UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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 March 31, 1997
------ ---------------------------------
Common Stock, $.01 par value 2,827,323 Common Shares
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets
at March 31, 1997 and September 30, 1996
Consolidated Statements of Income for the
Three Months and Six Months Ended March 31,
1997 and 1996
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended March 31, 1997
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1997 and 1996
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 Balance Sheets
March 31, 1997 September 30, 1996
-------------- ------------------
<S> <C> <C>
Assets
Cash and cash equivalents ................................ $ 13,500,358 $ 14,328,652
Interest-bearing deposits in other financial institutions
(cost approximates market value) ....................... 300,000 300,000
Securities available for sale, amortized cost of
$90,620,861 and $109,444,536 ........................... 90,528,990 109,491,558
Loans receivable - net of allowances of $2,398,632
and $2,356,113 ......................................... 246,139,867 243,533,519
Real estate owned - net of allowance of $5,000 ........... 59,075 86,818
Accrued interest receivable .............................. 3,971,162 5,029,047
Federal Home Loan Bank stock, at cost .................... 5,524,700 5,524,700
Premises and equipment, net .............................. 4,147,066 3,680,332
Excess of cost over net assets acquired .................. 4,939,808 5,090,959
Other assets ............................................. 1,065,984 942,713
------------- -------------
Total Assets .................................... $ 370,177,010 $ 388,008,298
============= =============
Liabilities and Shareholders' Equity
Liabilities
Deposits ................................................. $ 235,521,226 $ 233,405,726
Advances from Federal Home Loan Bank ..................... 85,632,144 102,287,803
Securities sold under agreements to repurchase ........... 2,440,000 2,789,918
Other borrowings ......................................... -- 1,400,000
Advances from borrowers for taxes and insurance .......... 514,240 490,243
Accrued interest payable ................................. 1,267,271 1,271,465
Other liabilities ........................................ 1,891,590 3,153,441
------------- -------------
Total Liabilities ............................... 327,266,471 344,798,596
------------- -------------
<PAGE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(continued)
March 31, 1997 September 30, 1996
-------------- ------------------
<S> <C> <C>
Shareholders' Equity
Preferred stock, 800,000 shares authorized, no shares
issued or outstanding .................................. -- --
Common stock, $.01 par value, 5,200,000 shares authorized,
2,957,999 and 1,990,495 issued ......................... 29,580 19,905
Additional paid-in capital ............................... 20,758,006 20,862,551
Retained earnings - substantially restricted ............. 25,027,684 23,748,383
Net unrealized appreciation/(depreciation) on securities
available for sale, net of tax of $(39,758) and $18,324 (52,113) 28,698
Unearned Employee Stock Ownership Plan shares ............ (667,600) (767,200)
Treasury stock, 130,676 and 44,760 common shares, at cost (2,185,018) (682,635)
------------- -------------
Total Shareholders' Equity ...................... 42,910,539 43,209,702
------------- -------------
Total Liabilities and Shareholders' Equity ...... $ 370,177,010 $ 388,008,298
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income:
Loans receivable .................................. $ 5,399,175 $ 4,613,148 $10,949,965 $ 8,634,869
Securities available for sale ..................... 1,387,852 1,279,133 3,045,493 2,541,794
Dividends on Federal Home Loan Bank stock ......... 95,068 69,977 192,567 148,927
----------- ----------- ----------- -----------
Total interest and dividend income ........... 6,882,095 5,962,258 14,188,025 11,325,590
----------- ----------- ----------- -----------
Interest Expense:
Deposits .......................................... 2,877,640 2,498,570 5,828,238 4,665,205
Other borrowings .................................. 1,096,345 908,915 2,434,540 1,702,474
----------- ----------- ----------- -----------
Total interest expense ....................... 3,973,985 3,407,485 8,262,778 6,367,679
----------- ----------- ----------- -----------
Net interest income ................................... 2,908,110 2,554,773 5,925,247 4,957,911
Provision for loan losses ........................ 30,000 30,000 60,000 60,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ... 2,878,110 2,524,773 5,865,247 4,897,911
