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, 1999
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 Format: 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 1,105,348
----------------- ------------------
Class Shares Outstanding
as of August 4, 1999
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
INDEX
Page
-------
Part I. Financial Information
Item 1 Financial Statements
Consolidated balance sheets June 30, 1999 and
December 31, 1998 1
Consolidated statements of operations, for the three
and six months ended June 30, 1999 and 1998 2
Consolidated statements of comprehensive income, for
the three and six months ended June 30, 1999 and 1998 3
Consolidated statements of cash flows, for the six
months ended June 30, 1999 and 1998 4
Notes to consolidated financial statements 5
Item 2 Management's discussion and analysis of financial
condition and results of operations 6 through 11
Part II. Other Information 12
Signatures 13
Exhibit 27 Financial Data Schedule
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
June 30, December 31,
1999 1998
-------- ------------
Assets
Cash and cash equivalents $ 2,071 $ 4,088
Securities available for sale 36,485 33,843
Securities held to maturity (estimated
fair value of $21,743 and $22,116) 21,601 21,827
Loans receivable, net 98,794 96,348
Real estate acquired through foreclosure - 192
Federal Home Loan Bank stock, at cost 2,200 2,200
Office property and equipment, net 2,394 2,444
Accrued interest receivable 1,386 1,237
Other assets 335 139
-------- --------
Total assets $165,266 $162,318
======== ========
Liabilities
Deposits $107,895 $105,982
Advances from Federal Home Loan Bank 44,000 43,000
Advances from borrowers for taxes and
insurance 432 413
Accrued interest payable 91 66
Accrued expenses and other liabilities 540 822
-------- --------
Total liabilities 152,958 150,283
-------- --------
Stockholders' equity
Serial preferred stock, $.01 par value;
authorized 500,000 shares; none issued - -
Common stock, $.01 par value; 2,000,000
shares authorized;
1,105,348 shares issued and outstanding in
1999 and 1,077,738 shares issued and
outstanding in 1998 11 11
Additional paid-in capital 1,886 1,772
Retained earnings, substantially restricted 10,375 9,832
Accumulated other comprehensive income -
unrealized gains on securities available
for sale, net of taxes on income of $20
in 1999 and $250 in 1998 36 420
-------- --------
Total stockholders' equity 12,308 12,035
-------- --------
Total liabilities and stockholders' equity $165,266 $162,318
======== ========
See accompanying notes to consolidated financial statements.
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,
---------------------- ----------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,865 $ 1,892 $ 3,772 $ 3,740
Securities available for sale 528 615 1,040 1,244
Securities held to maturity 354 299 708 579
Deposits in other financial institutions 27 20 77 41
Other interest-earning assets 34 35 68 68
------- ------- ------- -------
Total interest income 2,808 2,861 5,665 5,672
------- ------- ------- -------
Interest expense:
Deposits 1,187 1,233 2,378 2,463
Advances from FHLB and other borrowings 600 576 1,192 1,117
------- ------- ------- -------
Total interest expense 1,787 1,809 3,570 3,580
------- ------- ------- -------
Net interest income 1,021 1,052 2,095 2,092
Provision for losses on loans 12 12 24 24
------- ------- ------- -------
Net interest income after provision
for losses on loans 1,009 1,040 2,071 2,068
------- ------- ------- -------
Non-interest income:
Fees and service charges 104 90 203 171
Gain on sale of securities
available for sale 4 61 7 97
Other 9 133 13 140
------- ------- ------- -------
Total non-interest income 117 284 223 408
------- ------- ------- -------
Non-interest expense:
Compensation and benefits 316 378 651 704
Office property and equipment 107 105 205 207
Deposit insurance premiums 16 16 32 33
Data processing 48 42 98 84
Other 189 190 405 395
------- ------- ------- -------
Total non-interest expense 676 731 1,391 1,423
------- ------- ------- -------
Earnings before taxes on income 450 593 903 1,053
Taxes on income 118 184 236 333
------- ------- ------- -------
Net earnings $ 332 $ 409 $ 667 $ 720
======= ======= ======= ======
Earnings per share - basic $ 0.30 $ 0.39 $ 0.61 $ 0.70
======= ======= ======= ======
Earnings per share - diluted $ 0.30 $ 0.37 $ 0.60 $ 0.65
======= ======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
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,
