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_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No fee required]
For the fiscal year ended September 30, 1998
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
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(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, 1998 were $2.8 million.
As of December 15, 1998, the Registrant had issued and
outstanding 1,746,148 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 Smallcap Market as of December
15, 1998, was $23.4 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 1998 Annual Report to
Stockholders.
PART III of Form 10-KSB--Portions of Proxy Statement for
the 1999 Annual Meeting of Stockholders.
================================================================
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Exhibit 13 to the Annual Report on Form 10-KSB has been amended.
The amendment is to the Consolidated Balance Sheets on page 19.
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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 22, 1998 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 22, 1998 Date: December 22, 1998
By: /s/ John E. Carl By:
--------------------------- ------------------------
John E. Carl, Director David E. Sandeen, Director
Date: December 22, 1998 Date: December __, 1998
By:
---------------------------
Carey D. Loucks, Director
Date: December __, 1998
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1998 ANNUAL REPORT
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[LOGO]
MID-IOWA FINANCIAL CORP.<PAGE>
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TABLE OF CONTENTS
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President's Message. . . . . . . . . . . . . . . . . . 1
Selected Consolidated Financial Information. . . . . . 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 4
Consolidated Financial Statements. . . . . . . . . . . 18
Stockholder Information. . . . . . . . . . . . . . . . 46
Corporate Information. . . . . . . . . . . . . . . . . 47
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[MID-IOWA FINANCIAL LETTERHEAD]
February 22, 1999
Dear Stockholder:
I am pleased to report to you that our fiscal year ended
September 30, 1998, our sixth year as a publicly held company,
was another year of growth and profitability. Net income for
the fiscal year was $1.3 million, while total assets grew to
$147.5 million.
Our strong performance has provided for growth and
development of new products and services. This past year marked
the first full year of operation of our new branch at 39th and
Westown Parkway in West Des Moines. We are quite pleased with
the success of this branch.
Director John Switzer passed away in September of 1998.
John served proudly on our board for 26 years and all of us at
Mid-Iowa are grateful to have known John and for his many years
of dedicated service on our board.
In August of 1998, Mid-Iowa entered into a definitive
agreement for sale of the company to First Federal Bankshares,
M.H.C. I encourage you to review the accompanying information
regarding that transaction. We are pleased to be associated
with First Federal which shares our philosophy of community
banking and personal customer service. Like Mid-Iowa, First
Federal is a company with a strong commitment to the needs of
its customers and communities.
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
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ---------------------------------
Total assets . . . . . . . . . . . $147,517 $128,017 $115,804 $108,221 $100,562
Loans receivable, net. . . . . . . 71,436 66,418 62,123 57,847 54,269
Securities available for sale. . . 4,994 4,983 4,974 837 851
Mortgage-backed and related
securities held for investment. . 25,862 26,180 23,974 28,139 29,497
Investment securities. . . . . . . 23,932 21,587 20,258 16,787 11,310
Deposits . . . . . . . . . . . . . 96,353 89,378 82,872 78,671 78,883
Total borrowings . . . . . . . . . 36,000 25,000 20,500 18,000 10,750
Stockholder's equity - partially
restricted . . . . . . . . . . . 13,760 12,061 10,601 10,261 9,770
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
- ------------------------
Total interest income. . . . . . . $ 9,806 $ 8,963 $ 8,227 $ 7,330 $ 6,211
Total interest expense . . . . . . 6,081 5,345 4,939 4,492 3,347
------- ------- ------- ------- -------
Net interest income . . . . . . 3,725 3,618 3,288 2,838 2,864
Provision for losses on loans. . . 60 81 36 33 46
------- ------- ------- ------- -------
Net interest income after
provision for losses on
loans . . . . . . . . . . . . 3,665 3,537 3,252 2,805 2,818
Fees and service charges . . . . . 395 365 325 314 428
Gain on loans, mortgage-backed
and investment securities. . . . 25 24 33 14 25
Other noninterest income . . . . . 928 1,073 741 650 449
Total noninterest expense. . . . . 3,081 2,658 3,115 2,394 2,247
------- ------- ------- ------- -------
Income before taxes on income
and cumulative effect of
accounting changes . . . . . . . 1,932 2,341 1,236 1,389 1,473
Taxes on income. . . . . . . . . . 600 791 411 462 470
Cumulative effect of accounting
changes. . . . . . . . . . . . . -- -- -- -- 64
------- ------- ------- ------- -------
Net income . . . . . . . . . . . . $ 1,332 $ 1,550 $ 825 $ 927 $ 1,067
======= ======= ======= ======= =======
Earnings per common share-
diluted (1). . . . . . . . . . . $ .73 $ .89 $ .47 $ .52 $ .58
Cash dividends per common
share(1) . . . . . . . . . . . . $ .08 $ .08 $ .08 $ .08 $ .07
</TABLE>
2
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<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
- ----------
Average interest rate spread . . . . 2.38% 2.63% 2.54% 2.32% 2.72%
Net interest margin(2) . . . . . . . 2.77 3.04 2.97 2.74 3.07
Ratio of operating expense to
average total assets(3) . . . . . . 1.62 1.57 2.16 1.79 1.97
Average interest-earning assets to
average interest-bearing
liabilities . . . . . . . . . . . . 108.51 108.95 109.55 109.61 109.81
Non-performing assets to total
assets at end of period . . . . . . .15 .01 .13 .13 .03
Stockholder's equity to total
assets at end of period . . . . . . 9.33 9.42 9.15 9.48 9.72
Return on assets (net income to
average total assets) . . . . . . . .96 1.27 .73 .88 1.14
Return on stockholder's equity
(net income to average
stockholder's equity) . . . . . . . 10.26 13.70 7.79 9.25 11.38
Stockholder's equity-to-assets ratio
(average stockholder's equity to
average total assets) . . . . . . . 9.37 9.27 9.36 9.61 9.98
Number of full-service offices . . . 7 7 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 2.22%, 2.18%, 2.76%, 2.30% and 2.39% for the
years ended September 30, 1998, 1997, 1996, 1995, and 1994, respectively.
</FN>
</TABLE>
3<PAGE>
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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.
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.
RECENT DEVELOPMENTS
On August 17, 1998, the Company and the Bank entered into
a definitive agreement to be acquired by First Federal
Bankshares, M.H.C. ("Bancorp")( a federally-chartered mutual
holding company) and First Federal Savings Bank of Siouxland
("First Federal") (53.8% owned by Bancorp), headquartered in
Sioux City, Iowa. The terms of the acquisition call for First
Federal to pay $15.00 in cash, subject to upward price
adjustment, for each outstanding share of Company common stock.
The transaction, with an aggregate value of approximately $29.0
million, will be accounted for as a purchase. The acquisition
is subject, among other conditions, to regulatory approval, the
approval of the Company's stockholders and the successful
completion of First Federal's second step conversion.
FINANCIAL CONDITION
Total assets increased by $19.5 million to $147.5 million
for the year ended September 30, 1998 compared to $128.0 million
for the year ended September 30, 1997. Total loans receivable
increased to $71.4 million at September 30, 1998 from $66.4
million at September 30, 1997. In response to customer demand,
the Company originated $27.4 million of loans during fiscal year
1998, including $18.1 million in fixed-rate mortgage loans and
$9.3 million in adjustable-rate mortgage ("ARM") loans. The
Company's customers refinancing existing mortgage loans
accounted for approximately $5.5 million of these originations.
Total mortgage-backed and related securities decreased to $29.7
million (including mortgage-backed securities available for
sale) at September 30, 1998, from $30.5 million at September 30,
1997. Investment securities increased $2.8 million to $25.0
million at September 30, 1998 from $22.2 million at September
30, 1997. The increases in loans receivable and investment
securities were funded primarily by
4<PAGE>
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proceeds received from an increase in deposits of $7.0 million
from $89.4 million at September 30, 1997 to $96.4 million at
September 30, 1998 and by an increase in Federal Home Loan Bank
(FHLB) borrowings of $9.0 million from $25.0 million at
September 30, 1997 to $36.0 million at September 30, 1998.
Stockholders' equity increased $1.7 million to $13.8
million at September 30, 1998 from $12.1 million at September
30, 1997.
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, 1998, 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, 1998 AND
SEPTEMBER 30, 1997
General. The Company's net income decreased by $218,000
to $1.3 million in fiscal year 1998 from net income of $1.5
million in fiscal 1997. The primary reasons for this decrease
were the increase in non-interest expense of $422,000, a
decrease of $115,000 in non-interest income offset by an
increase of $107,000 in net interest income. The increase in
non-interest expense was due primarily to additional operating
expense for the West Des Moines branch which opened in September
of 1997 and an increase in legal and accounting expenses
relating to the merger with First Federal of Siouxland.
