<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-20620
MIDWEST BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 42-1390587
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3225 Division Street, Burlington, Iowa 52601
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 754-6526
-----------------------------
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Transitional Small Business Form Yes / / No /X/
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock 1,050,699
-------------- -----------------------
Class Shares Outstanding
as of August 4, 1998
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
INDEX
---------------------
Page
----
Part I. Financial Information
Item 1 Financial Statements
Consolidated balance sheets June 30, 1998 and December 31, 1997 1
Consolidated statements of operations, for the three and six
months ended June 30, 1998 and 1997 2
Consolidated statements of comprehensive income, for the three
and six months ended June 30, 1998 and 1997 3
Consolidated statements of cash flows, for the six
months ended June 30, 1998 and 1997 4
Notes to consolidated financial statements 5
Item 2 Management's discussion and analysis of financial condition
and results of operations 6 through 10
Part II. Other Information 11
Signatures 12
Exhibit 27 Financial Data Schedule
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,925 $2,524
Securities available for sale 39,630 27,935
Securities held to maturity (estimated
fair value of $15,448 and $20,055) 15,193 19,840
Loans receivable, net 94,809 91,276
Real estate acquired through foreclosure 675 314
Federal Home Loan Bank stock, at cost 2,100 1,960
Office property and equipment, net 2,533 2,561
Accrued interest receivable 1,404 1,203
Other assets 191 111
-------- --------
Total assets $159,460 $147,724
======== ========
Liabilities
Deposits $105,806 $105,278
Advances from Federal Home Loan Bank 41,000 30,500
Advances from borrowers for taxes and insurance 411 388
Accrued interest payable 87 80
Accrued expenses and other liabilities 756 803
-------- --------
Total liabilities 148,060 137,049
-------- --------
Stockholders' equity
Serial preferred stock, $.01 par value;
authorized 500,000 shares; none issued -- --
Common stock, $.01 par value; 2,000,000 shares authorized;
1,050,699 shares issued and outstanding in 1998 and
1,020,762 shares issued and outstanding in 1997 10 10
Additional paid-in capital 1,622 1,530
Retained earnings, substantially restricted 9,384 8,822
Employee stock ownership plan -- (60)
Accumulated other comprehensive income -
unrealized appreciation on securities available for sale 384 373
-------- --------
Total stockholders' equity 11,400 10,675
-------- --------
Total liabilities and stockholders' equity $159,460 $147,724
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,892 $ 1,742 $ 3,740 $ 3,401
Securities available for sale 615 572 1,244 1,061
Securities held to maturity 299 314 579 646
Deposits in other financial institutions 20 14 41 44
Other interest-earning assets 35 34 68 68
------- ------- ------- -------
Total interest income 2,861 2,676 5,672 5,220
------- ------- ------- -------
Interest expense:
Deposits 1,233 1,264 2,463 2,480
Advances from FHLB and other borrowings 576 399 1,117 751
------- ------- ------- -------
Total interest expense 1,809 1,663 3,580 3,231
------- ------- ------- -------
Net interest income 1,052 1,013 2,092 1,989
Provision for losses on loans 12 12 24 24
------- ------- ------- -------
Net interest income after provision for losses on loans 1,040 1,001 2,068 1,965
------- ------- ------- -------
Non-interest income:
Fees and service charges 90 65 171 134
Gain on sale of securities available for sale 61 - 97 -
Other 133 13 140 31
------- ------- ------- -------
Total non-interest income 284 78 408 165
------- ------- ------- -------
Non-interest expense:
Compensation and benefits 378 301 704 627
Office property and equipment 105 94 207 189
Deposit insurance premiums 16 16 33 20
Data processing 42 37 84 79
Other 190 173 395 365
------- ------- ------- -------
Total non-interest expense 731 621 1,423 1,280
------- ------- ------- -------
Earnings before taxes on income 593 458 1,053 850
Taxes on income 184 168 333 313
