First Midwest Financial, Inc. | Annual Report 2000
The sign of
better banking
fmficash.com
<PAGE>
Inside cover:
[GRAPHIC-Bank FLOW CHART]
Company Profile
First Midwest Financial, Inc. is a $506 million bank holding company for
First Federal Savings Bank of the Midwest and Security State Bank. Headquartered
in Storm Lake, Iowa, the Company converted from mutual ownership to stock
ownership in 1993. Its primary business is marketing financial deposit and loan
products to meet the needs of retail bank customers.
First Midwest operates under a super-community banking philosophy that
allows the Company to grow while maintaining its community bank roots, with
local decision making and customer service. Administrative functions,
transparent to the customer, are centralized to enhance the banks' operational
efficiencies and to improve customer service capabilities.
First Federal Savings Bank of the Midwest operates as a thrift with four
divisions: First Federal Storm Lake, Brookings Federal Bank, Iowa Savings Bank,
and First Federal Sioux Falls. Security State Bank operates as a state-
chartered commercial bank. Fifteen offices support customers in Brookings and
Sioux Falls, South Dakota, and throughout central and northwest Iowa. Plans are
underway to begin construction of a new Iowa Savings Bank main office in the
city of Urbandale, Iowa.
First Services Financial Limited, a subsidiary of First Federal Savings
Bank, is a full-service brokerage operation that offers a wide range of
noninsured investment products to customers through LaSalle St. Securities, Inc.
First Midwest Financial, Inc.'s common stock is listed under the trading
symbol "CASH" on the Nasdaq National Market.
Banks are members FDIC and Equal Housing Lenders.
Contents
Company Profile C2
Financial Highlights 1
Letter to Shareholders 2
Bank Highlights 4
Financials 9
Directors 53
Executive Officers 54
Office Locations 55
Investor Information 56
Economic Data C3
[GRAPHIC-PHOTO OF Bryce Loring-Vice President of Lending]
"We invite you to invest in us, bank with us, and
experience the difference of better banking."
-Bryce Loring
Vice President of Lending
Financial Highlights
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
At September 30
Total assets $ 505,590 $ 511,213 $ 418,380 $ 404,589 $ 388,008
Total loans, net 324,703 303,079 270,286 254,641 243,534
Total deposits 318,654 304,780 283,858 246,116 233,406
Shareholders' equity 40,035 39,771 42,286 43,477 43,210
Book value per common share(1) $ 16.48 $ 15.86 $ 16.56 $ 16.11 $ 14.81
Total equity to assets 7.93% 7.78% 10.11% 10.75% 11.14%
For the Fiscal Year
Net interest income $ 13,832 $ 13,197 $ 12,829 $ 11,946 $ 10,359
Net income 2,328 2,641 2,785 3,642 2,414(2)
Diluted earnings per share(1) $ 0.93 $ 1.04 $ 1.03 $ 1.28 $ 0.90(2)
Return on average assets .46% .54% .68% .98% .77%(2)
Return on average equity 5.98% 6.35% 6.43% 8.41% 6.22%(2)
Net yield on interest-earning assets 2.79% 2.83% 3.26% 3.38% 3.47%
Cash earnings(3) $ 2,696 $ 3,006 $ 3,150 $ 4,006 $ 2,584(2)
Cash earnings per share diluted(1) (3) 1.08 $ 1.18 $ 1.17 $ 1.40 0.96(2)
Cash return on average assets(3) .53% .61% .77% 1.08% .82%(2)
Cash return on average equity(3) 6.93% 7.23% 7.27% 9.25% 6.66%(2)
</TABLE>
[GRAPHIC - Charts: Total Assets; Total Loans, Net; Total Deposits]
Footnotes:
-----------------------
(1) Amounts reported have been adjusted for the three for two stock split paid
January 2, 1997 in the form of a 50 percent stock dividend.
(2) Reflects the one-time, industry-wide special assessment to recapitalize the
Savings Association Insurance Fund. Excluding the special assessment, Net
income, Diluted earnings per share, Return on average assets, and Return on
average equity would have been $3,209,000, $1.19, 1.01%, and 8.22%,
respectively.
(3) Cash earnings exclude the amortization of goodwill from net income, net of
related income taxes.
The Company and its subsidiaries exceed regulatory capital requirements.
1
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Letter to Shareholders
To Our Shareholders:
This was a year of continued progress for First Midwest Financial, Inc. Our
total deposits and loans climbed to record levels, while our credit quality
measures outperformed national averages.
Deposits reached an all-time high of $318.7 million in 2000, a 5
percent increase from 1999, and an 85 percent increase over the past five years.
Our company outpaced the average national deposit percent growth trends for
commercial banks, savings banks, and total FDIC-insured domestic deposits during
the past three years.(1)
In addition, the number of demand deposit accounts climbed 5
percent this year. Over the past five years we have increased demand deposit
balances 109 percent. The Company will continue its strategies to attract
profitable checking and money market accounts, and reduce our cost of funds.
Lending performance was also notable this past year. Net loans
rose to a record $324.7 million, a 7 percent increase from 1999, and an 82
percent increase over the past five years.
The percentage of loans greater than 30 days past due to total
loans dropped from 1.59 percent in 1999 to 0.71 percent in 2000, while the
percentage of non-performing loans to total loans dropped from 0.73 percent to
0.09 percent. Our percentage of non-performing loans is well below the average
national thrift and bank percentages for our peer group.(1) We will continue our
strategies to increase loan volume without compromising credit quality
standards.
While our deposit and loan operations performed well, diluted
earnings per share declined from $1.04 in 1999 to $0.93 in 2000. This is
primarily due to our planned restructuring of our balance sheet. We sold lower
yielding assets, reinvested funds into higher yielding assets, and repaid
borrowings. We expect that these transactions will increase long-term
shareholder value and profitability for the Company.
2
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Looking Ahead
The future of First Midwest Financial is its people - people who
care about our customers, their communities, our shareholders, and each other.
Therefore, the most important investment we make is in our people. Each person's
unique talents and contributions allow us to implement strategies and achieve
goals. Formalized employee training programs are being implemented to build
consistent customer service standards and to support our employee development
program. After all, it is our people who provide our real competitive advantage,
and who are the real sign of better banking.
Resources are also dedicated to technology and product
development. This past year we added QUICKbank 24-Hour Telebanking and
additional services to our product mix. We also improved our information systems
with upgraded networks and streamlined communication tools to help our people be
more effective. An interactive website for each bank is scheduled for
introduction in early 2001. On-line banking will follow later in the year.
First Midwest's website is now available with up-to-date
investor information. Visit us at www.fmficash.com, and bookmark us for future
reference.
While many competitors use technology to replace one- on-one
service, we use it to enhance our personalized service. We believe that we can
build better long-term relationships if we get to know our customers. To us,
that is what being a super-community bank is all about - hometown service with
larger bank resources.
We will continue to dedicate resources to expand our branch
network into metropolitan areas that provide additional opportunities for
growth. In September 2000, the doors to a temporary facility opened in Sioux
Falls, South Dakota. We expect the construction of our permanent building to be
completed in Spring 2001. Building plans are progressing for Iowa Saving Bank
division's new main office in Urbandale, Iowa.
We have never been more optimistic about First Midwest Financial
than we are today, and we believe our stock remains an attractive investment.
The First Midwest team remains dedicated to increasing shareholder value and
enhancing your investment. Thank you for your continuing support.
Sincerely,
/S/ James S. Haahr
------------------
James S. Haahr
Chairman of the Board,
President & CEO
/S/ J. Tyler Haahr
------------------
J. Tyler Haahr
Senior Vice President,
Secretary & COO
(1) Based on reports distributed by the FDIC.
Cutlines:
We have increased demand deposit balances 109 percent over the past five years.
The Company will continue its strategies to attract profitable checking and
money market accounts, and reduce our cost of funds.
Our focus on credit quality produces first-rate performance trends.
Charts: Non-Performing Loans to Total Loans; Delinquent loans greater than 30
Days to Total Loans
3
<PAGE>
Editorial:
Our Mission Statement
Have a professional, knowledgeable team that cost effectively provides
value-added financial products and services that benefit our customers.
Cutline:
"Our people are the heart of our mission, and our entire organization."
-Sandra Hegland,
Vice President of
Human Resources
Tradition
We have a tradition of providing financial solutions that help our customers
achieve their goals.
In fact, First Federal Savings Bank, our founding bank, was
established 46 years ago to help people buy homes and earn a fair return on
their savings. While our company has grown and our mission has expanded, we are
still dedicated to building long-term customer relationships based on trust,
respect, and integrity.
Our company's 1993 conversion to stock owner-ship enabled us to
become a "super-community bank." We used the capital raised to acquire and build
additional banks and broaden our branch network. We have also invested in
technology to provide additional services for our customers and to streamline
operations. The holding company structure is good for our customers, and is good
for our banks.
Together, we are driven toward one vision: Be the bank of choice
for financial services in our market areas. We believe that providing our
customers with personalized service from knowledgeable financial experts will
help differentiate us from our competition.
Today we have fifteen bank locations, with a new building planned
for construction this year. Our assets have grown from $161 million in 1993 to
$506 million in 2000. And, we now provide a wide range of financial services
that help over 25,000 customers throughout the Midwest. Loyal customers are a
strong indication of our success, and we look forward to earning more business
in coming years.
4
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Teamwork and Results
Our people make the difference. We work together every day to do the right
things right.
That is why each year we review our past performance, update our
strategies, and develop specific action plans to achieve our goals. Employees
participate in the business planning process so that we all understand how we
affect results.
This past year we accomplished many of our goals. We introduced
new products and improved our use of technology. Employee and customer programs
were established to reinforce our personalized, needs-based service. We achieved
record deposit and loan balances without compromising credit quality standards.
And, we expanded operations into a new market.
Our First Federal Sioux Falls division opened the doors to its
temporary facility on September 6, 2000. Tony Trussell, Division President, and
our top-quality customer service team are developing new customer relationships
as the 12,000-square-foot permanent building is under construction. Thanks to
the contributions from employees across the Company, we have enjoyed a smooth
transition into the Sioux Falls community.
None of these accomplishments would be realized without the hard
work of talented people. We are proud of our team and are optimistic about the
years to come.
[GRAPHIC - "Do the right things right"]
Cutline:
"People helping people" is a core philosophy that helps our team do the right
things right. Employees pictured left to right: Susan Mesenbrink, Deposit
Account Specialist; Bradley Reichter, Branch Manager; Susanne McLaughlin,
Personal Banker; Jean Engen, Assistant Vice President and Savings Manager; and
John Grundmeier, Vice President of Lending.
5
<PAGE>
Innovation
The only way to move ahead of the competition is to embrace change and strive
toward continuous improvement in everything we do.
Our employees constantly strive to improve processes and services
that benefit our customers and our company. We believe that the implementation
of innovative ideas fosters healthy growth.
We view technology as an opportunity to improve operating
efficiencies and to provide 24-hour service options for our customers. This year
we upgraded our computer network to improve internal and external communication.
We introduced QUICKbank 24-Hour Telebanking and made other additions to our
product mix. We also launched fmficash.com so investors can easily access up-to-
date information about our company. Watch for individual bank websites in
mid-January and on-line banking introductions in late 2001.
Our products and services include: Better than Free Timeless
Checking | Business and Commercial Checking | Photo QUICKcard Cash & Check |
Money Market Accounts | Certificates of Deposit | QUICKbank 24-Hour Telebanking
| Savings Accounts | Mortgage Lending | Business and Commercial Lending |
Agricultural Lending | Consumer Lending | Lines of Credit | Credit Life
Insurance | Crop Insurance | Credit Cards | Retire-ment and Trust Services |
Ready Reserve | Overdraft Protection | Automated Clearing House Origination |
Direct Deposit | Automatic Payment | Investments(1)
(1) Non-traditional bank products offered through LaSalle St. Securities, Inc.
are not FDIC insured, nor are they guaranteed by the banks of First Midwest
or any affiliate.
Cutline:
Technology provides us with opportunities to enhance our
customer service and internal operations. Employees pictured
left to right: Doug Waller, Assistant Vice President of
Information Systems; Sandy Eickholt, Technical Services
Representative; and Charles Friederichs, Vice President and
Director of Information Systems.
6
<PAGE>
[GRAPHIC - PEOPLE]
Real People. Real Service. Real Value.
Our banks truly believe in people helping people. It is that simple. We listen
and work with our customers to provide financial solutions that help them
succeed.
And unlike many national banks, our customers always talk with a
real person when they call or visit one of our offices. We believe that, by
getting to know our customers, we can provide better service to help them reach
their goals.
We are also dedicated to being good corporate citizens. That
means encouraging our people to become actively involved in their communities.
This year our banks partnered with General Colin Powell and the American Bankers
Association to become Banks of Promise. We dedicated financial resources and
thousands of employee hours to help youth and charitable organizations. We also
initiated a "Volunteer of the Year" program to recognize our people for their
community orientation.
Community involvement is just one area we recognize. Our sales
and service program has been rewarding our employees for their customer service,
continuous improvement, great work environment, and result efforts for years. We
encourage our people to expand their financial knowledge and skills. We believe
that when employees are empowered to become their best, it will lead to
first-rate customer service. After all, a satisfied customer is a true sign of
better banking.
Cutline:
Our service scores a perfect "10" with our customers.
Employee: Tracee Dierenfield, Assistant Vice President and
Loan Officer; Customers: Patricia Colburn, German Instructor
and Certification Officer at Buena Vista University;
Matthew Huddleston, Interpreter for Arrowhead Educa-
tion Agency; Sara M. Huddleston, Victim Advocate for Social
Agency; and daughter Alexis N.; Kent Mauck, President of
Mauck + Associates; and Darrel Hinkeldey, Farmer.
7
<PAGE>
Financial Contents:
Company Vision and Mission
Vision of First Midwest
Financial, Inc.
Build the best super-
community bank
system in the Midwest.
Vision of First Midwest
Financial Banks
Be the bank of choice
for financial services
in our market area.
Mission
Have a professional,
knowledgeable team
that cost effectively
provides value-added
financial products and
services that benefit
our customers.
Company Values
Customer Service
Outstanding internal
and external customer
service are the foundation
of our success. Meeting
customer financial needs and
exceeding expectations
contribute to customer
satisfaction and long-
term relationships.
Continuous
Improvement
We embrace change
to improve the quality
and productivity of
our product offerings,
business operations,
and customer service.
Great Work
Environment
We embrace an
atmosphere of open
communication and
mutual respect where
people are treated fairly,
have fulfilling career
opportunities and challenges,
and are able to make a
difference in the
communities we serve.
Results
We are results oriented.
Meeting goals allows
the company to earn
a fair profit while servicing
our customers in an efficient and
professional manner.
Cutline:
"I am proud to be part of a growing organization - one that
truly cares about its people and customers."
