UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission File Number: 0-22140
FIRST MIDWEST FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 42-1406262
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Fifth at Erie, Storm Lake, Iowa 50588
-------------------------------------
(Address of principal executive offices)
(712) 732-4117
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Outstanding at December 31, 1999:
Common Stock, $.01 par value 2,534,573 Common Shares
Transitional Small Business Disclosure Format: Yes [ ] ; No [ X ]
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets
at December 31, 1999 and September 30, 1999
Consolidated Statements of Income for the
Three Months Ended December 31, 1999 and 1998
Consolidated Statements of Comprehensive Income (Loss)
for the Three Months Ended December 31, 1999 and 1998
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended December 31, 1999
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II. Other Information
- ---------------------------
Signatures
----------
<PAGE>
Part I. Financial Information
Part II. Financial Statements
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
December 31, 1999 September 30, 1999
----------------- ------------------
<S> <C> <C>
Assets
Cash and due from banks ......................................... $ 1,713,775 $ 1,165,895
Interest-bearing deposits in other financial institutions -
short-term (cost approximates market value) .................. 6,314,071 4,208,016
------------- -------------
Total cash and cash equivalents ........................... 8,027,846 5,373,911
Securities available for sale, amortized cost of
$179,436,747 and $182,503,668 ................................ 172,270,777 178,489,030
Loans receivable - net of allowances of $3,078,125 and $3,092,628 305,954,860 303,078,500
Foreclosed real estate, net ..................................... 248,773 142,901
Accrued interest receivable ..................................... 4,573,590 5,046,234
Federal Home Loan Bank stock, at cost ........................... 8,125,800 8,125,800
Premises and equipment, net ..................................... 4,898,863 4,770,056
Excess of cost over net assets acquired ......................... 4,041,650 4,132,883
Other assets .................................................... 3,195,568 2,053,437
------------- -------------
Total Assets ........................................... $ 511,337,727 $ 511,212,752
============= =============
Liabilities and Shareholders' Equity
Liabilities
Deposits ........................................................ $ 313,908,444 $ 304,779,921
Advances from Federal Home Loan Bank ............................ 153,092,101 161,348,071
Securities sold under agreements to repurchase .................. 2,780,922 3,020,951
Advances from borrowers for taxes and insurance ................. 511,208 422,593
Accrued interest payable ........................................ 884,579 875,365
Other liabilities ............................................... 1,669,636 995,103
------------- -------------
Total Liabilities ...................................... 472,846,890 471,442,004
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shareholders' Equity
<S> <C> <C>
Preferred stock, 800,000 shares authorized, no shares
issued or outstanding ........................................ -- --
Common stock, $.01 par value, 5,200,000 shares authorized,
2,957,999 shares issued and 2,534,573 shares outstanding
at December 31, 1999; 2,957,999 shares issued and
2,507,073 shares outstanding at September 30, 1999 ........... 29,580 29,580
Additional paid-in capital ...................................... 21,068,861 21,305,937
Retained earnings - substantially restricted .................... 29,789,754 29,352,943
Accumulated other comprehensive income (loss), net of tax
benefit of $2,665,987 at December 31, 1999 and $1,494,005
at September 30, 1999 ........................................ (4,499,983) (2,520,633)
Unearned Employee Stock Ownership Plan shares ................... (117,175) (167,200)
Treasury stock, 423,426 and 450,926 common shares, at cost ...... (7,780,200) (8,229,879)
------------- -------------
Total Shareholders' Equity ............................. 38,490,837 39,770,748
------------- -------------
Total Liabilities and Shareholders' Equity ............. $ 511,337,727 $ 511,212,752
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Interest and Dividend Income:
Loans receivable $6,270,059 $6,031,456
Securities available for sale 3,003,825 2,630,636
Dividends on Federal Home Loan Bank stock 130,886 99,032
---------- ----------
Total interest and dividend income 9,404,770 8,761,124
Interest Expense:
