UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-20464
Mid-Iowa Financial Corp.
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(Exact name of registrant as specified in its charter)
Delaware
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(State of other jurisdiction of incorporation or organization)
42-1389053
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(I.R.S. Employer Identification No.)
123 West 2nd Street North Newton, Iowa 50208
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(Address of principal executive offices zip code)
515-792-6236
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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. [x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1,658,380 shares outstanding at July 31, 1996
This Form 10-QSB contains 16 pages
MID-IOWA FINANCIAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 and 1
September 30, 1995
Consolidated Statements of Operations for the three 2
months and nine months ended June 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the nine 3
months ended June 30, 1996 and 1995.
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Part II. Other Information 11
Index of Exhibits 12
Signatures 13
MID-IOWA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1996 1995
Assets
------------- -------------
Cash and cash equivilants $1,616,476 $1,416,408
Investment securities available for sale 595,660 0
Investment securities 19,286,296 16,787,012
Mortgage-backed securities available for sale 4,638,218 837,169
Mortgage-backed and related securities 25,025,506 28,139,281
Loans held for sale 355,612 309,867
Loans receivable, net 60,505,670 57,846,593
Accrued interest receivable 771,272 806,733
Federal Home Loan Bank stock 1,250,000 900,000
Real estate, net 37,306 73,639
Office properties and equipment, net 968,383 862,839
Intangibles, net 15,612 16,636
Prepaid expenses and other assets 194,482 224,995
------------- -------------
Total assets $115,260,493 $108,221,172
============= =============
Liabilities and Stockholders' Equity
Deposits $78,704,610 $78,671,452
Borrowed funds 24,000,000 18,000,000
Advance payments by borrowers
for taxes and insurance 392,167 160,392
Accrued interest payable 849,547 808,190
Accounts payable and accrued expenses 345,988 278,590
Accrued taxes on income:
Current 132,605 18,965
Deferred 28,608 22,600
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Total liabilities $104,453,525 $97,960,189
------------- -------------
Stockholders' Equity
Common stock $17,299 $8,395
Additional paid-in capital 3,162,994 3,049,634
Retained earnings 7,902,841 7,197,953
Treasury Stock (295,506)
Unearned management recognition and retention plan (918) (3,672)
Net unrealized gain on securities available for sale 20,258 8,673
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Total stockholders' equity $10,806,968 $10,260,983
------------- -------------
Total liabilities and stockholders' equity $115,260,493 $108,221,172
============= =============
See notes to consolidated financial statements.
-1-
MID-IOWA FINANCIAL CORP.
Consolidated Statements of Operations
Three Months Nine Months
ended June 30, ended June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Interest income:
Loans $1,226,333 $1,057,138 $3,604,801 $3,052,198
Mortgage-backed and related securities 497,306 507,418 1,411,128 1,523,773
Investment securities 295,772 257,382 850,962 687,390
Other 105,039 36,921 204,121 111,561
----------- ----------- ----------- -----------
Total interest income 2,124,450 1,858,859 6,071,012 5,374,922
----------- ----------- ----------- -----------
Interest expense:
Deposits 926,545 943,666 2,821,495 2,659,390
Other borrowings 308,728 241,227 864,834 603,003
----------- ----------- ----------- -----------
Total interest expense 1,235,273 1,184,893 3,686,329 3,262,393
----------- ----------- ----------- -----------
Net interest income 889,177 673,966 2,384,683 2,112,529
Provision for losses on loans 9,000 9,000 27,000 27,000
----------- ----------- ----------- -----------
Net interest income after
provision for losses on loans 880,177 664,966 2,357,683 2,085,529
----------- ----------- ----------- -----------
Noninterest income:
Gain (loss) on sale of investments 0 4,748 0 14,436
Gain (loss) on sale of other assets 33,227 51,796 33,227 51,796
Fees and service charges 96,670 82,281 226,794 237,599
Other,primarily commissions 209,401 156,799 484,828 468,552
----------- ----------- ----------- -----------
Total noninterest income 339,298 295,624 744,849 772,383
----------- ----------- ----------- -----------
Noninterest expense:
Compensation and benefits 286,388 279,843 828,346 813,814
Office properties and equipment 52,979 56,591 176,249 170,524
Federal insurance premiums 45,536 46,049 136,848 137,490
Data processing services 33,402 30,632 100,044 94,288
Expense on real estate,net 1,539 (4,500) 3,367 (4,012)
Other 226,909 196,374 610,160 592,070
----------- ----------- ----------- -----------
Total noninterest expense 646,753 604,989 1,855,014 1,804,174
----------- ----------- ----------- -----------
Income before taxes on income 572,722 355,601 1,247,518 1,053,738
Taxes on income 198,400 114,200 418,300 345,800
----------- ----------- ----------- -----------
Net income $374,322 $241,401 $829,218 $707,938
=========== =========== =========== ===========
Earnings per common equivalent share:
Primary: $0.21 $0.13 $0.47 $0.40
Fully diluted: $0.21 $0.13 $0.47 $0.40
=========== =========== =========== ===========
Average common shares outstanding 1,726,792 1,741,464 1,705,189 1,699,856
=========== =========== =========== ===========
See notes to consolidated financial statements
-2-
MID-IOWA FINANCIAL CORP.