-Sandra Castillo Bilingual Customer Service Representative
Selected Consolidated Financial
Information 10
Management's Discussion and Analysis 11
Consolidated Balance Sheets
At September 30, 2000 and 1999 22
Consolidated Statements of Income
For the Years Ended September 30, 2000, 1999 and 1998 23
Consolidated Statements of Changes in
Shareholders' Equity For the Years Ended
September 30, 2000, 1999 and 1998 24
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2000,
1999 and 1998 26
Notes to Consolidated Financial Statements 28
Report of Independent Auditors 52
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Information
September 30, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data
(In Thousands)
Total assets $ 505,590 $ 511,213 $ 418,380 $ 404,589 $ 388,008
Loans receivable, net 324,703 303,079 270,286 254,641 243,534
Securities available for sale 147,479 178,489 120,610 115,985 109,492
Excess of cost over net assets acquired, net 3,768 4,133 4,498 4,863 5,091
Deposits 318,654 304,780 283,858 246,116 233,406
Total borrowings 143,993 164,369 89,888 112,126 106,478
Shareholders' equity 40,035 39,771 42,286 43,477 43,210
Year Ended September 30,
Selected Operations Data
(In Thousands, Except Per Share Data)
Total interest income $ 38,410 $ 35,373 $ 32,059 $ 29,005 $ 24,337
Total interest expense 24,578 22,176 19,230 17,059 13,978
---------- ---------- ---------- ---------- ----------
Net interest income 13,832 13,197 12,829 11,946 10,359
Provision for loan losses 1,640 1,992 1,663 120 100
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses
12,192 11,205 11,166 11,826 10,259
Total noninterest income 566 1,918 1,875 1,700 1,419
Total noninterest expense 9,408 8,645 8,253 7,382 7,568(2)
---------- ---------- ---------- ---------- ----------
Income before income taxes and extraordinary
items 3,350 4,478 4,788 6,144 4,110
Income tax expense 1,374 1,837 2,003 2,502 1,696
---------- ---------- ---------- ---------- ----------
Income before extraordinary items 1,976 2,641 2,785 3,642 2,414
Extraordinary items, net of income tax 352 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 2,328 $ 2,641 $ 2,785 $ 3,642 $ 2,414(2)
========== ========== ========== ========== ==========
Earnings per common and common equivalent share:
Income before extraordinary items (1)
Basic earnings per share $ 0.81 $ 1.07 $ 1.08 $ 1.34 $ 0.95(2)
Diluted earnings per share $ 0.79 $ 1.04 $ 1.03 $ 1.28 $ 0.90(2)
Net income (1)
Basic earnings per share $ 0.95 $ 1.07 $ 1.08 $ 1.34 $ 0.95(2)
Diluted earnings per share $ 0.93 $ 1.04 $ 1.03 $ 1.28 $ 0.90(2)
Year Ended September 30,
Selected Financial Ratios
and Other Data
Performance Ratios
Return on average assets 0.46% 0.54% 0.68% 0.98% 0.77%(2)
Return on average shareholders' equity 5.98 6.35 6.43 8.41 6.22(2)
Interest rate spread information:
Average during the year 2.39% 2.43% 2.76% 2.80% 2.83%
End of year 2.32 2.40 2.74 2.78 2.84
Net yield on average interest-earning assets 2.79 2.83 3.26 3.38 3.47
Ratio of operating expense to average total assets 1.85 1.80 2.00 2.00 2.40
Quality Ratios
Non-performing assets to total assets at end of year 0.15% 0.47% 1.94% 0.82% 0.75%
Allowance for loan losses to non-performing loans 1,156.13 137.16 41.15 75.36 83.49
Capital Ratios
Shareholders' equity to total assets at end of period 7.93% 7.78% 10.11% 10.75% 11.14%
Average shareholders' equity to average assets 7.67 8.65 10.51 11.62 12.44
Ratio of average interest-earning assets to
average interest-bearing liabilities 108.02 108.39 110.22 112.00 113.72
Other Data
Cash earnings (in thousands) (3) $ 2,696 $ 3,006 $ 3,150 $ 4,006 $ 2,584(2)
Cash earnings per share diluted (1) (3) $ 1.08 $ 1.18 $ 1.17 $ 1.40 $ 0.96(2)
Cash return on average assets (3) 0.53% 0.61% 0.77% 1.08% 0.82%(2)
Cash return on average equity (3) 6.93 7.23 7.27 9.25 6.66(2)
Book value per common share outstanding (1) $ 16.48 $ 15.86 $ 16.56 $ 16.11 $ 14.81
Dividends declared per share (1) $ 0.52 $ 0.52 $ 0.48 $ 0.36 $ 0.29
Dividend payout ratio 54.83% 48.24% 44.05% 26.41% 30.90%
Number of full-service offices 14 13 13 13 12
</TABLE>
(1) Amounts reported have been adjusted for the three-for- two stock split paid
January 2, 1997 in the form of a 50% stock dividend.
(2) Reflects the one-time industry-wide special assessment to recapitalize the
Savings Association Insurance Fund.
(3) Cash earnings excludes from net income the amortization of goodwill, net of
related income taxes.
10
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Management's Discussion and Analysis
General
First Midwest Financial, Inc. (the "Company" or "First Midwest") is a bank
holding company whose primary subsidiaries 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 Company focuses on establishing and maintaining long-term
relationships with customers, and is committed to serving the financial service
needs of the communities in its market area. The Company's primary market area
includes the following counties: Adair, Buena Vista, Calhoun, Ida, Guthrie,
Pocahontas, Polk, and Sac located in Iowa, and the counties of Brookings and
Minnehaha located in east central South Dakota. The Company attracts retail
deposits from the general public and uses those deposits, together with other
borrowed funds, to originate and purchase residential and commercial mortgage
loans, to make consumer loans, and to provide financing for agricultural and
other commercial business purposes.
The Company's basic mission is to maintain and enhance core
earnings while serving its primary market area. As such, the Board of Directors
has adopted a business strategy designed to (i) maintain the Company's tangible
capital in excess of regulatory requirements, (ii) maintain the quality of the
Company's assets, (iii) control operating expenses, (iv) maintain and, as
possible, increase the Company's interest rate spread, and (v) manage the
Company's exposure to changes in interest rates.
Financial Condition
The following discussion of the Company's consolidated financial condition
should be read in conjunction with the Selected Consolidated Financial
Information and Consolidated Financial Statements and the related notes included
elsewhere herein.
The Company's total assets at September 30, 2000 were $505.6
million, a decrease of $5.6 million, or 1.1%, from $511.2 million at September
30, 1999. The decrease in assets was due primarily to the reduction in
securities available for sale, which was partially offset by an increase in net
loans receivable.
The Company's portfolio of securities available for sale
decreased $31.0 million, or 17.4%, to $147.5 million at September 30, 2000 from
$178.5 million at September 30, 1999. The decrease was due to the sale of
securities available for sale in a planned restructuring of the balance sheet
and, in addition, was due to the normal repayment of mortgage-backed securities.
The balance sheet restructuring involved the sale of lower yielding securities,
the reinvestment of proceeds into higher yielding assets, and the repayment of
borrowings.
The Company's portfolio of net loans receivable increased by
$21.6 million, or 7.1%, to $324.7 million at September 30, 2000 from $303.1
million at September 30, 1999. Net loans receivable increased as a result of
increased origination and purchase of commercial and multi- family real estate
loans on existing and newly constructed properties. In addition, the increase
resulted from increased origination of consumer loans and agricultural real
estate loans. Conventional one to four family residential mortgage loans
declined as existing originated and purchased loans repaid in amounts greater
than new originations during the period. Agricultural business loans also
declined as a result of repayments in excess of new originations during the
period.
Customer deposit balances increased by $13.9 million, or 4.6%,
from $304.8 million at September 30, 1999 to $318.7 million at September 30,
2000. The increase in deposits resulted from management's continued effort to
enhance deposit product design and marketing programs. Deposit balances
increased for noninterest-bearing demand accounts and time certificates of
deposit in the amounts of $360,000 and $16.0 million, respectively.
Interest-bearing transac-tion accounts, which include savings, NOW and money
market demand accounts, declined $2.5 million as higher interest rates during
the period provided incentive for the movement of funds to fixed-term
certificates of deposit.
The Company's borrowings from the FHLB decreased by $21.6
million, or 13.4%, from $161.3 million at September 30, 1999 to $139.7 million
at September 30, 2000. The reduction in borrowings was the result of increased
deposit balances and proceeds from the sale of securities available for sale.
11
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Shareholders' equity increased $264,000, or 0.7%, to $40.0
million at September 30, 2000 from $39.8 million at September 30, 1999. The
increase in shareholders' equity is the result of net earnings during the
period, which were partially offset by the effect of stock repurchases and the
payment of cash dividends on common stock.
Results of Operations
The following discussion of the Company's results of operations should be read
in conjunction with the Selected Consolidated Financial Information and
Consolidated Financial Statements and the related notes included elsewhere
herein.
The Company's results of operations are primarily dependent on
net interest income, noninterest income and the Company's ability to manage
operating expenses. Net interest income is the difference, or spread, between
the average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities. The interest rate spread is affected by
regulatory, economic, and competitive factors that influence interest rates,
loan demand, and deposit flows. The Company, like other financial institutions,
is subject to interest rate risk to the extent that its interest-earning assets
mature or reprice at different times, or on a different basis, than its
interest-bearing liabilities.
The Company's noninterest income consists primarily of fees
charged on transaction accounts and for the origination of loans, both of which
help offset the costs associated with establishing and maintaining deposit and
loan accounts. In addition, noninterest income is derived from the activities of
First Federal's wholly-owned subsidiaries, First Services Financial Limited and
Brookings Service Corporation. Both engage in the sale of various non-insured
investment products. Historically, the Company has not derived significant
income as a result of gains on the sale of securities and other assets. During
the year ended September 30, 2000, the Company recorded a loss on the sale of
securities available for sale in the amount of $1,021,000 resulting from the
planned restructuring of the balance sheet that involved the sale of lower
yielding securities, the reinvestment of funds into higher yielding assets, and
the repayment of borrowings. The loss on sale of securities was partially offset
by a $561,000 gain on the transfer of Federal Home Loan Bank advances. For the
years ended September 30, 1999 and 1998, gains were recorded in the amounts of
$332,000 and $399,000, respectively, as a result of the sale of securities
available for sale.
The following table sets forth the weighted average effective interest rate on
interest-earning assets and interest-bearing liabilities at the end of each of
the years presented.
<TABLE>
<CAPTION>
At September 30 2000 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE YIELD ON
Loans receivable 8.47% 8.09% 8.80%
Mortgage-backed securities available for sale 6.66 6.38 7.15
Securities available for sale 6.92 6.14 6.40
FHLB stock 7.10 6.25 6.75
Combined weighted average yield
on interest-earning assets 7.91 7.39 8.13
WEIGHTED AVERAGE RATE PAID ON
Demand, NOW and money market demand deposits 3.50 3.24 3.00
Savings deposits 3.05 2.50 2.48
Time deposits 6.02 5.32 5.80
FHLB advances 5.99 5.38 5.91
Other borrowed money 6.32 5.28 5.68
Combined weighted average rate paid on
interest-bearing liabilities 5.59 4.99 5.39
Spread 2.32% 2.40% 2.74%
</TABLE>
12
<PAGE>
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate (i.e., changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30, 2000 vs. 1999 1999 vs. 1998
---------------------------------------------------------------------------------------------------------------------------------
Increase Increase Total Increase Increase Total
(Decrease) (Decrease) Increase (Decrease) (Decrease) Increase
Due to Volume Due to Rate (Decrease) Due to Volume Due to Rate (Decrease)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans receivable $ 2,081 $ 391 $ 2,472 $ 2,399 $(1,658) $ 741
Mortgage-backed securities
available for sale 651 55 706 4,088 (262) 3,826
Securities available for sale (354) 129 (225) (1,276) (72) (1,348)
FHLB stock 62 22 84 114 (19) 95
------- ----- ------- ------- ------- -------
Total interest-earning assets $ 2,440 $ 597 $ 3,037 $ 5,325 $(2,011) $ 3,314
------- ----- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES
Demand, NOW and
money market deposits $ 269 $ 146 $ 415 $ 587 $ 210 $ 797
Savings deposits (46) 76 30 (65) 10 (55)
Time deposits 514 171 685 997 (665) 332
FHLB advances 819 433 1,252 2,233 (343) 1,890
Other borrowed money 7 13 20 (7) (11) (18)
------- ----- ------- ------- ------- -------
Total interest-bearing liabilities $ 1,563 $ 839 $ 2,402 $ 3,745 $ (799) $ 2,946
------- ----- ------- ------- ------- -------
Net effect on net interest income $ 877 $(242) $ 635 $ 1,580 $(1,212) $ 368
======= ===== ======= ======= ======= =======
</TABLE>
13
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments have been
made. All average balances are quarterly average balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Year Ended September 30, 2000 1999 1998
-----------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned Yield Outstanding Earned Yield Outstanding Earned Yield
(Dollars in Thousands) Balance /Paid /Rate Balance /Paid /Rate Balance /Paid /Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans receivable(1) $309,768 $ 26,268 8.48% $285,232 $23,796 8.34% $256,482 $23,055 8.99%
Mortgage-backed securities
available for sale 125,749 8,210 6.53 115,784 7,504 6.48 52,722 3,678 6.98
Securities available for sale 52,672 3,379 6.42 58,190 3,604 6.19 78,789 4,952 6.29
FHLB stock 8,190 553 6.75 7,278 469 6.44 5,514 374 6.78
-------- -------- -------- ------- -------- -------
Total interest-earning assets 496,379 $ 38,410 7.74% 466,484 $35,373 7.58% 393,507 $32,059 8.15%
======== ======= =======
Noninterest-earning assets 10,879 14,719 18,415
-------- -------- -----------
Total assets $507,258 $481,203 $ 411,922
======== ======== ===========
INTEREST-BEARING
LIABILITIES
Demand, NOW and money
market demand deposits $ 59,199 $ 2,145 3.62% $ 51,778 $ 1,730 3.34% $ 34,202 $ 933 2.73%
Savings deposits 15,986 477 2.98 17,528 447 2.55 20,090 502 2.50
Time deposits 230,992 13,015 5.63 221,873 12,330 5.56 203,932 11,998 5.88
FHLB advances 149,896 8,735 5.83 135,846 7,483 5.51 95,328 5,593 5.87
Other borrowed money 3,460 206 5.95 3,348 186 5.56 3,473 204 5.87
-------- -------- -------- ------- -------- -------
Total interest-bearing liabilities 459,533 $ 24,578 5.35% 430,373 $22,176 5.15% 357,025 $19,230 5.39%
======== ======= =======
Noninterest-bearing:
Deposits 5,639 5,749 5,646
Liabilities 3,178 3,451 5,956
-------- -------- --------
Total liabilities 468,350 439,573 368,627
Shareholders' equity 38,908 41,630 43,295
-------- -------- --------
Total liabilities and
shareholders' equity $507,258 $481,203 $411,922
======== ======== ========
Net interest-earning assets $ 36,846 $ 36,111 $ 36,482
======== ======== ========
Net interest income $ 13,832 $ 13,197 $12,829
======== ======== =======
Net interest rate spread
2.39% 2.43% 2.76%
==== ==== ====
Net yield on average interest-
earning assets 2.79% 2.83% 3.26%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities 108.02% 108.39% 110.22%
====== ====== ======
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for loan losses.
14
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 2000 and
September 30, 1999
General Net income for the year ended September 30, 2000 decreased $313,000, or
11.9%, to $2,328,000, from $2,641,000 for the same period ended September 30,
1999. The decrease in net income reflects the loss on sale of securities
available for sale and an increase in noninterest expenses, which were partially
offset by an increase in net interest income, a decrease in the provision for
loan losses and a gain on the transfer of FHLB advances.
Net Interest Income Net interest income for the year ended
September 30, 2000 increased by $635,000, or 4.8%, to $13,832,000 compared to
$13,197,000 for the same period ended September 30, 1999. The increase in net
interest income reflects an overall increase in the average balance of
interest-earning assets during the period, which was partially offset by a
decrease in the net interest rate spread between interest-earning assets and
interest-bearing liabilities. The net yield on average earning assets decreased
to 2.79% for the period ended September 30, 2000 from 2.83% for the same period
in 1999. The decrease in net yield is primarily due the decrease in net interest
rate spread between interest-earning assets and interest-bearing liabilities.
Interest Income Interest income for the year ended September 30,
2000 increased $3,037,000, or 8.6%, to $38,410,000 from $35,373,000 for the same
period in 1999. The increase reflects an increase in interest income from net
loans receivable of $2,472,000 due to an increase in the average balance
outstanding and, to a lesser extent, an increase in the overall yield during the
period. In addition, the increase in interest income reflects an increase in
interest income from the portfolio of securities available for sale of $481,000
due to an increase in the portfolio yield and an increase in the average
portfolio balance during the period.
Interest Expense Interest expense increased $2,402,000, or 10.8%,
to $24,578,000 for the year ended September 30, 2000 from $22,176,000 for the
same period in 1999. The increase in interest expense is due to increases in the
average outstanding balance of demand deposits, time deposits, and FHLB advances
during the year ended September 30, 2000 as compared to the same period in 1999.
The increase in the average balance of demand and time deposits resulted from
internal growth of the deposit portfolio. The average balance of FHLB advances
increased due to borrowing activity throughout the period used to fund growth of
the loan portfolio. The increase in interest expense also reflects higher
interest rates paid on interest-bearing liabilities during the year ended
September 30, 2000, as market interest rates generally trended upward during the
period.
Provision for Loan Losses The provision for loan losses for the
year ended September 30, 2000 was $1,640,000 compared to $1,992,000 for the same
period in 1999. Management believes that, based on a detail review of the loan
portfolio, historic loan losses, current economic conditions, and other factors,
the current level of provision for loan losses, and the resulting level of the
allowance for loan losses, reflects an adequate reserve against potential losses
from the loan portfolio.
Current economic conditions in the agricultural sector of the
Company's market area indicate potential weakness due to a continuation of
historically low commodity prices. The agricultural economy is accustomed to
commodity price fluctuations and is generally able to handle such fluctuations
without significant problem. However, an extended period of low commodity prices
could result in additional weakness of the Company's agricultural loan portfolio
and could create a need for the Company to increase its allowance for loan
losses through increased charges to provision for loan losses.
