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, 1996
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission File Number: 0-22140
FIRST MIDWEST FINANCIAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 42-1406262
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Fifth at Erie, Storm Lake, Iowa 50588
-------------------------------------
(Address of principal executive offices)
(712) 732-4117
--------------
(Issuer's telephone number, including area code)
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 filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Outstanding at June 30, 1996:
------ -----------------------------
Common Stock, $.01 par value 1,778,577 Common Shares
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
FORM 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition
as of June 30, 1996 and September 30, 1995
Consolidated Statements of Income for the
Three Months and Nine Months Ended June 30,
1996 and 1995
Consolidated Statement of Stockholders' Equity for the
Nine Months Ended June 30, 1996
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 1996 September 30, 1995
------------- ------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 18,159,622 $ 4,615,712
Securities available-for-sale, amortized cost of
$48,865,127 and $48,661,536 48,315,224 48,829,103
Mortgage-backed securities available-for-sale,
amortized cost of $37,631,323 and $20,658,949 37,815,732 21,402,989
Loans receivable - net of allowances of $1,811,535
and $1,649,520 222,761,161 178,551,501
Real estate owned - net of allowances of $20,000 and $0 112,773 48,418
Accrued interest receivable 3,560,066 2,745,747
Federal Home Loan Bank stock 5,524,700 3,915,300
Premises and equipment, net 2,707,641 1,976,647
Excess of cost over net assets acquired 2,578,788 1,689,776
Other assets 558,973 438,030
------------- -------------
Total Assets $ 342,094,680 $ 264,213,223
============= =============
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 203,913,766 $ 171,792,997
Advances from Federal Home Loan Bank 93,290,539 51,098,388
Securities sold under agreements to repurchase 1,979,918 1,149,918
Advances from borrowers for taxes and insurance 596,784 501,522
Accrued interest payable 1,087,473 788,008
Other liabilities 2,197,608 869,694
------------- -------------
Total Liabilities 303,066,088 226,200,527
------------- -------------
Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, 800,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 5,200,000 shares
authorized, 1,990,495 and 1,991,453 issued 19,905 19,915
Additional paid-in capital 19,494,430 19,310,045
Unrealized gain (loss) on securities available-for-sale,
net of deferred income tax (227,743) 571,564
Less: Obligation under employee stock ownership plan (811,700) (967,200)
Less: Treasury stock, 211,918 and 197,428 shares, at cost (3,331,780) (3,002,207)
Retained earnings 23,885,480 22,080,579
------------- -------------
Total Stockholders' Equity 39,028,592 38,012,696
------------- -------------
Total Liabilities and Stockholders' Equity $ 342,094,680 $ 264,213,223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable ....................................... $ 5,004,672 $ 3,398,766 $13,639,540 $10,003,028
Securities available-for-sale .......................... 729,278 344,506 2,064,520 878,104
Mortgage-backed securities available-for-sale .......... 682,082 437,282 1,888,634 1,345,612
Securities held-to-maturity ............................ -- 465,226 -- 1,353,014
Mortgage-backed securities held-to-maturity ............ -- 448,381 -- 2,142,177
Dividends on Federal Home Loan Bank stock .............. 83,024 68,330 231,951 201,181
----------- ----------- ----------- -----------
Total interest income ............................. 6,499,056 5,162,491 17,824,645 15,923,116
----------- ----------- ----------- -----------
Interest Expense:
Deposits ............................................... 2,514,636 2,137,897 7,179,841 6,103,340
Other borrowings ....................................... 1,220,470 759,111 2,922,944 2,764,017
----------- ----------- ----------- -----------
Total interest expense ............................ 3,735,106 2,897,008 10,102,785 8,867,357
----------- ----------- ----------- -----------
Net interest income ........................................ 2,763,950 2,265,483 7,721,860 7,055,759
Provision for loan losses .............................. 30,000 130,000 90,000 190,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ........ 2,733,950 2,135,483 7,631,860 6,865,759
----------- ----------- ----------- -----------
Non-interest income:
Service charges ........................................ 218,821 223,815 629,522 507,986
Gain on sale of securities ............................. -- 1,025,896 57,129 1,070,247
