UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
-----------------------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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: No. 0-20464
Mid-Iowa Financial Corp.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
42-1389053
_________________________________________________________________
(I.R.S. Employer Identification No.)
123 West 2nd Street North, Newton, Iowa 50208
_________________________________________________________________
(Address of principal executive offices)
515-792-6236
_________________________________________________________________
(Registrant's telephone number, including area code)
_________________________________________________________________
(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 report) 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.
1,675,988 shares outstanding at January 31, 1997
This Form 10-QSB contains 10 pages
MID-IOWA FINANCIAL CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31,
1996 and September 30, 1996 1
Consolidated Statements of Operations for
the three months ended December 31, 1996
and 1995 2
Consolidated Statements of Cash Flows for
the Three months ended December 31, 1996
and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Part II. Other Information 9
Index of Exhibits 10
Signatures 12
MID-IOWA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1996
------------ ------------
Assets
Cash and cash equivalents $ 2,623,059 $ 1,147,204
Securities available for sale 4,948,024 4,974,408
Securities held to maturity 43,440,574 44,231,879
Loans held for sale 0 0
Loans receivable, net 62,774,795 62,122,871
Accrued interest receivable 854,939 829,594
Federal Home Loan Bank stock 1,325,000 1,325,000
Real estate, net 33,854 37,306
Office properties and equipment, net 992,066 967,451
Intangibles, net 14,558 15,085
Prepaid expenses and other assets 68,199 153,247
------------ ------------
Total assets $117,066,068 $115,804,045
============ ============
Liabilities and Stockholders' Equity
Deposits $ 79,059,350 $ 82,871,963
Borrowed funds 25,500,000 20,500,000
Advance payments by borrowers
for taxes and insurance 376,583 199,921
Accrued interest payable 889,338 844,457
Accounts payable and accrued expenses 214,687 850,323
Accrued taxes on income:
Current 246,725 68,133
Deferred (125,218) (131,874)
------------ ------------
Total liabilities $106,161,465 $105,202,923
============ ============
Stockholders' Equity
Common Stock $ 17,299 $ 17,299
Additional paid-in capital 3,121,599 3,142,623
Retained earnings 8,210,477 7,882,078
Treasury Stock (465,088) (448,700)
Net unrealized gain on securities
available for sale 20,316 7,822
------------ ------------
Total stockholders' equity 10,904,603 10,601,122
------------ ------------
Total liabilities and stockholders'
equity $117,066,068 $115,804,045
============ ============
See notes to consolidated financial statements.
-1-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
ended December 31,
----------------------------
1996 1995
------------ ------------
Interest income:
Loans $1,293,301 $1,188,055
Mortgage-backed and related securities 470,595 464,481
Investment securities 375,047 274,829
Other 24,265 44,101
---------- ----------
Total interest income 2,163,208 1,971,466
---------- ----------
Interest expense:
Deposits 929,028 963,324
Other borrowings 357,781 285,063
---------- ----------
Total interest expense 1,286,809 1,248,387
---------- ----------
Net interest income 876,399 723,079
Provision for losses on loans 9,000 9,000
---------- ----------
Net interest income after provision
for losses on loans 867,399 714,079
---------- ----------
Noninterest income:
Gain (loss) on sale of investments 0 0
Gain (loss) on sale of other assets 23,230 0
Fees and service charges 89,112 64,050
Other, primarily commissions 245,613 183,488
---------- ----------
Total noninterest income 357,955 247,538
---------- ----------
Noninterest expense:
Compensation and benefits 275,944 270,644
Office properties and equipment 63,932 58,851
Federal insurance premiums 35,501 45,889
Data processing services 35,251 32,791
Expense on real estate, net 431 899
Other 258,355 221,331
---------- ----------
Total noninterest expense 669,414 630,405
---------- ----------
Income before taxes on income 555,940 331,212
Taxes on income 183,410 106,666
---------- ----------
Net income $ 372,530 $ 224,546
========== ==========
Earnings per common equivalent share:
Primary: $ 0.22 $ 0.13
Fully diluted: $ 0.22 $ 0.13
========== ==========
Average common shares outstanding 1,655,445 1,741,464
========== ==========
See notes to consolidated financial statements.