------- ------- ------- -------
Net earnings $ 409 $ 290 $ 720 $ 537
======= ======= ======= =======
Earnings per share - basic $ 0.39 $ 0.28 $ 0.70 $ 0.51
======= ======= ======= =======
Earnings per share - diluted $ 0.37 $ 0.26 $ 0.65 $ 0.48
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 409 $ 290 $ 720 $ 537
Other comprehensive income:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, net of taxes
on income of $26 and $39 in 1998 and $146 and $72 in 1997 44 244 72 121
Less: reclassification adjustment for gains included in net
earnings, net of taxes on income of $24 and $36 in 1998 37 - 61 -
----- ----- ----- -----
Other comprehensive income, net of tax $ 7 $ 244 $ 11 $ 121
===== ===== ===== =====
Comprehensive income $ 416 $ 534 $ 731 $ 658
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 720 $ 537
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for losses on loans 24 24
Gain on sale of securities available for sale (97) -
Depreciation 90 80
ESOP expense 30 28
Amortization of loan fees, premiums and discounts (15) (3)
Increase in accrued interest receivable (200) (87)
Increase in other assets (50) (25)
Increase in accrued interest payable 7 46
(Decrease) increase in accrued expenses and other liabilities (78) 151
------- -------
Net cash provided by operating activities 431 751
------- -------
Cash flows from investing activities:
Purchase of securities available for sale (21,016) (4,555)
Purchase of FHLB stock (140) -
Proceeds from maturities of securities 6,000 -
Proceeds from sales of securities available for sale 2,464 -
Loans purchased (317) (3,942)
Purchase of mortgage-backed securities held to maturity - (3,484)
Repayment of principal on mortgage-backed securities 5,631 2,671
Increase in loans receivable (3,706) (2,576)
Proceeds from sale of real estate owned, net 107 38
Purchase of office property and equipment (62) (15)
------- -------
Net cash used in investing activities (11,039) (11,863)
------- -------
Cash flows from financing activities:
Increase in deposits 528 4,868
Proceeds from advances from FHLB 10,500 4,500
Treasury stock acquired - (30)
Exercise of stock options 92 -
Payment of cash dividends (134) (105)
Net increase in advances from borrowers for taxes and insurance 23 -
------- -------
Net cash provided by financing activities 11,009 9,233
------- -------
Net increase (decrease) in cash and cash equivalents 401 (1,879)
Cash and cash equivalents at beginning of year 2,524 3,998
------- -------
Cash and cash equivalents at end of period $ 2,925 $ 2,119
======= =======
Supplemental disclosures:
Cash paid during the three months for:
Interest $ 3,573 $ 3,184
Taxes on income 256 161
Transfers from loans to real estate owned 468 497
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Significant Accounting Policies
The consolidated financial statements for the three months and six
months ended June 30, 1998, and 1997 have not been audited and do not
include information or footnotes necessary for a complete
presentation of financial condition, results of operations and cash
flows in conformity with generally accepted accounting principles.
However, in the opinion of management, the accompanying consolidated
financial statements contain all adjustments, which are of a normal
recurring nature, necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of
the results which may be expected for an entire year. The accounting
policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements contained in the 1997
Annual Report to Stockholders and are incorporated herein by
reference.
Note 2. Stock Split Effected in the Form of a 200% Stock Dividend
On October 20, 1997, the Company declared a 3-for-1 stock split in
the form of a 200% dividend paid on November 18, 1997, to
shareholders of record on November 4, 1997. Under the terms of this
dividend, shareholders received two shares for every one share held
on the record date. The dividend was paid out of treasury shares and
authorized but unissued shares of common stock of the Company. The
par value of the Company's stock was not affected and remains at
$0.01 per share. All per share amounts previously reported have been
restated to reflect the stock split.