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings $ 332 $ 409 $ 667 $ 720
Other comprehensive income:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the
period, net of (tax benefits) taxes on income
of ($180) and ($228) in 1999 and $26 and $39 in 1998 (298) 44 (379) 72
Less: reclassification adjustment for gains included in
net earnings, net of taxes on income
of $1 and $2 in 1999 and$24 and $36 in 1998 3 37 5 61
----- ----- ----- -----
Other comprehensive income, net of tax $(301) $ 7 $(384) $ 11
----- ----- ----- -----
Comprehensive income $ 31 $ 416 $ 283 $ 731
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 667 $ 720
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 (7) (97)
Depreciation 89 90
Amortization of loan fees, premiums and discounts (19) (15)
Increase in accrued interest receivable (149) (200)
Increase in other assets (196) (50)
Increase in accrued interest payable 25 7
Increase (decrease) in accrued expenses and other liabilities 55 (48)
------- -------
Net cash provided by operating activities 489 431
------- -------
Cash flows from investing activities:
Purchase of securities available for sale (9,489) (21,016)
Purchase of FHLB stock - (140)
Proceeds from maturities of securities available for sale 2,000 6,000
Proceeds from maturities of securities held to maturity 457 -
Proceeds from sales of securities available for sale 3,364 2,464
Loans purchased (4,231) (317)
Purchase of mortgage-backed securities held to maturity (2,936) -
Repayment of principal on mortgage-backed securities 3,591 5,631
Decrease (increase) in loans receivable 1,728 (3,706)
Proceeds from sale of real estate owned, net 234 107
Purchase of office property and equipment (39) (62)
------- -------
Net cash used in investing activities (5,321) (11,039)
------- -------
Cash flows from financing activities:
Increase in deposits 1,913 528
Proceeds from advances from FHLB 5,000 10,500
Repayment of advances from FHLB (4,000) -
Exercise of stock option 114 92
Payment of cash dividends (231) (134)
Net increase in advances from borrowers for taxes and insurance 19 23
------- -------
Net cash provided by financing activities 2,815 11,009
------- -------
Net (decrease) increase in cash and cash equivalents (2,017) 401
Cash and cash equivalents at beginning of year 4,088 2,524
------- -------
Cash and cash equivalents at end of period $ 2,071 $ 2,925
======= =======
Supplemental disclosures:
Cash paid during the six months for:
Interest $ 3,545 $ 3,573
Taxes on income 169 256
Transfers from loans to real estate owned 42 468
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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 and six months
ended June 30, 1999, and 1998 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 1998 Annual Report
to Stockholders on Form 10-KSB and are incorporated herein by
reference.
Note 2. 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. The following
information was used in the computation of earnings per share on both
a basic and diluted basis for the three and six months ended June 30,
1999 and 1998.
<TABLE>
<CAPTION>
Three Months Six Months
------------------------ ------------------------
1999 1998 1999 1998
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator - Net earnings $ 332,122 $ 408,813 $ 666,910 $ 719,571
Denominator - Weighted
average shares outstanding 1,102,698 1,036,688 1,099,269 1,031,659
---------- ---------- ---------- ----------
Basic EPS $ 0.30 $ 0.39 $ 0.61 $ 0.70
========== ========== ========== ==========
Diluted EPS Computation:
Numerator - Net earnings $ 332,122 $ 408,813 $ 666,910 $ 719,571
---------- ---------- ---------- ----------
Denominator - Weighted
average shares outstanding 1,102,698 1,036,688 1,099,269 1,031,659
Stock options 9,900 65,524 12,640 70,455
---------- ---------- ---------- ----------
1,112,598 1,102,212 1,111,909 1,102,114
---------- ---------- ---------- ----------
Diluted EPS $ 0.30 $ 0.37 $ 0.60 $ 0.65
========== ============ ========== ==========
</TABLE>
Note 3. Merger Agreement
On February 2, 1999, the Company announced the execution of a
definitive merger agreement with Mahaska Investment Company. The
merger will be accomplished through a tax-free fixed exchange of one
share of Mahaska Investment Company common stock for each share of
outstanding common stock of the Company. The transaction is expected
to be completed in the third quarter of 1999, after customary
regulatory and shareholder approvals have been received.
