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, 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 July 31, 1997
This Form 10-QSB contains 15 pages
MID-IOWA FINANCIAL CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30,
1997 and September 30, 1996 1
Consolidated Statements of Operations for
the three months and nine months ended
June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for
the nine months ended June 30, 1997 and 1996 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 10
Index of Exhibits 11
Signatures 12
MID-IOWA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1997 1996
------------ ------------
Assets
Cash and cash equivalents $ 2,391,439 $ 1,147,204
Securities available for sale 5,062,238 4,974,408
Securities held to maturity 47,440,560 44,231,879
Loans held for sale 0 0
Loans receivable, net 65,988,828 62,122,871
Accrued interest receivable 903,444 829,594
Federal Home Loan Bank stock 1,525,000 1,325,000
Real estate, net 33,865 37,306
Office properties and equipment, net 2,066,806 967,451
Intangibles, net 13,505 15,085
Prepaid expenses and other assets 115,586 153,247
------------ ------------
Total assets $125,541,271 $115,804,045
============ ============
Liabilities and Stockholders' Equity
Deposits $ 81,572,593 $ 82,871,963
Borrowed funds 30,500,000 20,500,000
Advance payments by borrowers
for taxes and insurance 379,271 199,921
Accrued interest payable 932,275 844,457
Accounts payable and accrued expenses 297,409 850,323
Accrued taxes on income:
Current 237,232 68,133
Deferred (117,100) (131,874)
------------ ------------
Total liabilities $113,801,680 $105,202,923
============ ============
Stockholders' Equity
Common Stock $ 17,299 $ 17,299
Additional paid-in capital 3,037,875 3,142,623
Retained earnings 8,984,427 7,882,078
Treasury Stock (335,664) (448,700)
Net unrealized gain on securities
available for sale 35,654 7,822
------------ ------------
Total stockholders' equity 11,739,591 10,601,122
------------ ------------
Total liabilities and stockholders'
equity $125,541,271 $115,804,045
============ ============
See notes to consolidated financial statements.
-1-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1997 1996 1997 1996
--------- --------- -------- ---------
Interest income:
Loans $1,351,171 $1,226,333 $3,938,434 $3,604,801
Mortgage-backed and
related securities 509,304 497,306 1,462,061 1,411,128
Investment securities 396,697 295,772 1,150,823 850,962
Other 32,688 105,039 84,142 204,121
---------- ---------- ---------- ----------
Total interest income 2,289,860 2,124,450 6,635,460 6,071,012
---------- ---------- ---------- ----------
Interest expense:
Deposits 980,765 926,545 2,818,889 2,821,495
Other borrowings 385,875 308,728 1,121,506 864,834
---------- ---------- ---------- ----------
Total interest expense 1,366,640 1,235,273 3,940,395 3,686,329
---------- ---------- ---------- ----------
Net interest income 923,220 889,177 2,695,065 2,384,683
Provision for losses on loans 24,000 9,000 57,000 27,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on
loans 899,220 880,177 2,638,065 2,357,683
---------- ---------- ---------- ----------
Noninterest income:
Gain (loss) on sale of
other assets 1,003 33,227 24,233 33,227
Fees and service charges 86,897 96,670 270,214 226,794
Other, primarily commissions 246,068 209,401 634,285 484,828
Other income 221,000 0 221,000 0
---------- ---------- ---------- ----------
Total noninterest income 554,968 339,298 1,149,732 744,849
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 303,421 286,388 886,199 828,346
Office properties and
equipment 63,809 52,979 194,146 176,249
Federal insurance premiums 13,042 45,536 62,007 136,848
Data processing services 36,159 33,402 108,567 100,044
Expense on real estate, net (5,417) 1,539 (11,961) 3,367
Other 274,530 226,909 732,074 610,160
---------- ---------- ---------- ----------
Total noninterest expense 685,544 646,753 1,971,032 1,855,014
---------- ---------- ---------- ----------
Income before taxes on income 768,644 572,722 1,816,765 1,247,518
Taxes on income 262,200 198,400 614,200 418,300
---------- ---------- ---------- ----------
Net income $ 506,444 $ 374,322 $1,202,565 $ 829,218
========== ========== ========== ==========
Earnings per common equivalent
share:
Primary: $ 0.29 $ 0.21 $ 0.71 $ 0.47
Fully diluted: $ 0.29 $ 0.21 $ 0.70 $ 0.47
========== ========== ========== ==========
Average common shares outstanding 1,676,488 1,741,464 1,668,741 1,705,189
========== ========== ========== ==========
See notes to consolidated financial statements.