Brokerage commissions from subsidiary .................. 70,318 76,558 222,053 242,829
Other .................................................. 70,528 26,558 140,273 123,202
----------- ----------- ----------- -----------
Total non-interest income ......................... 359,667 1,352,827 1,048,977 1,944,264
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and benefits .............................. 971,547 841,862 2,810,483 2,509,104
Occupancy and equipment ................................ 129,237 82,425 401,722 303,794
Federal deposit insurance .............................. 111,164 100,852 318,725 302,770
Data processing ........................................ 79,997 72,060 215,679 208,871
Other .................................................. 315,717 269,644 920,889 815,117
----------- ----------- ----------- -----------
Total non-interest expense ........................ 1,607,662 1,366,843 4,667,498 4,139,656
----------- ----------- ----------- -----------
Income before income taxes ................................. 1,485,955 2,121,467 4,013,339 4,670,367
Income tax expense ..................................... 593,774 859,392 1,617,507 1,857,578
----------- ----------- ----------- -----------
Net income ................................................. $ 892,181 $ 1,262,075 $ 2,395,832 $ 2,812,789
=========== =========== =========== ===========
Primary and Fully Diluted Earnings per
Common Share (Note 3): ................................. $ .50 $ .67 $ 1.34 $ 1.49
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For The Nine Months Ended June 30, 1996
Additional Unrealized
Common Paid-In Retained Esop Treasury Gain/(Loss)
Stock Capital Earnings Borrowings Stock on Securities Total
------- ----------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, september 30, 1995 $19,915 $19,310,045 $22,080,579 $(967,200) $(3,002,207) $ 571,564 $38,012,696
Payment on ESOP borrowing
and fair market value adjustment -- 194,336 -- 155,500 -- -- 349,836
Dividends paid -- -- (590,931) -- -- -- (590,931)
Net change in unrealized gain on
securities available-for-sale, net
of deferred income taxes -- -- -- -- -- (799,307) (799,307)
Amortization of recognition and
retention plan -- 102,176 -- -- -- -- 102,176
Purchase of 23,940 common shares -- -- -- -- (536,210) -- (536,210)
Issuance of 9,450 shares from
treasury in connection with stock
option plan -- (112,137) -- -- 206,637 -- 94,500
Retirement of 958 common shares (10) 10 -- -- -- -- --
Net income -- -- 2,395,832 -- -- -- 2,395,832
------- ----------- ----------- --------- ----------- --------- -----------
Balance, June 30, 1996 $19,905 $19,494,430 $23,885,480 $(811,700) $(3,331,780) $(227,743) $39,028,592
======= =========== =========== ========= =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended June 30,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 2,395,832 $ 2,812,789
Adjustments to reconcile net income to net cash provided by operations:
Depreciation, amortization of premiums and accretion of discounts ... 378,314 90,034
Provision for loan losses ........................................... 90,000 190,000
Gain on sale of securities available-for-sale ....................... (57,129) (1,070,247)
(Gain)/loss on sale of assets ....................................... 1,005 (149)
Amortization of unearned stock grants ............................... 102,176 156,119
Stock dividends on Federal Home Loan Bank stock ..................... (78,900) --
Proceeds from sale of loans ......................................... 1,652,794 --
Origination of loans for resale ..................................... (1,635,873) --
Increase in accrued interest receivable ............................. (663,514) (654,974)
Increase in other assets ............................................ (178,929) (43,640)
Increase in accrued interest payable ................................ 299,465 152,079
Increase in other liabilities ....................................... 1,720,325 370,252
------------- -------------
Net cash flows from operating activities .................... 4,025,566 2,002,263
------------- -------------
Cash flows from investing activities:
Purchase of securities available-for-sale ............................. (70,835,016) (21,362,717)
Purchase of securities held-to-maturity ............................... -- (11,888,625)
Proceeds from sale of securities available-for-sale ................... 165,000 492,750
Proceeds from maturities of securities ................................ 72,300,000 5,355,000
Purchase of Federal Home Loan Bank stock .............................. (1,355,100) (900,100)
Purchase of mortgage-backed securities available-for-sale ............. (20,206,932) --
Proceeds from principal repayment of mortgage-backed securities ....... 6,499,606 2,712,843