During recent years, the Company has increased its origination
and purchase of multi-family and commercial real estate loans and has increased
its origination of commercial business loans. The Company anticipates activity
in this type of lending to continue in future years. This lending activity is
considered to carry a higher level of risk due to the nature of the collateral
and the size of individual loans. As such, the Company anticipates continued
increases in its allowance for loan losses as a result of this lending activity.
Although the Company maintains its allowance for loan losses at a
level that it considers to be adequate, there can be no assurance that future
losses will not exceed estimated amounts, or that additional provisions for loan
losses will not be required in future periods. In addition, the Company's
determination of the allowance for loan losses is subject to review by its
regulatory agencies, which can require the establishment of additional general
or specific allowances.
15
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Noninterest Income Noninterest income for the year ended
September 30, 2000 decreased $1,352,000, or 70.5%, to $566,000 from $1,918,000
for the same period in 1999. The decrease in noninterest income reflects a
$1,021,000 loss on sale of securities avail-able for sale for the year ended
September 30, 2000 as compared to a gain of $332,000 the previous year. The
fiscal 2000 loss on sale of securities available for sale resulted primarily
from the planned restructuring of the balance sheet that involved the sale of
lower yielding securities, the reinvestment of proceeds into higher yielding
assets, and the repayment of borrowings. Noninterest income reflects an increase
for fiscal 2000 in brokerage commissions received from sales of non-insured
investment products through First Federal's subsidiaries.
Noninterest Expense Noninterest expense increased by $763,000, or
8.8%, to $9,408,000 for the year ended September 30, 2000 as compared to
$8,645,000 for the same period in 1999. The increase in noninterest expense for
fiscal 2000 reflects a $695,000 increase in employee compensation and benefits
expense due to normal wage and benefit cost increases and the addition of
personnel related to the opening of a new office facility. In addition,
occupancy and equipment expense and data processing expense increased for fiscal
2000 by $142,000 and $32,000, respectively, due to expenditures related to the
opening of a new office facility and to expenditures on technological
enhancements to the Company's computer and product delivery systems designed to
provide continued efficient customer service.
Income Tax Expense Income tax expense decreased by $463,000, or
25.2%, to $1,374,000 for the year ended September 30, 2000 from $1,837,000 for
the same period in 1999. The decrease in income tax expense reflects the
decrease in the level of taxable income for the period ended September 30, 2000
compared to the same period in 1999.
Extraordinary Item The extraordinary item for the year ended
September 30, 2000 was $352,000, which is net of the income tax effect. The
extraordinary item reflects the gain on the transfer of FHLB advances resulting
from the planned restructuring of the balance sheet that involved the sale of
lower yielding securities, the reinvestment of proceeds into higher yielding
assets, and the repayment of borrowings. There was no such extraordinary item in
the previous year.
Comparison of Operating Results for the Years Ended
September 30, 1999 and September 30, 1998
General Net income for the year ended September 30, 1999 decreased $144,000, or
5.2%, to $2,641,000, from $2,785,000 for the same period ended September 30,
1998. The decrease in net income reflects increases in the provision for loan
losses and noninterest expense, which were partially offset by increases in net
interest income and noninterest income.
Net Interest Income Net interest income for the year ended
September 30, 1999 increased by $368,000, or 2.9%, to $13,197,000 compared to
$12,829,000 for the same period ended September 30, 1998. The increase in net
interest income reflects an overall increase in the balance of average
interest-earning assets during the period. The net yield on average earning
assets decreased to 2.83% for the period ended September 30, 1999 from 3.26% for
the same period in 1998. The decrease in net yield is primarily due to interest
rates remaining generally at historically low levels throughout the period,
which resulted in the continued refinance and repayment of relatively higher
yielding loans and mortgage-backed securities. These earning assets were
replaced through the origination and purchase of loans and mortgage-backed
securities at comparatively lower yields. The reduction in yield on earning
assets was partially offset by a reduction in the cost of interest-bearing
liabilities.
Interest Income Interest income for the year ended September 30,
1999 increased $3,314,000, or 10.3%, to $35,373,000 from $32,059,000 for the
same period in 1998. The increase reflects a $2,478,000 increase in interest
earned on the portfolio of securities available for sale, which increased to
$11,108,000 for the year ended September 30, 1999 from $8,630,000 in 1998. The
increase in interest income from securities resulted from a higher average
securities portfolio balance, which was partially offset by a lower average
yield on the securities portfolio during fiscal 1999 compared to 1998. In
addition, interest income was higher due to a $741,000 increase in interest
earned on the loan portfolio as a result of a higher average loan portfolio
balance which was partially offset by a lower average yield during fiscal 1999
compared to 1998.
Interest Expense Interest expense increased $2,946,000, or 15.3%,
to $22,176,000 for the year ended September 30, 1999 from $19,230,000 for the
same period in 1998. The increase in interest expense is due to increases in the
average outstanding balance
16
<PAGE>
of demand deposits, time deposits, and FHLB advances during the year ended
September 30, 1999 as compared to the same period in 1998. The increase in the
average balance of demand and time deposits resulted from internal growth of the
deposit portfolio. The average balance of FHLB advances increased due to
borrowing activity throughout the period used to fund growth of the loan
portfolio and the purchase of securities available for sale. The increase in
interest expense was partially offset by lower interest rates paid on time
deposits and FHLB borrowings during the year ended September 30, 1999 as
compared to the previous year, as market interest rates have generally trended
downward.
Provision for Loan Losses The provision for loan losses for the
year ended September 30, 1999 was $1,992,000 compared to $1,662,000 for the same
period in 1998. Management believes that, based on a detail review of the loan
portfolio, historic loan losses, current economic conditions, and other factors,
the current level of provision for loan losses, and the resulting level of the
allowance for loan losses, reflects an adequate reserve against potential losses
from the loan portfolio.
Noninterest Income Noninterest income for the year ended
September 30, 1999 increased $43,000, or 2.3%, to $1,918,000 from $1,875,000 for
the same period in 1998. The increase in noninterest income reflects an increase
in loan fees and deposit service charges of $83,000 for fiscal 1999 compared to
the same period in 1998 as a result of increased lending activity and increased
activity on transaction accounts subject to service charges. Noninterest income
also increased due to an increase in brokerage commissions from sales of
non-insured investment products through First Federal's subsidiaries and
increased as a result of a net gain on sales of foreclosed real estate compared
to a net loss on sales in 1998. Noninterest income reflects lower net gain on
the sales of securities available for sale for fiscal 1999 compared to 1998.
Noninterest Expense Noninterest expense increased by $392,000, or
4.7%, to $8,645,000 for the year ended September 30, 1999 compared to $8,253,000
for the same period in 1998. The increase in noninterest expense for fiscal 1999
reflects a $491,000 increase in employee compensation and benefits expense
primarily due to the addition of personnel and the upgrade of expertise in
existing positions to support current and anticipated growth of the Company. In
addition, other noninterest expense increased for fiscal 1999 by $123,000
compared to 1998 due primarily to expenses related to the recruitment of new
personnel. Noninterest expense for fiscal 1998 included a $300,000 charge to
provision for losses on foreclosed real estate for which there was no comparable
charge in fiscal 1999.
Income Tax Expense Income tax expense decreased by $167,000, or
8.3%, to $1,837,000 for the year ended September 30, 1999 from $2,004,000 for
the same period in 1998. The decrease in income tax expense reflects the
decrease in the level of taxable income for the period ended September 30, 1999
compared to the same period in 1998.
Asset/Liability Management
And Market Risk
Qualitative Aspects of Market Risk As stated above, the Company derives its
income primarily from the excess of interest collected over interest paid. The
rates of interest the Company earns on assets and pays on liabilities generally
are established contractually for a period of time. Market interest rates change
over time. Accordingly, the Company's results of operations, like those of many
financial institution holding companies and financial institutions, are impacted
by changes in interest rates and the interest rate sensitivity of its assets and
liabilities. The risk associated with changes in interest rates and the
Company's ability to adapt to these changes is known as interest rate risk and
is the Company's only significant market risk.
Quantitative Aspects of Market Risk In an attempt to manage the
Company's exposure to changes in interest rates and comply with applicable
regulations, we monitor the Company's interest rate risk. In monitoring interest
rate risk, we continually analyze and manage assets and liabilities based on
their payment streams and interest rates, the timing of their maturities, and
their sensitivity to actual or potential changes in market interest rates.
An asset or liability is interest rate sensitive within a
specific time period if it will mature or reprice within that time period. If
the Company's assets mature or reprice more rapidly or to a greater extent than
its liabilities, then net portfolio value and net interest income would
17
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
tend to increase during periods of rising rates and decrease during periods of
falling interest rates. Conversely, if the Company's assets mature or reprice
more slowly or to a lesser extent than its liabilities, then net portfolio value
and net interest income would tend to decrease during periods of rising interest
rates and increase during periods of falling interest rates.
The Company currently focuses lending efforts toward originating
and purchasing competitively priced adjustable- rate and fixed-rate loan
products with relatively short terms to maturity, generally 15 years or less.
This allows the Company to maintain a portfolio of loans that will be sensitive
to changes in the level of interest rates while providing a reasonable spread to
the cost of liabilities used to fund the loans.
The Company's primary objective for its investment portfolio is
to provide the liquidity necessary to meet the funding needs of the loan
portfolio. The investment portfolio is also used in the ongoing management of
changes to the Company's asset/liability mix, while contributing to
profitability through earnings flow. The investment policy generally calls for
funds to be invested among various categories of security types and maturities
based upon the Company's need for liquidity, desire to achieve a proper balance
between minimizing risk while maximizing yield, the need to provide collateral
for borrowings, and to fulfill the Company's asset/liability management goals.
The Company's cost of funds responds to changes in interest rates
due to the relatively short-term nature of its deposit portfolio. Consequently,
the results of operations are generally influenced by the level of short- term
interest rates. The Company offers a range of maturities on its deposit products
at competitive rates and monitors the maturities on an ongoing basis.
The Company emphasizes and promotes its savings, money market,
demand and NOW accounts and, subject to market conditions, certificates of
deposit with maturities of six months through five years, principally in its
primary market area. The savings and NOW accounts tend to be less susceptible to
rapid changes in interest rates.
In managing its asset/liability mix, the Company, at times,
depending on the relationship between long- and short-term interest rates,
market conditions, and consumer preference, may place somewhat greater emphasis
on maximizing its net interest margin than on strictly matching the interest
rate sensitivity of its assets and liabilities. Management believes the
increased net income that may result from an acceptable mismatch in the actual
maturity or repricing of its asset and liability portfolios can, during periods
of declining or stable interest rates, provide sufficient returns to justify the
increased exposure to sudden and unexpected increases in interest rates which
may result from such a mismatch. The Company has established limits, which may
change from time to time, on the level of acceptable interest rate risk. There
can be no assurance, however, that in the event of an adverse change in interest
rates, the Company's efforts to limit interest rate risk will be successful.
Net Portfolio Value The Company uses a net portfolio value
("NPV") approach to the quantification of interest rate risk. This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance-sheet contracts. Management of the Company's assets
and liabilities is performed within the context of the marketplace, but also
within limits established by the Board of Directors on the amount of change in
NPV that is acceptable given certain interest rate changes.
<PAGE>
Presented below, as of September 30, 2000 and 1999, is an
analysis of the Company's interest rate risk as measured by changes in NPV for
an instantaneous and sustained parallel shift in the yield curve, in 100 basis
point increments, up and down 200 basis points. As illustrated in the table, the
Company's NPV is generally more sensitive to rising rate changes than declining
rates. This occurs primarily because, as rates rise, the market value of fixed-
rate loans and mortgage-backed securities declines due to both the rate increase
and the related slowing of prepayments on loans. When rates decline, the Company
does not experience
<TABLE>
<CAPTION>
Change in Interest Rate Board Limit At September 30, 2000 At September 30, 1999
(Basis Points) % Change $ Change % Change $ Change % Change
-----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+200 bp (40)% $(7,202) (18)% $(10,597) (26)%
+100 bp (25) (3,323) (8) (5,029) (12)
0 - - - - -
-100 bp (10) 2,659 6 3,535 9
-200 bp (15) 1,657 4 3,875 9
</TABLE>
18
<PAGE>
a significant rise in market value for these loans and mortgage-backed
securities because borrowers prepay at relatively higher rates. The value of the
Company's deposits and borrowings change in approximately the same proportion in
rising and falling rate scenarios. The Company experienced a decrease in
interest rate sensitivity at September 30, 2000 as compared to the end of the
previous year due to the reduction, through sale and repayment, of fixed-rate
mortgage-backed securities with longer expected terms to maturity and, in
addition, the lengthening of the average maturity of FHLB advances.
Certain shortcomings are inherent in the method of analysis
presented in the foregoing tables. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets such as
adjustable-rate mortgage loans have features that restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, in the
event of a change in interest rates, prepayments and early withdrawal levels
would likely deviate from those assumed in calculating the tables. Finally, the
ability of some borrowers to service their debt may decrease in the event of an
interest rate increase. The Company considers all of these factors in monitoring
its exposure to interest rate risk.
Management reviews the OTS measurements and related peer reports
on NPV and interest rate risk on a quarterly basis. In addition to monitoring
selected measures of NPV, management also monitors the effects on net interest
income resulting from increases or decreases in interest rates. This measure is
used in conjunction with NPV measures to identify excessive interest rate risk.
Asset Quality It is management's belief, based on information
available, that the Company's current asset quality is satisfactory. At
September 30, 2000, non- performing assets, consisting of non-accruing loans,
accruing loans delinquent 90 days or more, real estate owned, and repossessed
consumer property, totaled $755,000, or 0.15% of total assets, compared to
$2,381,000, or 0.47% of total assets, for the fiscal year ended 1999. The
decrease in non-performing assets during fiscal 2000 reflects management's
continued effort to strengthen the quality of its loan portfolio through
adherence to written underwriting guidelines, an on-going credit review program,
and diligent collection practices.
The Company maintains an allowance for loan losses because of the
potential that some loans may not be repaid in full. At September 30, 2000, the
Company had an allowance for loan losses in the amount of $3,590,000 as compared
to $3,093,000 at September 30, 1999. Management's periodic review of the
adequacy of the allowance for loan losses is based on various subjective and
objective factors including the Company's past loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions. While management may allocate portions of the
allowance for specifically identified problem loan situations, the majority of
the allowance is based on judgmental factors related to the overall loan
portfolio and is available for any loan charge-offs that may occur.
In determining the allowance for loan losses, the Company
specifically identifies loans that it considers to have potential collectibility
problems. Based on criteria established by SFAS No. 114, some of these loans are
considered to be "impaired" while others are not considered to be impaired, but
possess weaknesses that the Company believes merit additional analysis in
establishing the allowance for loan losses. All other loans are evaluated by
applying estimated loss ratios to various pools of loans. The Company then
analyzes other factors (such as economic conditions) in determining the
aggregate amount of the allowance needed.
At September 30, 2000, $734,000 of the allowance for loan losses
was allocated to impaired loans (See Note 4 of Notes to Consolidated Financial
Statements), $500,000 was allocated to identified problem loan situations, and
$2,356,000 was allocated as a reserve against losses from the overall loan
portfolio. At September 30, 1999, $438,000 of the allowance for loan losses was
allocated to impaired loans, $670,000 was allocated to identified problem loan
situations, and $1,985,000 was allocated as a reserve against losses from the
overall loan portfolio.
The September 30, 2000 allowance for loan losses that was
allocated to impaired loans was $734,000, which is 12.9% of impaired loans as of
that date. The September, 30 1999 allowance allocated to impaired loans was
$438,000, which is 10.9% of impaired loans at that date. The increase in the
dollar amount of the allocated allowance is due to the relative increase in
19
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
total impaired loans between the periods and the increase in the allocated
allowance as a percentage of total impaired loans is a result of the specific
analysis performed on a loan-by-loan basis as described above.
The September 30, 2000 allowance allocated to other identified
problem loan situations was $500,000 as compared to $670,000 at September 30,
1999, a decrease of $170,000. This change is a result of the specific analysis
performed on a loan-by-loan basis as described above.
The portion of the September 30, 2000 allowance that was not
specifically allocated was $2,356,000 as compared to $1,985,000 at September
30,1999, an increase of $371,000. This increase was primarily due to an increase
in the size of the loan portfolio and a shift in the mix of the loan portfolio
from single-family loans to commercial and multi- family real estate loans.
Liquidity and Sources of Funds The Company's primary sources of
funds are deposits, borrowings, principal and interest payments on loans and
mortgage-backed securities, and maturing investment securities. While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and early loan repayments are influenced by the level of interest rates,
general economic conditions, and competition.