Deposits 3,729,522 3,647,421
FHLB advances and other borrowings 2,181,955 1,694,836
---------- ----------
Total interest expense 5,911,477 5,342,257
---------- ----------
Net interest income 3,493,293 3,418,867
Provision for loan losses 325,000 243,000
---------- ----------
Net interest income after provision for loan losses 3,168,293 3,175,867
Noninterest income:
Loan fees and deposit service charges 310,617 359,547
Gain on sales of securities available for sale, net -- 22,110
Gain on sales of foreclosed real estate, net 3,432 11,771
Brokerage commissions 36,860 14,914
Other income 62,274 39,689
---------- ----------
Total noninterest income 413,183 448,031
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Noninterest expense:
Employee compensation and benefits 1,374,296 1,226,791
Occupancy and equipment expense 297,148 283,171
Federal deposit insurance premium 38,992 34,967
Data processing expense 100,277 97,966
Other expense 472,500 464,243
---------- ----------
Total noninterest expense 2,283,213 2,107,138
---------- ----------
Income before income taxes 1,298,263 1,516,760
Income tax expense 533,583 608,243
---------- ----------
Net income $ 764,680 $ 908,517
========== ==========
Earnings per common and common equivalent share:
Basic earnings per common share $ 0.31 $ 0.37
---------- ----------
Diluted earnings per common share $ 0.30 $ 0.36
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended
December 31,
1999 1998
----------- ---------
<S> <C> <C>
Net income $ 764,680 $ 908,517
Other comprehensive income (loss):
Net change in net unrealized gains and losses on
securities available for sale (3,151,332) (960,277)
Less deferred income tax expense (benefit) (1,171,982) (357,341)
----------- ---------
Total other comprehensive income (loss) (1,979,350) (602,936)
----------- ---------
Comprehensive income (loss) $(1,214,670) $ 305,581
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Three Months Ended December 31, 1999
Unearned
Accumulated Employee
Other Stock
Additional Comprehensive Ownership
Common Paid-In Retained Income (Loss), Plan
Stock Capital Earnings Net of Tax Shares
----- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $29,580 $ 21,305,937 $ 29,352,943 $(2,520,633) $(167,200)
7,500 common shares committed to be
released under the ESOP -- 43,716 -- -- 50,025
Cash dividends declared on common
stock ($0.13 per share) -- -- (327,869) -- --
Purchase of 5,000 common shares of
treasury stock -- -- -- -- --
Issuance of 32,500 common shares from
treasury stock due to exercise of stock
options -- (289,262) -- -- --
Amortization of management recognition
and retention plan common shares and
tax benefits of restricted stock under the
plans -- 8,470 -- -- --
Net change in net unrealized losses on
securities available for sale, net of
income tax benefit of $1,171,982 -- -- -- (1,979,350) --
Net income for the three months ended
December 31, 1999 -- -- 764,680 -- --
------- ------------ ------------ ----------- ---------
Balance at December 31, 1999 $29,580 $ 21,068,861 $ 29,789,754 $(4,499,983) $(117,175)
======= ============ ============ =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
----- ------
<S> <C> <C>
Balance at September 30, 1999 $(8,229,879) $ 39,770,748
7,500 common shares committed to be
released under the ESOP -- 93,741
Cash dividends declared on common
stock ($0.13 per share) -- (327,869)
Purchase of 5,000 common shares of
treasury stock (56,250) (56,250)
Issuance of 32,500 common shares from
treasury stock due to exercise of stock
options 505,929 216,667
Amortization of management recognition
and retention plan common shares and
tax benefits of restricted stock under the
plans -- 8,470
Net change in net unrealized losses on
securities available for sale, net of
income tax benefit of $1,171,982 -- (1,979,350)
Net income for the three months ended
December 31, 1999 -- 764,680
----------- ------------
Balance at December 31, 1999 $(7,780,200) $ 38,490,837
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 764,680 $ 908,517
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amoritization and accretion, net 513,308 347,954
Provision for loan losses 325,000 243,000
Gain on sales of securities available for sale, net -- (22,110)
Gain on sales of foreclosed real estate, net (3,432) (11,771)
Proceeds from sales of loans held for sale 65,600 --
Originations of loans held for sale (65,600) --
Net change in accrued interest receivable 472,644 (244,527)
Net change in other assets 29,851 22,458
Net change in accrued interest payable 9,214 (58,652)
Net change in accrued expenses and other liabilities 674,533 1,022,530
------------- -------------
Net cash from operating activities 2,785,798 2,207,399