Proceeds from sale of mortgage-backed securities ...................... 28,079 48,953,383
Loans originated ...................................................... (70,281,581) (47,686,049)
Loans purchased ....................................................... (24,473,540) (5,904,000)
Loan principal repayments ............................................. 66,631,216 46,520,160
Acquisition of Iowa Bancorp, Inc. - net ............................... (5,217,265) --
Proceeds from sale of real estate owned ............................... 31,171 51,741
Purchase of furniture and equipment ................................... (812,318) (378,001)
Proceeds from sale of assets .......................................... 26,335 --
Proceeds from exercise of stock options ............................... 94,500 --
Purchase of Treasury stock ............................................ (536,210) (849,080)
------------- -------------
Net cash flows from investing activities .................... (47,942,055) 15,117,305
------------- -------------
(Continued)
<PAGE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows -- Continued
Nine Months Ended June 30,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Increase in NOW, passbook and money market accounts ................... 736,396 504,732
Increase/(decrease) in certificate accounts ........................... 15,742,021 (3,645,774)
Proceeds from advances from Federal Home Loan Bank .................... 152,000,000 226,000,000
Payments of Federal Home Loan Bank advances ........................... (111,507,849) (235,207,176)
Proceeds from securities sold under agreements to repurchase .......... 1,230,000 240,000
Payments of securities sold under agreements to repurchase ............ (400,000) --
Increase in advances from borrowers for taxes and insurance ........... 95,262 45,450
Payments of employee stock ownership plan borrowings .................. 155,500 --
Dividends paid ........................................................ (590,931) (407,228)
------------- -------------
Net cash flows from financing activities .................... 57,460,399 (12,469,996)
------------- -------------
Net change in cash and cash equivalents ................................... 13,543,910 4,649,572
Cash and cash equivalents at beginning of period .......................... 4,615,712 6,430,235
------------- -------------
Cash and cash equivalents at end of period ................................ $ 18,159,622 $ 11,079,807
============= =============
</TABLE>
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Notes to consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by First Midwest Financial, Inc.
("First Midwest" or the "Company") and its consolidated subsidiaries,
First Federal Savings Bank of the Midwest ("First Federal" or the
"Bank"), First Services Financial Limited and Brookings Service
Corporation, for interim reporting are consistent with the accounting
policies followed for annual financial reporting. All adjustments that,
in the opinion of management, are necessary for a fair presentation of
the results for the periods reported have been included in the
accompanying unaudited consolidated financial statements, and all such
adjustments are of a normal recurring nature. The accompanying
financial statements do not purport to contain all the necessary
financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and
should be read in conjunction with the Company's financial statements,
and notes thereto, for the year ended September 30, 1995.
2. SECURITIES
During the year ended September 30, 1995, the Company reclassified all
securities, including mortgage-backed securities, previously designated
as held-to-maturity to the available-for-sale category. All securities
acquired subsequent to this reclassification have also been designated
as available-for-sale.
3. EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common shares and common stock equivalent shares outstanding during the
period, which totaled 1,793,575 and 1,871,481 shares for the three
months ended June 30, 1996 and 1995, respectively, and which totaled
1,791,522 and 1,891,192 shares for the nine months ended June 30, 1996
and 1995, respectively. Unallocated shares of common stock held by the
employee stock ownership plan are not considered outstanding for the
purpose of calculating earnings per share. The difference between
primary and fully diluted earnings per share is not material.
4. COMMITMENTS
At June 30, 1996 and September 30, 1995, the Bank had outstanding
commitments to originate and purchase loans totaling $1.8 million and
$6.8 million, respectively, excluding undisbursed portions of loans in
process. It is expected that outstanding loan commitments will be
funded with existing liquid assets.