Federal regulations require First Federal to main-tain minimum
levels of liquid assets. Currently, First Federal is required to maintain liquid
assets of at least 4% of the average daily balance of net withdrawable savings
deposits and borrowings payable on demand in one year or less during the
preceding calendar quarter. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, governmental agency, and corporate
securities and obligations, unless otherwise pledged. First Federal has
historically maintained its liquidity ratio at levels in excess of those
required. First Federal's regulatory liquidity ratios were 8.7%, 9.1% and 15.4%
at September 30, 2000, 1999 and 1998, respectively.
Liquidity management is both a daily and long- term function of
the Company's management strategy. The Company adjusts its investments in liquid
assets based upon management's assessment of (i) expected loan demand, (ii) the
projected availability of purchased loan products, (iii) expected deposit flows,
(iv) yields available on interest- bearing deposits, and (v) the objectives of
its asset/liability management program. Excess liquidity is generally invested
in interest-earning overnight deposits and other short-term government agency
obligations. If the Company requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the Federal Home Loan Bank
of Des Moines and has collateral eligible for use with reverse repurchase
agreements.
The primary investing activities of the Company are the
origination and purchase of loans and the purchase of securities. During the
years ended September 30, 2000, 1999 and 1998, the Company originated loans
totaling $104.3 million, $143.3 million and $147.2 million, respectively.
Purchases of loans totaled $55.6 million, $77.3 million and $36.9 million during
the years ended September 30, 2000, 1999 and 1998, respectively. During the
years ended September 30, 2000, 1999 and 1998, the Company purchased
mortgage-backed securities and other securities available for sale in the amount
of $515,000, $125.4 million and $89.9 million, respectively.
At September 30, 2000, the Company had outstanding commitments to
originate and purchase loans of $14.8 million. (See Note 14 of Notes to
Consolidated Financial Statements.) Certificates of deposit scheduled to mature
in one year or less from September 30, 2000 total $132.3 million. Based on its
historical experience, management believes that a significant portion of such
deposits will remain with the Company, however, there can be no assurance that
the Company can retain all such deposits. Management believes that loan
repayment and other sources of funds will be adequate to meet the Company's
foreseeable short- and long-term liquidity needs.
During fiscal year 2000, the Company began construction of a new
office facility in Sioux Falls, South Dakota. The construction of this office is
expected to be completed during the second quarter of the 2001 fiscal year. In
addition, the Company has initiated plans to construct a new office to be
located in Urbandale, Iowa, which is anticipated to be completed by the end of
the 2001 fiscal year. The source of funds for capital improvements of this type
is from the normal operations of the Company.
On September 20, 1993, the Bank converted from a federally
chartered mutual savings and loan association to a federally chartered stock
savings bank. At that time, a liquidation account was established for the
benefit of eligible account holders who continue to
20
<PAGE>
maintain their account with the Bank after the conversion. The liquidation
account is reduced annually to the extent that eligible account holders have
reduced their qualifying deposits. At September 30, 2000, the liquidation
account approximated $2.5 million.
First Federal and Security are in full compliance with their
capital requirements. See Note 13 of Notes to Consolidated Financial Statements
for additional information.
Impact of Inflation and Changing Prices The Consolidated
Financial Statements and Notes thereto presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
virtually all the assets and liabilities of the Company are monetary in nature.
As a result, interest rates generally have a more significant impact on a
financial institution's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction, or to
the same extent, as the prices of goods and services.
Impact of New Accounting Standards SFAS No. 133 on derivatives
will, beginning with the quarter ended December 31, 2000, require all
derivatives to be recorded at fair value in the balance sheet, with changes in
fair value run through income. If derivatives are documented and effective as
hedges, the change in the derivative fair value will be offset by an equal
change in the fair value of the hedged item. The adoption of SFAS No. 133 is not
expected to have a material impact on the results of operations or financial
condition of the Company.
SFAS No. 140 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" was issued in September 2000, and
replaces SFAS No. 125 of the same title. SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The adoption of SFAS No. 140 is
not expected to have a material impact on the results of operations or financial
condition of the Company.
Forward-Looking Statements
The Company, and its wholly-owned subsidiaries First Federal and Security, may
from time to time make written or oral "forward-looking statements," including
statements contained in its filings with the Securities and Exchange Commission,
in its reports to shareholders, and in other communications by the Company,
which are made in good faith by the Company pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect
to the Company's beliefs, expectations, estimates, and intentions, that are
subject to significant risks and uncertainties, and are subject to change based
on various factors, some of which are beyond the Company's control. Such
statements address the following subjects: future operating results; customer
growth and retention; loan and other product demand; earnings growth and
expectations; new products and services; credit quality and adequacy of
reserves; technology; and our employees. The following factors, among others,
could cause the Company's financial performance to differ materially from the
expectations, estimates, and intentions expressed in such forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary, and fiscal policies and laws,
including interest rate policies of the Federal Reserve Board; inflation,
interest rate, market, and monetary fluctuations; the timely development of and
acceptance of new products and services of the Company and the perceived overall
value of these products and services by users; the impact of changes in
financial services' laws and regulations; technological changes; acquisitions;
changes in consumer spending and saving habits; and the success of the Company
at managing the risks involved in the foregoing.
The foregoing list of factors is not exclusive. Additional
discussion of factors affecting the Company's business and prospects is
contained in the Company's periodic filings with the SEC. The Company does not
undertake, and expressly disclaims any intent or obligation, to update any
forward-looking statement, whether written or oral, that may be made from time
to time by or on behalf of the Company.
21
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Balance Sheets
September 30, 2000 and 1999
2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 984,937 $ 1,165,895
Interest-bearing deposits in other financial institutions 5,937,594 4,208,016
------------- -------------
Total cash and cash equivalents 6,922,531 5,373,911
Securities available for sale 147,478,931 178,489,030
Loans receivable, net of allowance for loan losses of $3,589,873
in 2000 and $3,092,628 in 1999 324,702,629 303,078,500
Federal Home Loan Bank (FHLB) stock, at cost 8,327,600 8,125,800
Accrued interest receivable 5,216,929 5,046,234
Premises and equipment, net 6,091,741 4,770,056
Foreclosed real estate 445,133 142,901
Other assets 6,404,936 6,186,320
------------- -------------
Total assets $ 505,590,430 $ 511,212,752
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing demand deposits $ 6,040,991 $ 5,680,923
Savings, NOW and money market demand deposits 72,508,530 75,003,028
Time certificates of deposit 240,104,200 224,095,970
------------- -------------
Total deposits 318,653,721 304,779,921
Advances from FHLB 139,738,451 161,348,071
Securities sold under agreements to repurchase 4,254,965 3,020,951
Advances from borrowers for taxes and insurance 461,514 422,593
Accrued interest payable 1,006,341 875,365
Accrued expenses and other liabilities 1,440,353 995,103
------------- -------------
Total liabilities 465,555,345 471,442,004
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, 800,000 shares authorized; none issued -- --
Common stock, $.01 par value; 5,200,000 shares authorized; 2,957,999
shares issued and 2,431,574 shares outstanding at September 30, 2000;
2,957,999 shares issued and 2,507,073 shares outstanding at
September 30, 1999 29,580 29,580
Additional paid-in capital 20,976,107 21,305,937
Retained earnings - substantially restricted 30,404,386 29,352,943
Accumulated other comprehensive income (loss) (2,553,891) (2,520,633)
Unearned Employee Stock Ownership Plan shares -- (167,200)
Treasury stock, 526,425 and 450,926 common shares, at cost,
at September 30, 2000 and 1999, respectively (8,821,097) (8,229,879)
------------- -------------
Total shareholders' equity 40,035,085 39,770,748
------------- -------------
Total liabilities and shareholders' equity $ 505,590,430 $ 511,212,752
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years ended September 30, 2000, 1999 and 1998
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Loans receivable, including fees $ 26,267,638 $23,795,796 $ 23,054,813
Securities available for sale 11,589,221 11,108,170 8,629,761
Dividends on FHLB stock 553,165 468,765 374,220
------------ ----------- ------------
38,410,024 35,372,731 32,058,794
------------ ----------- ------------
Interest expense:
Deposits 15,636,793 14,506,472 13,432,454
FHLB advances and other borrowings 8,941,569 7,669,408 5,797,499
------------ ----------- ------------
24,578,362 22,175,880 19,229,953
------------ ----------- ------------
Net interest income 13,831,662 13,196,851 12,828,841
Provision for loan losses 1,640,000 1,992,000 1,662,472
------------ ----------- ------------
Net interest income after provision
for loan losses 12,191,662 11,204,851 11,166,369
------------ ----------- ------------
Noninterest income:
Loan fees and deposit service charges 1,310,642 1,346,117 1,263,367
Gain (loss) on sales of securities available for sale, net (1,020,885) 331,611 398,903
Gain (loss) on sales of foreclosed real estate, net (12,033) 16,513 (33,034)
Brokerage commissions 131,801 79,159 52,479
Other income 156,707 144,625 193,158
------------ ----------- ------------
566,232 1,918,025 1,874,873
------------ ----------- ------------
Noninterest expense:
Employee compensation and benefits 5,830,791 5,135,672 4,644,809
Occupancy and equipment expense 1,301,495 1,158,946 1,133,187
SAIF deposit insurance premium 89,990 155,901 143,199
Data processing expense 410,645 378,709 339,385
Provision for losses on foreclosed real estate -- -- 299,532
Other expense 1,775,122 1,815,730 1,692,728
------------ ----------- ------------
9,408,043 8,644,958 8,252,840
------------ ----------- ------------
Income before income taxes 3,349,851 4,477,918 4,788,402
Income tax expense 1,374,220 1,836,786 2,003,520
------------ ----------- ------------
Net income before extraordinary item 1,975,631 2,641,132 2,784,882
Extraordinary item, gain on extinguishment of
debt, less income tax effect of $208,600 351,995 -- --
------------ ----------- ------------
Net income $ 2,327,626 $ 2,641,132 $ 2,784,882
============ =========== ============
Earnings per common and common equivalent share:
Basic earnings per common share:
Income before extraordinary item $ 0.81 $ 1.07 $ 1.08
Extraordinary item, net of income taxes 0.14 -- --
------------ ----------- ------------
Net income $ 0.95 $ 1.07 $ 1.08
============ =========== ============
Diluted earnings per common share:
Income before extraordinary item $ 0.79 $ 1.04 $ 1.03
Extraordinary item, net of income taxes 0.14 -- --
------------ ----------- ------------
Net income $ 0.93 $ 1.04 $ 1.03
============ =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Years ended September 30, 2000, 1999 and 1998
Accumulated Unearned
Other Employee
Additional Comprehensive Stock
Common Paid-in Retained Income, Ownership
Stock Capital Earnings Net of Tax Plan Shares
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ 29,580 $ 20,984,754 $ 26,427,657 $ 960,371 $(567,200)
Comprehensive income:
Net income for the year
ended September 30, 1998 -- -- 2,784,882 -- --
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- -- -- (161,551) --
Total comprehensive income
Purchase of 152,226 common
shares of treasury stock -- -- -- -- --
30,000 common shares committed to be
released under the ESOP -- 454,460 -- -- 200,000
Cash dividends declared on
common stock ($.48 per share) -- -- (1,226,725) -- --
Purchase of 1,033 common shares upon
exercise of stock options -- -- -- -- --
Issuance of 7,600 common shares
from treasury stock due to exercise
of stock options -- (109,139) -- -- --
----------- ------------ ------------ ----------- ---------
Balance, September 30, 1998 $ 29,580 $ 21,330,075 $ 27,985,814 $ 798,820 $(367,200)
=========== ============ ============ =========== =========
Balance, September 30, 1998 $ 29,580 $ 21,330,075 $ 27,985,814 $ 798,820 $(367,200)
Comprehensive income:
Net income for the year
ended September 30, 1999 -- -- 2,641,132 -- --
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- -- -- (3,319,453) --
Total comprehensive income (loss)
Purchase of 79,647 common
shares of treasury stock -- -- -- -- --
30,000 common shares committed to be
released under the ESOP -- 255,220 -- -- 200,000
Amortization of management
recognition and retention plan
common shares and tax benefits of
restricted stock under the plans -- 101,634 -- -- --
Cash dividends declared on
common stock ($.52 per share) -- -- (1,274,003) -- --
Issuance of 23,051 common
shares from treasury stock due
to exercise of stock options -- (222,026) -- -- --
Issuance of 10,424 common
shares from treasury stock for award
of stock under management recognition
and retention plans -- (158,966) -- -- --
----------- ------------ ------------ ----------- ---------
Balance, September 30, 1999 $ 29,580 $ 21,305,937 $ 29,352,943 $(2,520,633) $(167,200)
=========== ============ ============ =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
-------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at September 30, 1997 $(4,358,158) $ 43,477,004
Comprehensive income:
Net income for the year
ended September 30, 1998 -- 2,784,882
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- (161,551)
------------
Total comprehensive income 2,623,331
Purchase of 152,226 common
shares of treasury stock (3,271,203) (3,271,203)
30,000 common shares committed to be
released under the ESOP -- 654,460
Cash dividends declared on
common stock ($.48 per share) -- (1,226,725)
Purchase of 1,033 common shares upon
exercise of stock options (21,972) (21,972)
Issuance of 7,600 common shares
from treasury stock due to exercise
of stock options 159,807 50,668
----------- ------------
Balance, September 30, 1998 $(7,491,526) $ 42,285,563
=========== ============
Balance, September 30, 1998 $(7,491,526) $ 42,285,563
Comprehensive income:
Net income for the year
ended September 30, 1999 -- 2,641,132
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- (3,319,453)
------------
Total comprehensive income (loss) (678,321)
Purchase of 79,647 common
shares of treasury stock (1,289,186) (1,289,186)
30,000 common shares committed to be
released under the ESOP -- 455,220
Amortization of management
recognition and retention plan
common shares and tax benefits of
restricted stock under the plans -- 101,634
Cash dividends declared on
common stock ($.52 per share)
Issuance of 23,051 common -- (1,274,003)
shares from treasury stock due
to exercise of stock options 391,867 169,841
Issuance of 10,424 common
shares from treasury stock for award
of stock under management recognition
and retention plans 158,966 --
----------- ------------
Balance, September 30, 1999 $(8,229,879) $ 39,770,748
=========== ============
</TABLE>
24
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
(cont.)
Years ended September 30, 2000, 1999 and 1998
Accumulated Unearned
Other Employee
Additional Comprehensive Stock
Common Paid-in Retained Income, Ownership
Stock Capital Earnings Net of Tax Plan Shares
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1999 $ 29,580 $ 21,305,937 $ 29,352,943 $(2,520,633) $(167,200)
Comprehensive income:
Net income for the year
ended September 30, 2000 -- -- 2,327,626 -- --
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- -- -- (33,258) --
Total comprehensive income
Purchase of 129,999 common
shares of treasury stock -- -- -- -- --
ESOP stock released for allocation -- 103,664 -- -- 167,200
Issuance of 54,500 common shares
from treasury stock due to exercise
of stock options -- (467,372) -- -- --
Cash dividends declared on
common stock ($.52 per share) -- -- (1,276,183) -- --
Amortization of management
recognition and retention plan
common shares and tax benefits of
restricted stock under the plans -- 33,878 -- -- --
---------- ------------ ------------ ----------- ---------
Balance, September 30, 2000 $ 29,580 $ 20,976,107 $ 30,404,386 $(2,553,891) $ --
========== ============ ============ =========== =========
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
----------------------------------------------------------------------------------------
<S> <C> <C>
Balance, September 30, 1999 $(8,229,879) $ 39,770,748
Comprehensive income:
Net income for the year
ended September 30, 2000 -- 2,327,626
Net change in net unrealized
gains and losses on securities
available for sale, net of
reclassification adjustments
and tax effects -- (33,258)
------------
Total comprehensive income 2,294,368
Purchase of 129,999 common
shares of treasury stock (1,478,508) (1,478,508)
ESOP stock released for allocation -- 270,864
Issuance of 54,500 common shares
from treasury stock due to exercise
of stock options 887,290 419,918
Cash dividends declared on
common stock ($.52 per share) -- (1,276,183)
Amortization of management
recognition and retention plan
common shares and tax benefits of
restricted stock under the plans -- 33,878
Balance, September 30, 2000 ----------- ------------
$(8,821,097) $ 40,035,085
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,327,626 $ 2,641,132 $ 2,784,882
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and accretion, net 1,522,239 1,757,207 973,454
Provision for loan losses 1,640,000 1,992,000 1,662,472
Provision for losses on foreclosed real estate -- -- 299,532
Gain on transfer of FHLB advances (560,595) -- --
(Gain) loss on sales of securities
available for sale, net 1,020,885 (331,611) (398,903)
Proceeds from the sales of loans held for sale 1,435,581 7,403,780 5,613,115
Originations of loans held for sale (1,435,581) (7,403,780) (5,613,115)
(Gain) loss on sales of foreclosed real estate, net 12,033 (16,513) 33,034
Net change in:
Accrued interest receivable (170,695) (77,627) 397,502
Other assets (505,918) 113,315 46,622
Accrued interest payable 130,976 40,624 (231,005)
Accrued expenses and other liabilities 445,250 360,857 (152,159)
------------ ------------- ------------
Net cash provided by operating activities 5,861,801 6,479,384 5,415,431
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
in other financial institutions -- -- 200,000
Purchase of securities available for sale (515,000) (125,354,705) (89,877,636)
Proceeds from sales of securities available for sale 20,275,060 24,791,295 18,280,412
Proceeds from maturities and principal repayment
of securities available for sale 9,822,708 37,255,192 67,062,074
Loans purchased (55,565,541) (77,329,717) (36,947,582)
Net change in loans 31,437,629 42,151,758 18,415,456
Proceeds from sales of foreclosed real estate 498,316 1,357,430 440,401
Purchase of FHLB stock (201,800) (2,620,000) (447,700)
Proceeds from redemption of FHLB stock -- -- 571,200
Purchase of premises and equipment (1,770,906) (1,110,859) (227,895)
------------ ------------- ------------
Net cash provided by (used in)
investing activities 3,980,466 (100,859,606) (22,531,270)
------------ ------------- ------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (cont.)
