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 December 31, 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 December 31, 1996:
------ ---------------------------------
Common Stock, $.01 par value 2,896,536 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 December 31, 1996
and September 30, 1996
Consolidated Statements of Income for the
Three Months Ended December 31, 1996 and 1995
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended December 31, 1996
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 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 Balance Sheets
December 31, 1996 September 30, 1996
----------------- ------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 12,759,322 $ 14,628,652
Securities available for sale, amortized cost of
$91,824,710 and $109,444,536 92,218,350 109,491,558
Loans receivable - net of allowances of $2,381,956
and $2,356,113 244,065,909 243,533,519
Real estate owned - net of allowance of $5,000 62,692 86,818
Accrued interest receivable 5,378,350 5,029,047
Federal Home Loan Bank stock 5,524,700 5,524,700
Premises and equipment, net 4,118,421 3,680,332
Excess of cost over net assets acquired 5,000,266 5,090,959
Other assets 757,061 942,713
------------ ------------
Total Assets $369,885,071 $388,008,298
============ ============
Liabilities and Shareholders' Equity
Liabilities
Deposits $232,612,127 $233,405,726
Advances from Federal Home Loan Bank 86,035,005 102,287,803
Securities sold under agreements to repurchase 2,789,918 2,789,918
Other borrowings - 1,400,000
Advances from borrowers for taxes and insurance 570,511 490,243
Accrued interest payable 1,248,558 1,271,465
Other liabilities 2,960,430 3,153,441
------------ ------------
Total Liabilities 326,216,549 344,798,596
------------ ------------
Shareholders' Equity
Preferred stock, 800,000 shares authorized, no shares
issued or outstanding - -
Common stock, $.01 par value, 5,200,000 shares authorized,
2,959,077 and 1,990,495 issued (see Note 3) 29,591 19,905
Additional paid-in capital 20,691,776 20,862,551
Retained earnings - substantially restricted 24,438,579 23,748,383
Net unrealized appreciation on securities available for sale,
net of tax of $143,055 and $18,324 250,585 28,698
Unearned Employee Stock Ownership Plan shares (717,400) (767,200)
Treasury stock, 62,541 and 44,760 common shares, at cost (1,024,609) (682,635)
------------ ------------
Total Shareholders' Equity 43,668,522 43,209,702
------------ ------------
Total Liabilities and Shareholders' Equity $369,885,071 $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
December 31,
1996 1995
----------- -----------
<S> <C> <C>
Interest Income:
Loans receivable $ 5,550,790 $ 4,021,721
Securities available for sale 1,657,640 1,262,661
Dividends on FHLB stock 97,499 78,950
----------- -----------
Total interest income 7,305,929 5,363,332
----------- -----------
Interest Expense:
Deposits 2,950,598 2,166,635
FHLB advances and other borrowings 1,338,195 793,559
----------- -----------
Total interest expense 4,288,793 2,960,194
----------- -----------
Net interest income 3,017,136 2,403,138
Provision for loan losses 30,000 30,000
----------- -----------
Net interest income after provision for loan losses 2,987,136 2,373,138
----------- -----------
Noninterest income:
Loan fees and service charges 333,687 196,468
Gain on sale of securities available for sale - 29,050
Brokerage commissions 22,998 60,946
Other income 50,970 36,612
----------- -----------
Total noninterest income 407,655 323,076
----------- -----------
Noninterest expense:
Employee compensation and benefits 1,036,579 879,524
Occupancy and equipment expense 224,421 102,980
SAIF deposit insurance premium 95,710 102,905
Data processing expense 78,281 59,460
Other expense 378,354 262,064
----------- -----------
Total noninterest expense 1,813,345 1,406,933
----------- -----------
Income before income taxes 1,581,446 1,289,281
Income tax expense 628,230 512,436
----------- -----------
Net income $ 953,216 $ 776,845
=========== ===========
Primary and Fully Diluted Earnings
per Common Share (see Notes 2 and 3): $ .33 $ .29
===== =====
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 Three Months Ended December 31, 1996
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
4,980 common shares committed
to be released under the ESOP - 66,583 - - 49,800 - 116,383
Cash dividends declared on
common stock ($0.09 per share) - - (262,178) - - - (262,178)
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $124,731 - - - 221,887 - - 221,887
Amortization of recognition and
retention plan common shares and
tax benefit of restricted stock
under the plan - 10,486 - - - - 10,486
Retirement of 2,396 common shares (24) 24 - - - - -