Cash flows from investing activities:
Purchase of securities available for sale -- (62,893,382)
Purchase of Federal Home Loan Bank stock -- (1,304,500)
Proceeds from sales of securities available for sale -- 1,022,110
Proceeds from maturities and principal repayments of
securities available for sale 2,960,760 2,953,962
Net change in loans receivable 10,917,556 6,209,302
Loans purchased (14,383,504) (2,713,941)
Proceeds from sales of foreclosed real estate 52,927 1,057,872
Purchase of premises and equipment, net (233,289) (80,308)
------------- -------------
Net cash from investing activities (685,550) (55,748,885)
Cash flows from financing activities:
Net change in noninterest-bearing demand, savings, NOW, and
money market demand deposits 3,298,989 12,856,273
Net change in other time deposits 5,829,534 (3,214,700)
Proceeds from advances from Federal Home Loan Bank 223,750,000 174,800,000
Repayments of advances from Federal Home Loan Bank (232,005,970) (127,617,682)
Net change in securities sold under agreements to repurchase (240,029) (1,405,000)
Net change in other borrowings -- (350,000)
Net change in advances from borroweres for taxes and insurance 88,615 61,641
Cash dividends paid (327,869) (324,877)
Proceeds from the exercise of stock options 216,667 53,334
Purchase of treasury stock (56,250) (790,500)
------------- -------------
Net cash from financing activities 553,687 54,068,489
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net change in cash and cash equivalents 2,653,935 527,003
Cash and cash equivalents at beginning of period 5,373,911 6,727,444
------------- -------------
Cash and cash equivalents at end of period $ 8,027,846 $ 7,254,447
============= =============
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to foreclosed real estate $ 155,367 $ 133,934
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by First Midwest Financial, Inc.
("First Midwest" or the "Company") and its consolidated subsidiaries,
First Federal Savings Bank of the Midwest ("First Federal"), Security
State Bank ("Security"), First Services Financial Limited and Brookings
Service Corporation, for interim reporting are consistent with the
accounting policies followed for annual financial reporting. All
adjustments that, in the opinion of management, are necessary for a
fair presentation of the results for the periods reported have been
included in the accompanying unaudited consolidated financial
statements, and all such adjustments are of a normal recurring nature.
The accompanying financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the
circumstances and should be read in conjunction with the Company's
consolidated financial statements, and notes thereto, for the year
ended September 30, 1999.
2. EARNINGS PER SHARE
Basic earnings per share is based on net income divided by the weighted
average number of shares outstanding during the period. Diluted
earnings per share shows the dilutive effect of additional common
shares issuable under stock options.
A reconciliation of the numerators and denominators used in the basic
earnings per common share and the diluted earnings per common share
computations for the three months ended December 31, 1999 and 1998 is
presented below.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic Earnings Per Common Share:
Numerator:
Net Income $ 764,680 $ 908,517
=========== ===========
Denominator:
Weighted average common
shares outstanding 2,513,214 2,512,734
Less: Weighted average
unallocated ESOP shares (22,580) (52,580)
----------- -----------
Weighted average common shares
outstanding for basic earnings
per share 2,490,634 2,460,154
=========== ===========
Basic earnings per common share $ 0.31 $ 0.37
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Diluted Earnings Per Common Share:
Numerator:
Net Income $ 764,680 $ 908,517
========== ==========
Denominator:
Weighted average common
shares outstanding for basic
earnings per common share 2,490,634 2,460,154
Add: Dilutive effects of assumed
exercises of stock options and
nonvested MRRP shares, net of
tax benefits 51,394 88,721
---------- ----------
Weighted average common and
dilutive potential common
shares outstanding 2,542,028 2,548,875
========== ==========
Diluted earnings per common share $ 0.30 $ 0.36
========== ==========
</TABLE>
3. COMMITMENTS
At December 31, 1999 and September 30, 1999, the Company had
outstanding commitments to originate and purchase loans totaling $21.5
million and $33.2 million, respectively, excluding undisbursed portions
of loans in process. It is expected that outstanding loan commitments
will be funded with existing liquid assets.
<PAGE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIRST MIDWEST FINANCIAL, INC.