Note 3. Computation of Per Share Earnings
Basic earnings per share amounts are computed by dividing net
earnings by the weighted average number of common shares outstanding
during the period. Diluted earnings per share amounts are computed by
dividing net earnings by the weighted average number of shares and
all dilutive potential shares outstanding during the period. As
discussed in note 2 above, the Company declared a 3-for-1 stock split
effected in the form of a stock dividend. The average number of
shares and dilutive potential shares have been restated for the stock
split. The following information was used in the computation of
earnings per share on both a basic and diluted basis for the three
months and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator - Net earnings $ 408,813 $ 289,645 $ 719,571 $ 536,766
Denominator - Weighted
average shares outstanding 1,036,688 1,045,017 1,031,659 1,046,550
--------- --------- --------- ---------
Basic EPS $ 0.39 $ 0.28 $ 0.70 $ 0.51
========= ========= ========= =========
Diluted EPS Computation:
Numerator - Net earnings $ 408,813 $ 289,645 $ 719,571 $ 536,766
--------- --------- --------- ---------
Denominator - Weighted
average shares outstanding 1,036,688 1,045,017 1,031,659 1,046,550
Stock options 65,524 69,375 70,455 67,374
--------- --------- --------- ---------
1,102,212 1,114,392 1,102,114 1,113,924
--------- --------- --------- ---------
Diluted EPS $ 0.37 $ 0.26 $ 0.65 $ 0.48
========= ========= ========= =========
</TABLE>
Page 5
<PAGE>
MIDWEST BANCSHARES and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
When used in this Form 10-QSB, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Year 2000 Compliance
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000"
problem. The Year 2000 problem is the result of computer programs using two
digits rather than four to define the year. Any of the Company's programs that
are time sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. Management anticipates that the enhancements necessary to
prepare its mission critical systems for the year 2000 will be completed in
early 1999.
The Company is also aware of the risks to third parties, including
vendors (and to the extent appropriate, depositors and borrowers) and the
potential adverse impact on the Company resulting from failures by these
parties to adequately address the Year 2000 problem. The Company has been
communicating with its outside data processing service bureau, as well as
other third party service providers, to assess their progress in evaluating
and implementing any corrective measures required by them to be prepared for
the year 2000. To date, the Company has not been advised by any of its primary
vendors that they do not have plans in place to address and correct the Year
2000 problem; however, no assurance can be given as to the adequacy of such
plans or to the timeliness of their implementation.
The Company anticipates that it will incur internal staff costs as
well as consulting and other expenses related to the enhancements necessary to
prepare its systems for the year 2000. Based on the Company's current
knowledge, the expense of the year 2000 project as well as the related
potential effect on the Company's earnings is not expected to have a material
effect on the Company's financial position or results of operations. The
Company estimates that it has spent approximately $10,000 through June 30,
1998 on the assessment phase of its year 2000 effort. The Company anticipates
that it will begin the testing phase with its outside data processing service
bureau in the fourth quarter of 1998 and will complete testing by the second
quarter of 1999.
Page 6
<PAGE>
MIDWEST BANCSHARES and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Midwest Bancshares, Inc. (the "Company") had net earnings of $409,000,
or $0.37 per share, diluted, and $720,000, or $0.65 per share, respectively,
for the three months and six months ended June 30, 1998, compared to net
earnings of $290,000, or $0.26 per share, and $537,000, or $0.48 per share,
for the same periods in 1997. The increases in net earnings of approximately
41% and 34% for the three months and six months, respectively, were primarily
a result of increases in net interest income, increases in fees and service
charges, gains on sales of securities, and other non-interest income,
partially offset by increases in non-interest expense.
More detailed comparisons are discussed below.
Net Interest Income
Net interest income increased $39,000 and $103,000, for the three
months and six months ended June 30, l998, respectively, over the comparable
periods in 1997. The increases in net interest income on a tax-equivalent
basis were approximately $83,000 and $171,000 due to the fact that the 1998
periods include interest income on tax-exempt municipal bonds, whereas the
1997 periods had none. (See also the discussion of "Taxes on Income" on page
8). The Company's net interest rate spread was 2.65% and 2.60%, respectively,
for the three months and six months ended June 30, 1998, compared to 2.65% and
2.62% for the comparable periods in 1997. The Company's net interest margin on
interest-earning assets was 2.88% and 2.84%, respectively, for the three
months and six months ended June 30, 1998, compared to 2.92% and 2.89% for the
comparable periods in 1997. The net interest rate spread and net interest
margin ratios have been calculated on a tax-equivalent basis.
Interest income increased by $185,000 and $452,000 for the three
months and six months ended June 30, 1998, respectively, over the comparable
periods in 1997, or $229,000 and $520,000 on a tax-equivalent basis. Average
interest-earning assets increased by approximately $13.0 million and $14.4
million for the three months and six months ended June 30, 1998, respectively,
compared to the same periods in 1997. The increases in average
interest-earning assets primarily consisted of increases in loans outstanding
and securities available for sale and were the result of a planned growth
strategy in an effort to increase net interest income. The average yield on
interest-earning assets, on a tax-equivalent basis, was 7.64% and 7.63% for
the three months and six months ended June 30, 1998, respectively, compared to
7.70% and 7.67% for the same periods in 1997. The Company recorded $149,000
and $232,000, on a tax-equivalent basis, of interest income on tax-exempt
municipal bonds for the three months and six months ended June 30, 1998,
respectively, with average balances of $8.6 million and $6.7 million,
respectively, in 1998 compared to none for 1997.