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in noninterest-bearing demand, savings,
NOW and money market demand deposits $ (2,134,430) $ 17,956,774 $ 7,316,146
Net change in time deposits 16,008,230 2,964,995 30,426,308
Proceeds from advances from FHLB 789,920,595 278,950,000 198,850,000
Repayments of advances from FHLB (810,969,620) (202,865,491) (221,012,663)
Net change in securities sold under
agreements to repurchase 1,234,014 (1,053,616) 2,274,567
Net change in other borrowings -- (550,000) (2,350,000)
Net change in advances from borrowers for
taxes and insurance 38,921 17,375 (44,269)
Cash dividends paid (1,276,183) (1,274,003) (1,226,725)
Proceeds from exercise of stock options 363,335 169,841 28,696
Purchase of treasury stock (1,478,509) (1,289,186) (3,271,203)
------------- ------------- -------------
Net cash provided by (used in)
financing activities (8,293,647) 93,026,689 10,990,857
------------- ------------- -------------
Net change in cash and cash equivalents 1,548,620 (1,353,533) (6,124,982)
CASH AND CASH EQUIVALENTS
Beginning of year 5,373,911 6,727,444 12,852,426
------------- ------------- -------------
End of year $ 6,922,531 $ 5,373,911 $ 6,727,444
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 24,447,386 $ 22,135,256 $ 19,460,958
Income taxes 2,038,500 1,919,389 1,795,805
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Loans transferred to foreclosed real estate $ 812,581 $ 420,501 $ 1,679,984
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of First Midwest Financial, Inc., a bank holding company located in
Storm Lake, Iowa, (the "Company") and its wholly-owned subsidiaries which
include First Federal Savings Bank of the Midwest, a federally chartered savings
bank whose primary regulator is the Office of Thrift Supervision, (the "Bank" or
"First Federal"), Security State Bank, a state chartered commercial bank whose
primary regulator is the Federal Reserve, ("Security"), First Services Financial
Limited, which offers brokerage services and non-insured investment products and
Brookings Service Corporation. All significant intercompany balances and
transactions have been eliminated.
Nature of Business, Concentration of Credit Risk and Industry
Segment Information: The primary source of income for the Company is the
purchase or origination of consumer, commercial, agricultural commercial real
estate, and residential real estate loans. See Note 4 for a discussion of
concentrations of credit risk. The Company accepts deposits from customers in
the normal course of business primarily in northwest and central Iowa and
eastern South Dakota. The Company operates primrily in the banking industry
which accounts for more than 90% of its revenues, operating income and assets.
While the Company's management monitors the revenue streams of the various
Company products and services, operations are managed and financial performance
is evaluated on a Company-wide basis. Accordingly, all of the Company's banking
operations are considered by management to be aggregated in one reportable
operating segment.
Assets held in trust or fiduciary capacity are not assets of the
Company and, accordingly, are not included in the accompanying consolidated
financial statements. At September 30, 2000 and 1999, trust assets totaled
approximately $14,473,000 and $14,405,000, respectively.
Use of Estimates in Preparing Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Certain Significant Estimates: The allowance for loan losses,
fair values of securities and other financial instruments, and stock-based
compensation expense, involve certain significant estimates made by management.
These estimates are reviewed by management routinely and it is reasonably
possible that circumstances that exist at September 30, 2000 may change in the
near-term future and that the effect could be material to the consolidated
financial statements.
Cash and Cash Equivalents: For purposes of reporting cash flows,
cash and cash equivalents is defined to include the Company's cash on hand and
due from financial institutions and short-term interest-bearing deposits in
other financial institutions. The Company reports net cash flows for customer
loan transactions, deposit transactions, longer term interest-bearing deposits
in other financial institutions, and short-term borrowings with maturities of 90
days or less.
Securities: The Company classifies all securities as available
for sale. Available for sale securities are those the Company may decide to sell
if needed for liquidity, asset-liability management or other reasons. Available
for sale securities are reported at fair value, with net unrealized gains and
losses reported as other comprehensive income or loss and as a separate
component of shareholders' equity, net of tax.
Gains and losses on the sale of securities are determined using
the specific identification method based on amortized cost and are reflected in
results of operations at the time of sale. Interest and dividend income,
adjusted by amortization of purchase premium or discount over the estimated life
of the security using the level yield method, is included in earnings.
Loans Held For Sale: Mortgage loans originated and intended for
sale in the secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are recognized in a
valuation allowance by charges to income.
Loans Receivable: Loans receivable that management has the intent
and ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balances reduced by the
28
<PAGE>
allowance for loan losses, and any deferred fees or costs on originated loans
and unamortized premiums or discounts on purchased loans.
Premiums or discounts on purchased loans are amortized to income
using the level yield method over the remaining period to contractual maturity,
adjusted for anticipated prepayments.
Interest income on loans is accrued over the term of the loans
based upon the amount of principal outstanding except when serious doubt exists
as to the collectibility of a loan, in which case the accrual of interest is
discontinued. Interest income is subsequently recognized only to the extent that
cash payments are received until, in management's judgment, the borrower has the
ability to make contractual interest and principal payments, in which case the
loan is returned to accrual status.
Loan Origination Fees, Commitment Fees, and Related Costs: Loan
fees and certain direct loan origination costs are deferred, and the net fee or
cost is recognized as an adjustment to interest income using the interest
method.
Allowance for Loan Losses: Because some loans may not be repaid
in full, an allowance for loan losses is recorded. The allowance for loan losses
is increased by a provision for loan losses charged to expense and decreased by
charge- offs (net of recoveries). Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur.
Loans are considered impaired if full principal or interest
payments are not anticipated in accordance with the contractual loan terms.
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate or at the fair value of the
collateral if the loan is collateral dependent. A portion of the allowance for
loan losses is allocated to impaired loans if the value of such loans is deemed
to be less than the unpaid balance. If these allocations cause the allowance for
loan losses to require an increase, such increase is reported as a component of
the provision for loan losses.
Smaller-balance homogeneous loans are evaluated for impairment in
total. Such loans include residential first mortgage loans secured by
one-to-four family residences, residential construction loans, and automobile,
manufactured homes, home equity and second mortgage loans. Commercial and
agricultural loans and mortgage loans secured by other properties are evaluated
individually for impairment. When analysis of borrower operating results and
financial condition indicates that underlying cash flows of the borrower's
business are not adequate to meet its debt service requirements, the loan is
evaluated for impairment. Often this is associated with a delay or shortfall in
payments of 90 days or more. Nonaccrual loans are often also considered
impaired. Impaired loans, or portions thereof, are charged off when deemed
uncollectible.
Foreclosed Real Estate: acquired through,
or in lieu of, loan foreclosure are initially recorded at fair value at the date
of acquisition, establishing a new cost basis. Any reduction to fair value from
the carrying value of the related loan at the time of acquisition is accounted
for as a loan loss and charged against the allowance for loan losses. Valuations
are periodically performed by management and valuation allowances are adjusted
through a charge to income for changes in fair value or estimated selling costs.
Income Taxes: The Company records income tax expense based on the
amount of taxes due on its tax return plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
Premises and Equipment: Land is carried at cost. Buildings,
furniture, fixtures and equipment are carried at cost, less accumulated
depreciation and amortization computed principally by using the straight-line
method over the estimated useful lives of the assets ranging from 3 to 40 years.
These assets are reviewed for impairment under Statement of Financial Accounting
Standards (SFAS) No. 121 when events indicate the carrying amount may not be
recoverable.
Employee Stock Ownership Plan: The Company accounts for its
employee stock ownership plan (ESOP) in accordance with AICPA Statement of
Position (SOP) 93-6. Under SOP 93-6, the cost of
29
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
shares issued to the ESOP, but not yet allocated to participants, are presented
in the consolidated balance sheets as a reduction of shareholders' equity.
Compensation expense is recorded based on the market price of the shares as they
are committed to be released for allocation to participant accounts. The
difference between the market price and the cost of shares committed to be
released is recorded as an adjustment to additional paid-in capital. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings.
Dividends on unearned shares are used to reduce the accrued interest and
principal amount of the ESOP's loan payable to the Company.
Financial Instruments with Off-Balance-Sheet Risk: The Company,
in the normal course of business, makes commitments to make loans which are not
reflected in the consolidated financial statements. A summary of these
commitments is disclosed in Note 15.
Intangible Assets: Goodwill arising from the acquisition of
subsidiary banks is amortized over l5 years using the straight-line method. As
of September 30, 2000 and 1999, unamortized goodwill totaled $3,767,951 and
$4,132,883, respectively. Amortization expense was $364,932, $364,932 and
$364,932 for each of the years ended September 30, 2000, 1999 and 1998,
respectively.
Securities Sold Under Agreements to Repurchase: The Company
enters into sales of securities under agreements to repurchase with primary
dealers only, which provide for the repurchase of the same security. Securities
sold under agreements to purchase identical securities are collateralized by
assets which are held in safekeeping in the name of the Bank or Security by the
dealers who arranged the transaction. Securities sold under agreements to
repurchase are treated as financings and the obligations to repurchase such
securities are reflected as a liability. The securities underlying the
agreements remain in the asset accounts of the Company.
Earnings Per Common Share: Basic earnings per common share is
based on the net income divided by the weighted average number of common shares
outstanding during the period. ESOP shares are considered outstanding for
earnings per common share calculations as they are committed to be released;
unearned ESOP shares are not considered outstanding. Management recognition and
retention plan (MRRP) shares are considered outstanding for basic earnings per
common share calculations as they become vested. Diluted earnings per common
share shows the dilutive effect of additional potential common shares issuable
under stock options and nonvested shares issued under management recognition and
retention plans.
Comprehensive Income: Comprehensive income consists of net income
and other comprehensive income. Other comprehensive income includes the net
change in net unrealized gains and losses on securities available for sale, net
of reclassification adjustments and tax effects, and is also recognized as a
separate component of shareholders' equity.
Stock Compensation: Expense for employee compensation under stock
option plans is based on Accounting Principles Board (APB) Opinion 25, with
expense reported only if options are granted below market price at grant date.
Disclosures of net income and earnings per share are provided as if the fair
value method of SFAS No. 123 were used for stock-based compensation.
New Accounting Pronouncements: SFAS No. 133 on derivatives will,
beginning with the quarter ended December 31, 2000, require all derivatives to
be recorded at fair value in the balance sheet, with changes in fair value run
through income. If derivatives are documented and effective as hedges, the
change in the derivative fair value will be offset by an equal change in the
fair value of the hedged item. The adoption of SFAS No. 133 is not expected to
have a material impact on the results of operations or financial condition of
the Company.
SFAS No. 140 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" was issued in September 2000, and
replaces SFAS No. 125 of the same title. SFAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The adoption of SFAS No. 140 is
not expected to have a material impact on the results of operations or financial
condition of the Company.
30
<PAGE>
Earnings Per Common Share Note 2.
A reconciliation of the numerators and denominators used in the computation of
basic earnings per common share and diluted earnings per common share is
presented below.
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per common share:
Numerator:
Net income before extraordinary item $ 1,975,631 $ 2,641,132 $ 2,784,882
Extraordinary item, gain on extinguishment
of debt, less income tax effect of $208,600 351,995 -- --
----------- ----------- -----------
Net Income $ 2,327,626 $ 2,641,132 $ 2,784,882
=========== =========== ===========
Denominator, weighted average common
shares outstanding 2,464,829 2,510,494 2,646,105
Less weighted average unallocated
ESOP shares (11,535) (41,327) (71,327)
----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common share 2,453,294 2,469,167 2,574,778
=========== =========== ===========
Basic earnings per common share:
Earnings per common share before
extraordinary item $ 0.81 $ 1.07 $ 1.08
Extraordinary item per common share 0.14 -- --
----------- ----------- -----------
Earnings per common share $ 0.95 $ 1.07 $ 1.08
=========== =========== ===========
</TABLE>
31
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Earnings Per Common Share (cont.)
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diluted earnings per common share:
Numerator:
Net income before extraordinary item $1,975,631 $2,641,132 $2,784,882
Extraordinary item, gain on extinguishment
of debt, less income tax effect of $208,600 351,995 -- --
---------- ---------- ----------
Net income $2,327,626 $2,641,132 $2,784,882
========== ========== ==========
Denominator, weighted average common
shares outstanding for basic earnings
per common share 2,453,294 2,469,167 2,574,778
Add dilutive effects of assumed exercises
of stock options and average nonvested
MRRP shares, net of tax benefits 40,661 79,681 127,862
---------- ---------- ----------
Weighted average common and dilutive potential
common shares outstanding 2,493,955 2,548,848 2,702,640
========== ========== ==========
Diluted earnings per common share:
Diluted earnings per common share before
extraordinary item $ 0.79 $ 1.04 $ 1.03
Diluted extraordinary item per common share 0.14 -- --
---------- ---------- ----------
Diluted earnings per
common share $ 0.93 $ 1.04 $ 1.03
========== ========== ==========
</TABLE>
Stock options totaling 171,096 shares were not considered in
computing diluted earnings per common share for the year ended September 30,
2000, because they were not dilutive.
During the year ended September 30, 2000, the Company acquired
approximately 5.1% (129,999 shares) of its beginning of year outstanding common
shares under its common stock repurchase program. This repurchase will affect
the Company's future earnings per common share computations by reducing amounts
available for investment and weighted average shares outstanding.
32
<PAGE>
Securities Note 3.
Year end securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities:
Trust preferred $ 27,159,373 $ 6,410 $ (1,244,923) $ 25,920,860
Obligations of states and
political subdivisions 1,199,591 24,016 (8,850) 1,214,757
U.S. Government and federal agencies 16,959,412 -- (579,462) 16,379,950
Mortgage-backed securities 104,795,500 408,115 (2,666,055) 102,537,560
------------ ----------- ------------- ------------
150,113,876 438,541 (4,499,290) 146,053,127
Marketable equity securities 1,434,043 280,511 (288,750) 1,425,804
------------ ----------- ------------- ------------
$151,547,919 $ 719,052 $ (4,788,040) $147,478,931
============ =========== ============= ============
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities:
Trust preferred $ 27,148,725 $ 34,696 $ (476,743) $ 26,706,678
Obligations of states and
political subdivisions 1,360,307 37,368 (10,830) 1,386,845
U.S. Government and federal agencies 15,922,716 -- (430,409) 15,492,307
Mortgage-backed securities 136,600,215 425,464 (3,596,526) 133,429,153
------------ ----------- ------------- ------------
181,031,963 497,528 (4,514,508) 177,014,983
Marketable equity securities 1,471,705 302,168 (299,826) 1,474,047
------------ ----------- ------------- ------------
$182,503,668 $ 799,696 $ (4,814,334) $178,489,030
============ =========== ============= ============
</TABLE>
The amortized cost and fair value of debt securities by
contractual maturity are shown below. Certain securities have call features
which allow the issuer to call the security prior to maturity. Expected
maturities may differ from contractual maturities in mortgage-backed securities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Therefore these securities are not
included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
September 30, 2000 Cost Value
------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 210,000 $ 211,010
Due after one year through five years 664,591 685,359
Due after five years through ten years 16,284,412 15,719,747
Due after ten years 28,159,373 26,899,451
------------ ------------
45,318,376 43,515,567
Mortgage-backed securities 104,795,500 102,537,560
------------ ------------
$150,113,876 $146,053,127
============ ============
</TABLE>
33
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Activities related to the sale of securities available for sale
are summarized below. Included in gross gains (losses) on sales in 2000 is an
impairment loss of approximately $142,000.
