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 March 31, 1997
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)
Delaware
_________________________________________________________________
(State of other jurisdiction of incorporation or organization)
42-1389053
_________________________________________________________________
(I.R.S. Employer Identification No.)
123 West 2nd Street North, Newton, Iowa 50208
_________________________________________________________________
(Address of principal executive offices, zip code)
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.
1,676,488 shares outstanding at April 30, 1997
This Form 10-QSB contains 14 pages
MID-IOWA FINANCIAL CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31,
1997 and September 30, 1996 1
Consolidated Statements of Operations for
the three months and six months ended
March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for
the six months ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information 10
Index of Exhibits 11
Signatures 12
MID-IOWA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
------------ ------------
Assets
Cash and cash equivalents $ 2,860,968 $ 1,147,204
Securities available for sale 5,219,549 4,974,408
Securities held to maturity 46,125,206 44,231,879
Loans held for sale 0 0
Loans receivable, net 65,065,974 62,122,871
Accrued interest receivable 811,552 829,594
Federal Home Loan Bank stock 1,450,000 1,325,000
Real estate, net 33,866 37,306
Office properties and equipment, net 1,930,591 967,451
Intangibles, net 14,032 15,085
Prepaid expenses and other assets 60,167 153,247
------------ ------------
Total assets $123,571,905 $115,804,045
============ ============
Liabilities and Stockholders' Equity
Deposits $ 85,887,009 $ 82,871,963
Borrowed funds 25,000,000 20,500,000
Advance payments by borrowers
for taxes and insurance 220,362 199,921
Accrued interest payable 873,187 844,457
Accounts payable and accrued expenses 396,298 850,323
Accrued taxes on income:
Current 86,160 68,133
Deferred (128,973) (131,874)
------------ ------------
Total liabilities $112,334,043 $105,202,923
============ ============
Stockholders' Equity
Common Stock $ 17,299 $ 17,299
Additional paid-in capital 3,054,443 3,142,623
Retained earnings 8,491,959 7,882,078
Treasury Stock (338,809) (448,700)
Net unrealized gain on securities
available for sale 12,970 7,822
------------ ------------
Total stockholders' equity 11,237,862 10,601,122
------------ ------------
Total liabilities and stockholders'
equity $123,571,905 $115,804,045
============ ============
See notes to consolidated financial statements.
-1-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- -------- ---------
Interest income:
Loans $1,293,962 $1,190,413 $2,587,263 $2,378,468
Mortgage-backed and
related securities 482,162 449,341 952,757 913,822
Investment securities 379,079 280,361 754,126 555,190
Other 27,189 54,981 51,454 99,082
---------- ---------- ---------- ----------
Total interest income 2,182,392 1,975,096 4,345,600 3,946,562
---------- ---------- ---------- ----------
Interest expense:
Deposits 909,096 931,626 1,838,124 1,894,950
Other borrowings 377,850 271,043 735,631 556,106
---------- ---------- ---------- ----------
Total interest expense 1,286,946 1,202,669 2,573,755 2,451,056
---------- ---------- ---------- ----------
Net interest income 895,446 772,427 1,771,845 1,495,506
Provision for losses on loans 24,000 9,000 33,000 18,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on
loans 871,446 763,427 1,738,845 1,477,506
---------- ---------- ---------- ----------
Noninterest income:
Gain (loss) on sale of
other assets 0 0 23,230 0
Fees and service charges 94,205 66,074 183,317 130,124
Other, primarily commissions 142,604 91,939 388,217 275,427
---------- ---------- ---------- ----------
Total noninterest income 236,809 158,013 594,764 405,551
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 306,834 271,314 582,778 541,958
Office properties and
equipment 66,405 64,419 130,337 123,270
Federal insurance premiums 13,464 45,423 48,965 91,312
Data processing services 37,157 33,851 72,408 66,642
Expense on real estate, net (6,975) 929 (6,544) 1,828
Other 199,189 161,920 457,544 383,251
---------- ---------- ---------- ----------
Total noninterest expense 616,074 577,856 1,285,488 1,208,261
---------- ---------- ---------- ----------
Income before taxes on income 492,181 343,584 1,048,121 674,796
Taxes on income 168,590 113,234 352,000 219,900
---------- ---------- ---------- ----------
Net income $ 323,591 $ 230,350 $ 696,121 $ 454,896
========== ========== ========== ==========
Earnings per common equivalent
share:
Primary: $ 0.19 $ 0.13 $ 0.41 $ 0.26
Fully diluted: $ 0.19 $ 0.13 $ 0.41 $ 0.26
========== ========== ========== ==========
Average common shares outstanding 1,674,498 1,741,464 1,664,867 1,694,447
========== ========== ========== ==========
See notes to consolidated financial statements.