----------- ----------- ----------- -----------
Non-interest income:
Loan fees and service charges ..................... 231,643 214,233 565,330 410,702
Gain on sales of securities available for sale, net -- 28,079 -- 57,129
Brokerage commissions from subsidiary ............. 14,370 90,789 37,368 151,735
Other ............................................. 137,417 33,135 188,387 69,745
----------- ----------- ----------- -----------
Total non-interest income .................... 383,430 366,236 791,085 689,311
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and benefits ......................... 1,032,970 959,412 2,069,549 1,838,936
Occupancy and equipment ........................... 276,919 169,505 501,340 272,485
Federal deposit insurance ......................... 37,712 104,656 133,422 207,561
Data processing ................................... 81,633 76,222 159,914 135,682
Other ............................................. 400,556 343,109 778,910 605,172
----------- ----------- ----------- -----------
Total non-interest expense ................... 1,829,790 1,652,904 3,643,135 3,059,836
----------- ----------- ----------- -----------
Income before income taxes ............................ 1,431,750 1,238,105 3,013,197 2,527,386
Income tax expense ................................ 582,211 511,297 1,210,441 1,023,733
----------- ----------- ----------- -----------
Net income ............................................ $ 849,539 $ 726,808 $ 1,802,756 $ 1,503,653
=========== =========== =========== ===========
Primary and fully diluted earnings
per common and common equivalent share: .............. $ .29 $ .27 $ .62 $ .56
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
For the Six Months Ended March 31, 1997
Net
Unrealized Unearned
Appreciation Employee
(Depreciation) Stock
Additional on Securities Ownership Total
Common Paid-In Retained Available for Plan Treasury Shareholders'
Stock Capital Earnings Sale, Net of Tax Shares Stock Equity
----- ------- -------- ---------------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 ........ $ 19,905 $ 20,862,551 $ 23,748,383 $ 28,698 $(767,200) $ (682,635) $ 43,209,702
14,940 common shares committed
to be released under the ESOP ........ -- 141,423 -- -- 99,600 -- 241,023
Cash dividends declared on
common stock ($0.09 per share) ....... -- -- (522,622) -- -- -- (522,622)
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $(58,082)..... -- -- -- (80,811) -- -- (80,811)
Amortization of recognition and
retention plan common shares and
tax benefit of restricted stock
under the plan ....................... -- 20,970 -- -- -- -- 20,970
Retirement of 3,474 common shares..... (35) 35 -- -- -- -- --
Purchase of 120,000 common
shares of treasury stock ............. -- -- -- -- -- (2,095,637) (2,095,637)
Issuance of 34,084 common
shares from treasury stock due
to exercise of stock options ......... -- (257,263) -- -- -- 593,254 335,991
Issuance of 970,978 common shares
for stock dividend declared on
common stock, net of cash paid
in lieu of fractional shares ......... 9,710 (9,710) (833) -- -- -- (833)
Net income for the six months
ended March 31, 1997 ................. -- -- 1,802,756 -- -- -- 1,802,756
-------- ------------ ------------ -------- --------- ----------- ------------
Balance at March 31, 1997 ............ $ 29,580 $ 20,758,006 $ 25,027,684 $(52,113) $(667,600) $(2,185,018) $ 42,910,539
======== ============ ============ ======== ========= =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended March 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 1,802,756 $ 1,503,653
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion, net .......................... 516,258 450,520
Provision for loan losses .............................................. 60,000 60,000
Gain on sales of securities available for sale, net .................... -- (57,129)
Gain on sales of office property, net .................................. -- (3,399)
Stock dividends from Federal Home Loan Bank stock ...................... -- (78,900)
Proceeds from sales of loans held for sale ............................. 1,429,502 1,542,767
Originations of loans held for sale .................................... (1,429,502) (1,594,623)
Net change in accrued interest receivable .............................. 1,057,885 (44,507)
Net change in other assets ............................................. (154,334) (22,096)
Net change in accrued interest payable ................................. (4,194) 57,317
Net change in accrued expenses and other liabilities ................... (1,203,768) 388,254