AND SUBSIDIARIES
GENERAL
First Midwest Financial, Inc. ("First Midwest" or the "Company") is a bank
holding company whose primary assets are First Federal Savings Bank of the
Midwest ("First Federal") and Security State Bank ("Security"). The Company was
incorporated in 1993 as a unitary non-diversified savings and loan holding
company and, on September 20, 1993, acquired all of the capital stock of First
Federal in connection with First Federal's conversion from mutual to stock form
of ownership. On September 30, 1996, the Company became a bank holding company
in conjunction with the acquisition of Security.
The following discussion focuses on the consolidated financial condition of the
Company and its subsidiaries, at December 31, 1999, compared to September 30,
1999, and the consolidated results of operations for the three months ended
December 31, 1999, compared to the same period in 1998. This discussion should
be read in conjunction with the Company's consolidated financial statements, and
notes thereto, for the year ended September 30, 1999.
FINANCIAL CONDITION
Total assets increased by $125,000, or .02%, from $511.2 million at September
30, 1999, to $511.3 million at December 31, 1999. The increase was attributable
to an increase in the Company's cash and cash equivalents and an increase in net
loans receivable. These increases were offset by a decline in the portfolio of
securities available for sale. The deposit portfolio increased by $9.1 million
and were used to reduce advances from the Federal Home Loan Bank.
Cash and cash equivalents increased $2.6 million, or 48.1%, to $8.0 million at
December 31, 1999, from $5.4 million at September 30, 1999. The increase was due
in part to the accumulation of liquid funds for use as needed to address
customer concerns arising from the rollover to year 2000. The use of such funds
was minimal and, subsequent to December 31, 1999, balances were returned to
normal operating levels.
The portfolio of securities available for sale decreased $6.2 million, or 3.5%,
to $172.3 million at December 31, 1999, from $178.5 million at September 30,
1999. The decrease was the result of maturities and principal repayments
received on securities during the period and, additionally, was due to
adjustment of the carrying value of securities available for sale to market
value at the end of the period in accordance with SFAS 115.
The portfolio of net loans receivable increased by $2.9 million, or 1.0%, to
$306.0 million at December 31, 1999, from $303.1 million at September 30, 1999.
The increase was due to increases in single- and multi-family residential
mortgage loans and commercial real estate loans totaling $9.9 million during the
period. This increase was partially offset by a seasonal decrease in
agricultural loans totaling $3.5 million and a decrease in commercial operating
loans of $3.4 million.
<PAGE>
Deposit balances increased by $9.1 million, or 3.0%, to $313.9 million at
December 31, 1999, from $304.8 million at September 30, 1999. The increase in
deposit balances resulted from increases in checking accounts, money market
accounts and certificates of deposit, which increased by $3.6 million, $222,000
and $5.8 million, respectively. This increase is the result of the Company's
continued emphasis on promoting transaction accounts, which generally carry a
lower interest cost, and cross-marketing into other deposit products. The
increase was partially offset by a decrease in savings accounts in the amount of
$476,000.
The balance in advances from the Federal Home Loan Bank of Des Moines (FHLB)
decreased by $8.2 million, or 5.1%, to $153.1 million at December 31, 1999 from
$161.3 million at September 30, 1999. The decrease in FHLB advances resulted
from repayments using funds generated by deposit portfolio growth and maturities
and principal repayments received on the portfolio of securities available for
sale.
Total shareholders' equity decreased $1.3 million, or 3.3%, to $38.5 million at
December 31, 1999 from $39.8 million at September 30, 1999. The decrease in
shareholders' equity was due to an increase in unrealized loss on securities
available for sale in accordance with SFAS 115, the purchase of treasury stock,
and the payment of cash dividends to shareholders in an aggregate amount that
exceeded net earnings during the period.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Generally, when a loan becomes delinquent 90 days or more, or when the
collection of principal or interest becomes doubtful, the Company will place the
loan on non-accrual status and, as a result of this action, previously accrued
interest income on the loan is taken out of current income. The loan will remain
on non-accrual status until the loan has been brought current, or until other
circumstances occur that provide adequate assurance of full repayment of
interest and principal.