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $ 20,275,060 $ 24,791,295 $ 18,280,412
Gross gains on sales - 331,611 398,903
Gross (losses) on sales (878,679) - -
</TABLE>
Note 4. Loans Receivable, Net
Year end loans receivable were as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
One to four family residential mortgage loans:
Insured by FHA or guaranteed by VA $ 127,377 $ 107,610
Conventional 105,574,680 110,209,779
Construction 31,301,308 28,379,330
Commercial and multi-family real estate loans 103,595,098 85,793,177
Agricultural real estate loans 10,894,866 9,873,850
Commercial business loans 29,331,875 29,941,661
Agricultural business loans 26,810,047 29,284,440
Consumer loans 26,483,135 23,425,672
------------- -------------
334,118,386 317,015,519
Less:
Allowance for loan losses (3,589,873) (3,092,628)
Undistributed portion of loans in process (5,424,794) (10,494,446)
Net deferred loan origination fees (401,090) (349,945)
------------- -------------
$ 324,702,629 $ 303,078,500
============= =============
</TABLE>
Activity in the allowance for loan losses for the years ended September 30 was
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 3,092,628 $ 2,908,902 $ 2,379,091
Provision for loan losses 1,640,000 1,992,000 1,662,472
Recoveries 126,887 58,240 33,635
Charge-offs (1,269,642) (1,866,514) (1,166,296)
----------- ----------- -----------
Ending balance $ 3,589,873 $ 3,092,628 $ 2,908,902
=========== =========== ===========
</TABLE>
Virtually all of the Company's originated loans are to Iowa and
South Dakota-based individuals and organizations. The Company's purchased loans
totaled approximately $136,798,000 at September 30, 2000 and were secured by
properties located, as a percentage of total loans, as follows: 13% in
Washington, 5% in North Carolina, 4% in Minnesota, 4% in Iowa, 3% in Wisconsin,
2% in South Dakota, 2% in New Mexico, 2% in Arizona and the remaining 6% in 17
other states. The Company's purchased loans totaled approximately $125,475,000
at September 30, 1999 and were secured by properties located, as a percentage of
total loans, as follows: 12% in Washington, 6% in North Carolina, 5% in
Minnesota, 3% in Iowa, 2% in
34
<PAGE>
Wisconsin, 2% in New Mexico, 2% in South Dakota, 2% in Nebraska and the
remaining 6% in 20 other states.
The Company originates and purchases commercial real estate
loans. These loans are considered by management to be of somewhat greater risk
of uncollectibility due to the dependency on income production. The Company's
commercial real estate loans include approximately $18,333,000 and $9,848,000 of
loans secured by hotel properties and $17,216,000 and $13,022,000 of loans
secured by assisted living facilities at September 30, 2000 and 1999,
respectively. The remainder of the commercial real estate portfolio is
diversified by industry. The Company's policy for requiring collateral and
guarantees varies with the creditworthiness of each borrower.
The amount of restructured and related party loans as of
September 30, 2000 and 1999 were not significant. The amount of nonaccruing
loans as of September 30, 2000 and 1999 were approximately $311,000 and
$2,239,000, respectively.
Impaired loans were as follows:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Year-end loans with no allowance for loan losses allocated $ -- $ 109,461
Year-end loans with allowance for loan losses allocated 5,693,460 4,019,156
Amount of the allowance allocated 734,237 438,452
Average of impaired loans during the year 3,954,277 3,188,310
Interest income recognized during impairment 374,205 206,778
Cash basis interest income recognized -- --
</TABLE>
Foreclosed Real Estate Note 5.
Year end foreclosed real estate was as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Foreclosed real estate $445,133 $142,901
Less allowance for foreclosed real estate losses -- --
-------- --------
$445,133 $142,901
======== ========
</TABLE>
Activity in the allowance for foreclosed real estate losses for the years ended
September 30 was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $ -- $ 299,532 $ --
Provision for losses on foreclosed real estate
-- 299,532
Less losses charged against allowance -- (299,532) --
-------- --------- --------
Balance, end of period $ -- $ -- $299,532
======== ========= ========
</TABLE>
35
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Note 6. Loan Servicing
Mortgage loans serviced for others are not reported as assets. The unpaid
principal balances of these loans at year end were as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Mortgage loan portfolios serviced for FNMA $ 5,695,000 $ 4,941,000
Other 16,096,000 11,040,000
----------- -----------
$21,791,000 $15,981,000
=========== ===========
</TABLE>
Custodial escrow balances maintained in connection with the
foregoing loan servicing were approximately $12,000 and $97,000 at September 30,
2000 and 1999, respectively.
Note 7. Premises and Equipment, Net
Year end premises and equipment were as follows:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Land $ 1,782,970 $ 935,289
Buildings 5,214,003 4,858,210
Furniture, fixtures and equipment 3,430,664 2,969,748
10,427,637 8,763,247
Less accumulated depreciation (4,335,896) (3,993,191)
------------ -----------
$ 6,091,741 $ 4,770,056
============ ===========
</TABLE>
Depreciation of premises and equipment included in occupancy and
equipment expense was approximately $449,000, $390,000 and $355,000 for the
years ended September 30, 2000, 1999 and 1998, respectively.
Note 8. Deposits
Jumbo certificates of deposit in denominations of $100,000 or more were
approximately $31,214,000 and $20,533,000 at year end 2000 and 1999.
At September 30, 2000, the scheduled maturities of certificates
of deposit were as follows for the years ended September 30:
2001 $132,313,120
2002 74,182,987
2003 23,190,190
2004 4,635,354
2005 5,410,227
Thereafter 372,322
------------
$240,104,200
============
36
<PAGE>
Advances from Federal Home Loan Bank Note 9.
At September 30, 2000, advances from the FHLB of Des Moines with fixed and
variable rates ranging from 4.26% to 7.82% (weighted-average rate of 5.78%) are
required to be repaid in the year ending September 30 as presented below.
Certain advances contain call features that allow the FHLB to call for the
prepayment of the borrowing prior to maturity.
2001 $46,706,421
2002 11,921,408
2003 2,009,298
2004 115,509
2005 8,917,073
Thereafter 70,068,742
------------
$139,738,451
============
The Bank and Security have executed blanket pledge agreements
whereby the Bank and Security assign, transfer and pledge to the FHLB and grant
to the FHLB a security interest in all property now or hereafter owned. However,
the Bank and Security have the right to use, commingle and dispose of the
collateral they have assigned to the FHLB. Under the agreements, the Bank and
Security must maintain "eligible collateral" that has a "lending value" at least
equal to the "required collateral amount," all as defined by the agreements.
At year end 2000 and 1999, the Bank and Security collectively
pledged securities with amortized costs of $87,376,000 and $88,067,000 and fair
values of approximately $85,104,000 and $86,741,000 against specific FHLB
advances. In addition, qualifying mortgage loans of approximately $103,338,000
and $107,712,000 were pledged as collateral at year end 2000 and 1999.
During fiscal 2000, the Company recognized a gain totaling
$351,995, net of related income taxes, on the transfer of $15,000,000 of FHLB
advances. The transfer of FHLB advances was in conjunction with a restructuring
of the balance sheet wherein lower yielding securities were sold with the
proceeds reinvested in higher yielding assets and used to repay borrowings.
Securities Sold Under Agreements to Repurchase Note 10.
Year end securities sold under agreements to repurchase totaled
$4,254,965 and $3,020,951 for 2000 and 1999.
An analysis of securities sold under agreements to repurchase is
as follows:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Highest month-end balance $4,920,423 $4,321,674
Average balance 3,460,390 3,299,584
Weighted average interest rate during the period 5.95% 5.38%
Weighted average interest rate at end of period 6.43% 5.28%
</TABLE>
At year end 2000, securities sold under agreements to repurchase
had maturities ranging from 1 to 18 months with a weighted average maturity of
15 months.
The Company pledged securities with amortized costs of
approximately $4,323,000 and $6,105,000 and fair values of approximately
$4,221,000 and $6,079,000, respectively, at year end 2000 and 1999 as collateral
for securities sold under agreements to repurchase.
37
<PAGE>
Note 11. Employee Benefits
Employee Stock Ownership Plan (ESOP):
The Company maintains an ESOP for eligible employees who have 1,000 hours of
employment with the Bank and who have attained age 21. In 1993, the ESOP
borrowed $1,534,100 from the Company to purchase 230,115 shares of the Company's
common stock. Final payment of this loan was received during the year ended
September 30, 2000. Shares purchased by the ESOP are held in suspense for
allocation among participants as the loan is repaid. ESOP expense of $270,864,
$455,220 and $654,460 was recorded for the years ended September 30, 2000, 1999
and 1998, respectively. Contributions of $167,200, $200,000 and $200,000 were
made to the ESOP during the years ended September 30, 2000, 1999 and 1998,
respectively.
Contributions to the ESOP and shares released from suspense in an
amount proportional to the repayment of the ESOP loan are allocated among ESOP
participants on the basis of compensation in the year of allocation. Benefits
generally become 100% vested after seven years of credited service. Prior to the
completion of seven years of credited service, a participant who terminates
employment for reasons other than death or disability receives a reduced benefit
based on the ESOP's vesting schedule. Forfeitures are reallocated among
remaining participating employees, in the same proportion as contributions.
Benefits are payable in the form of stock upon termination of employment. The
Company's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be estimated.
For the years ended September 30, 2000, 1999 and 1998, 25,080,
30,000 and 30,000 shares with an average fair value of $10.80, $15.17 and $21.82
per share, respectively, were committed to be released. Also for the years ended
September 30, 2000, 1999 and 1998, allocated shares and total ESOP shares
reflect 1,287, 23,275 and 11,359 shares, respectively, withdrawn from the ESOP
by participants who are no longer with the Company and 7,434, 4,735 and 2,742
shares, respectively, purchased for dividend reinvestment.
Year-end ESOP shares are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Allocated shares 199,815 168,588 157,128
Unearned shares -- 25,080 55,080
-------- -------- --------
Total ESOP shares 199,815 193,668 212,208
======== ======== ========
Fair value of unearned shares $ - $319,770 $950,130
======== ======== ========
</TABLE>
Stock Options and Incentive Plans: Certain officers and directors
of the Company have been granted options to purchase common stock of the Company
pursuant to stock option plans.
SFAS No. l23, which became effective for stock-based compensation
during fiscal years beginning after December l5, 1995, requires proforma
disclosures for companies that do not adopt its fair value accounting method for
stock-based employee compensation for awards granted in the first fiscal year
beginning after December 15, 1994. Accordingly, the following proforma
information presents net income and earnings per share had the fair value method
been used to measure compensation cost for stock option plans. The exercise
price of options granted is equivalent to the market value of underlying stock
at the grant date. Accordingly, no compensation cost was actually recognized for
stock options during 2000, 1999 or 1998.
The fair value of options granted during 2000, 1999, and 1998 is
estimated using the following weighted-average information: risk-free interest
rate of 5.99%, 6.17% and 4.49%, expected life of 7.0 years, expected dividends
of 5.30%, 4.00% and 2.69% per year and expected stock price volatility of 22%,
22% and 20% per year.
38
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 2,327,626 $ 2,641,132 $ 2,784,882
Proforma net income 2,287,501 2,569,635 2,689,596
Reported earnings per common and
common equivalent share:
Basic $ 0.95 $ 1.07 $ 1.08
Diluted 0.93 1.04 1.03
Proforma earnings per common and
common equivalent share:
Basic $ 0.93 $ 1.04 $ 1.04
Diluted 0.92 1.01 1.00
</TABLE>
In future years, the proforma effect of not applying this
standard is expected to increase as additional options are granted.
Stock option plans are used to reward directors, officers and
employees and provide them with an additional equity interest. Options are
issued for 10 year periods, with 100% vesting generally occurring either at
grant date or 48 months after grant date. At September 30, 2000, 95,364 shares
were authorized for future grants. Information about option grants follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Exercise Price
--------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, September 30, 1997 325,298 $ 10.23
Granted 13,418 17.88
Exercised (7,600) 6.67
Forfeited -- --
-------
Outstanding, September 30, 1998 331,116 10.62
Granted 26,335 13.00
Exercised (23,051) 7.37
Forfeited (9,000) 17.59
-------
Outstanding, September 30, 1999 325,400 10.85
Granted 29,418 9.88
Exercised (54,500) 6.67
Forfeited -- --
-------
Outstanding, September 30, 2000 300,318 $ 11.51
=======
</TABLE>
39
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
The weighted-average fair value per option for options granted in 2000, 1999 and
1998 was $.66, $1.54 and $2.01. At September 30, 2000, options outstanding were
as follows:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Weighted-Average Remaining Life Number
Price Exercise Price (Years) of Options
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$6.67 - $9.99 $ 7.19 4.17 156,640
$10.00 - $14.99 13.04 8.68 30,855
$15.00 - $19.99 16.80 6.43 102,383
$20.00 - $20.13 20.13 7.00 10,440
-------
$ 11.51 5.50 300,318
=======
</TABLE>
Options exercisable at year end are as follows:
Weighted-
Number of Average
Options Exercise Price
--------------------------------------------------------------------------------
1998 285,491 $ 9.54
1999 286,650 10.09
2000 270,443 11.17
Management recognition and retention plans: The Company granted
10,424, 7,191 and 106,428 (8,986 of which have been forfeited under terms of the
Plan due to termination of service) shares of the Company's common stock on
September 30, 1999, May 23, 1994 and September 20, 1993, respectively, to
certain officers of the Bank pursuant to a management recognition and retention
plan (the "Plan"). The holders of the restricted stock have all of the rights of
a shareholder, except that they cannot sell, assign, pledge or transfer any of
the restricted stock during the restricted period. The stock granted in 1999
under the Plan vests as follows: 5,212 shares vested at the date of grant on
September 30, 1999 and 5,212 shares vests on September 30, 2000. Previously
granted restricted stock vests at a rate of 25% on each anniversary of the grant
date. Expense of $33,878, $101,634 and $0 was recorded for these plans for the
years ended 2000, 1999 and 1998. The remaining unamortized unearned compensation
value of the plans at September 30, 2000 and 1999 was $0 and $57,332,
respectively.
Profit sharing plan: The Company has a profit sharing plan
covering substantially all full-time employees. Contribution expense for the
years ended September 2000, 1999 and 1998, was $329,108, $0 and $0,
respectively.
Note 12. Income Taxes
The Company, the Bank and its subsidiaries and Security file a consolidated
federal income tax return on a fiscal year basis. Prior to fiscal year 1997, if
certain conditions were met in determining taxable "income" on the consolidated
federal income tax return, the Bank was allowed a special bad debt deduction
based on a percentage of taxable income (8% for 1996) or on specified experience
formulas. Tax legislation passed in August l996 now requires the Bank to deduct
a provision for bad debts for tax purposes based on actual loss experience and
recapture the excess bad debt reserve accumulated in tax years beginning after
September 30, 1987. The related amount of deferred tax liability which must be
recaptured is approximately $554,000 and is payable over a six-year period
beginning with the tax year ended September 30, 1999.
40
<PAGE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 1,644,698 $ 1,690,170 $ 2,012,841
Deferred (258,085) (90,137) (230,887)
----------- ----------- -----------
1,386,613 1,600,033 1,781,954
----------- ----------- -----------
State:
Current 236,122 250,616 304,679
Deferred (39,915) (13,863) (83,113)
----------- ----------- -----------
196,207 236,753 221,566
----------- ----------- -----------
Total income tax expense $ 1,582,820 $ 1,836,786 $ 2,003,520
=========== =========== ===========
</TABLE>
Income tax expense includes $208,600 related to a gain on an extraordinary item.