Consolidated Statements of Cash Flows
Nine months ended
June 30,
1996 1995
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Cash flows from operating activities:
Net income $829,218 $707,938
Origination of loans held for sale (1,196,387) (1,001,057)
Proceeds from sale of loans held for sale 1,150,642 825,223
Items not requiring (providing) cash -
Depreciation 78,068 70,700
Amortization (49,365) (81,837)
Provision for loan losses 27,000 27,000
(Gain) loss on sale of real estate (33,227) (51,796)
(Gain) loss on sale of investments 0 (14,436)
Changes in -
Accrued interest receivable 35,461 (122,306)
Accrued interest payable 41,357 180,428
Current taxes on income 113,640 25,167
Deferred taxes on income 6,008 (18,550)
Other,net 97,911 17,418
------------ ------------
Net cash provided by operating activities $1,100,326 $563,892
------------ ------------
Cash flows from investing activities:
Purchase of investment securities (9,449,748) (4,743,241)
Purchase of mortgage-backed securities AFS (600,000)
Proceeds from maturity of investments 7,000,000 71,938
Purchase of mortgage-backed securities (3,938,132) (1,216,917)
Principal collected on mortgage-backed
and related securities 3,279,063 1,775,644
Net change in loans to customers (2,686,077) (2,913,058)
Proceeds from sale of real estate 69,560 102,764
Purchase of office properties and equipment (183,612) (98,039)
Purchase of Federal Home Loan Bank stock (350,000) (271,000)
------------ ------------
Net cash used in investing activities ($6,858,946) ($7,291,909)
------------ ------------
Cash flows from financing activities:
Net change in deposits 33,158 339,486
Proceeds from borrowed funds 6,000,000 6,750,000
Advances from borrowers for taxes & ins. 231,775 203,729
Proceeds from exercise of stock options 110,743
Payments to acquire treasury stock (309,756) (347,468)
Dividends paid (107,232) (98,203)
------------ ------------
Net cash provided by financing activities $5,958,688 $6,847,544
------------ ------------
Increase in cash 200,068 119,527
Cash at beginning of period 1,416,408 2,114,625
------------ ------------
Cash at end of period $1,616,476 $2,234,152
============ ============
Supplemental disclosure of cash flow information:
Cash payments for:
Interest paid during the period $3,644,972 $3,081,965
Taxes on income $304,660 $320,633
Supplemental schedule of noncash activities:
Contract sales of real estate owned $0 $0
Transfer of loans to real estate owned $0 $0
See notes to consolidated financial statements.
-3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MID-IOWA FINANCIAL CORP. AND SUBSIDIARIES
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and nine months ended
June 30, 1996 are unaudited. In the opinion of Management of Mid-Iowa
Financial Corp. (the "Registrant or Company") these financial statements
reflect all adjustments, consisting only of normal occurring accruals,
necessary to present fairly these consolidated financial statements.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted.
2. ORGANIZATION
The Company was organized as a Delaware corporation in June, 1992 at the
direction of Mid-Iowa Savings Bank, F.S.B. (the Bank) for the purpose of
becoming a savings and loan holding company, as part of the conversion
from a mutual to a stock institution.
3. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Mid-Iowa Security Corporation and the
Bank and its wholly owned subsidiary, Center of Iowa Investments, Limited.