------------ ------------
Net cash from operating activities ............................. 2,074,603 2,201,857
------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale ................................ (27,001,598) (50,726,677)
Proceeds from sales of securities available for sale ..................... -- 193,079
Proceeds from maturities of securities available for sale ................ 42,168,111 53,750,000
Proceeds from principal repayment of mortgage-backed securities .......... 3,636,436 3,545,407
Net change in loans receivable ........................................... 4,411,600 (4,790,263)
Loans purchased .......................................................... (6,980,754) (19,850,635)
Purchase of Iowa Bancorp, Inc., net of cash received ..................... -- (5,217,265)
Proceeds from sales of foreclosed real estate ............................ 27,743 11,796
Purchase of premises and equipment, net .................................. (615,255) (687,175)
Proceeds from sales of assets ............................................ -- 26,335
------------ ------------
Net cash from investing activities ............................. 15,646,283 (23,745,398)
------------ ------------
<PAGE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
Six Months Ended March 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net change in non-interest bearing demand, savings,
NOW and money market demand accounts .................................... 1,283,371 1,242,347
Net change in other time deposits ........................................ 832,129 11,921,772
Proceeds from advances from Federal Home Loan Bank ....................... 62,000,000 81,000,000
Payments of advances from Federal Home Loan Bank ......................... (78,655,658) (68,305,174)
Net change in securities sold under agreements to repurchase ............. (349,918) 1,000,000
Net change in other borrowings ........................................... (1,400,000) --
Net change in advances from borrowers for taxes and insurance ............ 23,997 94,862
Cash dividends paid and cash paid in lieu of fractional shares ........... (523,455) (394,186)
Proceeds from exercise of stock options .................................. 335,991 94,500
Purchase of treasury stock ............................................... (2,095,637) (313,710)
------------ ------------
Net cash from financing activities ............................. (18,549,180) 26,340,411
------------ ------------
Net change in cash and cash equivalents ...................................... (828,294) 4,796,870
Cash and cash equivalents at beginning of period ............................. 14,328,652 4,615,712
------------ ------------
Cash and cash equivalents at end of period ................................... $ 13,500,358 $ 9,412,582
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</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"), Security
State Bank ("Security"), 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
consolidated financial statements, and notes thereto, for the year
ended September 30, 1996.
2. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period and the
common share equivalents which would arise from considering dilutive
stock options, which totaled 2,912,439 and 2,697,356 shares for the
three months ended March 31, 1997 and 1996, respectively, and which
totaled 2,923,125 and 2,691,284 shares for the six months ended March
31, 1997 and 1996, respectively. The difference between primary and
fully diluted earnings per share is not material. Unallocated shares of
common shares held by the employee stock ownership plan are not
considered outstanding for the purpose of calculating earnings per
share.
On November 25, 1996, the Company declared a 50% stock dividend payable
on January 2, 1997 to stockholders of record December 16, 1996. The
stock dividend is reflected in the balance sheet, and dividend and
earnings per share data has been restated for all reported periods.
3. ACQUISITIONS
On December 29. 1995, the Company acquired 100% of the common stock 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, in a purchase transaction with $25 million in assets.
Each share of Iowa Bancorp's common stock was exchanged for $20.39 in
cash. The Company paid aggregate consideration of approximately $8
million. Iowa Bancorp's results of operations are included in the
consolidated income statement of the Company beginning as of the
purchase date.
<PAGE>
Presented below are the unaudited consolidated proforma results of
operations of the Company for the six months ended March 31, 1996,
assuming the Iowa Bancorp acquisition had occurred as of the beginning
of the period.