Interest Income. Interest income increased $843,000 to
$9.8 million for fiscal 1998 from $9.0 million for fiscal 1997
primarily as a result of an increase in interest-earning assets
of $10.8 million at September 30, 1998. The increase was
partially offset by a decrease in the average yield on interest
earning assets from 7.52% at September 30, 1997 to 7.28% at
September 30, 1998.
Interest Expense. Interest expense increased $736,000 to
$6.1 million in fiscal 1998 from $5.3 million in fiscal 1997 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 4.54% at September 30, 1998
from 4.50% at September 30, 1997.
Net Interest Income. Net interest income increased
$107,000 to $3.7 million at September 30, 1998 from $3.6 million
at September 30, 1997. The Company's average spread (the
mathematical difference between the yield on interest-earning
assets and the cost of interest-bearing liabilities) decreased
to 2.38% for the year ended September 30, 1998 from 2.63% for
the year ended September 30, 1997. The Company's net interest
margin (net interest income divided by average interest-earning
assets) decreased to 2.77% at September 30, 1998 from 3.04 at
September 30, 1997.
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 assets reprice more quickly than its
liabilities, interest margins will likely decrease if interest
rates fall.
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
5<PAGE>
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of classified assets, historical loan loss experience, a
detailed analysis of individual loans for which full
collectibility many 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 $60,000 for the
year ended September 30, 1998 as compared to $81,000 for the
year ended September 30, 1997. The Company's allowance for
losses on loans at September 30, 1998 was $307,000 as compared
to $302,000 at September 30, 1997. Total non-performing assets
at September 30, 1998 increased to $218,000, or 0.15% of total
assets, from $17,000, or .01% of total assets, at September 30,
1997. Subsequent to September 30, 1998 the Company sold a
residential non-performing property at a gain of $11,000
reducing total non-performing assets to $126,000.
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,
decreased $115,000 to 1.3 million for the year ended September
30, 1998 from $1.5 million for the year ended September 30,
1997. The decrease was due primarily to restitution paid in the
year ended September 30, 1997 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 partially offset by increased
commissions income of the real estate brokerage operation
conducted through a subsidiary of the Company for the fiscal
year ending September 30, 1998. Other noninterest income
generated by the subsidiaries totaled $854,000 and $820,000 for
the years ended September 30, 1998 and 1997, respectively.
Noninterest Expenses. Noninterest expenses increased
$420,000 to $3.1 million for the year ended September 30, 1998
as compared to $2.7 million for the year ended September 30,
1997. The increase was primarily due to increased operating
expense for the West Des Moines branch which opened in September
of 1997 of approximately $300,000 and an increase in legal and
other merger related expenses of $65,000 in the year ended
September 30, 1998. Non-interest expense attributable to the
Bank's subsidiaries totaled $736,000 and $702,000 in fiscal 1998
and 1997, respectively.
Income Taxes. Income taxes for fiscal year 1998 decreased
to $600,000 due to a $235,000 decrease in taxable income.
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.
6<PAGE>
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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 on 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
7<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.
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, 1998, total interest-earning assets
maturing or repricing within one year exceeded total interest-
bearing liabilities maturing or repricing in the same period by
$4.3 million, representing a positive cumulative one-year gap
ratio of 2.94% as compared to a negative cumulative gap ratio of
7.65% and 1.10% at September 30, 1997 and 1996, 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 $29.2 million, or 30.4% of
the Company's total deposits, as of September 30, 1998. 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, 1998, the
Company had $40.0
8<PAGE>
<PAGE>
million of investment securities and interest-bearing deposits
with other financial institutions that mature within one year.
In managing its asset-liability mix, Mid-Iowa may, at
times, depending on the relationship between long and short term
interest rates, market conditions and consumer preference, place
greater emphasis on maximizing its net interest margin than on
better matching the interest rate sensitivity of its assets and
liabilities in an effort to improve its spread. Management
believes that the increased net income resulting from a mismatch
in the maturity of its asset and liability portfolios can,
during periods of declining or stable interest rates, provide
high enough returns to justify the increased vulnerability to
sudden and unexpected increases in interest rates which can
result from such a mismatch.
The following table sets forth the repricing dates of the
Company's interest-earning assets and interest-bearing
liabilities at September 30, 1998. 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.
<PAGE>
<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 . . . . . . . . . . . . . . $ 3,003 8.21% $ 8,405 $11,185 $11,838 $ 34,431
Adjustable rate one- to four-
family (including mortgage-
backed and related securities),
mortgage-backed securities
held for sale, commercial real
estate and construction loans . . 50,761 7.41 6,350 -- -- 57,111
Other securities . . . . . . . . . 26,006 6.45 2,684 3,485 2,871 35,048
Commercial loans . . . . . . . . . 448 9.32 478 448 226 1,600
Consumer loans . . . . . . . . . . 4,712 8.71 4,395 28 -- 9,135
------- ---- ------- ------- ------- --------
Total interest-earning
assets. . . . . . . . . . . 84,930 7.22 22,314 15,146 14,935 137,325
------- ---- ------- ------- ------- --------
Transaction accounts . . . . . . . 2,158 .88 2,216 879 579 5,832
Savings deposits . . . . . . . . . 15,284 3.40 3,427 1,850 2,853 23,414
Certificates of Deposit. . . . . . 58,155 5.46 7,362 1,472 118 67,107
Borrowings . . . . . . . . . . . . 5,000 5.55 8,000 6,000 17,000 36,000
------- ---- ------- ------- ------- --------
Total interest-bearing
liabilities. . . . . . . . . 80,597 4.95 21,005 10,201 20,550 132,353
------- ---- ------- ------- ------- --------
Interest-earning assets less
interest-bearing liabilities. . . $ 4,333 2.27% $ 1,309 $ 4,945 $(5,615) $ 4,972
======= ==== ======= ======= ======= ========
Difference as a percent of
interest-earning assets . . . . . 3.16% .95 3.60% (4.09)% 3.62%
======= ======= ======= ======= ========
Cumulative interest rate
sensitivity gap. . . . . . . . . $ 4,333 $ 5,642 $10,587 $ 4,972 $ 4,972
======= ======= ======= ======= ========
Cumulative interest rate
sensitivity gap as a percent
of total assets . . . . . . . . . 2.94% 3.82% 7.18% 3.37% 3.37%
======= ======= ======= ======= ========
</TABLE>
9<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,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Fixed rate residential (including mortgage-
backed and related securities), commercial
real estate and construction loans. . . . . . $ 3,003 $ 3,040 $ 3,103
Adjustable rate residential (including
mortgage-backed and related securities and
mortgage-backed securities held for sale),
commercial real estate and construction
loans . . . . . . . . . . . . . . . . . . . 50,761 55,989 56,836
Commercial business loans. . . . . . . . . . 448 1,612 570
Consumer loans . . . . . . . . . . . . . . . 4,712 4,412 3,331
Investment securities and other. . . . . . . 26,006 6,155 4,930
------- ------- -------
Total interest rate sensitive assets
repricing within one year. . . . . . . 84,930 71,208 68,770
------- ------- -------
NOW accounts . . . . . . . . . . . . . . . . 2,158 2,213 2,970
Savings deposits . . . . . . . . . . . . . . 15,284 14,315 10,522
Certificates of deposit. . . . . . . . . . . 58,155 48,479 45,049
------- ------- -------
Total deposits. . . . . . . . . . . . . 75,597 65,007 58,541
Borrowings . . . . . . . . . . . . . . . . . 5,000 16,000 11,500
------- ------- -------
Total interest rate sensitive
liabilities repricing within
one year . . . . . . . . . . . . . . . 80,597 81,007 70,041
------- ------- -------
Gap. . . . . . . . . . . . . . . . . . . . . $ 4,333 $(9,799) $(1,271)
======= ======= =======
Interest rate sensitive assets repricing
within one year/interest rate sensitive
liabilities repricing within one year . . . 105.38% 87.90% 98.19%
Gap as a percent of total interest-earning
assets . . . . . . . . . . . . . . . . . . 3.16% (8.61)% (1.12)%
Gap as a percent of total assets . . . . . . 2.94% (7.65)% (1.10)%
</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
10<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, 1998, a change in interest rates of positive
200 basis points would have resulted in a 3% increase in NPV (as
a percentage of the net present value of the Bank's assets),
while a change in interest rates of negative 200 basis points
would have resulted in a 7% decrease in NPV (as a percentage of
the net present value of the Bank's assets).
Presented below, as of September 30, 1998, 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, 1998
Interest Rate -----------------------
(Basis Points) $ Change % Change
------------- -------- --------
(Dollars in Thousands)
<S> <C> <C>
+400 $(404) (3)
+300 116 1
+200 384 3
+100 313 3
0
-100 (461) (4)
-200 (832) (7)
-300 (1,061) (9)
-400 (1,221) (10)
</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.