-2-
MID-IOWA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 1,202,565 $ 829,218
Origination of loans held for sale 0 (1,196,387)
Proceeds from sale of loans held for sale 0 1,150,642
Items not requiring (providing) cash-
Depreciation 84,020 78,068
Amortization (35,825) (49,365)
Provision for loan losses 57,000 27,000
(Gain) loss on sale of real estate (24,233) (33,227)
Changes in -
Accrued interest receivable (73,850) 35,461
Accrued interest payable 87,818 41,357
Current taxes on income 169,099 113,640
Deferred taxes on income 14,774 6,008
Other, net (530,483) 97,911
----------- ------------
Net cash provided by operating activities $ 950,885 $ 1,100,326
----------- -----------
Cash flows from investing activities:
Purchase of investment securities (8,725,539) (13,387,880)
Purchase of investment securities AFS (388,612) (600,000)
Proceeds from maturity of investments 3,026,354 7,000,000
Principal collected on mortgage-backed
and related securities 2,872,533 3,279,063
Net change in loans to customers (3,922,957) (2,686,077)
Proceeds from sale of real estate 27,674 69,560
Purchase of office properties and equipment (1,183,375) (183,612)
Purchase of Federal Home Loan Bank Stock (200,000) (350,000)
----------- ------------
Net cash used in investing activities $(8,493,922) $ (6,858,946)
----------- ------------
Cash flows from financing activities:
Net change in deposits (1,299,370) 33,158
Proceeds from borrowed funds 10,000,000 6,000,000
Advances from borrowers for taxes & ins. 179,350 231,775
Proceeds from exercise of stock options 55,370 110,743
Payments to acquire treasury stock (47,813) (309,756)
Dividends paid (100,265) (107,232)
----------- ------------
Net cash provided by financing activities $ 8,787,272 $ 5,958,688
----------- ------------
Increase in cash 1,224,235 200,068
Cash at beginning of period 1,147,204 1,416,408
----------- ------------
Cash at end of period $ 2,391,439 $ 1,616,476
=========== ============
Supplemental disclosure of cash flow information:
Cash payments for:
Interest paid during the period $ 3,852,577 $ 3,644,972
Taxes on income $ 445,101 $ 304,660
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, 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 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 53,574 for the three months ended June 30, 1997, and
19,969 for the nine months ended June 30, 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 70,253 for the three
months ended June 30, 1997, and 49,067 for the nine months ended
June 30, 1997.
-4-
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 $9.7 million to $125.6 million for the
nine months ended June 30, 1997, compared to $115.8 million for
September 30, 1996. This increase was primarily due to increased
lending activity and investment purchases. Total loans
receivable increased to $66.0 million at June 30, 1997, from
$62.1 million at September 30, 1996. Investment securities
increased $3.3 million to $52.5 million at June 30, 1997, from
$49.2 million at September 30, 1996. The increase in assets was
funded by a $10.0 million increase in borrowed funds from $20.5
million at September 30, 1996, to $30.5 million at June 30, 1997.
-5-
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.
During the nine months ended June 30, 1997, the Company's
operating strategy to improve its profitability and capital
position continued to emphasize the (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,
1997 AND JUNE 30, 1996
General. The Company's net income increased by $132,000 to
$506,000 for the three months ended June 30, 1997 from net income
of $374,000 for the same period in 1996 and increased by $373,000
to $1.2 million for the nine months ended June 30, 1997 from net
income of $829,000 for the same period in 1996. The primary
reason for the increase was an increase of $221,000 in other
income for the three and nine month periods ended June 30, 1997.