5
<PAGE>
MIDWEST BANCSHARES, INC. 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. The enhancements
necessary to prepare the Company's mission critical systems for the year 2000
have been substantially completed.
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 has and will continue to 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 $23,000 through June 30, 1999 on the awareness, assessment,
6
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
renovation, and validation phases of its year 2000 effort. The Company has
completed the validation (testing) phase with its outside data processing
service bureau.
The worst-case year 2000 scenario for the Company is that major suppliers
of electricity, communication links, and data processing services may fail in
spite of their best efforts to remediate their systems and in spite of our best
effort to test their systems. The major risk as a result of these possibilities
would be the loss of customer confidence. The Company has developed a business
resumption contingency plan to address these possibilities and minimize the loss
of confidence.
Results of Operations
Midwest Bancshares, Inc. (the "Company") had net earnings of $332,000, or
$0.30 per share, diluted, and $667,000, or $0.60 per share, respectively, for
the three months and six months ended June 30, 1999, compared to net earnings of
$409,000, or $0.37 per share, and $720,000, or $0.65 per share, for the same
periods in 1998. The decreases in net earnings for the three months and six
months, respectively, were primarily a result of decreases in gains on sales of
securities, and other non-interest income, partially offset by increases in fee
income and decreases in non-interest expense. More detailed comparisons are
discussed below.
Net Interest Income
Net interest income decreased $31,000 and increased $3,000, for the three
months and six months ended June 30, l999, respectively, over the comparable
periods in 1998. The Company's net interest rate spread was 2.42% and 2.48%,
respectively, for the three months and six months ended June 30, 1999, compared
to 2.65% and 2.60% for the comparable periods in 1998. The Company's net
interest margin on interest-earning assets was 2.70% and 2.77%, respectively,
for the three months and six months ended June 30, 1999, compared to 2.88% and
2.84% for the comparable periods in 1998. The interest rate earned on assets has
declined faster than the interest rate paid on liabilities due to the flatness
of the yield curve and the ability of borrowers to prepay and refinance their
loans without penalty. In addition, competition for deposits has reduced our
ability to successfully offer lower rates on deposits, and competition for loans
has limited our ability to raise rates on loans. The net interest rate spread
and net interest margin ratios have been calculated on a tax-equivalent basis.
Interest income decreased by $53,000 and $7,000 for the three months and
six months ended June 30, 1999, respectively, over the comparable periods in
1998. Average interest-earning assets increased by approximately $8.1 million
and $8.3 million for the three months and six months ended June 30, 1999,
respectively, compared to the same periods in 1998. 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 maintain net interest income in a challenging interest
rate environment. The average yield on interest-earning assets, on a
tax-equivalent basis, was 7.16% and 7.30% for the three months and six months
ended June 30, 1999, respectively, compared to 7.64% and 7.63% for the same
periods in 1998. The Company recorded $158,000 and $316,000 ($218,000 and
$445,000 on a tax-equivalent basis), of interest income on tax-exempt municipal
bonds for the three months and six months ended June 30, 1999, respectively,
with average balances of $12.5 million for both the three and six months ended
June 30, 1999, compared to $104,000 and $163,000 ($149,000 and $232,000 on a
tax-equivalent basis), of interest income with average balances of $8.6 million
and $6.7 million, respectively, for the comparable periods in 1998.
7
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense decreased by $22,000 and $10,000 for the three months and
six months ended June 30, 1999, respectively, over the comparable periods in
1998. Average interest-bearing liabilities increased by approximately $5.7
million and $6.0 million for the three months and six months, respectively, over
the comparable periods in 1998, consisting of increases of $3.2 million and $4.1
million in average borrowings from the FHLB and increases of $2.5 million and
$1.9 million in average deposits. The Company utilized FHLB advances to
supplement its funding of new asset growth because the interest cost of new FHLB
advances was generally less than the incremental cost of adding new certificate
of deposit accounts. The average rates paid on interest-bearing liabilities
decreased 24 basis points and 22 basis points to 4.75% and 4.81% for the three
months and six months ended June 30, 1999, respectively, from 4.99% and 5.03%
for the three months and six months ended June 30, 1998.