<PAGE>
5. COMPLETED ACQUISITION
On December 29. 1995, First Midwest completed the acquisition of Iowa
Bancorp, Inc. ("Iowa Bancorp"), and its wholly-owned subsidiary, Iowa
Savings Bank, a federal savings bank, ("Iowa Savings") located in Des
Moines, Iowa. Upon acquisition, Iowa Bancorp was merged into First
Midwest and Iowa Savings was merged into First Federal. The Iowa
Savings office operates as the Iowa Savings Bank Division of First
Federal. At the date of acquisition, Iowa Bancorp had assets of $24.4
million and total equity of $7.0 million. First Midwest purchased Iowa
Bancorp's 379,980 outstanding shares and 36,537 shares subject to
option for a cash payment of $20.39 per share for a total net purchase
price of approximately $8.0 million. The acquisition has been accounted
for as a purchase, and the accompanying consolidated financial
statements reflect the combined results since the date of acquisition.
The cost of the acquisition will be allocated on the basis of the
estimated fair market value of the assets acquired and liabilities
assumed. The fair value to be assigned to the assets and liabilities,
including the core value of the existing customer deposit base, has not
yet been determined.
The unaudited consolidated results of operations on a pro forma basis
as though the acquisition of Iowa Bancorp had been consummated at
October 1, 1995 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1996
-------------
(amounts in thousands except per share data)
<S> <C>
Interest income $ 18,178
Interest expense 10,348
--------
Net interest income before provision for loan losses 7,830
Provision for loan losses 191
--------
Net interest income 7,639
Non-interest income 1,048
Non-interest expense 4,846
--------
Income before income taxes 3,841
Income tax expense 1,590
--------
Net Income $ 2,251
========
Net income per weighted average share outstanding $1.26
=====
</TABLE>
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the Iowa Bancorp acquisition been
consummated as of the above date, nor are they necessarily indicative
of future operating results.
<PAGE>
6. PENDING ACQUISITION
On May 20, 1996, the Company entered into a definitive agreement to
acquire Central West Bancorporation ("Central West"), the holding
company of Security State Bank, Stuart, Iowa. The agreement calls for
the Company to acquire all outstanding shares of Central West for an
estimated aggregate consideration valued at $5.3 million, or
approximately $73.00 per share, to be paid 75% in common stock of the
Company and 25% in cash, subject to adjustment in accordance with the
terms of the agreement. The acquisition, which will be accounted for as
a purchase, is subject to approval by the Federal Reserve Board and the
Iowa superintendent of banking. The stockholders of Central West have
approved the acquisition. The acquisition is expected to be completed
by the end of 1996. At June 30, 1996, Central West had assets of $30.0
million, deposits of $26.4 million and stockholders' equity of $2.5
million. Security State Bank operates offices in Stuart, Casey and
Menlo, Iowa, which will continue to operate after completion of the
acquisition.
7. NEW ACCOUNTING PRONOUNCEMENTS - MORTGAGE SERVICING RIGHTS
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards Number 122 (SFAS No. 122)
entitled Accounting for Mortgage Servicing Rights. SFAS No. 122
requires mortgage servicers that sell or securitize loans and retain
servicing rights to allocate the total cost of the loans to the
servicing rights and loans based on their fair value if practicable to
estimate or, if not practicable to estimate, to the loans only. SFAS
No. 122 is effective for fiscal years beginning after December 15,
1995, or October 1, 1996 for the Company. The effect is dependent,
among other items, upon the volume and type of loans originated, the
general levels of market interest rates, and the rate of estimated loan
prepayments. The Company believes the implementation of this statement
will not have a significant impact on its financial statements.