11<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,
------------------------------
1998
------------------------------
Yield/Rate at Average Interest
September 30, Outstanding Earned/ Yield/
1998 Balance Paid Rate
------------- ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . 8.09% $ 70,376 $ 5,789 8.23%
Mortgage-backed and related
securities (including
securities available
for sale). . . . . . . . . . 6.38 29,581 1,863 6.30
Investment securities . . . . 6.57 28,017 1,852 6.61
Other interest-earning
assets . . . . . . . . . . . 5.50 6,708 302 4.50
-------- -------- -----
Total interest-earning
assets . . . . . . . . . . . 7.26% $134,682 $ 9,806 7.28%
-------- -------- -----
Interest-bearing liabilities:
NOW accounts. . . . . . . . . 0.68% $ 6,068 $ 42 0.69%
Savings deposits. . . . . . . 3.60 21,594 648 3.00
Certificates of deposit . . . 5.42 62,788 3,413 5.44
----- -------- -------- -----
Total deposits . . . . . . . 4.68 90,450 4,103 4.54
Borrowings . . . . . . . . . . 5.50 33,600 1,979 5.89
----- -------- -------- -----
Total interest-bearing
liabilities . . . . . . . . . 4.90 124,050 6,082 4.90
----- -------- -------- -----
Net interest income;
interest rate spread. . . . . 2.36% $ 3,724 2.38%
===== ======== =====
Net earning assets/net yield
on average interest-earning
assets. . . . . . . . . . . . $ 10,632 2.77%
======== =====
Average interest-earning
assets to average interest-
bearing liabilities . . . . . 108.57%
======
<PAGE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1997 1996
------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . $ 64,474 $ 5,310 8.24% $ 60,104 $ 4,880 8.12%
Mortgage-backed and related
securities (including
securities available
for sale). . . . . . . . . . 29,628 1,967 6.64 28,238 1,896 6.71
Investment securities . . . . 23,616 1,572 6.66 18,747 1,195 6.37
Other interest-earning
assets . . . . . . . . . . . 1,455 115 7.90 2,194 256 11.67
-------- -------- ----- -------- -------- -----
Total interest-earning
assets . . . . . . . . . . . $119,173 $ 8,964 7.52% $109,283 $ 8,227 7.53
-------- -------- ----- -------- -------- -----
Interest-bearing liabilities:
NOW accounts. . . . . . . . . $ 5,627 $ 39 0.69% $ 4,694 $ 37 0.79%
Savings deposits. . . . . . . 19,410 581 2.99 15,112 430 2.85
Certificates of deposit . . . 59,048 3,168 5.37 60,402 3,243 5.37
-------- -------- ----- -------- -------- -----
Total deposits . . . . . . . 84,085 3,788 4.50 80,208 3,710 4.63
Borrowings . . . . . . . . . . 25,300 1,558 6.16 20,917 1,229 5.88
-------- -------- ----- -------- -------- -----
Total interest-bearing
liabilities . . . . . . . . . 109,385 5,346 4.89 101,125 4,939 4.88
-------- -------- ----- -------- -------- -----
Net interest income;
interest rate spread. . . . . $ 3,618 2.63% $ 3,288 2.64%
======== ===== ======== =====
Net earning assets/net
yield on average interest
earning assets. . . . . . . . $ 9,788 3.04% $ 8,158 3.01%
======== ===== ======== =====
Average interest-earning
assets to average interest-
bearing liabilities . . . . . 108.95% 108.07%
====== ======
</TABLE>
12<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,
------------------------------------------------------------
1998 vs 1997 1997 vs 1996
----------------------------- -----------------------------
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 . . . . . . . . . . . $ (6) $ 485 $ 479 $ 191 $ 75 $ 265
Mortgage-backed and
related securities
(including mortgage-
backed securities
available for sale). . . . (101) (3) (104) 86 (20) 66
Investment securities . . . (183) 463 280 176 60 236
Other interest earning
assets. . . . . . . . . . (10) 197 187 (68) (77) (145)
----- ------ ----- ----- ---- -----
Total interest-earning
assets. . . . . . . . $(300) $1,142 $ 842 $ 385 $ 38 $ 423
===== ====== ===== ===== ==== =====
Interest-bearing liabilities:
NOW accounts. . . . . . . . $ -- $ 3 $ 3 $ 5 $ (5) $ --
Savings deposits. . . . . . 2 65 67 (11) 28 17
Certificates of deposit . . 42 203 245 32 -- 32
Borrowings. . . . . . . . . (65) 486 420 282 57 340
----- ------ ----- ----- ---- -----
Total interest-bearing
liabilities. . . . . . $ 21 $ 757 $ 735 $ 308 $ 80 $ 388
===== ====== ===== ===== ==== =====
Change net interest income . $ 107 $ 35
===== =====
</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 $36.0 million at September 30, 1998
compared to $25.0 million at September 30, 1997, and had the
capacity to borrow up to an additional $22.0 million.
<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
13<PAGE>
<PAGE>
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, 1998, the amount of the
Bank's liquidity was $39.4 million, resulting in a liquidity
ratio of 42.4%. At September 30, 1997, the Bank's liquidity
totaled $5.9 million, resulting in a liquidity ratio of 6.5%.
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, 1998, the Company had $918,000 of loan
commitments and an additional $2.8 million available to
customers under existing lines of credit.
Certificates of deposit scheduled to mature in one year or
less at September 30, 1998, totaled $58.2 million. Based on
historical experience, management believes that a significant
portion of such deposits will remain with the Company, however,
there can be no assurance that the Company can retain all such
deposits.
Management believes that loan repayments and other sources
of funds will be adequate to meet and exceed the Company's
foreseeable short- and long-term liquidity needs.
The Company's liquidity, represented by cash, is a
combination of its operating, investing, and financing
activities. These activities are summarized below for the years
indicated.
<TABLE>
<CAPTION>
September 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income . . . . . . . . . . . . . . . . . $ 1,332 $ 1,550 $ 825
Adjustment to reconcile net income to net
cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . (290) (166) 845
------- ------- -------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . 1,042 1,384 1,670
Net cash provided by (used in) investment
activities . . . . . . . . . . . . . . . . (7,461) (9,841) (8,192)
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . 18,314 10,873 6,253
------- ------- -------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . 11,895 2,416 (269)
Cash at beginning of year. . . . . . . . . . 3,563 1,147 1,416
------- ------- -------
Cash at end of year. . . . . . . . . . . . . $15,458 $ 3,563 $ 1,147
======= ======= =======
</TABLE>
The primary investing activities of the Company include
investing in loans, investment securities and mortgage-backed
and related securities. The purchases are funded primarily from
loan repayments, maturities of securities and deposits and
increases in customer deposit liabilities. During the year
ended September 30, 1998, purchases of investment securities
totaled $24.7 million, while loans receivable increased $5.0
million. Customer deposits increased $7.0 million in fiscal
1998. 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. In the
14<PAGE>
<PAGE>
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, 1998, the Bank had tangible and core
capital of $11.2 million, or 7.7% of adjusted total assets,
respectively, which was approximately $9.0 million and $6.8
million above the minimum requirements of 1.5% and 3.0%,
respectively, of adjusted total assets in effect on that date.
On September 30, 1998, the Bank had risk-based capital of $11.5
million (including $11.2 million in core capital), or 19.2% of
risk-weighted assets of $59.8 million. This amount was $6.7
million above the 8% requirement in effect on that date. The
Bank is presently in compliance with the fully phased-in capital
requirements.
The Company paid a quarterly cash dividend of $.02 per
share in each of the quarters of fiscal year 1998. 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.
IMPACT OF YEAR 2000 ISSUE
A great deal of information has been disseminated about
the global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits
of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on
the wrong date or are expected to be unable to compute payment,
interest or delinquency. Rapid and accurate data processing is
essential to the operations of the Company. Data processing is
also essential to most other financial institutions and many
other companies.
The Company began its Year 2000 efforts in the Spring of
1997 with the sponsorship of its executive management and
guidance of legal counsel. A Year 2000 committee was formed
with representation from management of every area of the Company
and chaired by the Executive Vice President. The Year 2000
issue has been identified as a top priority. The Company has
dedicated resources to assess, repair and test programs,
applications, equipment and facilities. The Company's Year 2000
Program is coordinating with each vendor and supplier of the
Company to ensure Year 2000 Compliance. The Company has
substantially completed its assessment of the Year 2000 issue,
and is currently repairing systems, developing test strategies
and working with its customers and vendors. At this time, the
Company anticipates that remediation and internal testing of its
mission critical applications will be completed by March 31,
1999.