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, 1999 and 1998. The amount of provision was
a result of the determination to maintain the allowance for losses on loans at
an adequate level to absorb probable loan losses inherent in the loan portfolio.
At June 30, 1999 and 1998, the Company's allowance for losses on loans totaled
$504,000 and $458,000, respectively, or 0.51% and 0.48% of total loans, and
406.45% and 123.45% of total non-performing loans. There were no net charge-offs
during either the three months or six months ended June 30, 1999 compared to net
charge-offs of $14,000 and $134,000 for the three months and six months ended
June 30, 1998, respectively. The $134,000 of charge-offs in the six months ended
June 30, 1998 was primarily due to $120,000 of charge-offs related to two loans
on multi-family properties which were transferred to real estate acquired
through foreclosure.
Non-interest income
Total non-interest income decreased by $167,000 and $185,000 for the three
months and six months ended June 30, 1999, respectively, compared to the same
periods in 1998. The decreases in non-interest income were primarily due to
reductions of $57,000 and $90,000 of gains on the sales of securities for the
three months and six months ended June 30, 1999, respectively. The previous-year
gains for the three months and six months ended June 30, 1998, respectively,
consisted of $61,000 and $65,000 of gains on the sale of common stock of
non-related, publicly-traded companies (with no comparable gains on sales of
equity securities in 1999) and $32,000 of gains on the sales of U.S. Agency
bonds in the six month period ended June 30, 1998. 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 with no comparable gain in 1999.
The decreases in non-interest income discussed above were partially offset
by increases of $14,000 and $32,000 for the three months and six months ended
June 30, 1999, respectively, (a 19% increase year-to-date) in fees and service
charges as a result of increased transaction account activity and increased ATM
transaction volumes, in part as a result of the in-store branch, located in the
Wal-Mart Supercenter in West Burlington, Iowa, which opened for business on
December 8, 1997.
8
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-interest expense
Total non-interest expense decreased by $55,000 and $32,000 for the three
months and six months ended June 30, 1999 compared to the same periods in 1998.
The decreases were primarily a result of decreased compensation and benefits
paid to senior management.
Taxes on Income
Taxes on income were $66,000 and $97,000 less for the three and six months
ended June 30, 1999, respectively, than the comparable periods in 1998. The
decreases were primarily due to decreased taxable income, and would have been
less if not for the increases in tax-exempt interest income on municipal bonds
discussed above under "Net Interest Income".
Financial Condition
The Company's total assets at June 30, 1999 were $165.3 million, increasing
from $162.3 million at December 31, 1998. The increase of approximately $3.0
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
$9.5 million of securities available for sale, the purchase of $2.9 million of
securities held to maturity and the purchase of loans receivable of $4.2
million, partially offset by principal repayments of $3.6 million from
mortgage-backed securities, $2.0 million from matured securities, and $3.4
million proceeds from the sale of securities available for sale and a net
decrease (exclusive of loans purchased) in loans receivable of $1.7 million. The
net increase in total assets was primarily funded by an increase of $1.9 million
of savings deposits and an increase of $1.0 million of advances from the FHLB.
The Company does not currently anticipate significant additional growth for the
remainder of 1999.
Total stockholders' equity increased $273,000 due to the $667,000 net
earnings for the six months and $114,000 received from the exercise of stock
options, less a $384,000 decrease in net unrealized gains on investments
available for sale and less $124,000 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
9
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1999, the Association's liquidity ratio was 33.1% compared to 8.5% for
December 1998. The increase was primarily due to reclassification of investment
securities as liquid assets in accordance with regulations. 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.
The Association anticipates that it will have sufficient funds available to
meet current loan and purchase commitments. At June 30, 1999, the Association
had outstanding commitments to extend credit totaling $4.5 million and to
purchase loans of $1.0 million.
At June 30, 1999, the Association had tangible and core capital of $11.5
million, or 7.01% of total adjusted assets, which exceeded the regulatory
requirements of 1.5% and 3.0%, by $9.1 million and $6.6 million, respectively.