Interest expense increased by $146,000 and $349,000 for the three
months and six months ended June 30, 1998, respectively, over the comparable
periods in 1997. Average interest-bearing liabilities increased by
approximately $13.3 million and $14.6 million for the three months and six
months, respectively, over the comparable periods in 1997, primarily due to
increases of $13.5 million and $13.9 million in average borrowings from the
FHLB. The Company determined to utilize FHLB advances to fund its new asset
growth because the interest cost of new FHLB advances was substantially less
than the incremental cost of adding new certificate of deposit accounts. The
average rates paid on interest-bearing liabilities decreased six basis points
and two basis points to 4.99% and 5.03% for the three months and six months
ended June 30, 1998, respectively, from 5.05% for both the three months and
six months ended June 30, 1997.
Page 7
<PAGE>
MIDWEST BANCSHARES and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
Provision for Losses on Loans
The provision for losses on loans was $12,000 and $24,000 for the
three months and six months ended June 30, 1998 and 1997. The amount of
provision was a result of the determination to maintain the allowance for
losses on loans at an adequate level to absorb potential loan losses. At June
30, 1998 and 1997, the Company's allowance for losses on loans totaled
$458,000 and $710,000, respectively, or 0.48% and 0.81% of total loans, and
123.45% and 109.06% of total non-performing loans. Net charge-offs amounted to
$14,000 and $134,000 for the three months and six months ended June 30, 1998,
respectively, compared to no net charge-offs during both the three months and
six months ended June 30, 1997. The $134,000 of charge-offs in the six months
ended June 30, 1998 was primarily due to two loans on multi-family properties
which were transferred to real estate acquired through foreclosure resulting
in a charge-off of $120,000.
Non-interest income
Total non-interest income increased by $206,000 and $243,000 for the
three months and six months ended June 30, 1998, respectively, compared to the
same periods in 1997. The increases were partially due to increases of $25,000
and $37,000, respectively, (a 28% increase year-to-date) in fees and service
charges as a result of increased transaction account activity and increased
ATM transaction volumes, in part a result of the new in-store branch, located
in the Wal-Mart Supercenter in West Burlington, Iowa, which opened for
business on December 8, 1997.
Also contributing to the increases in non-interest income were gains
of $61,000 and $97,000 on the sales of securities for the three months and six
months ended June 30, 1998, respectively. The gains consist of $61,000 and
$65,000 for the three months and six months, respectively, of gains on the
sale of common stock of non-related, publicly-traded companies and $32,000 of
gains on the sales of U.S. Agency bonds in the six month period ended June 30,
1998. In 1997, the Company began investing a portion of the investment
portfolio using a total-return approach (which considers the return on
investment to be a combination of interest earned and market value
appreciation). The sale of two U.S. Agency bonds, which were purchased in 1997
under the total-return approach, totaling $2.0 million resulted in recognizing
gains of $32,000, (which together with the $126,000 interest earned during the
period owned resulted in a total return of approximately 7.9% for the one-year
holding period). In addition to these gains, the Company recognized a
previously-deferred gain of $120,000 (pre-tax) on the sale of the
Association's mortgage banking subsidiary, recorded in the three month period
ended June 30, 1998.
Non-interest expense
Total non-interest expense increased by $110,000 and $143,000 for the
three months and six months ended June 30, 1998 compared to the same periods
in 1997. The increases were primarily a result of the Company's new in-store
branch (in the Wal-Mart store in West Burlington, Iowa) and expanded ATM
network. The increase in deposit insurance premiums was due to a $13,000
credit due to an overpayment of FDIC deposit insurance premiums, as a result
of the Deposit Insurance Funds Act of 1996, recorded in the three months ended
March 31, 1997 with no such credit in 1998.
