . . 10.13 8.50 .02 6.50 6.00 .02
</TABLE>
The Company paid 100% stock dividends on January 25, 1996 to
stockholders of record on January 8, 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 24, 1997, the Company had approximately 600
stockholders of record and 1,678,088 net outstanding shares of
common stock.
STOCKHOLDERS AND GENERAL TRANSFER AGENT
INQUIRIES
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, 1997, with the
Securities and Exchange Commission. Copies of the Form 10-KSB
annual report and the Company's quarterly reports may be
obtained by contacting:
Kevin D. Ulmer, President
Mid-Iowa Financial Corp.
123 West Second Street North
Newton, Iowa 50208
(515) 792-6236
42<PAGE>
<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 of Mid-Iowa Financial Corp.,
President, Midwest Manufacturing Co., Kellogg, Iowa and
President, CREST Engineering Co., Brookland Park, Minnesota
John W. Carl
Vice Chairman of the Board of Mid-Iowa Financial Corp.,
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
Carney Loucks
Self-employed Orthodontist, 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 and Secretary of Mid-Iowa Savings Bank,
F.S.B., Newton, Iowa
John Switzer
Retired Advertising Executive, Vernon Company, 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
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage Incorporation
of or
Parent Subsidiary Ownership Organization
------ ---------- ---------- ------------
<S> <C> <C> <C>
Mid-Iowa Financial Mid-Iowa Savings 100% Federal
Corp. Bank, FSB
Mid-Iowa Financial Mid-Iowa Security 100% Iowa
Corp. Corporation
Mid-Iowa Savings Center of Iowa 100% Iowa
Bank, FSB Investments, Limited
</TABLE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Mid-Iowa Financial Corp.:
We consent to incorporation by reference in the Registration
Statements (No. 33-63038 and 333-24049) on Forms S-8 of Mid-Iowa
Financial Corp. of our report dated November 14, 1997, relating
to the consolidated balance sheets of Mid-Iowa Financial Corp.
and subsidiaries as of September 30, 1997 and 1996, the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended
September 30, 1997, which report appears in the September 30,
1997 annual report on Form 10-KSB of Mid-Iowa Financial Corp.
and subsidiaries.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 455,359
<INT-BEARING-DEPOSITS> 3,104,940
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,982,662
<INVESTMENTS-CARRYING> 47,767,121
<INVESTMENTS-MARKET> 48,231,573
<LOANS> 66,417,985
<ALLOWANCE> 301,952
<TOTAL-ASSETS> 128,016,751
<DEPOSITS> 89,377,718
<SHORT-TERM> 16,000,000
<LIABILITIES-OTHER> 1,577,905
<LONG-TERM> 9,000,000
<COMMON> 3,057,510
0
0
<OTHER-SE> 9,003,618
<TOTAL-LIABILITIES-AND-EQUITY> 128,016,751
<INTEREST-LOAN> 5,309,865
<INTEREST-INVEST> 3,396,722
<INTEREST-OTHER> 256,768
<INTEREST-TOTAL> 8,963,355
<INTEREST-DEPOSIT> 3,787,690
<INTEREST-EXPENSE> 1,557,800
<INTEREST-INCOME-NET> 3,617,865
<LOAN-LOSSES> 81,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,659,123
<INCOME-PRETAX> 2,340,635
<INCOME-PRE-EXTRAORDINARY> 2,340,635
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,549,835
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
<YIELD-ACTUAL> 7.55
<LOANS-NON> 17,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 121,136
<ALLOWANCE-OPEN> 273,819
<CHARGE-OFFS> 54,387
<RECOVERIES> 1,520
<ALLOWANCE-CLOSE> 301,952
<ALLOWANCE-DOMESTIC> 301,952
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