-2-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended March 31,
----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 696,121 $ 454,896
Origination of loans held for sale 0 (1,040,365)
Proceeds from sale of loans held for sale 0 899,786
Items not requiring (providing) cash-
Depreciation 54,800 52,075
Amortization (23,612) (39,948)
Provision for loan losses 33,000 18,000
(Gain) loss on sale of real estate (23,230) 0
Changes in -
Accrued interest receivable 18,042 32,873
Accrued interest payable 28,730 20,192
Current taxes on income 18,027 26,842
Deferred taxes on income 2,901 12,172
Other, net (363,151) (74,019)
----------- -----------
Net cash provided by operating activities $ 441,628 $ 362,504
----------- -----------
Cash flows from investing activities:
Purchase of investment securities (5,383,620) (8,076,622)
Purchase of investment securities AFS (388,612)
Proceeds from maturity of investments 2,000,000 4,000,000
Principal collected on mortgage-backed
and related securities 1,663,577 2,001,680
Net change in loans to customers (2,976,103) (1,248,465)
Proceeds from sale of real estate 26,682 0
Purchase of office properties and equipment (1,017,940) (149,795)
Purchase of Federal Home Loan Bank Stock (125,000) (119,000)
----------- -----------
Net cash used in investing activities $(6,201,016) $(3,592,202)
----------- -----------
Cash flows from financing activities:
Net change in deposits 3,015,046 9,652,510
Proceeds from borrowed funds 4,500,000 1,000,000
Advances from borrowers for taxes & ins. 20,441 40,618
Proceeds from exercise of stock options 52,225 110,743
Payments to acquire treasury stock (47,813) (14,250)
Dividends paid (66,735) (67,284)
----------- -----------
Net cash provided by financing activities $ 7,473,164 $10,722,337
----------- -----------
Increase in cash 1,713,776 7,492,639
Cash at beginning of period 1,147,204 1,416,408
----------- -----------
Cash at end of period $ 2,860,980 $ 8,909,047
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments for:
Interest paid during the period $ 2,545,025 $ 2,430,864
Taxes on income $ 333,973 $ 193,058
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 six
months ended March 31, 1997 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. 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 Bank's 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 29,693 for the three months ended March
31, 1997 and 20,146 for the six months ended March 31, 1997.
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 37,587 for the
three months ended March 31, 1997 and 25,501 for the six months
ended March 31, 1997.
-4-
5. EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" was issued in February, 1997. The statement is effective
for periods ending after December 15, 1997 and may not be adopted
prior to such date. The Company expects to adopt the Statement
when required and management believes adoption will not have a
material effect on disclosures of earnings per share.
-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 13, 1992 in connection with the Bank's conversion from
the mutual to 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
different (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 $7.6 million to $123.6 million at
March 31, 1997 compared to $115.8 million for September 30, 1996.
This increase was primarily due to an increase in loans of $3.0
million to $65.1 million for the six months ended March 31, 1997
compared to $62.1 million for September 30, 1996. Investment
securities increased to $51.3 million at March 31, 1997 from
$49.2 million at September 30, 1996. Cash and cash equivalents
increased to $2.9 million at March 31, 1997 from $1.1 million at
September 30, 1996. The increase in assets was funded primarily
by a $4.5 million increase in borrowed funds from $20.5 million
at September 30, 1996 to $25.0 million at March 31, 1997.
-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 six months ended March 31, 1997, 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 origination.
Comparison of three months and six month periods ended March 31,
1997 and March 31, 1996.
General. The Company's net income increased by $94,000 to
$324,000 for the three months ended March 31, 1997 from net
income of $230,000 for the same period in 1996 and increased by
$241,000 to $696,000 for the six months ended March 31, 1997 from
net income of $455,000 for the same period in 1996. The primary
reasons for the increase was an increase of $276,000 in net
interest income.
Interest Income. Interest income increased $207,000 to $2.2
million from $2.0 million for the three months, and $399,000 to
$4.3 million from $3.9 million for the six months ended March 31,
1997 primarily as a result of an increase in earning assets of
$8.3 million from $112.4 million to $120.7 million at March 31,
1996 and 1997 respectively. The average yield on interest
earning assets increased to 7.49% at March 31, 1997 from 7.03% at
March 31, 1996.