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1996
--------------
<S> <C>
Net interest income $ 4,906,000
Net Income 1,360,000
Earnings per weighted average common and
common equivalent share
Fully diluted:
Net income $0.51
=====
</TABLE>
On September 30, 1996, the Company acquired 100% of the common stock of
Central West Bancorporation ("Central West"), and its wholly-owned
subsidiary, Security State Bank, located in Stuart, Iowa, in a purchase
transaction with $33 million in assets. Each share of Central West's
common stock was exchanged for $18.04 in cash and 2.3528 shares of the
Company's common stock. The Company paid approximately $1.3 million and
issued 171,158 common shares valued at $23 per share for a total value
of approximately $3.9 million. Central West's results of operations are
included in the consolidated income statement of the Company beginning
as of the purchase date.
Presented below are the unaudited consolidated proforma results of
operations of the Company for the six months ended March 31, 1996,
assuming the Central West acquisition had occurred as of the beginning
of the period.
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1996
--------------
<S> <C>
Net interest income $ 5,302,000
Net Income 1,459,000
Earnings per weighted average common and
common equivalent share
Fully diluted:
Net income $0.49
=====
</TABLE>
4. COMMITMENTS
At March 31, 1997 and September 30, 1996, the Company had outstanding
commitments to originate and purchase loans totaling $22.3 million and
$20.7 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. ACCOUNTING STANDARDS IMPLEMENTED
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed
of. The Statement requires review of such assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset. The
Statement is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company adopted SFAS No. 121
effective October 1, 1996. The adoption had no material effect on the
Company's financial position or results of operations for the six
months ended March 31, 1997.
The FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights,
in May 1995. This Statement changes the accounting for mortgage
servicing rights retained by the loan originator. Under this Statement,
an entity that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their relative
fair values. Under current practice, all such costs are assigned to the
loan. The costs allocated to mortgage servicing rights are to be
recorded as a separate asset and amortized in proportion to, and over
the life of, the net servicing income. The carrying value of the
mortgage servicing rights are to be periodically evaluated for
impairment. The Statement became effective for the Company as of
October 1, 1996. The adoption of SFAS No. 122 did not have a material
effect on the Company's financial position or results of operations for
the six months ended March 31, 1997.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, entities to use a fair value based method to account for
stock-based compensation plans. If the fair value accounting encouraged
by SFAS No. 123 is not adopted, entities must disclose the proforma
effect on net income and on earnings per common share had the fair
value accounting been adopted. The proforma disclosures are not
required in noncomplete interim financial statements. The Company will
provide the required proforma disclosures in any future complete
financial statements.
SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. Several transactions common to banking
are affected by SFAS No. 125, including servicing of loans and other
financial assets, repurchase agreements, loan participations, asset
securitizations, and transfers of receivables with recourse. This
statement was effective for transactions occurring after December 31,
1996 and had no material effect on the Company's consolidated financial
position or results of operations.
<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") is a bank
holding company whose primary assets are First Federal Savings Bank of the
Midwest ("First Federal") and Security State Bank ("Security"). The Company was
incorporated in 1993 as a unitary non-diversified savings and loan holding
company and, on September 20, 1993, acquired all of the capital stock of First
Federal in connection with First Federal's conversion from mutual to stock form
of ownership. On September 30, 1996, the Company became a bank holding company
in conjunction with the acquisition of Security. All references to the Company
prior to September 20, 1993, except where otherwise indicated, are to First
Federal and its subsidiary on a consolidated basis.
The following discussion focuses on the consolidated financial condition of the
Company and its subsidiaries, at March 31, 1997, compared to September 30, 1996,
and the consolidated results of operations for the three months and six months
ended March 31, 1997, compared to the same period in 1996. This discussion
should be read in conjunction with the Company's financial statements, and notes
thereto, for the year ended September 30, 1996.