The principle business activities of Mid-Iowa Security Corporation are the
development and sale of real estate and real estate brokerage services.
Center of Iowa Investments, Limited provides credit reporting and
collection services, sells investment products, and provides discount
securities brokerage. All material intercompany accounts and transactions
have been eliminated.
4. EARNINGS PER SHARE COMPUTATIONS
Earnings per share primary - is computed using the weighted average number
of common shares outstanding after giving effect to additional shares
assumed to be issued in relation to the Company's stock option plan. Such
additional shares are assumed to be issued after the acquisition of shares
at the average price per share for the period under the Treasury stock
method with the assumed proceeds from exercise of stock options. Such
additional shares were 57,282 for the three months ended June 30, 1996 and
75,336 for the nine months ended June 30, 1996.
Earnings per share - fully diluted is computed in a similar manner but
using the ending price per share for the period, when applicable. Such
additional shares were 54,789 for the three months ended June 30, 1996 and
73,561 for the nine months ended June 30, 1996.
-4-
5. CONTINGENCIES
The United States Congress is currently considering legislation which, if
adopted, would impose a one-time assessment of .80 to .90 percent on
deposits insured by the Savings Institution Insurance Fund (SAIF). All of
the deposits of the Bank are SAIF-insured. If this legislation were
adopted, it is estimated that the Bank would incur a one-time pretax
expense of approximately $644,000 to $724,000 for this assessment (based
on March 31, 1995 deposit totals). It is also anticipated that the premium
for SAIF-insured deposits would be reduced to the Bank Insurance Fund
rate, thus reducing deposit insurance expense for the Bank. Since Congress
continues to consider this proposed legislation, the ultimate financial
impact on the Bank is not presently determinable.
-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
General
Mid-Iowa Financial Corp. ("Mid-Iowa or the "Company") was formed in
June of 1992 by Mid-Iowa Savings Bank, F.S.B. (the "Bank") to become the thrift
institution holding company of the Bank. The acquisition of the bank by the
Company was consummated on October 31, 1992 in connection with the Bank's
conversion from the mutual to the stock form (the "Conversion").
The primary business of the Company has historically consisted of
attracting deposits from the general public and providing financing for the
purchase of residential properties. The operations of the Company are
significantly affected by prevailing economic conditions as well as by
government policies and regulations relating to monetary and fiscal affairs,
housing and financial institutions.
The Company's net income is primarily dependent upon the difference
(or "spread") between the average yield earned on loans, mortgage-backed and
related securities and investments, and the average rate paid on deposits and
borrowing, as well as the relative amounts of such assets and 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 thrift institutions, is subject to interest rate risk to
the degree that its interest bearing liabilities mature or reprice at different
times, or on a different basis, than its interest-earning assets.
The Company's net income is also affected by, among other things,
gains and losses on sales of loans and foreclosed assets, provisions for
possible loan losses, service charges and other fees, commissions received from
subsidiary operations, operating expenses and income taxes. Center of Iowa
Investments, Limited, a wholly-owned subsidiary of the Bank, generates revenues
by the sale of insurance, annuities, mutual fund and other investment products
to its customers as well as providing discount securities brokerage, credit
reporting and collecting services. Mid-Iowa Security Corporation, a
wholly-owned subsidiary of the Company, generates revenues by real estate
brokerage services, and real estate development.
Financial Condition
Total assets increased by $7.0 million to $115.3 million for the nine
months ended June 30, 1996 compared to $108.2 million for September 30, 1995.
This increase was primarily due to increased lending activity and investment
purchases. Total loans receivable increased to $60.5 million at June 30, 1996
from $57.8 million at September 30, 1995. Investment securities increased $2.5
million to $19.3 million at June 30, 1996 from $16.8 million at September 30,
1995. The increase in assets was funded by a $6.0 million increase in borrowed
funds from $18.0 million at September 30, 1995 to $24.0 million at June 30,
1996.
-6-
Results of Operations
The Company's results of operations depend primarily on the level of
its net interest income and noninterest income and the level of its operating
expenses. Net interest income depends upon the volume of interest-earning
assets and interest-bearing liabilities and interest rates earned or paid on
them.