Taxes on Income
Taxes on income were $16,000 and $20,000 more for the three and six
months ended June 30, 1998, respectively, than the comparable periods in 1997.
The increases were primarily due to increased taxable income, however, the
increases would have been more if not for the $149,000 and $232,000 of
tax-exempt interest income on municipal bonds discussed above under "Net
Interest Income".
Page 8
<PAGE>
MIDWEST BANCSHARES and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company's total assets at June 30, 1998 were $159.5 million,
increasing from $147.7 million at December 31, 1997. The increase of
approximately $11.8 million was due to an intentional increase in
interest-earning assets in an effort to increase net interest income and was
primarily due to the purchase of $21.0 million of securities available for
sale and a net increase in loans receivable of $3.5 million, partially offset
by principal repayments of $5.6 million from mortgage-backed securities, $6.0
million from matured securities, and $2.5 million proceeds from the sale of
securities available for sale. The net increase in total assets was primarily
funded by an increase of $10.5 million of advances from the FHLB. The Company
does not currently anticipate significant additional growth for the remainder
of 1998.
Total stockholders' equity increased $725,000 due to the $720,000 net
earnings for the six months, $92,000 received from the exercise of stock
options, $60,000 payoff of the loan for the employee stock ownership plan, and
an $11,000 increase in net unrealized gains on investments available for sale,
less $158,000 in dividends declared.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits and advances
from the FHLB, amortization and prepayment of loan principal (including
mortgage-backed securities), sales or maturities of investment securities,
mortgage-backed securities and short-term investments and operations. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan repayments are more influenced by interest rates,
general economic conditions and competition. The Company generally manages the
pricing of its deposits to maintain a steady deposit balance, but has from
time to time decided not to pay deposit rates that are as high as those of its
competitors, and, when necessary, to supplement deposits with longer term
and/or less expensive alternative sources of funds.
Federal regulations require the Association to maintain minimum levels
of liquid assets consisting of cash and other eligible investments. The
required percentage is currently 4% of net withdrawable savings deposits and
borrowings payable on demand or in one year or less during the preceding
calendar quarter. For June 1998, the Association's liquidity ratio was 7.5%
compared to 8.1% for December 1997. The decrease was primarily due to the
purchase of investment securities which, because of their maturity term, did
not qualify as liquid investments. Assuming market interest rates are stable
or decrease, a high level of liquidity may have a negative effect on the
Association's interest rate spread due to a larger amount of the Association's
assets earning the then-current lower rates of interest. However, a high level
of liquidity positions the Association to respond to possible higher interest
rates by providing the Association with the ability to deploy liquid assets
into higher yielding assets as rates increase. The Association has, and
intends to continue to deploy liquid assets by increasing its loan portfolio;
however, its ability to do so depends on the loan demand in its market areas,
competition for such loans, to the extent they meet the Association's
underwriting guidelines, and opportunities for participating in and purchasing
loans in nearby markets.
Liquidity management is both a daily and long-term responsibility of
management. The Association 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 strategy. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Association requires funds beyond
its ability to generate them internally, it has additional borrowing capacity
with the Federal Home Loan Bank.
Page 9
<PAGE>
MIDWEST BANCSHARES and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The Association anticipates that it will have sufficient funds
available to meet current loan and purchase commitments. At June 30, 1998, the
Association had outstanding commitments to extend credit totaling $5.4 million
and to purchase investments of $1.0 million.
At June 30, 1998, the Association had tangible and core capital of
$10.2 million, or 6.42% of total adjusted assets which exceeded the regulatory
requirements of 1.5% and 3.0%, by $7.8 million and $5.4 million, respectively.
The risk-based capital requirement is currently 8% of risk-weighted assets. As
of June 30, 1998, the Association had risk-weighted assets of $71.3 million, a
risk-based requirement of $5.7 million and risk-based capital of $10.6
million, or 14.92%, which exceeds the requirement by $4.9 million. The
Association's regulatory capital information is shown in the table below.