The following table sets forth the Company's loan delinquencies by type, before
allowance for loan losses, by amount and by percentage of type at December 31,
1999. At December 31, 1999, loans delinquent 30 days and over totaled 2.38% of
total loans as compared to 1.59% at September 30, 1999.
<TABLE>
<CAPTION>
Loans Delinquent For:
--------------------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days and Over
--------------------------- -------------------------- ----------------------------
Percent Percent Percent
of of of
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to-four family 10 $ 337 0.31% 5 $ 195 0.18% 4 $ 102 0.09%
Commercial and multi-family 1 1,688 1.77 2 1,122 1.18 2 584 0.61
Agricultural real estate 2 38 0.41 0 0 0.00 1 70 0.76
Consumer 22 237 1.01 11 75 0.32 9 57 0.24
Agricultural operating 12 581 2.20 1 53 0.20 9 1,539 5.83
Commercial business 9 381 1.44 5 104 0.39 9 192 0.72
----- ------- ----- ------ ----- -------
Total 56 $ 3,262 1.06% 24 $1,549 0.50% 34 $2,544 0.82%
==== ======= ==== ====== ==== ======
</TABLE>
<PAGE>
At December 31, 1999, commercial and multi-family real estate loans delinquent
30 days and over totaled $3.4 million, or 1.10% of the total loan portfolio as
compared to $1.5 million, or 0.50% of total loans at September 30, 1999.
Multi-family and commercial real estate loans generally present a higher level
of risk than loans secured by one- to four-family residences. This greater risk
is due to several factors, including the concentration of principal in a limited
number of loans and borrowers, the effect of general economic conditions on
income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. The majority of the Company's delinquent
commercial and multi-family real estate loans have been purchased as
participations with other lenders, are serviced by other lenders and are secured
by properties outside the Company's primary market area. These loans are being
closely monitored by management, however, there can be no assurance that all
loans will be fully collectible.
At December 31, 1999, agricultural operating loans delinquent 30 days and over
totaled $2.2 million, or 0.70% of the total loan portfolio as compared to
$501,000, or 0.16% of total loans at September 30, 1999. Agricultural lending
involves a greater degree of risk than one- to four-family residential mortgage
loans because of the typically larger loan amounts. In addition, payments on
loans are dependent on the successful operation or management of the farm
property securing the loan or for which an operating loan is utilized. The
success of the loan may also be affected by factors outside the control of the
agricultural borrower, such as the weather and grain and livestock prices.
Although management believes the Company's portfolio of agricultural real estate
and operating loans is well structured and adequately secured, there can be no
assurance that all loans will be fully collectible.
<PAGE>
The table below sets forth the amounts and categories of non-performing assets
in the Company's loan portfolio. Foreclosed assets include assets acquired in
settlement of loans.
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999
----------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans:
One-to four family $ 102 $ 613
Commercial and multi-family 584 1,055
Agricultural real estate 70 70
Consumer 51 140
Agricultural operating 115 285
Commercial business 103 75
------- -------
Total non-accruing loans 1,025 2,238
Accruing loans delinquent 90 days or more 1,519 -
------ -------
Total non-performing loans 2,544 2,238
Foreclosed assets:
One- to four family 196 94
Commercial real estate 38 -
Consumer 15 24
Commercial Business - 25
------- -------
Total foreclosed assets 249 143
Less: Allowance for losses - -
------- -------
Total foreclosed assets, net 249 143
------- -------
Total non-performing assets $2,793 $2,381
====== ======
Total as a percentage of total assets 0.55% 0.47%
====== ======
</TABLE>
For the three months ended December 31, 1999, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to approximately $15,000 of which none was
included in interest income.
Other Loans of Concern. At December 31, 1999, there were loans totaling $4.0
million not included in the table above where known information about possible
credit problems of borrowers caused management to have concern as to the ability
of the borrower to comply with the present loan repayment terms. This amount
consisted of eleven one- to four-family residential real estate loans totaling
$545,000, five commercial business loans totaling $1.3 million, eighteen
consumer loans totaling $165,000, and nineteen agricultural loans totaling $2.0
million. At September 30, 1999, other loans of concern totaled $3.9 million.