Management anticipates that the enhancements necessary to
prepare its mission-critical systems for the year 2000 will be
completed in early 1999. Although the efforts to prepare for
the Year 2000 is intended to address all Year 2000 issues, the
Bank's disaster recovery/contingency plan will encompass Year
2000 elements and address potential Year 2000 issues in the year
2000. The Bank's contingency plan was developed to mitigate the
risk associated with the failure of any of the Bank's computer
systems as well as mission critical systems of outside software
vendors and third-party service providers.
The Bank anticipates that it will incur internal staff
costs as well as consulting and other expenses related to
enhancements necessary to prepare its systems for Year 2000.
Based on the Bank's current estimate, fiscal 1999 expenses of
the Year 2000 project are not expected to exceed $100,000. The
expenses incurred to date are not material to the financial
statements.
In addition to expenses related to its own computer
systems, the Bank is aware of potential Year 2000 risks to third
parties, including vendors (and to the extent appropriate,
depositors and borrowers) and the possible adverse impact on the
Bank resulting from failures by those parties to adequately
address the Year 2000 problem. The Bank could incur losses if
loan payments are delayed due to Year 2000 problems affecting
borrowers or impairing the payroll systems of large employers in
the Bank's market area. To date, the Bank has not been advised
by such parties that they do not have plans in place to address
and correct the issues associated with the Year 2000 problem;
however, no assurance can be given as to the adequacy of such
plans or to the timeliness of their implementation.
15<PAGE>
<PAGE>
The actual costs of Year 2000 compliance and the impact of
Year 2000 issues could differ materially from what is currently
anticipated. Factors that might result in such differences
include incomplete inventory and assessment results, higher than
anticipated costs to update software and hardware and vendors',
customers' and other third parties' inability to effectively
address the Year 2000 issue.
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
Comprehensive Income. In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the
same prominence as other financial statements. It does not
require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial condition. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for
comparative purposes is required. SFAS No. 130 is not expected
to have a material impact on the Company's financial statements.
Business Segments. In June 1997, the FASB issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 significantly changes the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about reportable
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management
organizes the segments within the enterprise for making
operating decisions and assessing performance. For many
enterprises, the management approach will likely result in more
segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each
reportable segment than is presently being reported in annual
financial statements and also requires that selected information
be reported in interim financial statements. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 is not expected to have a material impact on the
Company's financial statements.
<PAGE>
Derivatives and Hedging Activities. In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which requires entities to recognize all
derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies
new methods of accounting for hedging transactions, prescribes
the items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting.
16<PAGE>
<PAGE>
The definition of a derivative financial instrument is
complex, but in general it is an instrument with one or more
underlyings, such as an interest rate or foreign exchange rate,
that is applied to a notional amount, such as an amount of
currency, to determine the settlement amount(s). It generally
requires no significant initial investment and can be settled
net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other
contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale
category or trading category without calling into question their
intent to hold other debt securities to maturity in the future.
Management is evaluating the effect of SFAS No. 133 on the
Company's financial statements.
17<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,
1998 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended September 30, 1998. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Mid-Iowa Financial Corp. and subsidiaries as of
September 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
November 6, 1998
18<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1997
-------- --------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents (note 1) $ 15,457,949 $ 3,563,299
Securities available for sale (note 2) 4,994,247 4,982,662
Securities held to maturity (fair value of
$50,380,170 in 1998 and $48,231,573 in
1997) (notes 3 and 7) 49,793,789 47,767,121
Loans held for resale 49,900 --
Loans receivable, net (notes 4, 5 and 8) 71,435,579 66,417,985
Accrued interest receivable 1,017,122 867,663
Federal Home Loan Bank Stock, at cost 1,800,000 1,650,000
Real estate 135,438 33,865
Office properties and equipment,
net (note 6) 2,630,366 2,587,127
Intangibles, net 10,872 12,978
Prepaid expenses and other assets 191,663 134,051
------------ ------------
Total assets $147,516,925 $128,016,751
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits (note 7) $ 96,352,659 $ 89,377,718
Borrowed funds (note 8) 36,000,000 25,000,000
Advance payments by borrowers for taxes
and insurance 162,572 179,982
Accrued interest payable 939,041 945,890
Accounts payable and accrued expenses 302,188 452,033
Total liabilities 133,756,460 115,955,623
------------ ------------
Stockholders' equity (note 11):
Common stock, $.01 par value; authorized
2,000,000 shares; 1,741,148 and
1,729,880 shares issued and outstanding
in 1998 and 1997, respectively 17,411 17,299
Additional paid-in capital 3,147,692 3,040,211
Retained earnings, partially restricted 10,553,062 9,298,166
Treasury stock, at cost (51,792 shares
in 1997) -- (325,600)
Unrealized gain on securities available
for sale, net 42,300 31,052
------------ ------------
Total stockholders' equity 13,760,465 12,061,128
------------ ------------
Total liabilities and stockholders'
equity $147,516,925 $128,016,751
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
19<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans $ 5,788,795 5,309,865 4,880,247
Securities available for sale 276,202 327,497 259,975
Securities held to maturity 3,246,933 3,069,225 2,831,439
Other 494,143 256,768 255,898
------------ ------------ ------------
Total interest income 9,806,073 8,963,355 8,227,559
------------ ------------ ------------
Interest expense:
Deposits (note 7) 4,102,644 3,787,690 3,710,324
Borrowed funds 1,978,758 1,557,800 1,229,114
------------ ------------ ------------
Total interest expense 6,081,402 5,345,490 4,939,438
------------ ------------ ------------
Net interest income 3,724,671 3,617,865 3,288,121
Provision for losses on loans (note 5) 60,000 81,000 36,000
------------ ------------ ------------
Net interest income after
provision for losses on loans 3,664,671 3,536,865 3,252,121
------------ ------------ ------------
Noninterest income:
Gain on sale of other assets 25,484 24,233 33,227
Fees and service charges 394,571 365,413 325,193
Commissions 927,963 852,247 740,527
Other income -- 221,000 --
------------ ------------ ------------
Total noninterest income 1,348,018 1,462,893 1,098,947
------------ ------------ ------------
Noninterest expense:
Compensation, payroll taxes, and
employee benefits (note 10) 1,301,300 1,191,590 1,119,610
Office properties and equipment 379,853 261,599 243,225
Deposit insurance premiums 55,714 75,724 188,325
Special deposit insurance assessment
(note 13) -- -- 530,421
Data processing services 168,569 147,468 134,574
Other real estate (income) expense, net (3,566) (12,118) 2,340
Other 1,178,976 994,860 896,799
------------ ------------ ------------
Total noninterest expense 3,080,846 2,659,123 3,115,294
------------ ------------ ------------
Income before taxes on income 1,931,843 2,340,635 1,235,774
Taxes on income (note 9) 600,000 790,800 411,200
------------ ------------ ------------
Net income $ 1,331,843 1,549,835 824,574
============ ============ ============
Earnings per common share:
Basic $ .78 .93 .49
============ ============ ============
Diluted $ .73 .89 .47
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20<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 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 at September 30, 1997 $ 17,299 3,040,211 9,298,166 -- 31,052 (325,600) 12,061,128
Net Income -- -- 1,331,843 -- -- -- 1,331,843
Exercise of options
(63,060 shares) 112 107,481 60,000 -- -- 325,600 493,193
Dividends paid ($.08 per share) -- -- (136,947) -- -- -- (136,947)
Change in unrealized gain on
securities available for sale -- -- -- -- 11,248 -- 11,248
-------- ----------- ----------- --------- -------- --------- -----------
Balance as of September 30, 1998 $ 17,411 $ 3,147,692 $10,553,062 $ -- $ 42,300 $ -- $13,760,465
======== =========== =========== ========= ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,331,843 $ 1,549,835 $ 824,574
Origination of loans held for sale (314,800) -- --
Proceeds from sale of loans held
for sale 264,900 -- 309,867
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 167,069 108,104 103,594
Amortization of recognition and
retention plan benefits -- -- 3,672
Amortization of premiums and
discounts on loans and mortgage-
backed securities (74,208) (67,570) (64,019)
Provision for losses on loans 60,000 81,000 36,000
Gain on sale of real estate, net (22,509) (23,230) (33,227)
Increase in accrued interest
receivable (149,459) (38,069) (22,861)
(Decrease) increase in accrued
interest payable (6,849) 101,433 36,267
(Decrease) increase in current
taxes on income (98,237) (50,795) 49,168
Deferred taxes on income 11,000 185,905 (153,934)
Other, net (126,978) (462,679) 581,330
------------ ------------ ------------
Net cash provided by
operating activities 1,041,772 1,383,934 1,670,431
------------ ------------ ------------
Cash flows from investing activities:
Securities available for sale:
Purchases (500,000) (388,439) (2,607,612)
Principal repayments of mortgage-
backed securities 501,736 413,544 545,044
Securities held to maturity:
Proceeds from maturities 16,161,677 6,538,323 7,062,151