FINANCIAL CONDITION
Total assets decreased by $17.8 million, or 4.6%, from $388.0 million at
September 30, 1996, to $370.2 million at March 31, 1997. The decrease is
primarily attributable to a reduction in the Company's portfolio of securities
available for sale as a result of maturities, the proceeds of which were used to
repay advances from the Federal Home Loan Bank and other borrowings.
Cash and cash equivalents decreased $828,000, or 5.7%, to $13.8 million at March
31, 1997, from $14.6 million at September 30, 1996. The decrease was due
primarily to the use of liquid funds to fund growth in the loan portfolio and in
the repayment of short-term borrowings.
The portfolio of securities available for sale decreased by $19.0 million, or
17.3%, to $90.5 million at March 31, 1997, from $109.5 million at September 30,
1996. The decrease is the result of the maturity or call of securities in an
amount that exceeded purchases made during the period.
The portfolio of net loans receivable increased by $2.6 million, or 1.1%, to
$246.1 million at March 31, 1997, from $243.5 million at September 30, 1996. The
increase in loan receivables is primarily due to increased originations of
consumer and commercial business loans, the balance of which increased $3.5
million and $2.6 million, respectively, between the comparable periods. These
increases were partially offset by decreases in residential and commercial real
estate loans due to repayments in an amount greater than new originations and
purchases.
<PAGE>
Deposit balances increased by $2.1 million, or 0.9%, to $235.5 million at March
31, 1997, from $233.4 million at September 30, 1996. The increase in deposits
resulted from increases in checking accounts, savings accounts and certificates
of deposit, and was partially offset by a decline in money market accounts.
The balance in advances from the Federal Home Loan Bank of Des Moines decreased
by $16.7 million, or 16.3%, to $85.6 million at March 31, 1997 from $102.3
million at September 30, 1996. In addition, other borrowings were repaid in
whole during the period resulting in a decrease of $1.4 million. The decrease in
FHLB advances and other borrowings reflects the repayment of short-term debt
that had primarily been used to fund the purchase of securities available for
sale. These securities matured or were called during the period and the proceeds
were used to repay the borrowings.
Total shareholders' equity decreased by $299,000, or 0.7%, to $42.9 million at
March 31, 1997 from $43.2 million at September 30, 1996. The decrease in
shareholder's equity was due primarily to the purchase of treasury stock, the
effect of which was mostly offset by growth in retained earnings during the
period.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets at March 31, 1997 totaled $2.9 million, which reflects an
increase of $146,000, or 5.3%, from the $2.7 million balance at September 30,
1996. At March 31, 1997, non-performing assets included nine non-accrual
mortgage loans with an aggregate outstanding balance of $2.0 million, and
fifty-three non-accrual consumer and commercial business loans with an aggregate
outstanding balance of $839,000. In addition, non-performing assets at March 31,
1997 included real estate owned and other repossessed assets totaling $59,000
compared to $87,000 at September 30, 1996.
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 until the loan has been brought current, or until other
circumstances occur that provide adequate assurance of full repayment of
interest and principal.
The Company 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 Company has
established an allowance for loan losses at March 31, 1997, of $2.4 million. The
allowance represents approximately 82.8% of the total non-performing assets at
March 31, 1997.
<PAGE>
The following table sets forth an analysis of the Company's allowance for loan
losses:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Balance, September 30, 1996 $ 2,356
Charge-offs 17
Transfers to real estate owned -
Recoveries -
Additions charged to operations 60
--------
Balance, March 31, 1997 $ 2,399
=======
</TABLE>
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 March 31, 1997 increased
$123,000, or 16.9%, to $850,000 from $727,000 during the same period in 1996.
For the six months ended March 31, 1997, net income increased $299,000, or
19.9%, to $1.80 million compared to $1.50 million during the same period in
1996. The increase in net income is due primarily to an increase in net interest
income as a result of higher balances in average net earning assets during the
1997 periods compared to the same periods the previous year. This higher balance
in average net earning assets resulted from acquisitions completed during the
period and growth in the Company's loan portfolio through the origination and
purchase of loans. Net income for the 1997 periods also reflects increased
non-interest expense in regard to operation of additional office facilities
associated with the acquisitions of Iowa Bancorp and Central West.