The other income consisted of restitution paid to the Company
from certain outside investors found by the Office of Thrift
Supervision to have violated the OTS Change in Control Laws and
Regulations. This increase was partially offset by an increase
in taxes on income of $64,000 and $196,000 for the three and six
months period ended June 30, 1997, respectively.
Interest Income. Interest income increased $165,000 to $2.3
million from $2.1 million for the three months ended June 30,
1997, and $564,000 to $6.6 million from $6.0 million for the nine
months ended June 30, 1997, primarily as a result of an increase
in interest earning assets and an average yield on interest-
earning assets to 7.54% at June 30, 1997, from 7.29% at June 30,
1996.
Interest Expense. Interest expense increased $131,000 in the
three months ended June 30, 1997, and increased $254,000 to $3.9
million from $3.7 million for the nine months ended June 30,
1997, due primarily to an increase in interest bearing
liabilities.
Net Interest Income. The interplay of the changes in interest
income and expenses caused net interest income to increase
$34,000 to $923,000 for the three months ended June 30, 1997, and
$310,000 to $2.7 million for the nine months ended June 30, 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 2.67% and 2.66% from 2.65% and 2.42%
for the three and nine month periods ended June 30, 1997, and
1996 respectively. The Company's net interest margin (net
interest income divided by average
-6-
interest-earning assets) decreased to 3.05% and increased to
3.08% for the three and nine month periods ended June 30, 1997,
and 1996 respectively from 3.08% to 2.86% from the same periods
in 1995.
Nonperforming 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
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 June
30, 1997, as compared to $9,000 for the three months ended June
30, 1996. The Company's loan loss reserve balance as of June 30,
1997 was $299,000. The September 30, 1996 loan loss reserve
balance was $272,000. Total nonperforming assets as of June 30,
1997, were $20,000 or .02% of total assets.
The Company will continue to monitor and adjusts 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, 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 $216,000 and
$405,000 to $555,000 and $1.1 million in the three and nine
months ended June 30, 1997 from $340,000 and $745,000 in the same
periods for 1996. The increase is primarily due to restitution
paid to the Company from certain outside investors found by the
Office of Thrift Supervision to have violated the OTS Change in
Control Laws and Regulations and from increased commissions
income of the real estate brokerage operation conducted through a
subsidiary of the Company. As a result, noninterest income
generated by the Company's subsidiaries increased to $232,000 and
$614,000 compared to $230,000 and $482,000 for the three and nine
months ended June 30, 1997 and 1996 respectively.
Noninterest Expense. Noninterest expense increased $39,000 and
$116,000 to $686,000 and $2.0 million respectively in the three
and nine months ended June 30, 1997, from $647,000 and $1.9
million in the same periods of 1996. 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 $205,000 and $519,000
compared to $164,000 and $424,000 for the three and nine months
ended June 30, 1997 and 1996 respectively.
-7-
Income Taxes. Income taxes for the three and nine months ended
June 30, 1997, increased to $362,000 and $614,000 from $198,000
and $418,000 in the same periods for 1996 due to a
$132,000 and $373,000 increase in income before taxes for the
same three and nine months ended June 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 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 4% 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, 1997, the amount of the Company's liquidity was $4.4 million,
resulting in a liquidity ratio of 5.0%. At September 30, 1996,
the Bank's liquid assets (as defined) totalled $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 June 30, 1997,
the Bank had outstanding advances from the FHLB of Des Moines in
the amount of $30.5 million and had the capacity to borrow up to
an additional $15 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.
-8-
At June 30, 1997, the Bank had tangible and core capital of $9.4
million, or 7.57% of adjusted total assets, which was
approximately $7.5 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, 1997, the Bank had
risk-based capital of $9.7 million (including $9.4 million in
core
capital), or 19.1% of risk-weighted assets of $50.5 million.
This amount was $5.6 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 divided of $.02 per share for the
quarters ended December 31, 1996, March 31, 1997 and June 30,
1997.
-9-
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 and Form 8-K
---------------------------------
(a) The statement regarding computation of per share earnings is
attached hereto as Exhibit 11 and summary financial information
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-