Interest expense. Interest expense increased $84,000 to
$1.3 million from $1.2 million in the three months and $123,000
to $2.6 million from $2.5 million for the six months ended March
31, 1997 due primarily to an increase in interest paying
liabilities of $4.2 million from $107.3 million to $111.5 million
at March 31, 1997 offset by a general decrease in interest rates
paid on deposits to 4.57% at March 31, 1997 from 4.70% at March
31, 1996.
Net Interest Income. The interplay of the changes in
interest income and expenses caused net interest income to
increase $123,000 to $895,000 for the three months ended March
31, 1997 and $276,000 to $1.7 million from $1.5 million for the
six months ended March 31, 1997 compared to the same periods in
1996. 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 2.63% from
2.33% and 2.27% for the three and six month periods ended March
31, 1997 and 1996 respectively. The Company's net interest
margin (net interest income divided by average interest-earning
assets) increased to 3.07% and 3.04% for the three and six months
ended March 31, 1997.
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
-7-
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 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 $24,000 for the three months ended March 31, 1997. The
Company's allowance for loan losses as of March 31, 1997 was
$289,000. The September 30, 1996 allowance for loan losses was
$274,000. Total nonperforming assets as of March 31, 1997 were
$155,000 or .13% 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 $79,000
and $189,000 to $237,000 and $595,000 in the three and six months
ended March 31, 1997 from $158,000 and $406,000 in the same
periods for 1996. This increase is primarily due to higher
commission income of the real estate subsidiary of the Company
and was partially due to a $23,000 increase in the gain on sale
of development land. As a result noninterest income generated by
the nonbank subsidiaries increased to $129,000 and $383,000
compared to $81,000 and $252,000 for the three and six months
ended March 31, 1997 and 1996 respectively.
Noninterest Expense. Noninterest expense increased $38,000
and $77,000 to $616,000 and $1.3 million in the three and six
months ended December 31, 1997 from $578,000 and $1.2 million in
the same periods of 1996. This increase for the three month
period was primarily due to increases in commission related to
the real estate subsidiary of the Company discussed above.
Noninterest expense attributable to the nonbank subsidiaries
increased to $123,000 and $314,000 compared to $59,000 and
$180,000 for the three and six months ended March 31, 1997 and
1996 respectively.
Income Taxes. Income taxes for the three and six months
ended March 31, 1997 increased to $169,000 and $352,000 from
$113,000 and $220,000 in the same periods for 1996 due to
corresponding changes in taxable income.
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.
-8-
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 March
31, 1997 the amount of the Company's liquidity was $6.3 million,
resulting in a liquidity ratio of 6.3%. At September 30, 1996
the Bank's liquid assets (as defined) totaled $10.0 million
resulting in a liquidity ratio of 9.6%.
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
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
March 31, 1997 the Bank had outstanding advances from the FHLB of
Des Moines in the amount of $25.0 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.
At March 31, 1997 the Bank had tangible and core capital of
$9.2 million, or 7.5% of adjusted total assets, which was
approximately $7.3 million and $5.5 million above the minimum
requirements of 1.5% and 3.0% respectively, of the adjusted total
assets on that date. On March 31, 1997 the Bank had risk-based
capital of $9.5 million (including $9.2 million in core capital),
or 19.0% of risk-weighted assets of $49.6 million. This amount
was $5.4 million above the 8.0% requirement in effect on that
date. The Bank is presently in compliance with all applicable
regulatory capital requirements.
The Company has declared a cash dividend of $.02 per share
for the quarters ended December 31, 1996 and March 31, 1997
respectively.
-9-
<PAGE
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
---------------------
Options on 20, 108 shares were exercised during the period.
The balance of shares outstanding at March 31, 1997 was
1,675,988.
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, 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 votes abstaining. There were no
broker non-votes for election of directors.
ITEM 5. Other Information
-----------------
On April 30, 1997 the Company received payment in the amount
of $221,000 in restitution to the Company from certain outside
investors found by the Office of Thrift Supervision to have
violated certain of the O.T.S's Change in Control Laws and
Regulations. None of these individuals is affiliated with Mid-
Iowa. The restitution was ordered in connection with the
individuals purchases of stock of the Company.
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.
-10-
MID-IOWA FINANCIAL CORP.
INDEX OF EXHIBITS
Exhibits Page
- -------- ----
11. Statement regarding computation of per
share earnings 13
27. Financial Data Schedule 14
-11-
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.
/s/ Kevin D. Ulmer
-------------------------------------
Kevin D. Ulmer
President and Chief Executive Officer
/s/ Gary R. Hill
------------------------------------
Gary R. Hill
Executive Vice President and
Chief Financial Officer
-12-