Interest Income. Total interest income for the three months ended March 31, 1997
increased by $920,000, or 15.4%, to $6.88 million, compared to $5.96 million
during the same period in 1996. For the six months ended March 31, 1997,
interest income increased by $2.86 million, or 25.3%, to $14.19 million from
$11.33 million during 1996. The increase for both periods is due to higher
average interest earning asset balances during the 1997 periods compared to the
previous year as a result of the acquisition of Iowa Bancorp and Central West,
the increased origination and purchase of loans, and the purchase of securities
available for sale.
Interest expense. Total interest expense for the three months ended March 31,
1997 increased by $566,000, or 16.6%, to $3.97 million from $3.41 million during
the same period in 1996. For the six months ended March 31, 1997, interest
expense increased by $1.90 million, or 29.8%, to $8.26 million from $6.37
million for the same period in 1996. The increase in interest expense for both
periods reflects higher average deposit balances primarily due to the
acquisitions of Iowa Bancorp and Central West. In addition, the increase for the
1997 periods includes higher interest expense on Federal Home Loan Bank advances
and other borrowings related to increased borrowings used to fund the
origination and purchase of loans and the purchase of securities available for
sale.
<PAGE>
Net Interest Income. Net interest income increased by $353,000, or 13.8%, to
$2.91 million for the three months ended March 31, 1997, from $2.55 million for
the same period in 1996. For the six months ended March 31, 1997, net interest
income increased $967,000, or 19.5%, to $5.93 million from $4.96 million for the
same period in 1996. The increase in net interest income for both periods is due
primarily to the overall increase in interest-earning assets between the
comparable periods, which resulted from the acquisitions of Iowa Bancorp and
Central West and, additionally, as a result of increases in the loan portfolio
and the portfolio of securities available for sale.
Provision for Loan Losses. For each of the three month and six month periods
ended March 31, 1997 and 1996, the provision for loan losses was $30,000 and
$60,000, respectively. Management believes, based on review of historic loan
losses, current economic conditions, the level of non-performing loans and other
factors, that this level of provision for loan losses, and the resulting
increase in the allowance for loan losses, reflects an adequate reserve against
potential losses from the loan portfolio.
Non-Interest Income. Non-interest income increased by $17,000, or 4.7%, to
$383,000 for the three months ended March 31, 1997, from $366,000 for the same
period in 1996. For the six months ended March 31, 1997, non-interest income
increased $102,000, or 14.8%, to $791,000 from $689,000 for the same period in
1996. The increase in non-interest income for both periods reflects the higher
collection of loan fees from the origination and purchase of loans and the
increased collection of service charges on deposit accounts. This increase was
partially offset by a decrease in brokerage commissions as a result of a decline
in sales of alternative investment products through the Company's subsidiary.
Non-Interest Expense. Non-interest expense increased $177,000, or 10.7%, to
$1.83 million for the three months ended March 31, 1997, from $1.65 million for
the same period in 1996. For the six months ended March 31, 1997, non-interest
expense increased $583,000, or 19.1%, to $3.64 million from $3.06 million for
the same period in 1996. The increase in non-interest expense for both periods
reflects the operation of additional office facilities associated with the
acquisitions of Iowa Bancorp and Central West. The increase was partially offset
by the effect of reduced deposit insurance premiums.
Income Tax Expense. Income tax expense increased $71,000, or 13.9%, to $582,000
for the three months ended March 31, 1997, from $511,000 for the same period in
1996. For the six months ended March 31, 1997, income tax expense increased
$187,000, or 18.2%, to $1.21 million from $1.02 million for the comparable
period in 1996. The increase is due to the higher level of taxable income
between the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company'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.