Purchases (24,712,342) (13,708,139) (12,341,227)
Principal repayments of mortgage-
backed securities 6,626,807 3,706,386 4,025,149
Net change in loans (5,191,807) (4,376,114) (4,312,278)
Proceeds from sale of real estate 13,338 26,623 75,000
Capitalized real estate costs -- -- (5,400)
Purchase of office properties and
equipment, net (210,308) (1,727,780) (208,206)
Purchase of Federal Home Loan Bank
stock (300,000) (325,000) (425,000)
Proceeds of sale of Federal Home
Loan Bank stock 150,000 -- --
------------ ------------ ------------
Net cash used in
investing activities (7,460,899) (9,840,596) (8,192,419)
------------ ------------ ------------
</TABLE>
22<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in deposits $ 6,974,941 6,505,755 4,200,511
Receipt of borrowed funds 26,000,000 26,500,000 23,000,000
Payments on borrowed funds (15,000,000) (22,000,000) (20,500,000)
(Decrease) increase in advance payments
by borrowers for taxes and insurance (17,410) (19,939) 39,529
Stock options exercised 493,193 68,500 110,743
Payments to acquire treasury stock -- (47,812) (462,950)
Dividends paid (136,947) (133,747) (135,049)
------------ ------------ ------------
Net cash provided by
financing activities 18,313,777 10,872,757 6,252,784
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents 11,894,650 2,416,095 (269,204)
Cash and cash equivalents at beginning
of year 3,563,299 1,147,204 1,416,408
------------ ------------ ------------
Cash and cash equivalents at end of year $ 15,457,949 3,563,299 1,147,204
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest, net of interest capitalized
of $30,872 in 1997 $ 6,088,251 4,903,171 4,375,153
Taxes on income 625,513 516,527 460,866
Noncash investing and financing activities -
Reclassification of securities from
held to maturity to available for sale -- 2,079,143 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
---------------------------
Mid-Iowa Financial Corp., headquartered in Newton, Iowa, is
a savings and loan holding company comprised of a
federally chartered stock savings bank operating offices
in Central Iowa; a real estate brokerage and development
company; and a company which provides credit reporting
and collection services, sells investment products, and
provides discount securities brokerage. Mid-Iowa
Financial Corp. was organized as a Delaware Corporation
in June 1992 at the direction of Mid-Iowa Savings Bank
for the purpose of becoming a savings and loan holding
company, as part of the Mid-Iowa Savings Bank conversion
from a mutual to a stock institution.
Mid-Iowa Financial Corp. is primarily a retail banking
operation offering loans, deposits, and related financial
services to customers in its market area. Loans
primarily consist of single-family residential mortgage
loans, commercial loans, and consumer loans.
Consolidation and Basis of Presentation
---------------------------------------
The consolidated financial statements include the accounts
of Mid-Iowa Financial Corp. and its wholly owned
subsidiaries, Mid-Iowa Security Corporation and Mid-Iowa
Savings Bank (the Bank), and the Bank's wholly owned
subsidiary, Center of Iowa Investments, Limited
(collectively the Company).
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk
-----------------------------
The Company originates residential and commercial real
estate loans primarily in its central Iowa market area.
Although the Company has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay
their loans is dependent upon economic conditions in the
Company's market areas.
Earnings Per Share
------------------
Basic earnings per share computations for the years ended
September 30, 1998, 1997 and 1996, were determined by
dividing net income by the weighted-average number of
common share amounts outstanding during the years then
ended. Diluted earnings per common share amounts are
computed by dividing net income by the weighted-average
number of common shares and all dilutive common shares
outstanding during the year.
24<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
-----------------------------
The following was used in the computation of net income per
common share on both a basic and diluted basis for the
years ended September 30, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
September 30,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Basic EPS computation:
Net income $1,331,843 1,549,835 824,574
Weighted-average common shares
outstanding 1,718,243 1,670,834 1,699,252
Basic EPS $ 0.78 0.93 0.49
========== ========= =========
Diluted EPS computation:
Net income $1,331,843 1,549,835 824,574
Weighted-average common shares
outstanding 1,718,243 1,670,834 1,699,252
Incremental option shares using
treasury stock method 115,500 66,207 66,590
---------- --------- ---------
Diluted shares outstanding 1,833,743 1,737,041 1,765,842
========== ========= =========
Diluted EPS $ 0.73 0.89 0.47
========== ========= =========
</TABLE>
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, the Company includes
all short-term investments with original maturities of
three months or less at date of purchase in cash and cash
equivalents. Amounts of interest bearing deposits
included as cash equivalents were $15,071,769 and
$3,104,940 at September 30, 1998 and 1997, respectively.
Securities Available for Sale
-----------------------------
Securities to be held for indefinite periods of time,
including securities the Company intends to utilize as
part of its asset/liability management strategy and may
sell in response to changes in interest rates; changes in
prepayment risk; liquidity needs; and when needed to
increase regulatory capital or other similar factors, are
classified as available for sale.
Securities available for sale are recorded at fair value.
The aggregate unrealized gains or losses, net of the
income tax effect, are recorded as a component of
stockholders' equity.
25<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Securities Available for Sale, Continued
----------------------------------------
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 identifica-
tion method, and is reflected in the statements of
operations.
Securities Held to Maturity
---------------------------
Securities which the Company intends to hold until maturity
are stated at cost, adjusted for accretion of discount
and amortization of premiums computed using the interest
method. The timing of the amortization and accretion for
mortgage-backed securities are adjusted for actual
prepayment experience. The Company has the ability, and
it is management's intent, to hold these securities to
maturity.
Loans Held for Sale
-------------------
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or
estimated fair value in the aggregate. Net unrealized
losses are recognized through a valuation allowance by
charges to operations.
Loans Receivable
----------------
Loans are stated at the principal amounts outstanding, net
of unearned income, deferred loan fees, and discounts.
Unearned income, net deferred loan fees, and discounts on
loans which are probable of collection are amortized over
the terms of the loans using 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.
26<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
---------------------------------------------------------
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, 1998, 1997, and 1996.
The accrual of interest income on any loan is discontinued
(generally when a loan becomes 90 days delinquent) when,
in the opinion of management, there is reasonable doubt
as to the timely collection of interest or principal.
When interest accruals are discontinued, accrued interest
receivable is charged to income. Subsequent interest
income is not recognized on such loans until collected.
Loan Origination Fees and Related Costs
---------------------------------------
Mortgage loan origination fees and certain direct loan
origination costs, if material, are deferred, and the net
fee or cost is recognized in operations using the
interest method. Direct loan origination costs for other
loans are expensed, as such costs are not material in
amount.
Financial Instruments with Off Balance Sheet Risk
-------------------------------------------------
In the normal course of business to meet the financing
needs of its customers, the Company is a party to
financial instruments with off balance sheet risk, which
principally include commitments to extend credit. The
Company's exposure to credit loss in the event of
nonperformance by the other party to the commitments to
extend credit is represented by the contractual amount of
those instruments. The Company uses the same credit
policies in making commitments as it does for on balance
sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any
condition established in the contract. Commitments
generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements (see
note 4). The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit
evaluation of the counterparty.
27<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Carrying Costs of Real Estate Held for Development
--------------------------------------------------
Interest costs and real estate taxes applicable to real
estate held for development are capitalized during the
period that such real estate is in the process of
development. Prior to the time that development
activities commence and after such time as the real
estate is ready for sale, interest and real estate taxes
are charged to operations as incurred. There was no
capitalized interest for the years ended September 30,
1998, 1997, and 1996.
Office Properties and Equipment
-------------------------------
Office properties and equipment are recorded at cost, and
depreciation is provided principally using the
straight-line method over the estimated useful lives of
the related assets, which range from 5 to 40 years.
Maintenance and repairs are charged against income.
Expenditures for improvements are capitalized and
subsequently depreciated. The cost and accumulated
depreciation of properties retired or otherwise disposed
of are eliminated from the asset and accumulated
depreciation accounts. Related profit or loss from such
transactions is credited or charged to income.
During the year ended September 30, 1997, approximately
$31,000 in interest expense related to the construction
of a branch facility was capitalized.
Taxes on Income
---------------
The Company files a consolidated federal income tax return.
Federal income taxes are allocated based on taxable
income or loss included in the consolidated return. For
state tax purposes, the Bank files a franchise tax return
and the other entities file a corporate income tax
return.