Total income tax expense differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at 34% federal tax rate $ 1,139,000 $ 1,522,000 $ 1,628,000
Increase (decrease) resulting from:
State income taxes - net of federal benefit 111,000 156,000 146,000
Excess of cost over net assets acquired 124,000 124,000 124,000
Excess of fair value of ESOP shares
released over cost 35,000 87,000 155,000
Other, net (34,780) (52,214) (49,480)
----------- ----------- -----------
Total income tax expense $ 1,374,220 $ 1,836,786 $ 2,003,520
=========== =========== ===========
</TABLE>
Year end deferred tax assets and liabilities consist of:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Bad debts $ 861,000 $ 570,000
Deferred loan fees 44,000 65,000
Net unrealized losses on securities available for sale 1,514,054 1,494,005
Other items 84,000 72,000
----------- -----------
2,503,054 2,201,005
----------- -----------
Deferred tax liabilities:
Federal Home Loan Bank stock dividend (452,000) (452,000)
Accrual to cash basis (89,000) (133,000)
Premises and equipment (72,000) (51,000)
Other (30,000) (74,000)
----------- -----------
(643,000) (659,000)
----------- -----------
Valuation allowance -- --
Net deferred tax assets $ 1,860,054 $ 1,542,005
=========== ===========
</TABLE>
41
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Federal income tax laws provided savings banks with additional
bad debt deductions through September 30, 1987, totaling $6,744,000 for the
Bank. Accounting standards do not require a deferred tax liability to be
recorded on this amount, which liability otherwise would total $2,300,000 at
September 30, 2000 and 1999. If the Bank were liquidated or otherwise ceases to
be a bank or if tax laws were to change, the $2,300,000 would be recorded as
expense.
Note 13. Capital Requirements and Restrictions on Retained Earnings
The Company has two primary subsidiaries, First Federal and Security. First
Federal and Security are subject to various regulatory capital requirements.
Failure to meet minimum capital requirements can initiate certain mandatory or
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, First Federal and
Security must meet specific quantitative capital guidelines using their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The requirements are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require First Federal and Security to maintain minimum amounts and
ratios (set forth in the table below) of total risk-based capital and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and a leverage ratio consisting of Tier I capital (as defined) to average assets
(as defined). Management believes, as of September 30, 2000, that First Federal
and Security meet the capital adequacy requirements.
First Federal's and Security's actual capital and required
capital amounts and ratios are presented below.
<TABLE>
<CAPTION>
Minimum
Requirement To Be
Minimum Requirement Well Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------------------------------------------------------
As of September 30, 1999: Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
First Federal $35,898 11.8% $24,291 8.0% $30,364 10.0%
Security 4,144 13.3 2,490 8.0 3,113 10.0
Tier 1 (Core) capital (to risk-weighted assets):
First Federal 32,541 10.7 12,146 4.0 18,218 6.0
Security 3,848 12.4 1,245 4.0 1,868 6.0
Tier 1 (Core) capital (to average total assets):
First Federal 32,541 7.1 18,423 4.0 23,028 5.0
Security 3,848 8.2 1,876 4.0 2,345 5.0
Tier 1 (Core) capital (to total assets),
First Federal 32,541 7.1 18,227 4.0 22,784 5.0
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Minimum
Requirement To Be
Minimum Requirement Well Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
-----------------------------------------------------------------
As of September 30, 1999: Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
First Federal $35,111 12.0% $23,470 8.0% $29,338 10.0%
Security 3,890 14.8 2,107 8.0 2,634 10.0
Tier 1 (Core) capital (to risk-weighted assets):
First Federal 32,172 11.0 11,735 4.0 17,603 6.0
Security 3,670 13.9 1,053 4.0 1,580 6.0
Tier 1 (Core) capital (to average total assets):
First Federal 32,172 7.3 17,602 4.0 22,002 5.0
Security 3,670 9.4 1,563 4.0 1,954 5.0
Tier 1 (Core) capital (to total assets),
First Federal 32,172 7.0 1,857 4.0 23,134 5.0
</TABLE>
Regulations limit the amount of dividends and other capital
distributions that may be paid by a financial institution without prior approval
of its primary regulator. The regulatory restriction is based on a three-tiered
system with the greatest flexibility being afforded to well-capitalized (Tier
1) institutions. First Federal and Security are currently Tier 1 institutions.
Accordingly, First Federal and Security can make, without prior regulatory
approval, distributions during a calendar year up to 100% of their retained net
income for the calendar year-to-date plus retained net income for the previous
two calendar years (less any dividends previously paid) as long as they remain
well-capitalized, as defined in prompt corrective action regulations, following
the proposed distribution. Accordingly, at September 30, 2000, approximately
$317,000 of First Federal's retained earnings and none of Security's retained
earnings were potentially available for distribution to the Company.
Commitments and Contingencies Note 14.
In the normal course of business, the Company's subsidiary banks make various
commitments to extend credit which are not reflected in the accompanying
consolidated financial statements.
At September 30, 2000 and 1999, loan commitments approximated
$14,810,000 and $33,212,000, respectively, excluding undisbursed portions of
loans in process. Loan commitments at September 30, 2000 included commitments to
originate fixed-rate loans with interest rates ranging from 8% to 8.875%
totaling $530,000 and adjustable-rate loan commitments with interest rates
ranging from 6.25% to 19% totaling $13,280,000. The Company also had commitments
to purchase adjustable rate loans of $1,000,000 with interest rates of 11.25%.
Loan commitments at September 30, 1999 included commitments to originate
fixed-rate loans with interest rates ranging from 6.875% to 8.75% totaling
$865,000 and adjustable-rate loan commitments with interest rates ranging from
7.75% to 10.25% totaling $18,391,000. The Company also had commitments to
purchase adjustable rate loans of $7,056,000 with interest rates ranging from
7.50% to 9.25%, and commitments to purchase $6,900,000 in fixed rate loans with
interest rates ranging from 7.375% to 7.50% as of year end 1999. Commitments,
which are disbursed subject to certain limitations, extend over various periods
of time. Generally, unused commitments are canceled upon expiration of the
commitment term as outlined in each individual contract.
43
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
The exposure to credit loss in the event of nonperformance by
other parties to financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The same credit
policies and collateral requirements are used in making commitments and
conditional obligations as are used for on-balance-sheet instruments.
Since certain commitments to make loans and to fund lines of
credit and loans in process expire without being used, the amount does not
necessarily represent future cash commitments. In addition, commitments used to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.
Securities with amortized costs of approximately $11,190,000 and
$11,958,000 and fair values of approximately $10,831,000 and $11,767,000 at
September 30, 2000 and 1999, respectively, were pledged as collateral for public
funds on deposit.
Securities with amortized costs of approximately $6,135,000 and
$5,813,000 and fair values of approximately $6,096,000 and $5,865,000 at
September 30, 2000 and 1999, respectively, were pledged as collateral for
individual, trust and estate deposits.
Under employment agreements with certain executive officers,
certain events leading to separation from the Company could result in cash
payments totaling approximately $2,519,000 as of September 30, 2000.
The Company and its subsidiaries are subject to certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Note 15. Other Comprehensive Income (Loss)
Other comprehensive income (loss) components and related taxes were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net change in net unrealized gains and
losses on securities available for sale:
Unrealized gains (losses) arising during the year $(1,075,235) $(4,956,193) $ 143,685
Reclassification adjustment for (gains)
losses included in net income 1,020,885 (331,611) (398,903)
----------- ----------- ---------
Net change in unrealized gains and
losses on securities available for sale (54,350) (5,287,804) (255,218)
Tax effects 21,092 1,968,351 93,667
----------- ----------- ---------
Other comprehensive income (loss) $ (33,258) $(3,319,453) $(161,551)
=========== =========== =========
</TABLE>
Note 16. Lease Commitment
The Company has leased property under various noncancelable operating lease
agreements which expire at various times through December 2009, and require
annual rentals of $52,600 plus the payment of the property taxes, normal
maintenance and insurance on the property.
The total minimum rental commitment at September 30, 2000, under
the leases is as follows:
2001 $ 52,600
2002 52,600
2003 52,600
2004 46,600
2005 46,600
Thereafter 172,550
---------
$ 423,550
=========
44
<PAGE>
Note 17. Parent Company Financial Statements
Presented below are condensed financial statements for the parent company, First
Midwest Financial, Inc.
<TABLE>
<CAPTION>
Condensed Balance Sheets
September 30, 2000 and 1999
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 72,236 $ 435,866
Securities available for sale 3,380,496 3,546,100
Investment in subsidiary banks 38,702,338 38,373,373
Loan receivable from ESOP -- 167,200
Loan receivable 325,179 --
Other assets 211,071 272,713
------------ ------------
Total assets $ 42,691,320 $ 42,795,252
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Loan payable to subsidiary banks $ 2,550,000 $ 2,750,000
Accrued expenses and other liabilities 106,235 274,504
------------ ------------
Total liabilities 2,656,235 3,024,504
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 29,580 29,580
Additional paid-in capital 20,976,108 21,305,937
Retained earnings, substantially restricted 30,404,386 29,352,943
Accumulated other comprehensive income (2,553,891) (2,520,633)
Unearned employee stock ownership plan shares -- (167,200)
Treasury stock, at cost (8,821,098) (8,229,879)
------------ ------------
Total shareholders' equity 40,035,085 39,770,748
------------ ------------
Total liabilities and shareholders' equity $ 42,691,320 $ 42,795,252
============ ============
</TABLE>
45
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Statements of Income
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income from subsidiary banks $ 2,525,000 $ 2,350,000 $2,000,000
Interest income 280,351 297,447 272,260
Gain (loss) on sales of securities available
for sale, net (37,206) 62,466 317,960
----------- ----------- ----------
2,768,145 2,709,913 2,590,220
----------- ----------- ----------
Interest expense 205,863 210,444 72,581
Operation expenses 388,023 405,076 354,945
----------- ----------- ----------
593,886 615,520 427,526
----------- ----------- ----------
Income before income taxes and
equity in undistributed net
income of subsidiaries 2,174,259 2,094,393 2,162,694
Income tax expense (benefit) (142,000) (106,000) 50,000
----------- ----------- ----------
Income before equity in
undistributed net income of
subsidiaries 2,316,259 2,200,393 2,112,694
Equity in undistributed net income
of subsidiary banks 11,367 440,739 672,188
----------- ----------- ----------
Net income $ 2,327,626 $ 2,641,132 $2,784,882
=========== =========== ==========
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years Ended September 30, 2000, 1999 and 1998
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,327,626 $ 2,641,132 $ 2,784,882
Adjustments to reconcile net income to net cash
from operating activities:
Equity in undistributed net income of
subsidiary banks (11,367) (440,739) (672,188)
Amortization of recognition and retention plan 33,878 101,634 --
Gain on sales of securities available for sale, net 37,206 (62,466) (317,960)
Change in other assets (9,817) (38,470) 174,711
Change in accrued expenses and other liabilities 7,771 94,617 142,705
----------- ----------- -----------
Net cash provided by operating activities 2,385,297 2,295,708 2,112,150
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of securities 5,409 -- --
Purchase of securities available for sale (500,000) (1,626,721) (5,150,000)
Proceeds from sales of securities available for sale 495,000 2,155,709 2,195,509
Loans purchased (325,179) -- --
Repayments on loan receivable from ESOP 167,200 200,000 200,000
----------- ----------- -----------
Net cash provided by (used in) investment
activities (157,570) 728,988 (2,754,491)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan payable to subsidiary banks -- 1,150,000 4,550,000
Repayments on loan payable to subsidiary banks (200,000) (1,450,000) (1,500,000)
Cash dividends paid (1,276,183) (1,274,003) (1,226,725)
Proceeds from exercise of stock options 363,335 169,841 28,696
Purchase of treasury stock (1,478,509) (1,289,186) (3,271,203)
----------- ----------- -----------
Net cash (used in) financing activities (2,591,357) (2,693,348) (1,419,232)
----------- ----------- -----------
Net change in cash and cash equivalents (363,630) 331,348 (2,061,573)
CASH AND CASH EQUIVALENTS
Beginning of year 435,866 104,518 2,166,091
----------- ----------- -----------
End of year $ 72,236 $ 435,866 $ 104,518
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 209,447 $ 210,444 $ 72,581
</TABLE>
The extent to which the Company may pay cash dividends to
shareholders will depend on the cash currently available at the Company, as well
as the ability of the subsidiary banks to pay dividends to the Company (see Note
13).
47
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
Note 18. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
December 31 March 31 June 30 September 30
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year 2000:
Total interest income $9,404,770 $9,545,028 $9,672,083 $9,788,143
Total interest expense 5,911,477 5,991,817 6,264,173 6,410,895
Net interest income 3,493,293 3,553,211 3,407,910 3,377,248
Provision for loan losses 325,000 270,000 400,000 645,000
Net income before
extraordinary item 764,680 760,747 2,055 448,149
Extraordinary item -- -- 351,995 --
Net income 764,680 760,747 354,050 448,149
Earnings per common and common
equivalent share:
Basic:
Net income before
extraordinary item $ 0.31 $ 0.31 $ -- $ 0.18
Extraordinary item -- -- 0.15 --
Net income 0.31 0.31 0.15 0.18
Diluted:
Net income before
extraordinary item 0.30 0.30 -- 0.18
Extraordinary item -- -- 0.14 --
Net income 0.30 0.30 0.14 0.18
Fiscal year 1999:
Total interest income $8,761,124 $8,585,259 $8,842,903 $9,183,445
Total interest expense 5,342,257 5,472,837 5,577,855 5,782,931
Net interest income 3,418,867 3,112,422 3,265,048 3,400,514
Provision for loan losses 243,000 358,000 299,000 1,092,000
Net income 908,517 759,500 756,673 216,442
Earnings per common and common equivalent
share:
Basic $ 0.37 $ 0.31 $ 0.31 $ 0.09
Diluted 0.36 0.30 0.30 0.09
Fiscal year 1998:
Total interest income $7,894,734 $7,839,781 $7,996,291 $8,327,988
Total interest expense 4,712,639 4,622,771 4,815,319 5,079,224
Net interest income 3,182,095 3,217,010 3,180,972 3,248,764
Provision for loan losses 35,000 1,345,000 55,000 227,472
Net income 989,055 46,316 893,056 856,455
Earnings per common and common equivalent
share:
Basic $ 0.38 $ 0.02 $ 0.35 $ 0.34
Diluted 0.36 0.02 0.33 0.32
</TABLE>
48
<PAGE>
Fair Values of Financial Instruments Note 19.
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair value amounts of its financial
instruments. It is management's belief that the fair values presented below are
reasonable based on the valuation techniques and data available to the Company
as of September 30, 2000 and 1999, as more fully described below. It should be
noted that the operations of the Company are managed from a going concern basis
and not a liquidation basis. As a result, the ultimate value realized for the
financial instruments presented could be substantially different when actually
recognized over time through the normal course of operations. Additionally, a
substantial portion of the Company's inherent value is the subsidiary banks'
capitalization and franchise value. Neither of these components have been given
consideration in the presentation of fair values below.
The following presents the carrying amount and estimated fair
value of the financial instruments held by the Company at September 30, 2000 and
1999. This information is presented solely for compliance with SFAS No. 107 and
is subject to change over time based on a variety of factors.
<TABLE>
<CAPTION>
2000 1999
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selected assets:
Cash and cash equivalents $ 6,922,531 $ 6,923,000 $ 5,373,911 $ 5,374,000
Securities available for sale 147,478,931 147,479,000 178,489,030 178,489,000
Loans receivable, net 324,702,629 321,192,000 303,078,500 302,980,000
FHLB stock 8,327,600 8,328,000 8,125,800 8,126,000
Accrued interest receivable 5,216,929 5,217,000 5,046,234 5,046,000
Selected liabilities:
Noninterest bearing demand
deposits (6,040,991) (6,041,000) (5,680,923) (5,681,000)
Savings, NOW and money market
demand deposits (72,508,530) (72,509,000) (75,003,028) (75,003,000)
Other time certificates of deposit (240,104,200) (239,698,000) (224,095,970) (224,027,000)
------------- ------------- ------------- -------------
Total deposits (318,653,721) (318,248,000) (304,779,921) (304,711,000)
Advances from FHLB (139,738,451) (137,078,000) (161,348,071) (159,253,000)
Securities sold under agreements
to repurchase (4,254,965) (4,250,000) (3,020,951) (3,026,000)
Advances from borrowers for taxes
and insurance (461,514) (462,000) (422,593) (423,000)
Accrued interest payable (1,006,341) (1,006,000 (875,365) (875,000)
Off-balance-sheet instruments, loan
commitments (14,810,000) -- (33,212,000) --
</TABLE>
49
<PAGE>
First Midwest Financial, Inc. and Subsidiaries
The following sets forth the methods and assumptions used in
determining the fair value estimates for the Company's financial instruments at
September 30, 2000 and 1999.
Cash and Cash Equivalents: The carrying amount of cash and
short-term investments is assumed to approximate the fair value.
Securities Available for Sale: Quoted market prices or dealer
quotes were used to determine the fair value of securities available for sale.