<PAGE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
GENERAL
First Midwest Financial, Inc. ("First Midwest" or the "Company") was
incorporated under the laws of the State of Delaware for the purpose of owning
all of the outstanding stock of First Federal Savings Bank of the Midwest
("First Federal" or the "Bank") issued upon the conversion of First Federal from
mutual to stock form. First Midwest acquired all of the stock of First Federal
on September 20, 1993, when the conversion was consummated. The activities of
First Midwest itself have no material impact on the results of operations on a
consolidated basis. Unless otherwise indicated, the activities discussed below
relate to the activities of First Federal.
The following discussion focuses on the consolidated financial condition of
First Midwest and its subsidiaries, at June 30, 1996, compared to September 30,
1995, and the consolidated results of operations for the three months and nine
months ended June 30, 1996, compared to the same periods in 1995. This
discussion should be read in conjunction with the Company's financial
statements, and notes thereto, for the year ended September 30, 1995.
FINANCIAL CONDITION
Total assets increased by $77.9 million, or 29.5%, from $264.2 million at
September 30, 1995, to $342.1 million at June 30, 1996. The increase is, in
part, attributable to the acquisition of Iowa Bancorp during the period (see
Note 5 to the Consolidated Financial Statements). At the date of acquisition,
Iowa Bancorp had total assets of $24.4 million, which included loans receivable
of $16.4 million. In addition, the increase in total assets is attributable to
the purchase of mortgage-backed securities, increased cash and cash equivalent
balances, and an increase in net loan receivables.
Cash and cash equivalents increased $13.5 million, or 293.4%, to $18.2 million
at June 30, 1996, from $4.6 million at September 30, 1995. The increase was due
primarily to the accumulation of liquid funds from the repayment of loans, from
growth in customer deposits and from other sources. The funds are to be used
primarily to fund current and anticipated lending opportunities, and to repay
short-term borrowings.
The portfolio of securities available-for-sale decreased by $514,000, or 1.1%,
to $48.3 million at June 30, 1996, from $48.8 million at September 30, 1995. The
decrease is the result of the maturity or call of securities during the period
in an amount somewhat in excess of purchases made during the period.
Mortgage-backed securities available-for-sale increased by $16.4 million, or
76.7%, to $37.8 million at June 30, 1996, from $21.4 million at September 30,
1995. The increase was due primarily to the purchase of adjustable-rate
government agency issued mortgage-backed securities during the period. In
addition, Iowa Bancorp held $3.2 million in mortgage-backed securities at the
date of acquisition.
<PAGE>
The net portfolio of loans receivable (consisting of single-family and
multi-family residential mortgage loans, commercial real estate, agricultural,
consumer and other loans) increased by $44.2 million, or 24.8%, to $222.8
million at June 30, 1996, from $178.6 million at September 30, 1995. The
increase in loan receivables includes $16.4 million held by Iowa Bancorp at the
date of acquisition. In addition, the increase reflects increased origination of
residential, agricultural, commercial business and consumer loans, and the
purchase of multi-family residential and commercial real estate loans during the
period.
Deposit balances increased by $32.1 million, or 18.7%, to $203.9 million at June
30, 1996, from $171.8 million at September 30, 1995. The increase in deposits
includes $15.6 million held by Iowa Bancorp at the date of acquisition. In
addition, deposit balances increased for checking, savings and certificates of
deposit accounts, which was partially offset by a decline in money market
accounts during the period.
The balance in advances from the Federal Home Loan Bank of Des Moines increased
by $42.2 million, or 82.6%, to $93.3 million at June 30, 1996 from $51.1 million
at September 30, 1995. The increase reflects additional borrowings during the
period used to fund the origination and purchase of loans, and the purchase of
mortgage-backed securities.
Total stockholders' equity increased by $1.0 million, or 2.7%, to $39.0 million
at June 30, 1996 from $38.0 million at September 30, 1995. The increase is
primarily due to growth in retained earnings during the period, which was offset
by a reduction in unrealized gains on securities available-for-sale and was
reduced by the effect of the acquisition of treasury stock during the period.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets at June 30, 1996 totaled $675,000, which reflects a
decrease of $197,000, or 26.0%, from the $759,000 balance at September 30, 1995.