Purchase of 31,500 common
shares of treasury stock - - - - - (614,507) (614,507)
Issuance of 13,719 common
shares from treasury stock due
to exercise of stock options - (238,158) - - - 272,533 34,375
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) (842) - - - (842)
Net income for the three months
ended December 31, 1996 - - 953,216 - - - 953,216
------- ----------- ----------- ---------- --------- ----------- -----------
Balance at December 31, 1996 $29,591 $20,691,776 $24,438,579 $ 250,585 $(717,400) $(1,024,609) $43,668,522
======= =========== =========== ========== ========= =========== ===========
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
Three Months Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 953,216 $ 776,845
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion, net 222,446 188,542
Provision for loan losses 30,000 30,000
Gain on sales of securities available for sale, net - (29,050)
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 16,651 6,188
Originations of loans held for sale (104,536) (83,036)
Net change in accrued interest receivable (349,303) (113,215)
Net change in other assets 184,833 95,530
Net change in accrued interest payable (22,907) 61,675
Net change in accrued expenses and other liabilities (318,581) 8,805,121
------------ ------------
Net cash from operating activities 611,819 9,656,301
------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale (1,024,000) (33,369,386)
Proceeds from sales of securities available for sale - 165,000
Proceeds from maturities of securities available for sale 16,893,776 20,650,000
Proceeds from principal repayment of mortgage-backed securities 1,750,045 1,482,321
Net change in loans receivable 2,968,453 1,583,497
Loans purchased (3,370,130) (8,376,596)
Purchase of Iowa Bancorp, Inc., net of cash received - (5,217,265)
Proceeds from sales of foreclosed real estate 24,126 11,796
Purchase of premises and equipment, net (514,979) (574,178)
Proceeds from sales of assets - 26,335
------------ ------------
Net cash from investing activities 16,727,291 (23,618,476)
------------ ------------
<PAGE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
Three Months Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net change in non-interest bearing demand, savings,
NOW and money market demand accounts 283,365 (382,995)
Net change in other time deposits (1,076,965) 6,420,940
Proceeds from advances from Federal Home Loan Bank 25,000,000 49,000,240
Payments of advances from Federal Home Loan Bank (41,252,798) (32,002,798)
Net change in securities sold under agreements to repurchase - 500,000
Net change in other borrowings (1,400,000) -
Net change in advances from borrowers for taxes and insurance 80,268 (44,440)
Cash dividends paid (262,178) (196,683)
Proceeds from exercise of stock options 34,375 -
Purchase of treasury stock (614,507) (83,500)
------------ ------------
Net cash from financing activities (19,208,440) 23,210,764
------------ ------------
Net change in cash and cash equivalents (1,869,330) 9,248,589
Cash and cash equivalents at beginning of period 14,628,652 4,615,712
------------ ------------
Cash and cash equivalents at end of period $ 12,759,322 $ 13,864,301
============ ============
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
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 sum of 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 2,923,736 and 2,687,150 shares
for the three months ended December 31, 1996 and 1995, 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.
3. SUBSEQUENT EVENT
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.
4. 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 three months ended December 31, 1995,
assuming the Iowa Bancorp acquisition had occurred as of the beginning
of the period.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1995
-----------------
<S> <C>
Net interest income $ 2,512,000
Net Income 633,000
Earnings per weighted average common and
common equivalent share
Fully diluted:
Net income $0.24
=====
</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 three months ended December 31, 1995,
assuming the Central West acquisition had occurred as of the beginning
of the period.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1995
-----------------
<S> <C>
Net interest income $ 2,619,000
Net Income 755,000
Earnings per weighted average common and
common equivalent share
Fully diluted:
Net income $0.26
=====
</TABLE>
5. 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.
<PAGE>
6. COMMITMENTS
At December 31, 1996 and September 30, 1996, the Company had
outstanding commitments to originate and purchase loans totaling $24.1
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.