Loans Receivable, Net: The fair value of loans receivable, net
was estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for similar remaining maturities. When using the discounting method to determine
fair value, loans were gathered by homogeneous groups with similar terms and
conditions and discounted at a target rate at which similar loans would be made
to borrowers as of September 30, 2000 and 1999. In addition, when computing the
estimated fair value for all loans, allowances for loan losses have been
subtracted from the calculated fair value for consideration of credit issues.
FHLB Stock: The fair value of such stock approximates book value
since the Company is able to redeem this stock with the Federal Home Loan Bank
at par value.
Accrued Interest Receivable: The carrying amount of accrued
interest receivable is assumed to approximate the fair value.
Deposits: The fair value of deposits were determined as follows:
(i) for noninterest bearing demand deposits, savings, NOW and money market
demand deposits, since such deposits are immediately withdrawable, fair value is
determined to approximate the carrying value (the amount payable on demand);
(ii) for other time certificates of deposit, the fair value has been estimated
by discounting expected future cash flows by the current rates offered as of
September 30, 2000 and 1999 on certificates of deposit with similar remaining
maturities. In accordance with SFAS No. 107 no value has been assigned to the
Company's long- term relationships with its deposit customers (core value of
deposits intangible) since such intangible is not a financial instrument as
defined under SFAS No. 107.
Advances from FHLB: The fair value of such advances was estimated
by discounting the expected future cash flows using current interest rates as of
September 30, 2000 and 1999, for advances with similar terms and remaining
maturities.
Securities Sold Under Agreements to Repurchase: The fair value of
securities sold under agreements to repurchase and other borrowings was
estimated by discounting the expected future cash flows using derived interest
rates approximating market as of September 30, 2000 and 1999 over the
contractual maturity of such borrowings.
Advances from Borrowers for Taxes and Insurance: The carrying
amount of advances from borrowers for taxes and insurance is assumed to
approximate the fair value.
Accrued Interest Payable: The carrying amount of accrued interest
payable is assumed to approximate the fair value.
Loan Commitments: The commitments to originate and purchase loans
have terms that are consistent with current market terms. Accordingly, the
Company estimates that the fair values of these commitments are not significant.
50
<PAGE>
Limitations: It must be noted that fair value estimates are made
at a specific point in time, based on relevant market information about the
financial instrument. Additionally, fair value estimates are based on existing
on and off-balance-sheet financial instruments without attempting to estimate
the value of anticipated future business, customer relationships and the value
of assets and liabilities that are not considered financial instruments. These
estimates do not reflect any premium or discount that could result from
offering the Company's entire holdings of a particular financial instrument for
sale at one time. Furthermore, since no market exists for certain of the
Company's financial instruments, fair value estimates may be based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with a high level of
precision. Changes in assumptions as well as tax considerations could
significantly affect the estimates. Accordingly, based on the limitations
described above, the aggregate fair value estimates are not intended to
represent the underlying value of the Company, on either a going concern or a
liquidation basis.
51
<PAGE>
Independent Auditor's Report
To the Board of Directors
First Midwest Financial, Inc. and Subsidiaries
Storm Lake, Iowa
We have audited the accompanying consolidated balance sheet of
First Midwest Financial, Inc. and Subsidiaries, as of September 30, 2000, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of First Midwest Financial, Inc. and Subsidiaries as of September 30,
1999 and for each of the years ended September 30, 1999 and 1998, were audited
by other auditors whose report, dated October 15, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Midwest Financial, Inc. as of September 30, 2000, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/McGladrey & Pullen, LLP
--------------------------
McGladrey & Pullen, LLP
Des Moines, Iowa
October 27, 2000
52
<PAGE>
Board of Directors
James S. Haahr - Chairman of the Board, President and Chief Executive Officer
for First Midwest Financial, Inc. and First Federal Savings Bank of the Midwest;
Chair-man of the Board for Security State Bank. Mr. Haahr has served in various
capacities since beginning his career with First Federal in 1961. He is a member
of the Board of Trustees and Chairman of the Investment Committee of Buena Vista
University. He is a member of the Savings Association Insurance Fund Industry
Advisory Committee and a member of the Legislative Committee of Iowa Bankers
Association. Mr. Haahr is former Vice Chairman of the Board of Directors of the
Federal Home Loan Bank of Des Moines, former Chairman of the Iowa League of
Savings Institutions a former director of the U.S. League of Savings
Institutions and a former member of the Board of Directors of America's
Community Bankers. Board committee: First Federal Trust Committee. James S.
Haahr is the father of J. Tyler Haahr.
J. Tyler Haahr - Senior Vice President, Secretary and Chief Operating Officer
for First Midwest Financial, Inc.; Executive Vice President, Secretary and Chief
Operating Officer for First Federal Savings Bank of the Midwest; Chief Executive
Officer of Security State Bank; and Vice President and Secretary of First
Services Financial Limited. First Midwest and its affiliates have employed Mr.
Haahr since March 1997. Previously Mr. Haahr was a partner with the law firm of
Lewis and Roca LLP, Phoenix, Arizona. Board committee: First Federal Trust
Committee. J. Tyler Haahr is the son of James S. Haahr.
E. Wayne Cooley - Member of the Board of Directors for First Midwest Financial,
Inc., First Federal Savings Bank of the Midwest, and Security State Bank. Dr.
Cooley has served as Executive Secretary of the Iowa Girls' High School Athletic
Union in Des Moines, Iowa, since 1954. He is Executive Vice President of the
Iowa High School Speech Association, a member of the Buena Vista University
Board of Trustees, a member of the Drake Relays Executive Committee, and on the
Board of Directors of the Women's College Basketball Association Hall of Fame.
Dr. Cooley has served as Chairman of the Iowa Heart Association and as Vice
Chairman of the Iowa Games. Board committees: Chairman of the Audit-
Compensation/Personnel Committee and member of the Stock Option Committee.
E. Thurman Gaskill - Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Gaskill has owned and operated a grain farming operation located near
Corwith, Iowa, since 1958. He has served as a commissioner with the Iowa
Department of Economic Development and also as a commissioner with the Iowa
Department of Natural Resources. Mr. Gaskill is the past president of Iowa Corn
Growers Association, past chairman of the United States Feed Grains Council, and
has served in numerous other agriculture positions. He was re-elected to the
Iowa State Senate in 2000 and represents District 8. He serves as Chairman of
the Senate Agricultural Committee. Board committees: Chairman of the First
Federal Trust Committee and member of the Audit- Compensation/Personnel
Committee.
G. Mark Mickelson - Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Mickelson is a Principal with Northwestern Growth Corporation in Sioux
Falls, South Dakota. Northwestern Growth Corporation is the Corporate
development and investment function of Northwestern Corporation. Mr. Mickelson
graduated with high honors from Harvard Law School and is an inactive member of
the South Dakota Bar Assoiciaton and a Certified Public Accountant. Board
committees: First Federal Audit- Compensation/Personnel Committee and Stock
Option Committee.
Rodney G. Muilenburg - Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Muilenburg is employed as a dairy specialist with Purina Mills, Inc.
and supervises the sale of agricultural products in a region that encompasses
northwest Iowa, southeast South Dakota, and southwest Minnesota. Board
committees: Chairman of the Stock Option Committee and member of the Audit-
Compensation/Personnel Committee.
Jeanne Partlow - Member of the Board of Directors for First Midwest Financial,
Inc. Mrs. Partlow retired in June 1998 as President of the Iowa Savings Bank
Division of First Federal, located in Des Moines, Iowa. She was President, Chief
Executive Officer and Chairperson of the Board of Iowa Savings Bank, F.S.B.,
from 1987 until the end of December 1995, when Iowa Savings Bank was acquired by
and became a division of First Federal Savings Bank of the Midwest. Mrs. Partlow
is a past member of the Board of Directors of the Federal Home Loan Bank of Des
Moines. Board committee: Stock Option Committee.
{GRAPHIC-PHOTOS OF EACH OF THE ABOVE]
53
<PAGE>
Executive Officers
James S. Haahr
Chairman of the Board, President and Chief Executive Officer
for First Midwest Financial, Inc. and First Federal Savings
Bank of the Midwest; and Chairman of the Board for Security
State Bank
J. Tyler Haahr
Senior Vice President, Secretary and Chief Operating Officer
for First Midwest Financial, Inc.; Executive Vice President,
Secretary and Chief Operating Officer for First Federal
Savings Bank of the Midwest; and Chief Executive Officer for
Security State Bank
Donald J. Winchell, CPA
Senior Vice President, Treasurer and Chief Financial Officer
for First Midwest Financial, Inc. and First Federal Savings
Bank of the Midwest; and Secretary for Security State Bank
Ellen E. Moore
Vice President, Marketing and Sales for First Midwest
Financial, Inc.; and Senior Vice President, Marketing and
Sales for First Federal Savings Bank of the Midwest
Tim D. Harvey
President for Brookings Federal Bank Division
Troy Moore
President for Iowa Savings Bank Division
Tony Trussell
President for First Federal Sioux Falls Division
I. Eugene Richardson, Jr.
President for Security State Bank
Susan C. Jesse
Senior Vice President for First Federal Savings Bank of the
Midwest
{GRAPHIC-PHOTOS OF ABOVE]
--------------------------------------------------------------------------------
Bank Directors
Directors of First Federal Savings Bank of the Midwest
James S. Haahr, Chairman
E. Wayne Cooley
E. Thurman Gaskill
J. Tyler Haahr
G. Mark Mickelson
Rodney G. Muilenburg
Directors of Security State Bank
James S. Haahr, Chairman
Jeffrey N. Bump
E. Wayne Cooley
E. Thurman Gaskill
J. Tyler Haahr
G. Mark Mickelson
Rodney G. Muilenburg
I. Eugene Richardson, Jr.
Brookings Federal Bank Advisory Board
Fred J. Rittershaus, Chairman
Virgil G. Ellerbruch
J. Tyler Haahr
Tim D. Harvey
O. Dale Larson
Earl R. Rue
54
<PAGE>
Office Locations
First Federal Storm Lake Division
Main Office
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
712.732.4117
800.792.6815
712.732.7105 fax
[GRAPHIC-MAP INDICATING LOCATIONS]
Storm Lake Plaza
1415 North Lake Avenue
Storm Lake, Iowa 50588
712.732.6655
712.732.7924 fax
Lake View
Fifth at Main
Lake View, Iowa 51450
712.657.2721
712.657.2896 fax
Laurens
104 North Third Street
Laurens, Iowa 50554
712.841.2588
712.841.2029 fax
[GRAPHIC-PHOTOS OF BANKS]
Manson
Eleventh at Main
Manson, Iowa 50563
712.469.3319
712.469.2458 fax
Odebolt
219 South Main Street
Odebolt, Iowa 51458
712.668.4881
712.668.4882 fax
Sac City
518 Audubon Street
Sac City, Iowa 50583
712.662.7195
712.662.7196 fax
Brookings Federal Bank Division
Main Office
600 Main Avenue
P.O. Box 98
Brookings, South Dakota 57006
605.692.2314
800.842.7452
605.692.7059 fax
Eastbrook
425 22nd Avenue South
Brookings, South Dakota 57006
605.692.2314
<PAGE>
Iowa Savings Bank
Division
Main Office
3448 Westown Parkway
West Des Moines, Iowa 50266
515.226.8474
515.226.8475 fax
Highland Park
3624 Sixth Avenue
Des Moines, Iowa 50313
515.288.4866
515.288.3104 fax
Urbandale (coming soon)
4848 86th Street
Urbandale, Iowa 50322
First Federal Sioux Falls
Division
Main Office
Minnesota at 33rd
P.O. Box 520
Sioux Falls, South Dakota 57101
605.977.7500
605.977.7501 fax
Security State Bank
Main Office
615 South Division
P.O. Box 606
Stuart, Iowa 50250
515.523.2203
800.523.8003
515.523.2460 fax
Casey Office
101 East Logan
P.O. Box 97
Casey, Iowa 50048
641.746.3366
800.746.3367
641.746.2828 fax
Menlo Office
501 Sherman
P.O. Box 36
Menlo, Iowa 50164
641.524.4521
55
<PAGE>
Investor Information
Corporate Headquarters
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will convene at 1:00 pm on Monday, January
22, 2001. The meeting will be held in the Board Room of First Federal Savings
Bank, Fifth at Erie, Storm Lake, Iowa. Further information with regard to this
meeting can be found in the proxy statement.
General Counsel
Mack, Hansen, Gadd, Armstrong
& Brown, P.C.
316 East Sixth Street
P.O. Box 278
Storm Lake, Iowa 50588
Special Counsel
Silver, Freedman & Taff, LLP
1100 New York Avenue, NW
Washington, DC 20005-3934
Independent Auditors
McGladrey & Pullen, LLP
400 Locust Street, Suite 640
Des Moines, Iowa 50309-2372
Shareholder Services and Investor Relations
Shareholders desiring to change the name, address, or ownership of stock; to
report lost certificates; or to consolidate accounts, should contact the
corporation's transfer agent:
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Telephone: 800.368.5948
Email: [email protected]
Website: www.rtco.com
Form 10-K
Copies of the Company's annual report on Form 10-K for the year ended September
30, 2000 (excluding exhibits thereto) are available without charge, upon request
to:
Investor Relations
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie, P.O. Box 1307
Storm Lake, Iowa 50588
Telephone: 712.732.4117
Email: [email protected]
Website: www.fmficash.com
<PAGE>
--------------------------------------------------------------------------------
Stock Market Information
First Midwest Financial, Inc.'s common stock trades on the Nasdaq National
Market under the symbol "CASH." The Wall Street Journal publishes daily trading
information for the stock under the abbreviation, "FstMidwFnl," in the National
Market Listing. Quarterly dividends for 1999 and 2000 were $0.13. The price
range of the common stock, as reported on the Nasdaq System, was as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 Fiscal Year 1999
Low High Low High
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $9.00 $13.63 $14.13 $19.63
Second Quarter $9.50 $12.50 $14.25 $16.00
Third Quarter $8.75 $11.25 $14.25 $15.50
Fourth Quarter $9.00 $10.81 $12.50 $14.75
</TABLE>
Prices disclose inter-dealer quotations without retail mark-up, mark-down or
commissions, and do not necessarily represent actual transactions.
Dividend payment decisions are made with consideration of a variety of factors
including earnings, financial condition, market considerations, and regulatory
restrictions. Restrictions on dividend payments are described in Note 14 of the
Notes to Consolidated Financial Statements included in this Annual Report.
As of September 30, 2000, First Midwest had 2,431,574 shares of common stock
outstanding, which were held by 317 shareholders of record, and 300,318 shares
subject to outstanding options. The shareholders of record number does not
reflect 513 persons or entities who hold their stock in nominee or "street"
name.
The following securities firms indicated they were acting as market makers for
First Midwest Financial, Inc. stock as of September 30, 2000: First Tennessee
Securities Corp.; Herzog, Heine, Geduld, Inc.; Howe Barnes Investments, Inc.;
Spear, Leeds & Kellogg; Sandler O'Neill & Partners; and Tucker Anthony
Incorporated.
56
<PAGE>
Inside back cover:
Economic Data
First Federal Storm Lake
Average Land Value as of
September 2000
High-quality farmland in northwest
Iowa: $2,347 per acre
Taxable Retail Sales 1999
Storm Lake - $129,181,166
Unemployment Rate as of
August 2000
Buena Vista County - 1.8%
Brookings Federal Bank
Average Land Value as of
February 2000
High-productivity, non-irrigated
cropland in east-central
South Dakota: $993 per acre
Taxable Retail Sales 1999
Brookings - $159,975,335
Unemployment Rate as of
August 2000
Brookings - 1.2%
Iowa Savings Bank
Average Land Value as of
September 2000
High-quality farmland in central
Iowa: $2,528 per acre
Taxable Retail Sales 1999
Des Moines - $4,054,937,130
Unemployment Rate as of
August 2000
Polk County - 1.6%
First Federal Sioux Falls
Average Land Value as of
February 2000
High-productivity, non-irrigated
cropland in east-central
South Dakota: $993 per acre
Taxable Retail Sales 1999
Sioux Falls - $1,649,718,363
Unemployment Rate as of
August 2000
Minnehaha County - 1.6%
<PAGE>
Security State Bank
Average Land Value as of
September 2000
High-quality farmland in west-central
Iowa: $2,413 per acre
Taxable Retail Sales 1999
Stuart - $7,403,152
Unemployment Rate as of
August 2000
Guthrie County - 1.8%
[GRAPHIC-PHOTO OF Julie S. Jensen]
"Thank you for your support."
-Julie S. Jensen
Customer Service Representative
<PAGE>
Back Cover:
[GRAPHIC-FMFI logo]
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