At June 30, 1996, non-performing assets included three non-accrual mortgage
loans with an aggregate outstanding balance of $143,000, and sixty non-accrual
consumer and commercial loans with an aggregate outstanding balance of $419,000.
In addition, non-performing assets at June 30, 1996 included real estate owned
and other repossessed assets totaling $113,000. At September 30, 1995, the Bank
held real estate owned totaling $48,000.
Generally, when a loan becomes delinquent 90 days or more, or when the
collection of principal or interest becomes doubtful, the Company will place the
loan on non-accrual status and, as a result of this action, previously accrued
interest income on the loan is taken out of current income. The loan will remain
on non-accrual status as long as the loan is 90 days or more delinquent.
The Bank establishes its provision for possible loan losses, and evaluates the
adequacy of its allowance for loan losses based upon a systematic methodology
consisting of a number of factors including, among others, historic loss
experience, the overall level of non-performing loans, the composition of its
loan portfolio and the general economic environment within which the Bank and
its borrowers operate. As a result of this analysis, the Bank has established an
allowance for loan losses at June 30, 1996, of $1.81 million. The allowance
represents approximately 268.3% of the total non-performing assets at June 30,
1996.
<PAGE>
Financial Accounting Standards Board (FASB) Statement No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure, was
adopted as of October 1, 1995. Under this statement, loans considered to be
impaired are reduced to the present value of expected future cash flows or to
the fair value of collateral, by allocating a portion of the allowance for loan
losses to such loans. If these allocations cause the allowance for loan losses
to require increase, such increase is reported as provision for loan loss
expense. The adoption of this statement had no impact on the provision for loan
loss expense for the nine month period ended June 30, 1996.
The following table sets forth an analysis of the Company's allowance for loan
losses:
(In Thousands)
Balance, September 30, 1995 $ 1,650
Iowa Savings Bank allowance at acquisition date 132
Charge-offs 45
Transfers to real estate owned 15
Recoveries -
Additions charged to operations 90
-------
Balance, June 30, 1996 $ 1,812
=======
Based on currently available information, management believes that the allowance
for loan losses is adequate to absorb potential losses in the portfolio. Future
additions to the allowance for loan losses may become necessary based upon
changing economic conditions, increased loan balances or changes in the
underlying collateral of the loan portfolio.
RESULTS OF OPERATIONS
General. Net income for the three months ended June 30, 1996 decreased $370,000,
or 29.3%, to $892,000 from $1.26 million during the same period in 1995. For the
nine months ended June 30, 1996, net income decreased $417,000, or 14.8%, to
$2.40 million compared to $2.81 million during the same period in 1995. The
decrease in net income for both the three month and nine month periods is
primarily due to a gain on sale of securities that increased previous year net
income by approximately $632,000.
Interest Income. Total interest income for the three months ended June 30, 1996
increased by $1.34 million, or 25.9%, to $6.50 million, compared to $5.16
million during the same period in 1995. For the nine months ended June 30, 1996,
interest income increased by $1.90 million, or 11.9%, to $17.82 million from
$15.92 million during 1995. The increase during both periods is primarily due to
increased interest income from the loan portfolio, as a result of higher average
portfolio balances during the 1996 periods compared to 1995. In addition, the
1996 three month period reflects interest income on the earning assets resulting
from the acquisition of Iowa Savings Bank. These increases in interest income
were partially offset by reductions in interest income from the investment
securities and mortgage-backed securities portfolios, both of which carried
lower average balances during the 1996 periods compared to 1995.
<PAGE>
Interest expense. Total interest expense for the three months ended June 30,
1996 increased by $838,000, or 28.9%, to $3.74 million from $2.90 million during
the same period in 1995. For the nine months ended June 30, 1996, interest
expense increased by $1.24 million, or 13.9%, to $10.10 million from $8.87
million for the same period in 1995. The increase for both periods reflects
increased interest expense on higher deposit balances during the 1996 periods
compared to 1995, and the higher cost of interest on those deposits resulting
from a general increase in the level of interest rates between the comparable
periods. The three month period also reflects additional interest expense on
interest-bearing liabilities resulting from the acquisition of Iowa Savings
Bank.