Regulatory Capital Table
(In thousands)
Tangible Core Risk-based
Capital Capital Capital
------------------------------------
Association's capital $10,179 $10,179 $10,179
Additional capital - general allowances -- -- 458
------- ------- -------
Regulatory capital 10,179 10,179 10,637
Minimum capital requirement
2,380 4,760 5,702
------- ------- -------
Excess regulatory capital $ 7,799 $ 5,419 $ 4,935
======= ======= =======
The unrealized appreciation on securities available for sale, which is
a component of stockholders' equity, is a result of the application of
Statement No. 115 of the Financial Accounting Standards Board. At June 30,
1998, the net unrealized gain of $384,000, up from a net gain of $373,000 at
December 31, 1997, consisted primarily of the net unrealized market gain, net
of tax, on certain mortgage-backed securities and investment securities, which
have been identified as available for sale by management.
Page 10
<PAGE>
MIDWEST BANCSHARES, INC.
PART II. Other Information
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual meeting date: April 27, 1998
(c) The matters approved by stockholders at the meeting and number of
votes cast for, against or withheld (as well as the number of
abstentious and broker non-votes) as to each matter are set forth below:
Proposal Number of Votes
-------- ---------------
Broker
For Withheld Non-vote
--- -------- --------
Election of the following directors
for three-year terms:
1. William D. Hassel 687,243 300 0
2. James R. Walker 686,943 600 0
3. Edward C. Whitham, Jr. 687,243 300 0
Broker
For Against Abstain Non-vote
--- ------- ------- --------
Ratification of the appointment of
KPMG Peat Marwick LLP as auditors for
fiscal year ending December 31, 1998 686,763 180 600 0
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit:
Exhibit 27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
Page 11
<PAGE>
Signatures
Pursuant to the requirement 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.
MIDWEST BANCSHARES, INC.
Registrant
Date: August 5, 1998 /s/ William D. Hassel
-------------------- -------------------------------------
William D. Hassel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 1998 /s/ Robert D. Maschmann
-------------------- -------------------------------------
Robert D. Maschmann
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 12
<PAGE>
Index to Exhibits
Sequentially
Numbered Page
Exhibit Where Attached
Number Exhibits are Located
------- --------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR THE FISCAL PERIODS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1998 JUN-30-1997
<CASH> 977 517 977 517
<INT-BEARING-DEPOSITS> 1,948 1,602 1,948 1,602
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 39,630 27,999 39,630 27,999
<INVESTMENTS-CARRYING> 15,193 23,158 15,193 23,158
<INVESTMENTS-MARKET> 15,448 23,204 15,448 23,204
<LOANS> 94,809 87,221 94,809 87,221
<ALLOWANCE> 458 710 458 710
<TOTAL-ASSETS> 159,460 146,542 159,460 146,542
<DEPOSITS> 105,806 106,786 105,806 106,786
<SHORT-TERM> 18,000 10,500 18,000 10,500
<LIABILITIES-OTHER> 1,254 1,133 1,254 1,133
<LONG-TERM> 23,000 18,000 23,000 18,000
11,400 10,123 11,400 10,123
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 159,460 146,542 159,460 146,542
<INTEREST-LOAN> 1,892 1,742 3,740 3,401
<INTEREST-INVEST> 969 934 1,932 1,819
<INTEREST-OTHER> 0 0 0 0
<INTEREST-TOTAL> 2,861 2,676 5,672 5,220
<INTEREST-DEPOSIT> 1,233 1,264 2,463 2,480
<INTEREST-EXPENSE> 1,809 1,663 3,580 3,231
<INTEREST-INCOME-NET> 1,052 1,013 2,092 1,989
<LOAN-LOSSES> 12 12 24 24
<SECURITIES-GAINS> 61 0 97 0
<EXPENSE-OTHER> 731 621 1,423 1,280
<INCOME-PRETAX> 593 458 1,053 850
<INCOME-PRE-EXTRAORDINARY> 593 458 1,053 850
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 409 290 720 537
<EPS-PRIMARY> 0.39 0.28 0.70 0.51
<EPS-DILUTED> 0.37 0.26 0.65 0.48
<YIELD-ACTUAL> 2.88 2.92 2.83 2.89
<LOANS-NON> 371 651 371 651
<LOANS-PAST> 0 0 0 0
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 460 698 568 686
<CHARGE-OFFS> 14 0 134 0
<RECOVERIES> 0 0 0 0
<ALLOWANCE-CLOSE> 458 710 458 710
<ALLOWANCE-DOMESTIC> 362 539 362 539
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 96 171 96 171
</TABLE>