During the nine months ended June 30, 1996, the Company's operating
strategy to improve its profitability and capital position continued to
emphasize (i) maintenance of the Company's asset quality, (ii) asset-liability
management, (iii) management of operating expenses to improve operating income,
and (iv) expanding loan originations.
Comparison of three months and nine month periods ended June 30, 1996 and June
30, 1995.
General. The Company's net income increased by $133,000 to $374,000
for the three months ended June 30, 1996 from net income of $241,000 for the
same period in 1995 and increased by $121,000 to $829,000 for the nine months
ended June 30, 1996 from net income of $708,000 for the same period in 1995.
The primary reason for the increase was an increase of $68,000 and $93,000 in
other interest income for the three and nine month periods ended June 30, 1996
respectively. The other income consisted partially of patronage dividends from
Financial Information Trust and dividends on FHLMC preferred stock.
Interest Income. Interest income increased $265,000 to $2.1 million
from $1.9 million for the three months, ended June 30, 1996 and $696,000 to
$6.1 million from $5.4 million for the nine months ended June 30, 1996
primarily as a result of an increase in interest earning assets and an average
yield on interest-earning assets to 7.29% at June 30, 1996 from 7.12% at June
30, 1995. The increase was also partially due to a special $40,000 patronage
dividend from Financial Information Trust due to the sale of the company's
computer service provider to FiServ.
Interest Expense. Interest expense increased $50,000 in the three
months ended June 30, 1996 and increased $424,000 to $3.7 million from $3.3
million for the nine months ended June 30, 1996 due primarily to an increase in
interest bearing liabilities offset by a decrease in interest rates paid on
deposits and borrowings to 4.87% at June 30, 1996 from 4.98% at June 30, 1995.
Net Interest Income. The interplay of the changes in interest income
and expenses caused net interest income to increase $215,000 to $889,000 for
the three months ended June 30, 1996 and $272,000 to $2.4 million for the nine
months ended June 30, 1996 compared to the same periods in 1995. The Company's
average spread (the mathematical difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities) increased
to 2.66% and 2.42% from 2.14% and 2.32% for the three and nine month periods
ended June 30, 1996 and 1995 respectively. The Company's net interest margin
(net interest income divided by average interest-earning assets) increased to
3.08% and 2.86% for the three and nine month periods
-7-
ended June 30, 1996 and 1995 respectively from 2.58% to 2.74% from the same
periods in 1995.
Non-Performing Assets and Loan Loss Provision. Management establishes
specific reserves for estimated losses on loans when it determines that losses
are anticipated on these loans. The Company calculates any allowance for
possible loan losses based upon its ongoing evaluation of pertinent factors
underlying the types and quality of its loans. These factors include, but are
not limited to, the current and anticipated economic conditions including
uncertainties in the national real estate market, the level of classified
assets, historical loan loss experience, a detailed analysis of individual
loans for which full collectability may not be assured, a determination of
existence and fair value of the collateral, the ability of the borrower to
repay and the guarantees securing such loans. Management, as a result of this
review process, recorded provisions for loan losses in the amount of $9,000 for
the three months ended June 30, 1996 as compared to $9,000 for the three months
ending June 30, 1995. The Company's loan loss reserve balance as of June 30,
1996 was $272,000. The September 30, 1995 loan loss reserve balance was
$248,000. Total non-performing assets as of June 30, 1996 were $53,000 or .05%
of total assets.
The Company will continue to monitor and adjust its allowance for loan
losses as management's analysis of its loan portfolio and economic conditions
dictate. However, although the Company maintains its allowance for loan losses
at a level which it considers to be adequate to provide for potential losses,
in view of the continued uncertainties in the economy generally and the
regulatory uncertainty pertaining to reserve levels for the thrift industry
generally, there can be no assurance that such losses will not exceed the
estimated amounts or that the Company will not be required to make additional
substantial additions to its allowance for losses on loans in the future.
Noninterest Income. Noninterest income increased $43,000 and
decreased $28,000 to $340,000 and $745,000 in the three and nine months ended
June 30, 1996 from $296,000 and $772,000 in the same periods for 1995. The
increase is primarily due to increased commission income of the real estate
brokerage operation conducted through a subsidiary of the Company and the
decrease was a result of a $33,000 decrease in gains and the sale of assets. As
a result noninterest income generated by the Company's subsidiaries increased
and decreased to $230,000 and $482,000 compared to $197,000 and $491,000 for
the three and nine months ended June 30, 1996 and 1995 respectively.