Net Interest Income. Net interest income increased by $498,000, or 22.0%, to
$2.73 million for the three months ended June 30, 1996, from $2.27 million for
the same period in 1995. For the nine months ended June 30, 1996, net interest
income increased $666,000, or 9.4%, to $7.72 million from $7.06 million for the
same period in 1995. The increase in net interest income is due primarily to the
overall increase in interest-earning assets between the comparable periods,
which resulted, in part, from the acquisition of Iowa Savings Bank and,
additionally, as a result of an increase in the loan portfolio.
Provision for Loan Losses. For the three months and nine months ended June 30,
1996, the provision for loan losses was $30,000 and $90,000, respectively. For
the three months and nine months ended June 30, 1995, the provision for loan
losses was $130,000 and $190,000, respectively. The comparatively higher
provision for loan losses during the previous year resulted from management's
election to increase the balance in allowance for loan losses in conjunction
with growth of the loan portfolio. Management believes, based on review of
historic loan losses, current economic conditions, the level of non-performing
loans, and other factors, that the current level of provision for loan losses,
and the resulting level in the allowance for loan losses, reflects an adequate
reserve against potential losses from the loan portfolio.
Non-Interest Income. Non-interest income decreased by $993,000, or 73.4%, to
$360,000 for the three months ended June 30, 1996, from $1.35 million for the
same period in 1995. For the nine months ended June 30, 1996, non-interest
income decreased $895,000, or 46.0%, to $1.05 million from $1.94 million for the
same period in 1995. The decrease during both periods reflects the previous year
gain on sale of securities that resulted in an approximate $1.0 million addition
to non-interest income.
Non-Interest Expense. Non-interest expense increased $240,000, or 17.6%, to
$1.61 million for the three months ended June 30, 1996, from $1.37 million for
the same period in 1995. For the nine months ended June 30, 1996, non-interest
expense increased $528,000, or 12.8%, to $4.67 million from $4.14 million for
the same period in 1995. The increase in non-interest expense during both
periods reflects the operation of an additional office facility, the conversion
of data processing systems and the implementation of new product offerings
associated with the acquisition of the Iowa Savings Bank Division. In addition,
the increase reflects professional and consulting expenses incurred in
conjunction with special projects during the period.
<PAGE>
Federal law requires that the FDIC maintain reserves at both the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") of at
least 1.25% of insured depositor accounts. The reserves are funded through the
payment of insurance premiums by the insured institution members of each fund.
The BIF reached this level during 1995, and the FDIC reduced insurance premiums
applicable to BIF-insured institutions while retaining the premiums applicable
to SAIF members, such as First Federal, at their current level of .23% of
deposits until the SAIF reaches its required reserve level. Proposed federal
legislation provides for a one-time assessment of .65% to .75% of insured
deposits to be imposed on all SAIF-insured deposits, including those held by
commercial banks, and for BIF deposit insurance premiums to be used to pay the
Financing Corporation ("FICO") bond interest on a pro rata basis together with
SAIF premiums. If a requirement were implemented as of June 30, 1996 for the
Bank to pay a one-time assessment equal to .75% of insured deposits, the amount
of such assessment would be approximately $1.5 million, although it would also
be anticipated that future SAIF premiums would be significantly lower than the
current level.
Income Tax Expense. Income tax expense decreased $266,000, or 30.9%, to $594,000
for the three months ended June 30, 1996, from $859,000 for the same period in
1995. For the nine months ended June 30, 1996, income tax expense decreased
$240,000, or 12.9%, to $1.62 million from $1.86 million for the comparable
period in 1995. The decrease for the comparable three month and nine month
periods is due to a reduction in the level of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, investments and mortgage-backed securities, and funds
provided by operations. While scheduled payments on loans, mortgage-backed
securities and short-term investments are relatively predictable sources of
funds, deposit flows are greatly influenced by general interest rates, economic
conditions and competition.