<PAGE>
Classified Assets. Federal regulations provide for the classification of loans
and other assets as "substandard", "doubtful" or "loss", based on the level of
weakness determined to be inherent in the collection of the principal and
interest. When loans are classified as either substandard or doubtful, the
Company may establish general allowances for loan losses in an amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem loans. When assets are classified as loss, the Company is
required either to establish a specific allowance for loan losses equal to 100%
of that portion of the loan so classified, or to charge-off such amount. The
Company's determination as to the classification of its loans and the amount of
its valuation allowances are subject to review by its regulatory authorities,
who may require the establishment of additional general or specific loss
allowances.
On the basis of management's review of its loans and other assets, at December
31, 1999, the Company had classified a total of $4.7 million of its assets as
substandard, $46,000 as doubtful and none as loss as compared to classifications
at September 30, 1999 of $5.9 million substandard, $142,000 doubtful and none as
loss.
Allowance for Loan Losses. The Company establishes its provision for loan
losses, and evaluates the adequacy of its allowance for loan losses based upon a
systematic methodology consisting of a number of factors including, among
others, historic loss experience, the overall level of non-performing loans, the
composition of its loan portfolio and the general economic environment within
which the Bank and its borrowers operate.
Current economic conditions in the agricultural sector of the Company's market
area indicate potential weakness due to historically low commodity prices. Price
levels for grain crops and livestock have generally been depressed since
mid-1998. Livestock prices have recovered to some extent, but are still
relatively low. Grain crop prices remain at historically low levels and are not
expected to increase significantly in the near term. The agricultural economy is
accustomed to commodity price fluctuations and is generally able to handle such
fluctuations without significant problem. Although the Company underwrites its
agricultural loans based on the current level of commodity prices, an extended
period of low commodity prices could result in weakness in the agricultural loan
portfolio that could create a need for the Company to increase its allowance for
loan losses through increased charges to the provision for loan losses.
At December 31, 1999, the Company has established an allowance for loan losses
totaling $3.1 million. The allowance represents approximately 121% of the total
non-performing loans at December 31, 1999 as compared to 138% at September 30,
1999.
<PAGE>
The following table sets forth an analysis of the activity in the Company's
allowance for loan losses:
(In Thousands)
Balance, September 30, 1999 $ 3,093
Charge-offs (372)
Recoveries 32
Additions charged to operations 325
-------
Balance, December 31, 1999 $ 3,078
=======
Based on currently available information, management believes the allowance for
loan losses is adequate to absorb currently anticipated losses in the portfolio.
Future additions to the allowance for loan losses may become necessary based
upon changing economic conditions, increased loan balances or changes in the
underlying collateral of the loan portfolio.
RESULTS OF OPERATIONS
General. For the three months ended December 31, 1999, the Company recorded net
income of $765,000 compared to net income of $909,000 for the same period in
1998. The decrease in net income reflects an increase in the charge to provision
for loan losses, a decrease in noninterest income from loan fees, and an
increase in employee compensation and benefits expense during the 1999 period.
Net income was positively affected by an increase in net interest income.
Interest and Dividend Income. Total interest and dividend income for the three
months ended December 31, 1999 increased by $644,000, or 7.4%, to $9,405,000,
compared to $8,761,000 during the same period in 1998. The increase was due to
higher interest earning asset balances during the 1999 period compared to the
previous year as a result of increased purchases of securities available for
sale and the increased origination and purchase of loans.
Interest Expense. Total interest expense for the three months ended December 31,
1999 increased by $569,000, or 10.7%, to $5,911,000 from $5,342,000 during the
same period in 1998. The increase in interest expense reflects a higher average
balance in deposit accounts during the 1999 period due to internal growth of the
deposit portfolio. In addition, the increase reflects increased balances in
Federal Home Loan Bank advances used to fund the purchase of securities
available for sale and the origination and purchase of loans.
Net Interest Income. Net interest income increased by $74,000, or 2.2%, to
$3,493,000 for the three months ended December 31, 1999 from $3,419,000 for the
same period in 1998. The increase in net interest income was due to the overall
increase in net interest earning assets between the comparable periods and was
partially offset by a reduction in the spread between interest-earning assets
and interest-bearing liabilities.