The Company utilizes the asset and liability method for
taxes on income, and deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. The effect of a change in tax
rates on deferred tax assets and liabilities is
recognized in income in the period that includes the
enactment date.
Stock Option Plan
-----------------
The Company provides pro forma net income and pro forma
earnings per share disclosures for material employee
stock option grants made after 1996 as if the
fair-value-based method, which recognizes as expense over
the vesting period the fair value of stock-based
awards at the date of grant, had been applied.
28<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 No. 130, Reporting Comprehensive Income, will be
effective for the Company for the year beginning October
1, 1998, and establishes the standards for the reporting
and display of comprehensive income in the financial
statements. Comprehensive income represents net
income and certain amounts reported directly in
stockholders' equity, such as the net unrealized
gain or loss on available-for-sale securities. The
Company will adopt SFAS No. 130 when required.
SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, will be effective for the
Company for the year beginning October 1, 1998, and
establishes disclosure requirements for segment
operations. The Company expects to adopt SFAS No. 131
when required.
SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, will be effective for the
Company for the year beginning October 1, 1998, and
revises the disclosure requirements for pension and other
postretirement benefit plans. The Company expects to
adopt SFAS No. 132 when required.
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, will be effective for the Company for
the year beginning October 1, 1999. Management is
evaluating the impact the adoption of SFAS No. 133 will
have on the Company's consolidated financial statements.
The Company expects to adopt SFAS No. 133 when required.
Fair Value of Financial Instruments
-----------------------------------
The Company's fair value estimates, methods, and
assumptions for its financial instruments are set forth
below:
Cash and Cash Equivalents, Accrued Interest
Receivable, Advance Payments by Borrowers for Taxes
and Insurance, and Accrued Interest Payable
The recorded amount approximates fair value due to the
short-term nature of the instruments.
Securities Available for Sale and Securities Held to
Maturity
The fair value of securities is estimated based on bid
prices published in financial newspapers, bid
quotations received from securities dealers, or quoted
market prices of similar instruments, adjusted for
differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are
segregated by type, such as commercial, real estate,
and installment.
29<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
----------------------------------------------
Loans, continued
The fair value of a loan is calculated by discounting
scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan.
The estimate of maturity is based on the subsidiary
banks' historical experience with repayments for each
loan classification, modified as required by an
estimate of the effect of current economic and lending
conditions. The effect of nonperforming loans is
considered in assessing the credit risk inherent in
the fair value estimate.
Federal Home Loan Bank (FHLB) Stock
The value of FHLB stock is equivalent to its carrying
value, as the stock is redeemable at par value.
Deposits
The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, savings,
and NOW accounts, is equal to the amount payable on
demand. The fair value of certificates of deposit is
based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining
maturities. The fair value estimates do not include
the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the
cost of borrowing funds in the market.
Borrowed Funds
The fair value of borrowed funds is based on the
discounted value of contractual cash flows.
Off Balance Sheet Instruments
The fair value of commitments to extend credit and
commitments to purchase or sell loans is estimated
using the difference between current levels of
interest rates and committed rates. The fair value of
letters of credit is based on fees currently charged
for similar agreements. Management estimates the fair
value of commitments to purchase or sell loans
approximates the carrying value, as applicable.
30<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
----------------------------------------------
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.
(2) SECURITIES AVAILABLE FOR SALE
Securities available for sale at September 30, 1998 and
1997, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1998:
Mortgage-backed securities:
Federal National Mortgage
Association (FNMA) $ 729,667 11,962 - 741,629
Government National Mortgage
Association (GNMA) 971,817 17,873 1,797 987,893
Federal Home Loan Mortgage
Corporation (FHLMC) 121,388 3,405 - 124,793
Collateralized mortgage
obligations 2,007,130 16,690 - 2,023,820
Other investment securities 1,100,112 23,500 7,500 1,116,112
---------- ------ ------ ---------
$4,930,114 73,430 9,297 4,994,247
========== ====== ====== =========
1997:
Mortgage-backed securities:
FNMA $ 930,039 16,286 - 946,325
GNMA 1,247,358 28,971 - 1,276,329
FHLMC 150,508 4,878 - 155,386
Collateralized mortgage
obligations 2,007,298 - 17,538 1,989,760
Other investment securities 600,112 14,750 - 614,862
---------- ------ ------ ---------
$4,935,315 64,885 17,538 4,982,662
========== ====== ====== =========
</TABLE>
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
31<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE, CONTINUED
At September 30, 1998 and 1997, the net valuation amount of
$42,300 and $31,052, respectively, was reflected as a
component of stockholders' equity, including the effect
of taxes on income of $21,833 and $16,295, respectively.
There were no sales of securities available for sale during
1998, 1997, and 1996.
At September 30, 1998 and 1997, accrued interest receivable
for securities available for sale totaled $14,911 and
$17,508, respectively.
(3) SECURITIES HELD TO MATURITY
Securities held to maturity at September 30, 1998 and 1997,
were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1998:
U.S. agency securities $18,929,802 198,778 - 19,128,580
Mortgage-backed and related
securities:
FNMA 3,854,778 61,532 9,017 3,907,293
GNMA 9,691,297 206,239 - 9,897,536
FHLMC 3,234,465 47,459 - 3,281,924
Collateralized mortgage
obligations 9,081,190 5,777 105,619 8,981,348
Nontaxable municipal bonds 5,002,257 181,232 - 5,183,489
----------- ------- ------- ----------
$49,793,789 701,017 114,636 50,380,170
=========== ======= ======= ==========
1997:
U.S. agency securities $18,359,588 105,899 62,302 18,403,185
Mortgage-backed and related
securities:
FNMA 4,414,248 69,766 6,047 4,477,967
GNMA 12,727,233 321,803 5,293 13,043,743
FHLMC 1,633,085 1,264 126 1,634,223
Collateralized mortgage
obligations 7,405,811 - 111,191 7,294,620
Taxable municipal bonds 509,552 39,193 - 548,745
Nontaxable municipal bonds 2,717,604 117,533 6,047 2,829,090
----------- ------- ------- ----------
$47,767,121 655,458 191,006 48,231,573
=========== ======= ======= ==========
</TABLE>
32<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, 1998, are shown below by
contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- -------------
<S> <C> <C>
Due in 1 year or less $ 50,000 50,112
Due after 1 year through 5 years 5,230,197 5,328,409
Due after 5 years, but less than 10 years 15,378,333 15,629,774
Due after 10 years 3,273,529 3,303,774
Mortgage-backed and related securities 25,861,730 26,068,101
----------- ----------
$49,793,789 50,380,170
=========== ==========
</TABLE>
There were no sales of securities held to maturity during
the years ended September 30, 1998, 1997, or 1996.
At September 30, 1998 and 1997, accrued interest receivable
for securities held to maturity totaled $500,667 and
$381,238, respectively.
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Real estate loans:
One- to four-family $47,232,641 46,107,239
Commercial 13,461,213 10,150,075
Construction 1,057,538 1,338,796
----------- ----------
61,751,392 57,596,110
----------- ----------
Other loans:
Second mortgages 4,966,545 4,497,874
Commercial business 1,600,196 1,394,076
Automobile 1,736,376 1,405,748
Home equity 1,536,990 1,176,502
Student 327,568 306,162
Unsecured consumer 157,019 174,704
Loans on deposits 109,816 180,639
Other 275,939 352,423
----------- ----------
10,710,449 9,488,228
----------- ----------
72,461,841 67,084,338
Less:
Loans in process 647,286 275,553
Deferred loan fees 71,748 88,848
Allowance for losses on loans 307,228 301,952
----------- ----------
Total loans receivable $71,435,579 66,417,985
=========== ==========
</TABLE>
33<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS RECEIVABLE, CONTINUED
At September 30, 1998 and 1997, net accrued interest on
loans receivable totaled $499,489 and $473,270,
respectively.
At September 30, 1998, the Bank was committed to originate
$915,850 of fixed rate loans at interest rates ranging
from 6.8 to 7.5 percent. In addition, the Bank's
customers had unused lines of credit totaling
approximately $2,822,000 at September 30, 1998.
Loan customers of the Bank include certain executive
officers and directors and their related interests
and associates. All loans to this group were made in
the ordinary course of business at prevailing terms and
conditions. Such loans at September 30, 1998 and 1997,
amounted to $238,420 and $258,243, respectively. During
the year ended September 30, 1998, repayments totaled
$19,823.
The amount of loans serviced by the Bank for the benefit of
others was $1,325,044, $2,401,830, and $2,785,992 at
September 30, 1998, 1997, and 1996, respectively.