The Bank's primary regulator, the Office of Thrift Supervision, requires the
Bank to maintain a minimum level of investments in specified types of liquid
assets. Current regulations require the Bank to maintain an average daily
balance in cash and eligible investments in an amount equal to at least 5% of
net withdrawable deposit accounts and short-term borrowings. At June 30, 1996
and September 30, 1995, the Bank's liquidity ratios were 6.3% and 10.8%,
respectively, which were in excess of the minimum regulatory requirements.
The Bank uses its capital resources principally to meet ongoing commitments to
fund maturing certificates of deposits and loan commitments, to maintain
liquidity and to meet operating expenses. At June 30, 1996, the Bank had
commitments to originate and purchase loans totalling $1.8 million. The Bank
considers its liquidity and capital resources to be adequate to meet its
foreseeable short- and long-term needs. Savings institutions insured by the
Federal Deposit Insurance Corporation are required by federal law to meet three
regulatory capital requirements. The following table sets forth the Bank's
regulatory capital levels at June 30, 1996, which, at that date substantially
exceeded all regulatory requirements:
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------------
Tangible Capital Core Capital Risk-Based Capital
---------------- ------------------- ------------------
(Dollars in Thousands) Amount % Amount % Amount %
------ ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Actual $30,650 9.2 $30,650 9.2 $32,413 16.1
Required 5,010 1.5 10,020 3.0 16,120 8.0
------- --- ------- --- ------- ----
Excess $25,640 7.7 $20,630 6.2 $16,293 8.1
======= === ======= === ======= ====
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five regulatory capital categories and authorized the banking
regulators to take prompt corrective action with respect to institutions in an
undercapitalized category. At June 30, 1996, the Bank exceeded minimum
requirements for the well-capitalized category.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
PART II - OTHER INFORMATION
FORM 10-QSB
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
First Midwest filed Form 8-K dated May 17, 1996 to report a
change in certifying accountants.
First Midwest filed Form 8-K dated May 20, 1996 to report the
issuance of a press release that announced the signing of a
definitive agreement to acquire Central West Bancorporation,
the holding company for Security State Bank, Stuart, Iowa.
First Midwest filed Form 8-K dated May 28, 1996 to report the
issuance of a press release that announced the payment of a
cash dividend of $.11 per share, payable July 1, 1996 to
stockholders of record on June 14, 1996.
All other items have been omitted as not required or not applicable under the
instructions.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
SIGNATURES
Pursuant to the requirements 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.
FIRST MIDWEST FINANCIAL, INC.
Date: August 12, 1996 By: /s/ James S. Haahr
------------------- ------------------
James S. Haahr, Chairman of the Board,
President and Chief Executive Officer
Date: August 12, 1996 By: /s/ Donald J. Winchell
------------------- ----------------------
Donald J. Winchell, Vice President,
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 410,412
<INT-BEARING-DEPOSITS> 17,749,210
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,130,956
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 224,572,696
<ALLOWANCE> 1,811,535
<TOTAL-ASSETS> 342,094,680
<DEPOSITS> 203,913,766
<SHORT-TERM> 67,829,918
<LIABILITIES-OTHER> 3,881,865
<LONG-TERM> 27,440,539
0
0
<COMMON> 19,905
<OTHER-SE> 39,008,687
<TOTAL-LIABILITIES-AND-EQUITY> 342,094,680
<INTEREST-LOAN> 13,639,540
<INTEREST-INVEST> 4,185,105
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 17,824,645
<INTEREST-DEPOSIT> 7,179,841
<INTEREST-EXPENSE> 10,102,785
<INTEREST-INCOME-NET> 7,721,860
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 57,129
<EXPENSE-OTHER> 4,667,498
<INCOME-PRETAX> 4,013,339
<INCOME-PRE-EXTRAORDINARY> 4,013,339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,395,832
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 3.51
<LOANS-NON> 562,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,649,520
<CHARGE-OFFS> 45,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,811,535
<ALLOWANCE-DOMESTIC> 1,811,535
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