-2-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
ended December 31,
----------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 372,530 $ 224,546
Origination of loans held for sale 0 (619,465)
Proceeds from sale of loans held for sale 0 473,777
Items not requiring (providing) cash-
Depreciation 26,400 26,038
Amortization (12,696) (13,451)
Provision for loan losses 9,000 9,000
(Gain) loss on sale of real estate (23,230) 0
Changes in -
Accrued interest receivable (16,345) 81,918
Accrued interest payable 44,881 40,705
Current taxes on income 178,592 96,667
Deferred taxes on income 6,656 867
Other, net (550,588) (48,269)
----------- -----------
Net cash provided by operating activities $ 35,200 $ 272,333
----------- -----------
Cash flows from investing activities:
Purchase of investment securities (449,328) (2,000,994)
Purchase of investment securities AFS 0 0
Proceeds from maturity of investments 526,354 3,000,000
Principal collected on mortgage-backed
and related securities 755,418 852,984
Net change in loans to customers (660,924) (1,771,730)
Proceeds from sale of real estate 26,682 0
Purchase of office properties and equipment (51,015) (34,928)
Purchase of Federal Home Loan Bank Stock 0 (119,000)
----------- -----------
Net cash used in investing activities $ 147,187 $ 73,668
----------- -----------
Cash flows from financing activities:
Net change in deposits (3,812,613) (261,260)
Proceeds from borrowed funds 5,000,000 1,000,000
Advances from borrowers for taxes & ins. 176,662 204,783
Proceeds from exercise of stock options 10,400 12,093
Payments to acquire treasury stock (47,813) (14,250)
Dividends paid (33,168) (33,581)
----------- -----------
Net cash provided by financing activities $ 1,293,468 $ 907,785
----------- -----------
Increase in cash 1,475,855 1,106,450
Cash at beginning of period 1,147,204 1,416,408
----------- -----------
Cash at end of period $ 2,623,059 $ 2,522,858
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments for:
Interest paid during the period $ 1,241,928 $ 1,207,682
Taxes on income $ 4,818 $ 9,999
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 months ended
December 31, 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
principals have been omitted.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Parent Company and its wholly owned subsidiaries, Mid-Iowa
Security Corporation and Mid-Iowa Savings Bank, F.S.B. (the
"Bank") and its wholly owned subsidiary, Center of Iowa
Investments, Limited. The principal 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.
3. 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 51, 778 for the three months ended December 31, 1996.
Earnings per share - fully diluted is computed in a similar
manner but using the ending price per share for the period. Such
additional shares were 52,284 for the three months ended December
31, 1996.
-4-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 13, 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 borrowings, 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 funds 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 $1.3 million to $117.1 million for
the three months ended December 31, 1996 compared to $115.8
million for September 30, 1996. This increase was primarily due
to an increase in cash and cash equivalents. Total loans
receivable increased to $62.8 million at December 31, 1996 from
$62.1 million at September 30, 1996. The increase in assets was
funded by $5.0 million increase in borrowed funds from $20.5
million at September 30, 1996, to $25.5 million at December 31,
1996, partially offset by a decrease in deposits of $3.8 million
from $82.9 million at September 30, 1996, to $79.1 million at
December 31, 1996.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on the
level of its net interest income and non interest 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.
-5-
During the three months ended December 31, 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 ENDED DECEMBER 31, 1996 AND DECEMBER
31, 1995.
General. The Company's net income increased by $148,000 to
$373,000 for the three months ended December 31, 1996 from net
income of $225,000 for the same period in 1995. The primary
reason for the increase in net income was a $153,000 increase in
net interest income.
Interest income. Interest income increased $192,000 to $2.2
million for the three months ended December 31, 1996 from $2.0
million for the same period in 1995 primarily as a result of an
increase in interest-earning assets to $114.5 million at December
31, 1996 from $107.5 million at December 31, 1995.
Interest expense. Interest expense increased $39,000 to
$1.3 million in the three months ended December 31, 1996 from
$1.2 million in the same period in 1995 due primarily to an
increase in borrowed funds of $6.5 million to $25.5 million at
December 31, 1996 from $19.0 million at December 31, 1995.