(5) ALLOWANCE FOR LOSSES ON LOANS
A summary of the allowance for losses on loans follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of year $301,952 273,819 248,028
Provision for losses 60,000 81,000 36,000
Charge-offs (58,922) (54,387) (29,599)
Recoveries 4,198 1,520 19,390
-------- ------- -------
Balance at end of year $307,228 301,952 273,819
======== ======= =======
</TABLE>
At September 30, 1998, 1997, and 1996, the Company had
nonaccrual loans of approximately $126,000; $17,092; and
$151,000 and restructured loans of $-0-; $24,000; and
$54,000, respectively. The allowance for loan losses
related to these impaired loans was approximately
$17,300; $4,000; and $7,500, respectively. The average
balances of such loans for the years ended September 30,
1998, 1997, and 1996, were $128,750; $95,500; and
$119,750, respectively. For the years ended September
30, 1998, 1997, and 1996, interest income which would
have been recorded under the original terms of such
loans was approximately $4,400; $3,200; and $10,300,
respectively, with $-0-; $1,900; and $3,250,
respectively, recorded.
As of September 30, 1998, there were no material
commitments to lend additional funds to customers whose
loans were classified as nonaccrual or restructured.
34<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) OFFICE PROPERTIES AND EQUIPMENT
At September 30, 1998 and 1997, the cost and accumulated
depreciation of office properties and equipment were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 442,399 442,399
Buildings and improvements 2,856,942 2,708,891
Furniture and fixtures 868,194 805,936
---------- ---------
4,167,535 3,957,226
Less accumulated depreciation 1,537,169 1,370,099
---------- ---------
$2,630,366 2,587,127
========== =========
</TABLE>
(7) DEPOSITS
A summary of deposits at September 30, 1998 and 1997, is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance by account type:
NOW accounts $ 5,831,078 5,992,220
Passbook 5,473,380 5,798,282
Money market 17,940,818 17,571,218
Certificates of deposit 67,107,383 60,015,998
----------- ----------
$96,352,659 89,377,718
=========== ==========
</TABLE>
At September 30, 1998, the scheduled maturities of
certificates of deposit were as follows:
1999 $58,111,784
2000 5,179,184
2001 2,235,354
2002 1,328,062
2003 and thereafter 252,999
-----------
$67,107,383
===========
The aggregate amount of jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately
$14,200,000 and $9,700,000 at September 30, 1998 and
1997, respectively.
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
NOW accounts $ 42,040 39,145 37,278
Savings accounts 647,625 580,565 429,754
Certificates of deposit 3,427,566 3,176,534 3,253,557
---------- --------- ---------
4,117,231 3,796,244 3,720,589
Less penalties on early withdrawals 14,587 8,554 10,265
---------- --------- ---------
Net interest expense $4,102,644 3,787,690 3,710,324
========== ========= =========
</TABLE>
35<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEPOSITS, CONTINUED
At September 30, 1998 and 1997, accrued interest payable on
deposits totaled $939,041 and $939,893, respectively.
At September 30, 1998 and 1997, the Bank had mortgage-
backed and other investment securities with a carrying
value of approximately $21,717,000 and $24,704,000,
respectively, pledged as collateral for deposits.
(8) BORROWED FUNDS
At September 30, 1998 and 1997, borrowed funds consisted of
the following:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Interest Rate 1998 Interest Rate 1997
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
FHLB (A):
Maturity in fiscal year ending
September 30:
1998 - % $ - 5.72 $16,000,000
1999 5.50 5,000,000 5.48 4,000,000
2000 5.86 1,000,000 5.83 5,000,000
2001 5.76 7,000,000 - -
2002 5.33 6,000,000 - -
2008 5.45 17,000,000 - -
Amount drawn on line of credit(B) - - Variable -
----------- -----------
$36,000,000 $25,000,000
=========== ===========
</TABLE>
(A) Advances from the FHLB are secured by stock in the
FHLB. In addition, the Bank has agreed to maintain
unencumbered additional security in the form of
certain residential mortgage loans aggregating no less
than 150 percent of outstanding advances.
(B) Line of credit with the FHLB with a limit of
$10,000,000, was cancelled by the Bank on March 31,
1998.
At September 30, 1998 and 1997, accrued interest payable on
advances from the FHLB and other borrowings totaled $-0-
and $5,997, respectively.
36<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,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------ --------------------------- --------------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $516,000 73,000 589,000 537,800 67,000 604,800 495,000 70,200 565,200
Deferred 9,000 2,000 11,000 162,000 24,000 186,000 (134,000) (20,000) (154,000)
-------- ------ ------- -------- ------- -------- -------- ------- --------
$525,000 75,000 600,800 699,800 91,000 790,800 361,000 50,200 411,200
======== ====== ======= ======= ======= ======== ======== ======= ========
</TABLE>
Taxes on income differ from the "expected" amounts computed
by applying the federal income tax rate of 34 percent to
income before taxes on income for the following reasons:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Computed "expected" taxes on income $656,826 795,827 420,170
State taxes, net of federal benefit 49,500 60,060 33,146
Tax-exempt interest (50,000) (38,000) (34,000)
Reduction of valuation allowance - (10,000) (17,000)
Other (56,326) (17,087) 8,884
-------- ------- -------
$600,000 790,800 411,200
======== ======= =======
</TABLE>
37<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,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Loan and real estate loss allowance $129,000 136,000
-------- -------
Total gross deferred tax assets 129,000 136,000
Less valuation allowance - -
-------- -------
Deferred tax assets net of allowance 129,000 136,000
-------- -------
Deferred tax liabilities:
Unrealized gain on securities held for sale 21,833 16,295
Tax bad debt reserve 179,000 179,000
Other 11,000 7,000
-------- -------
Total gross deferred tax liabilities 211,833 202,295
-------- -------
Net deferred tax liability $(82,833) (66,295)
======== =======
</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, 1998, 1997, and 1996, was $111,871, $112,822, and
$79,247, respectively.
Management Recognition and Retention Plan
-----------------------------------------
In connection with its stock conversion, the Bank
established a management recognition and retention plan
as a method of providing directors and key officers of
the Bank with a proprietary interest in the Bank in a
manner designed to encourage such persons to remain with
the Bank. The Bank contributed funds to the plan to
acquire in the aggregate up to 3 percent of the common
stock issued in the offering. During 1996, all rights
in the plan became fully vested.
38<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
Stock Incentive Plan
--------------------
The Company has a stock incentive plan under which up to
211,047 shares of common stock are reserved for
issuance pursuant to options or other awards which may
be granted to officers, key employees, and certain
nonaffiliated directors of the Company. The exercise
price of each option equals the market price of the
Company's stock on the date of grant. The option's
maximum term is ten years, with vesting occurring at the
time the options are granted.
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income:
As reported $1,331,843 1,549,835
Pro forma 1,331,843 1,177,397
Basic earnings per share:
As reported $ .78 .93
Pro forma .78 .68
Diluted earnings per share:
As reported $ .73 .89
Pro forma .73 .64
</TABLE>
The fair value of each option grant has been estimated
using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants
in 1997: dividend yield of 1.00 percent; expected
volatility of 26.00 percent; risk free interest rate of
6.10 percent; and expected life of 6 years. There were
no options granted in 1998.
39<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, 1998, 1997, and 1996, and the
activity during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------ ------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 260,756 $ 6.58 78,964 $ 2.08 137,088 $ 2.08
Granted - - 209,000 7.75 - -
Exercised (63,060) 4.20 (27,208) 2.52 (53,228) 2.08
Repurchased and canceled - 7.75 - - (4,896) 2.08
------- ------- -------
Outstanding at end of year 193,696 6.46 260,756 6.58 78,964 2.08
======= ====== ======= ===== ======= =====
Weighted-average fair value
of options granted
during the year $ - $2.70 $ -
====== ===== =====
</TABLE>
(11) STOCKHOLDERS' EQUITY
In order to grant a priority to eligible account holders in
the event of future liquidation, the Bank, at the time
of its stock conversion, established a liquidation
account in an amount equal to the regulatory capital as
of December 31, 1991. In the event of future
liquidation of the Bank, eligible account holders who
continue to maintain their deposit accounts shall be
entitled to receive a distribution from the liquidation
account. The total amount of the liquidation account
will be decreased as the balances of eligible account
holders are reduced subsequent to the conversion, based
on an annual determination of such balances.
Regulatory Capital Requirements
-------------------------------
The Financial Institution Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) and the capital regulations of the
Office of Thrift Supervision (OTS) promulgated
thereunder require institutions to have a minimum
regulatory tangible capital equal to 1.5 percent of
total assets; a minimum 3 percent core capital ratio;
and, after December 31, 1992, a minimum 8 percent
risk-based capital ratio. These capital standards set
forth in the capital regulations must generally be no
less stringent than the capital standards applicable to
national banks. FIRREA also specifies the required
ratio of housing-related assets in order to qualify as
a savings institution. The Bank met the regulatory
capital requirements at September 30, 1998 and 1997.