The risk-based capital requirement is currently 8% of risk-weighted assets. As
of June 30, 1999, the Association had risk-weighted assets of $81.7 million, a
risk-based requirement of $6.5 million and risk-based capital of $12.0 million,
or 14.76%, which exceeds the requirement by $5.5 million. The Association's
regulatory capital information is shown in the table below.
<TABLE>
<CAPTION>
Regulatory Capital Table
(In thousands)
Tangible Core Risk-based
Capital Capital Capital
-------- ------- ----------
<S> <C> <C> <C>
Association's capital $11,548 $11,548 $11,548
Additional capital - general allowances --- --- 504
------- ------- -------
Regulatory capital 11,548 11,548 12,052
Minimum capital requirement 2,470 4,941 6,533
------- ------- -------
$ 9,078 $ 6,607 $ 5,519
======= ======= =======
</TABLE>
10
<PAGE>
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1999, the net
unrealized gain of $36,000, down from a net gain of $420,000 at December 31,
1998, 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.
Pending Accounting Pronouncements
The Financial Accounting Standards Board has issued, effective for fiscal
years beginning after June 15, 1999, Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Company expects to adopt SFAS 133
when required and management believes the adoption will not have a material
effect on the Company's financial statements when adopted.
11
<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
None.
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.
12
<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 13, 1999 /s/ William D. Hassel
-------------------- ------------------------------
William D. Hassel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1999 /s/ Robert D. Maschmann
-------------------- ------------------------------
Robert D. Maschmann
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
Index to Exhibits
Sequentially
Numbered Page
Exhibit Where Attached
Number Exhibits are Located
- ------- --------------------
27 Financial Data Schedule 15
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-QSB FOR THE FISCAL PERIODS ENDED JUNE 30, 1999 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-31-1999 Dec-31-1998 Dec-31-1999 Dec-31-1998
<PERIOD-END> Jun-30-1999 Jun-30-1998 Jun-30-1999 Jun-30-1998
<CASH> 1,257 977 1,257 977
<INT-BEARING-DEPOSITS> 814 1,948 814 1,948
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 36,485 39,630 36,485 39,630
<INVESTMENTS-CARRYING> 21,601 15,193 21,601 15,193
<INVESTMENTS-MARKET> 21,743 15,448 21,743 15,448
<LOANS> 98,794 94,809 98,794 94,809
<ALLOWANCE> 504 458 504 458
<TOTAL-ASSETS> 165,266 159,460 165,266 159,460
<DEPOSITS> 107,895 105,806 107,895 105,806
<SHORT-TERM> 10,000 18,000 10,000 18,000
<LIABILITIES-OTHER> 1,063 1,254 1,063 1,254
<LONG-TERM> 34,000 23,000 34,000 23,000
<COMMON> 12,308 11,400 12,308 11,400
0 0 0 0
0 0 0 0
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 165,266 159,460 165,266 159,460
<INTEREST-LOAN> 1,865 1,892 3,772 3,740
<INTEREST-INVEST> 943 969 1,893 1,932
<INTEREST-OTHER> 0 0 0 0
<INTEREST-TOTAL> 2,808 2,861 5,665 5,672
<INTEREST-DEPOSIT> 1,187 1,233 2,378 2,463
<INTEREST-EXPENSE> 1,787 1,809 3,570 3,580
<INTEREST-INCOME-NET> 1,021 1,052 2,095 2,092
<LOAN-LOSSES> 12 12 24 24
<SECURITIES-GAINS> 4 61 7 97
<EXPENSE-OTHER> 676 731 1,391 1,423
<INCOME-PRETAX> 450 593 903 1053
<INCOME-PRE-EXTRAORDINARY> 450 593 903 1053
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 332 409 667 720
<EPS-BASIC> 0.30 0.39 0.61 0.70
<EPS-DILUTED> 0.30 0.37 0.60 0.65
<YIELD-ACTUAL> 2.70 2.88 2.77 2.83
<LOANS-NON> 124 371 124 371
<LOANS-PAST> 0 0 0 0
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 492 460 480 568
<CHARGE-OFFS> 0 14 0 134
<RECOVERIES> 0 0 0 0
<ALLOWANCE-CLOSE> 504 458 504 458
<ALLOWANCE-DOMESTIC> 284 362 284 362
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 220 96 220 96
</TABLE>