7. 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 three
months ended December 31, 1996.
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 three months ended December 31, 1996.
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 any required proforma disclosures in any future complete
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") 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 December 31, 1996, compared to September 30,
1996, and the consolidated results of operations for the three months ended
December 31, 1996, compared to the same period in 1995. 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 $18.1 million, or 4.7%, from $388.0 million at
September 30, 1996, to $369.9 million at December 31, 1996. 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 $1.9 million, or 12.8%, to $12.8 million at
December 31, 1996, 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 repayment of short-term borrowings.
The portfolio of securities available for sale decreased by $17.3 million, or
15.8%, to $92.2 million at December 31, 1996, from $109.4 million at September
30, 1996. The decrease is the result of the maturity or call of securities an
amount that exceeded purchases made during the period.
The portfolio of net loans receivable increased by $532,000, or 0.2%, to $244.1
million at December 31, 1996, from $243.5 million at September 30, 1996. The
increase in loans receivables reflects increased originations 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 decreased by $794,000, or 0.3%, to $232.6 million at December
31, 1996, from $233.4 million at September 30, 1996. The decrease in deposits
resulted from declines in money market accounts, savings accounts and
certificates of deposit, and was partially offset by an increase in checking
accounts.
<PAGE>
The balance in advances from the Federal Home Loan Bank of Des Moines decreased
by $16.3 million, or 15.9%, to $86.0 million at December 31, 1996 from $102.3
million at September 30, 1996. In addition, other borrowings were repaid in
whole 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 increased by $460,000, or 1.1%, to $43.7 million at
December 31, 1996 from $43.2 million at September 30, 1996. The increase in
shareholder's equity was due to growth in retained earnings and an increase in
unrealized appreciation on securities available for sale. The increase was
partially offset by the effect of the purchase of treasury stock during the
period.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets at December 31, 1996 totaled $2.8 million, which reflects
an increase of $57,000, or 2.1%, from the $2.7 million balance at September 30,
1996. At December 31, 1996, non-performing assets included twelve non-accrual
mortgage loans with an aggregate outstanding balance of $2.1 million, and
fifty-five non-accrual consumer and commercial loans with an aggregate
outstanding balance of $600,000. In addition, non-performing assets at December
31, 1996 included real estate owned and other repossessed assets totaling
$63,000, 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 as long as the loan is 90 days or more delinquent.
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 December 31, 1996, of $2.4 million.
The allowance represents approximately 85.4% of the total non-performing assets
at December 31, 1996.
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 three month periods ended December 31, 1996 or 1995.
<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 4
Transfers to real estate owned -
Recoveries -
Additions charged to operations 30
-------
Balance, December 31, 1996 $ 2,382
</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 December 31, 1996 increased
$176,000, or 22.7%, to $953,000 from $777,000 during the same period in 1995.
The increase in net income is primarily due to an increase in net interest
income resulting from a significant increase in earning assets between the
comparable periods. The increase in earning assets is due to the acquisitions of
Iowa Bancorp and Central West and, additionally, to the growth in the Company's
loan portfolio.
Interest Income. Total interest income for the three months ended December 31,
1996 increased by $1.9 million, or 36.2%, to $7.3 million, compared to $5.4
million during the same period in 1995. The increase is primarily due to a $1.5
million increase in interest income from the loan portfolio and a $395,000
increase in interest income from the portfolio of securities available for sale.
These increases are due to higher average portfolio balances during the 1996
period compared to 1995 as a result of the acquisitions 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 December 31,
1996 increased by $1.3 million, or 44.9%, to $4.3 million from $3.0 million
during the same period in 1995. The increase is due to a $784,000 increase in
interest expense on deposits as a result of higher deposit balances associated
with the acquisitions of Iowa Bancorp and Central West. In addition, the
increase is due to a $545,000 increase in interest expense on FHLB advances and
other borrowings as a result of increased borrowings used to fund the
origination and purchase of loans and the purchase of securities available for
sale.
Net Interest Income. Net interest income increased by $614,000, or 25.5%, to
$3.0 million for the three months ended December 31, 1996, from $2.4 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 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.