Provision for Loan Losses. For the three month period ended December 31, 1999,
the provision for loan losses was $325,000 compared to $243,000 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 currently
anticipated losses from the loan portfolio.
<PAGE>
Noninterest Income. Noninterest income decreased by $35,000, or 7.8%, to
$413,000 for the three months ended December 31, 1999, from $448,000 for the
same period in 1998. The decrease reflects the lower collection of fees from the
origination, purchase and prepayment of loans, and lower gains on the sales of
securities available for sale and foreclosed real estate during the period.
Noninterest Expense. Noninterest expense increased $176,000, or 8.4%, to
$2,283,000 for the three months ended December 31, 1999, from $2,107,000 for the
same period in 1998. The increase in noninterest expense reflects a $148,000
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.
Income Tax Expense. Income tax expense was $534,000 for the three months ended
December 31, 1999 as compared to $608,000 for the same period in 1998. The
decrease in income tax expense reflects the decrease in the level of taxable
income between the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, borrowings, principal and
interest payments on loans, investments and mortgage-backed securities, and
funds provided by operations. While scheduled payments on loans, mortgage-backed
securities and short-term investments are relatively predictable sources of
funds, deposit flows and early loan repayments are greatly influenced by general
interest rates, economic conditions and competition.
Federal regulations require First Federal to maintain minimum levels of liquid
assets. Currently, First Federal is required to maintain liquid assets of at
least 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, government 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 at December 31, 1999 and September 30, 1999, were
9.3% and 9.1%, respectively.
The Company uses its capital resources principally to meet ongoing commitments
to fund maturing certificates of deposits and loan commitments, to maintain
liquidity, and to meet operating expenses. At December 31, 1999, the Company had
commitments to originate and purchase loans totaling $21.5 million. The Company
believes that loan repayment and other sources of funds will be adequate to meet
its foreseeable short- and long-term liquidity needs.
Regulations require First Federal to maintain minimum amounts and ratios of
tangible capital and leverage capital to average assets, and risk-based capital
to risk-weighted assets. The following table sets forth First Federal's actual
capital and required capital amounts and ratios at December 31, 1999 which, at
that date, exceeded the capital adequacy requirements:
<PAGE>
<TABLE>
<CAPTION>
Minimum Minimum Requirement
Requirement For To Be Well Capitalized
Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
At December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- -------------------- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted
assets) $35,666 11.7% $24,493 8.0% $30,617 10.0%
Tier 1 (Core) Capital (to risk
weighted assets) $32,780 10.7% $12,247 4.0% $18,370 6.0%
Tier 1 (Core) Capital (to
adjusted total assets) $32,780 7.0% $18,666 4.0% $23,332 5.0%
Tier 1 (Core) Capital (to
average assets) $32,780 7.1% $18,527 4.0% $23,159 5.0%
</TABLE>
Regulations require Security to maintain minimum amounts and ratios of total
risk-based capital and Tier 1 capital to risk-weighted assets and a leverage
ratio consisting of Tier 1 capital to average assets. The following table sets
forth Security's actual capital and required capital amounts and ratios at
December 31, 1999 which, at that date, exceeded the capital adequacy
requirements:
<TABLE>
<CAPTION>
Minimum Minimum Requirement
Requirement For To Be Well Capitalized
Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
At December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- -------------------- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk
weighted assets) $4,026 15.3% $2,100 8.0% $2,625 10.0%
Tier 1 Capital (to risk
weighted assets) $3,792 14.4% $1,050 4.0% $1,575 6.0%
Tier 1 Capital (to average
assets) $3,792 8.9% $1,703 4.0% $2,128 5.0%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five regulatory capital categories and authorized the banking
regulators to take prompt corrective action with respect to institutions in an
undercapitalized category. At December 31, 1999, First Federal and Security
exceeded minimum requirements for the well-capitalized category.
The Year 2000 Issue
The Company has been aware for some time of the issues associated with the
programming code in existing computer systems with the rollover to the year
2000. The issue was whether computer systems would properly recognize date
<PAGE>
sensitive information when the year changed to 2000. Systems that would not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company expended considerable time and effort prior to the
date rollover to ensure a smooth transition to the year 2000. As such, the
Company experienced no significant issues with its internal or third party
computer systems with the rollover to the year 2000.