40
<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCKHOLDERS' EQUITY, CONTINUED
The Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) established additional capital
requirements which require regulatory action against
depository institutions in one of the undercapitalized
categories defined in implementing regulations.
Institutions such as the Bank, which are defined as
well capitalized, must generally have a leverage
capital (core) ratio of at least 5 percent, a tier 1
risk-based capital ratio of at least 6 percent, and a
total risk-based capital ratio of at least 10 percent.
FDICIA also provides for increased supervision by
federal regulatory agencies, increased reporting
requirements for insured depository institutions, and
other changes in the legal and regulatory environment
for such institutions. The Bank met the regulatory
capital requirements at September 30, 1998 and
1997.
The Bank's capital amounts and ratios as of September 30,
1998, were as follows:
<TABLE>
<CAPTION>
For capital To be well capitalized
adequacy under prompt corrective
Actual purposes action provisions
-------------------- ----------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $11,157,881 7.68% $2,180,742 1.5% $7,269,141 5.0%
Core capital 11,157,881 7.68 4,361,484 3.0 7,269,141 5.0
Risk-based capital 11,483,337 19.21 4,782,440 8.0 5,978,051 10.0
</TABLE>
At September 30, 1998 and 1997, the Bank had federal income
tax bad debt reserves of approximately $1,785,000, which
constitute allocations to bad debt reserves for federal
income tax purposes for which no provision for taxes on
income had been made. If such allocations are charged
for other than bad debt losses, taxable income is
created to the extent of the charges. The Bank's
retained earnings at September 30, 1998 and 1997, were
partially restricted because of the effect of these tax
bad debt reserves.
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.
41
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial
instruments (as described in note 1) at September 30,
1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ------------------
Recorded Fair Recorded Fair
amount value amount value
-------- ----- --------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $15,457,949 15,457,949 3,563,299 3,563,299
Securities available for sale 4,994,247 4,994,247 4,982,662 4,982,662
Securities held to maturity 49,793,789 50,380,170 47,767,121 48,231,573
Loans, net 71,435,479 72,972,766 66,417,985 67,619,505
FHLB stock 1,800,000 1,800,000 1,650,000 1,650,000
Accrued interest receivable 1,017,122 1,017,122 867,663 867,663
Financial liabilities:
Deposits 96,352,659 96,448,925 89,377,718 89,434,588
Borrowed funds 36,000,000 35,469,911 25,000,000 24,857,404
Advance payments by borrowers
for taxes and insurance 162,572 162,572 179,982 179,982
Accrued interest payable 939,041 939,041 945,890 945,890
========== ========== ========== ==========
<CAPTION>
Notional Unrealized Notional Unrealized
Value gain(loss) Value gain (loss)
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Off balance sheet instruments:
Commitments to extend credit $ 915,850 - 1,626,000 --
Lines of credit to customers 2,822,000 - 2,614,000 --
Line of credit unused by the
Company - - 10,000,000 --
=========== ======= ========== ======
</TABLE>
(13) SPECIAL DEPOSIT INSURANCE ASSESSMENT
On September 30, 1996, the Deposit Insurance Funds Act of
1996 (the Act) was signed into law. The Act imposed a
one-time special assessment of 65.7 basis points of the
deposits held as of March 31, 1995, to capitalize the
Savings Association Insurance Fund (SAIF). All of
the deposits of the Bank are SAIF-insured. The Bank
incurred a one-time pre-tax expense of $530,421 that is
recorded in the Bank's statement of operations for the
year ended September 30, 1996.
42<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 $ 790,539 781,075
Securities available for sale 1,318,866 1,065,257
Securities held to maturity 200,000 200,000
Accrued interest receivable 10,441 11,261
Investment in nonbank subsidiary 260,301 206,184
Investment in Bank 11,203,704 9,846,219
Prepaid expenses and other assets 4,999 5,218
----------- ----------
Total assets $13,788,850 12,115,214
=========== ==========
Accrued expenses and other liabilities $ 28,385 54,086
----------- ----------
Common stock 17,411 17,299
Additional paid-in capital 3,147,692 3,040,211
Retained earnings 10,553,062 9,298,166
Treasury stock - (325,600)
Unrealized gain on securities available for
sale, net 42,300 31,052
----------- -----------
Total stockholders' equity 13,760,465 12,061,128
----------- -----------
Total liabilities and stockholders'
equity $13,788,850 12,115,214
=========== ===========
</TABLE>
43<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>
Years Ended September 30,
-------------------------------
Condensed Statements of Operations 1998 1997 1996
---------------------------------- ------ ------- -------
<S> <C> <C> <C>
Interest income $ 90,826 109,130 103,040
Other income 33,316 221,000 -
Equity in net income of subsidiaries 1,329,399 1,383,352 816,027
Other expenses (149,525) (80,772) (97,993)
----------- --------- --------
Income before income tax expense (benefit) 1,304,016 1,632,710 821,074
Income tax (benefit) expense (27,827) 82,875 (3,500)
----------- --------- --------
Net income $ 1,331,843 1,549,835 824,574
=========== ========= ========
<CAPTION>
Years Ended September 30,
-------------------------------
Condensed Statements of Cash Flows 1998 1997 1996
---------------------------------- ------ ------- -------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,331,843 1,549,835 824,574
Equity in net income of subsidiaries (1,329,399) (1,383,352) (816,027)
Amortization 420 (88) (248)
Change in assets and liabilities:
Decrease in accrued interest receivable 820 344 3,178
(Decrease) increase in current taxes on
income (7,703) 26,766 (27,412)
Other, net (11,878) (4,670) 6,642
---------- ---------- --------
Net cash (used in) provided by operating
activities (15,897) 188,835 (9,293)
---------- ---------- --------
Investing activities:
Securities available for sale:
Purchase of securities available for sale (500,000) (388,439) (100,000)
Proceeds from sale of subsidiary stock -- 200,000 --
Principal repayments on mortgage-backed
securities available for sale 229,114 140,600 126,456
Net change in loans -- 155,000 --
---------- ---------- --------
Net cash (used in) provided by investing
activities (270,886) 107,161 26,456
---------- ---------- --------
Financing activities:
Payments to acquire treasury stock -- (47,812) (462,950)
Stock options exercised 433,193 68,500 110,743
Net dividends (paid) received (136,946) 366,253 164,951
---------- ---------- --------
Net cash provided by (used in) financing
activities 296,247 386,941 (187,256)
---------- ---------- --------
Net increase (decrease) in cash 9,464 682,937 (170,093)
Cash at beginning of year 781,075 98,138 268,231
---------- ---------- --------
Cash at end of year $ 790,539 781,075 98,138
========== ========== ========
</TABLE>
44<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) PROPOSED TRANSACTION
On August 17, 1998 the Company announced the execution of a
definitive agreement to be acquired by a newly formed
holding company that will be the successor of First
Federal Savings Bank of Siouxland and First Federal
Bankshares, M.H.C. The transaction is subject to
regulatory and shareholder approvals and is anticipated
to result in payment to Mid-Iowa Financial Corp.
shareholders of approximately $29,000,000.
45
<PAGE>
<PAGE>
MID-IOWA FINANCIAL CORP.
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 5:00 p.m.,
Monday, March 22, 1999, 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>
1998 1997
------------------------- ------------------------
Dividends Dividends
High Low Declared High Low Declared
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter. . . . . . .$11.63 $10.00 $.02 $ 6.62 $6.25 $ .02
Second Quarter . . . . . . 12.63 11.25 .02 8.50 6.75 .02
Third Quarter. . . . . . . 12.75 11.00 .02 9.00 7.38 .02
Fourth Quarter . . . . . . 14.00 10.25 .02 10.13 8.50 .02
</TABLE>
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 11 of
the Notes to Consolidated Financial Statements included in this
report.
As of December 15, 1999, the Company had approximately 600
stockholders of record and 1,746,148 net outstanding shares of
common stock.
STOCKHOLDERS AND GENERAL
INQUIRIES TRANSFER AGENT
Kevin D. Ulmer, President First Bankers Trust Company, N.A.
Mid-Iowa Financial Corp. Broadway at 12th Street
123 West Second Street North P.O. Box 3566
Newton, Iowa 50208 Quincy, Illinois 62305-3566
(515) 792-6236 (217) 228-8000
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-KSB
for its fiscal year ended September 30, 1998, 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
46<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
Kevin D. Ulmer
President and Chief Executive Officer, Mid-Iowa Financial
Corp. and Mid-Iowa Savings Bank, F.S.B., Newton, Iowa
Carney Loucks
Self-employed Orthodontist, 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
47