<PAGE>
Federal regulations require First Federal to maintain minimum levels of liquid
assets. Currently, First Federal is required to maintain liquid assets of at
least 5% of the average daily balance of net withdrawable savings deposits and
borrowings payable on demand in one year or less during the preceding calendar
month, of which short-term liquid assets must comprise not less than 1%. Liquid
assets for purposes of this ratio include cash, certain time deposits, U.S.
Government, government agency and corporate securities and obligations generally
having remaining terms to maturity of less than five years, unless otherwise
pledged. First Federal has historically maintained its liquidity ratio at levels
well in excess of those required. First Federal's regulatory liquidity ratios at
March 31, 1997 and September 30, 1996, were 10.9% and 5.4%, respectively.
The Company 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 March 31, 1997, the Company had
commitments to originate and purchase loans totalling $20.9 million. The Company
believes that loan repayment and other sources of funds will be adequate to meet
its foreseeable short- and long-term liquidity needs.
Regulations require First Federal to maintain minimum amounts and ratios of
tangible capital and leverage capital to average assets, and risk-based capital
to risk-weighted assets. The following table sets forth First Federal's actual
capital and required capital amounts and ratios at March 31, 1997 which, at that
date, exceeded the capital adequacy requirements:
<TABLE>
<CAPTION>
To Be Well
Requirement Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $31,495 9.5% $ 4,951 1.5% $ 9,902 3.0%
Leverage Capital $31,495 9.5% $ 9,902 3.0% $19,805 6.0%
Risk-Based Capital $33,274 16.2% $16,427 8.0% $20,534 10.0%
</TABLE>
Regulations require Security to maintain minimum amounts and ratios of total
risk-based capital and Tier 1 capital to risk-weighted assets and a leverage
ratio consisting of Tier 1 capital to average assets. The following table sets
forth Security's actual capital and required capital amounts and ratios at March
31, 1997 which, at that date, exceeded the capital adequacy requirements:
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Requirement Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to risk-
weighted assets) $3,217 15.1% $ 854 4.0% $1,281 6.0%
Leverage Capital
(to average assets) $3,217 9.8% $1,307 4.0% $1,633 5.0%
Risk-Based Capital (to
risk-weighted assets) $3,488 16.3% $1,708 8.0% $2,135 10.0%
</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 March 31, 1997, First Federal and Security
exceeded minimum requirements for the well-capitalized category.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
PART II - OTHER INFORMATION
FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
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: May 8, 1997 By: /s/ James S. Haahr
------------------
James S. Haahr
Chairman of the Board,
President and
Chief Executive Officer
Date May 8, 1997 By: /s/ Donald J. Winchell
----------------------
Donald J. Winchell
Vice President,
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 829,601
<INT-BEARING-DEPOSITS> 8,639,194
<FED-FUNDS-SOLD> 4,331,563
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,528,990
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 248,538,499
<ALLOWANCE> 2,398,632
<TOTAL-ASSETS> 370,177,010
<DEPOSITS> 235,521,226
<SHORT-TERM> 43,990,000
<LIABILITIES-OTHER> 3,673,101
<LONG-TERM> 44,082,144
0
0
<COMMON> 29,580
<OTHER-SE> 42,880,959
<TOTAL-LIABILITIES-AND-EQUITY> 370,177,010
<INTEREST-LOAN> 10,949,965
<INTEREST-INVEST> 3,238,060
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,188,025
<INTEREST-DEPOSIT> 5,828,238
<INTEREST-EXPENSE> 8,262,778
<INTEREST-INCOME-NET> 5,925,247
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,643,135
<INCOME-PRETAX> 3,013,197
<INCOME-PRE-EXTRAORDINARY> 1,802,756
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,802,756
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
<YIELD-ACTUAL> 0
<LOANS-NON> 2,878,335
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,242,430
<ALLOWANCE-OPEN> 2,356,113
<CHARGE-OFFS> 17,481
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,398,632
<ALLOWANCE-DOMESTIC> 2,398,632
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