Net Interest Income. The interplay of the changes in
interest income and expenses caused net interest income to
increase $153,000 to $876,000 at December 31, 1996 compared to
$723,000 for the same period 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 2.64% for the period ended December 31,
1996 from 2.34% for the period ended December 31, 1995. The
Company's net interest margin (net interest income divided by
average interest-earning assets) increased to 3.07% at December
31, 1996 from 2.72% at December 31, 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, included 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
collectibility may not be assured, a determination of the
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 ending December 31, 1996 as compared to $9,000 for the
three months ending December 31, 1995. The Company's loan loss
allowance as of December 31, 1996 was $281,000. The September
30, 1995 loan loss reserve was $259,000. Total non-performing
assets as of December 31, 1996 were $93,000 or .08% of total
assets.
The Company will continue to monitor and adjust its
allowance for losses on loans as management's analysis of its
loan portfolio and economic conditions dictate. However,
although the Company maintains its allowance for losses on loans
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.
-6-
Noninterest income. Noninterest income increased $110,000
to $358,000 in the three months ended December 31, 1996 from
$248,000 in the same period for 1995. This increase is primarily
due to an increase in commissions in the real estate sales
operation conducted through a subsidiary of the Company. As a
result, noninterest income generated by the Company's non-banking
subsidiaries increased to $254,000 compared to $171,000 for the
three months ended December 31, 1996 and 1995 respectively.
Noninterest Expense. Noninterest expense increased $39,000
to $669,000 in the three months ended December 31, 1996 from
$630,000 in the same period of 1995. This increase was primarily
due to an increase in commissions paid real estate agents in the
Company's subsidiary. Noninterest expense attributable to the
Company's subsidiaries increased to $191,000 compared to $161,000
for the three months ended December 31, 1996 and 1995
respectively.
Income taxes. Income taxes for the three months ended
December 31, 1996 increased to $183,000 from $107,000 in the same
period for 1995 due to a $225,000 increase in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's sources of funds are deposits, sales of mortgage
loans, amortization and repayment of loan principal and mortgage-
back 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 it less predictable. The Bank attempts to
price its deposits to achieve its asset/liability, objectives and
will from time to time to supplement deposits with longer term
and/or less expensive 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
December 31, 1996, the amount of the Company's liquidity was $5.5
million, resulting in a liquidity ratio of 5.7%. At December 31,
1995 the Bank's liquid assets (as defined) totalled $12.7 million
resulting in a liquidity ratio of $12.7%.
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 deposit 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
required 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
December 31, 1996, the Bank had outstanding advances from the
FHLB of Des Moines in the amount of $25.5 million and had the
capacity to borrow up to an additional $20 million.
-7-
The Bank uses its liquidity resources principally to meet
on-going 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.
At December 31, 1996, the Bank had tangible and core capital
of $8.8 million or 7.66% of adjusted total assets, which was
approximately $7.1 million and $5.4 million above the minimum
requirements of 1.5% and 3.0% respectively, of the adjusted total
assets in effect on that date. On December 31, 1996, the Bank
had risk-based capital of $9.1 million (including $8.8 million in
core capital), or 19.8% of risk-weighted assets of $46.2 million.
This amount was $5.4 million above the 8.0% requirement in effect
on that date. The Bank is presently in compliance with
applicable capital requirements.
The Company has declared a cash dividend of $.02 per share
for the quarter ended December 31, 1996.
-8-
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
---------------------
The Company repurchased 7,500 shares of its common stock and
options on 5,000 shares were exercised during the period. The
balance of shares outstanding at December 31, 1996 was 1,655,880.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Registrant convened its Annual Meeting of Stockholders on
January 20, 1997. At that meeting, the stockholders of the
Registrant considered and voted upon:
1. The election of directors, Ralph McAdoo and Carney
Loucks. Ralph McAdoo was elected by a vote of 1,306,667
votes in favor and NO votes opposed and 24,704 votes
abstaining. Carney Loucks was elected by a vote of
1,306,667 Votes in favor, NO votes opposed and 24,704
abstaining. There were no broker non-votes for election
of Directors.
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.
Financial Data Schedule is attached hereto as
Exhibit 27.
(b) None
-9-
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MID-IOWA FINANCIAL CORP.
By: /s/ Kevin D. Ulmer
-------------------------
Kevin D. Ulmer
President and Chief
Executive Officer
By: /s/ Gary R. Hill
-------------------------
Gary R. Hill
Vice President and
Chief Financial Officer
-10-