<PAGE>
Provision for Loan Losses. For each of the three month periods ended December
31, 1996 and 1995, the provision for loan losses was $30,000. 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 increased by $85,000, or 26.2%, to
$408,000 for the three months ended December 31, 1996, from $323,000 for the
same period in 1995. The increase reflects the higher collection of loan fees
from the origination and purchase of loans and the increased collection of
service charges on deposit accounts.
Non-Interest Expense. Non-interest expense increased $406,000, or 28.9%, to $1.8
million for the three months ended December 31, 1996, from $1.4 million for the
same period in 1995. The increase in non-interest expense reflects the operation
of additional office facilities associated with the acquisitions of Iowa Bancorp
and Central West.
Income Tax Expense. Income tax expense increased $116,000, or 22.6%, to $628,000
for the three months ended December 31, 1996, from $512,000 for the same period
in 1995. 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.
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
December 31, 1996 and September 30, 1996, were 5.8% 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 December 31, 1996, the Company had
commitments to originate and purchase loans totalling $24.1 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 December 31, 1996 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 %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Tangible Capital $32,436 9.9% $ 4,436 1.5% $ 9,877 3.0%
Leverage Capital $32,436 9.9% $ 9,877 3.0% $19,754 6.0%
Risk-Based Capital $34,203 16.6% $16,471 8.0% $20,589 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
December 31, 1996 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>
Tier 1 Capital (to risk-
weighted assets) $3,140 13.3% $ 945 4.0% $1,418 6.0%
Leverage Capital
(to average assets) $3,140 9.0% $1,392 4.0% $1,740 5.0%
Risk-Based Capital (to
risk-weighted assets) $3,459 14.6% $1,890 8.0% $2,363 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 December 31, 1996, 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:
First Midwest filed Form 8-K dated October 1, 1996 to report
the issuance of a press release that announced the
acquisition of Central West Bancorporation, the holding
company for Security State Bank, Stuart, Iowa.
First Midwest filed Form 8-K dated October 15, 1996 to report
the completion of the acquisition of Central West
Bancorporation.
First Midwest filed Form 8-K dated October 18, 1996 to report
the issuance of a press release that announced the Company's
fourth quarter and fiscal year earnings, and announced plans
to repurchase up to 150,000 shares of the Company's
outstanding common stock.
First Midwest filed Form 8-K dated November 25, 1996 to
report the issuance of a press release that announced the
payment of a cash dividend of $.135 per share, payable
January 2, 1997 to stockholders of record on December 16,
1996, and announced the payment of a 50% stock dividend to be
paid on January 2, 1997 to stockholders of record December
16, 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: February 11, 1997 By:/s/ James S. Haahr
------------------
James S. Haahr
Chairman of the Board,
President and Chief Executive Officer
Date: February 11, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 693,116
<INT-BEARING-DEPOSITS> 7,136,406
<FED-FUNDS-SOLD> 4,929,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 92,218,350
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 246,447,865
<ALLOWANCE> 2,381,956
<TOTAL-ASSETS> 369,885,071
<DEPOSITS> 232,612,127
<SHORT-TERM> 44,739,918
<LIABILITIES-OTHER> 4,779,499
<LONG-TERM> 44,085,005
0
0
<COMMON> 29,591
<OTHER-SE> 43,638,931
<TOTAL-LIABILITIES-AND-EQUITY> 369,885,071
<INTEREST-LOAN> 5,550,790
<INTEREST-INVEST> 1,755,139
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,305,929
<INTEREST-DEPOSIT> 2,950,598
<INTEREST-EXPENSE> 4,288,793
<INTEREST-INCOME-NET> 3,017,136
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,813,345
<INCOME-PRETAX> 1,581,446
<INCOME-PRE-EXTRAORDINARY> 1,581,446
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 953,216
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 0
<LOANS-NON> 2,704,258
<LOANS-PAST> 206,057
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,376,867
<ALLOWANCE-OPEN> 2,356,113
<CHARGE-OFFS> 4,157
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,381,956
<ALLOWANCE-DOMESTIC> 2,381,956
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