The Company, as with most financial institutions, increased liquid funds
available to address potential customer concerns during the latter part of the
quarter ended December 31, 1999. Subsequent to December 31, 1999, liquid funds
balances have been returned to normal operating levels.
Based on the Company's experience subsequent to December 31, 1999, management
believes there will be no additional material direct costs associated with the
rollover to the year 2000.
Although management believes the Company's computer systems and service
providers will continue to function properly going forward into the year 2000,
there can be no assurance that these systems, or those systems of other
companies on which the Company's systems rely, will not experience some type of
problem related to the date rollover. Such failure could have a significant
adverse impact on the financial condition and results of operations 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.
<PAGE>
I. Financial Information
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Market Risk
The Company is exposed to the impact of interest rate changes and changes in the
market value of its investments.
The Company currently focuses lending efforts toward originating and purchasing
competitively priced adjustable-rate loan products and fixed-rate loan products
with relatively short terms to maturity. This allows the Company to maintain a
portfolio of loans which 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 loan funding needs. This portfolio is 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 levels 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 from 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 that the increased net income which
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
which is acceptable given certain interest rate changes.
<PAGE>
Presented below, as of December 31, 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
more sensitive to increasing rate changes than declining rates. This occurs
primarily because, as rates rise, the market value of the Company's fixed-rate
loans and mortgage-backed securities declines due both to the interest rate
increase and the related slowing of prepayments. When rates decline, the Company
does not experience 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 interest rate scenarios.
<TABLE>
<CAPTION>
At December 31, 1999 At September 30, 1999
Change in Interest Rates Board Limit ------------------------ ------------------------
(Basis Points) % Change $ Change % Change $ Change % Change
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
+200 bp (40)% $ (9,735) (23)% $(10,919) (25)%
+100 bp (25) (4,450) (10) (5,200) (12)
0 bp - - - - -
-100 bp (10) 3,657 9 4,441 10
-200 bp (15) 4,155 10 5,095 12
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. 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 which 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.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
PART II - OTHER INFORMATION
FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
First Midwest Financial, Inc. filed Form 8-K dated December
27, 1999 to report the issuance of a press release announcing
the authorization of a stock repurchase program.
All other items have been omitted as not required or not applicable under the
instructions.
<PAGE>
FIRST MIDWEST FINANCIAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MIDWEST FINANCIAL, INC.
Date: February 14, 2000 By: /s/ James S. Haahr
----------------- ------------------
James S. Haahr, Chairman of the Board,
President and Chief Executive Officer
Date: February 14, 2000 By: /s/ Donald J. Winchell
----------------- ----------------------
Donald J. Winchell, Senior Vice President,
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,713,775
<INT-BEARING-DEPOSITS> 6,314,071
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 172,270,777
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 309,032,985
<ALLOWANCE> 3,078,125
<TOTAL-ASSETS> 511,337,727
<DEPOSITS> 313,908,444
<SHORT-TERM> 47,830,922
<LIABILITIES-OTHER> 3,065,423
<LONG-TERM> 108,042,101
0
0
<COMMON> 29,580
<OTHER-SE> 38,461,257
<TOTAL-LIABILITIES-AND-EQUITY> 511,337,727
<INTEREST-LOAN> 6,270,059
<INTEREST-INVEST> 3,134,711
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,404,770
<INTEREST-DEPOSIT> 3,729,522
<INTEREST-EXPENSE> 5,911,477
<INTEREST-INCOME-NET> 3,493,293
<LOAN-LOSSES> 325,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,283,213
<INCOME-PRETAX> 1,298,263
<INCOME-PRE-EXTRAORDINARY> 764,680
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 764,680
<EPS-BASIC> .31
<EPS-DILUTED> .30
<YIELD-ACTUAL> 2.83
<LOANS-NON> 1,025,000
<LOANS-PAST> 1,519,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,021,000
<ALLOWANCE-OPEN> 3,092,628
<CHARGE-OFFS> 372,398
<RECOVERIES> 32,895
<ALLOWANCE-CLOSE> 3,078,125
<ALLOWANCE-DOMESTIC> 2,885,125
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 193,000
</TABLE>