Noninterest Expense. Noninterest expense increased $42,000 and $51,000
to $647,000 and $1.9 million respectively in the three and nine months ended
June 30, 1996 from $605,000 and $1.8 million in the same periods of 1995. This
increase was primarily due to an increase in commissions paid in the company's
subsidiary operations. Noninterest expense attributable to the Company's
subsidiaries increased to $164,000 and $424,000 compared to $138,000 and
$292,000 for the three and nine months ended June 30, 1996 and 1995
respectively.
-8-
Income Taxes. Income taxes for the three and nine months ended June
30, 1996 increased to $198,000 and $418,000 from $114,000 and $346,000 in the
same periods for 1995 due to $217,000 and $194,000 increase in income before
taxes for the same nine months ended September 30, 1996.
Liquidity and Capital Resource
The Bank's sources of funds are deposits, sales of mortgage loans,
amortization and repayment of loan principal and mortgage-backed and related
securities and, to a lesser extent, maturation of investments and funds from
other operations. While maturing investments are predictable, deposit flows and
loan repayments are influenced by interest rates, general economic conditions,
and competition making them less predictable. The Bank attempts to price its
deposits to achieve its asset/liability objectives and will from time to time
supplement deposits with longer term and/or less expense alternative sources of
funds including FHLB advances.
Federal regulations historically have required the Bank to maintain
minimum levels of liquid assets. The required percentage has varied from time
to time based on economic conditions and savings flows, and is currently 5% of
net withdrawable savings deposits and borrowings payable on demand or in one
year or less during the preceding calendar month. Liquid assets for purposes of
this ratio include cash, certain time deposits U.S. government and certain
corporate securities and other obligations generally having remaining
maturities of less than five years. The Bank has historically maintained its
liquidity ratio at levels in excess of those required. At June 30, 1996, the
amount of the Company's liquidity was $10.4 million, resulting in a liquidity
ratio of 10.2%. At September 30, 1995, the Bank's liquid assets (as defined)
totalled $11.1 million resulting in a liquidity ratio of 11.4%.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposits
flows, (iii) yields available on interest-bearing deposits, and (iv) the
objectives of its asset/liability management program. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short term
government and agency obligations. If the Bank requires additional funds,
beyond its internal ability to generate, it has additional borrowing capacity
with the FHLB of Des Moines and collateral eligible for repurchase agreements.
At June 30, 1996, the Bank had outstanding advances from the FHLB of Des Moines
in the amount of $24.0 million and had the capacity to borrow up to an
additional $20 million.
The Bank uses its liquidity resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), the capital requirements applicable to all savings
institutions, including the Bank, were substantially increased.
-9-
At June 30, 1996, the Bank had tangible and core capital of $9.0
million, or 7.94% of adjusted total assets, which was approximately $7.3
million and $5.6 million above the minimum requirements of 1.5% and 3.0%
respectively, of the adjusted total assets in effect on that date. On June 30,
1996, the Bank had risk-based capital of $9.3 million (including $9.0 million
in core capital), or 20.9% of risk-weighted assets of $44.5 million. This
amount was $5.7 million above the 8.0% requirement in effect on that date. The
Bank is presently in compliance with the fully phased-in capital requirements.
The Company has declared a cash dividend of $.02 per share for the
quarters ended December 31, 1995, March 31, 1996 and June 30, 1996. The Company
also declared a stock split of 100% or one additional share for every one share
outstanding to stockholders of record as of January 8, 1996.
-10-
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
There are various claims and lawsuits in which the Registrant is periodically
involved incidental to the Registrant's business. In the opinion of management,
no material loss is expected from any such pending claims or lawsuits.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The statement regarding computation of per share earnings is attached
hereto as Exhibit 11.
(b) None.
-11-
MID-IOWA FINANCIAL CORP.
INDEX OF EXHIBITS
Exhibits Page
11. Statement regarding computation of per share earnings. 14
-12-
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.
MID-IOWA FINANCIAL CORP.
-------------------------------------
Kevin D. Ulmer
President and Chief Executive Officer
-------------------------------------
Gary R. Hill
Executive Vice-President and Chief
Financial Officer
-13-