EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
First Midwest Financial, Inc. | Annual Report 1999
Advancing into the next
millennium
Company Vision and Mission
VISION OF FIRST MIDWEST FINANCIAL, INC.
BUILD THE BEST SUPER-COMMUNITY BANK SYSTEM IN THE MIDWEST.
VISION OF FIRST MIDWEST FINANCIAL BANKS
BE THE BANK OF CHOICE FOR FINANCIAL SERVICES IN OUR MARKET AREA.
MISSION
HAVE A PROFESSIONAL, KNOWLEDGEABLE TEAM THAT COST EFFECTIVELY PROVIDES
VALUE-ADDED FINANCIAL PRODUCTS AND SERVICES THAT BENEFIT OUR CUSTOMERS.
Company Values
CUSTOMER SERVICE
OUTSTANDING INTERNAL AND EXTERNAL CUSTOMER SERVICE ARE THE FOUNDATION
OF OUR SUCCESS. MEETING CUSTOMER FINANCIAL NEEDS AND EXCEEDING EXPECTATIONS
CONTRIBUTE TO CUSTOMER SATISFACTION AND LONG-TERM RELATIONSHIPS.
CONTINUOUS IMPROVEMENT
WE EMBRACE CHANGE TO IMPROVE THE QUALITY AND PRODUCTIVITY OF OUR PRODUCT
OFFERINGS, BUSINESS OPERATIONS, AND CUSTOMER SERVICE.
GREAT WORK ENVIRONMENT
WE EMBRACE AN ATMOSPHERE OF OPEN COMMUNICATION AND MUTUAL RESPECT WHERE PEOPLE
ARE TREATED FAIRLY, HAVE FULFILLING CAREER OPPORTUNITIES AND CHALLENGES, AND ARE
ABLE TO MAKE A DIFFERENCE IN THE COMMUNITIES WE SERVE.
RESULTS
WE ARE RESULTS ORIENTED. MEETING GOALS ALLOWS THE COMPANY TO EARN A FAIR PROFIT
WHILE SERVICING OUR CUSTOMERS IN AN EFFICIENT AND PROFESSIONAL MANNER.
First Midwest Financial, Inc.
First Federal Savings Bank
of the Midwest Security State Bank
Brookings Federal Bank First Federal Savings Bank Iowa Savings Bank
Division Division Divisions
Company Profile
First Midwest Financial, Inc., with assets of $511 million, is the holding
company for First Federal Savings Bank of the Midwest and Security State Bank.
Headquartered in Storm Lake, Iowa, the Company converted from mutual ownership
to stock ownership in 1993. Its primary business is marketing financial deposit
and loan products to meet the needs of retail bank customers.
First Midwest operates under a super-community banking philosophy that allows
the Company to acquire commercial and savings banks while preserving its close
community interaction. Administrative functions, transparent to the customer,
are centralized to enhance the banks' operational efficiencies and to improve
customer service capabilities.
First Federal Savings Bank of the Midwest operates as a thrift with three
divisions: Brookings Federal Bank, First Federal Savings Bank, and Iowa Savings
Bank. Eleven offices support customers in Brookings, South Dakota, and
throughout central and northwest Iowa. Plans are underway to begin construction
of two additional offices in the cities of Urbandale, Iowa and Sioux Falls,
South Dakota.
Security State Bank operates as a state-chartered commercial bank. It is
headquartered in Stuart, Iowa, with two branch offices located in central Iowa.
First Services Financial Limited, a subsidiary of First Federal Savings Bank,
offers discount brokerage services and noninsured investment products through
contracts with LaSalle St. Securities, Inc., Ameritas Investment Corp., and
Central Financial Group. Brookings Service Corporation, a First Services
subsidiary, is a full-service brokerage operation offering a wide range of
noninsured investment products through PrimeVest Investment Center.
First Midwest Financial, Inc.'s common stock is listed under the trading
symbol "CASH" on the Nasdaq National Market.
Banks are members FDIC and Equal Housing Lenders.
Financial Highlights
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1999 1998 1997 1996 1995
(Dollars In Thousands Except Per Share Data)
- -----------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30
Total assets $511,213 $418,380 $404,589 $388,008 $264,213
Total loans 303,079 270,286 254,641 243,534 178,552
Total deposits 304,780 283,858 246,116 233,406 171,793
Shareholders' equity 39,771 42,286 43,477 43,210 38,013
Book value per common share (1) $ 15.86 $ 16.56 $ 16.11 $ 14.81 $ 14.13
Total equity to assets 7.78% 10.11% 10.75% 11.14% 14.39%
- -----------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEAR
Net interest income $ 13,197 $ 12,829 $ 11,946 $ 10,359 $ 9,405
Net income 2,641 2,785 3,642 2,414(2) 3,544
Diluted earnings per share (1) $ 1.04 $ 1.03 $ 1.28 $ 0.90(2) $ 1.33
Return on average assets .54% .68% .98% .77%(2) 1.31%
Return on average equity 6.35% 6.43% 8.41% 6.22%(2) 9.86%
Net yield on interest-earning assets 2.83% 3.26% 3.38% 3.47% 3.63%
Cash earnings (3) $ 3,006 $ 3,150 $ 4,006 $ 2,584(2) $ 3,670
Cash earnings per share diluted (1) (3) $ 1.18 $ 1.17 $ 1.40 $ 0.96(2) $ 1.39
Cash return on average assets (3) .61% .77% 1.08% .82%(2) 1.36%
Cash return on average equity (3) 7.23% 7.27% 9.25% 6.66%(2) 10.21%
=================================================================================================================
[GRAPHIC OMITTED -- Bar Graph - Total Assets]
[GRAPHIC OMITTED -- Bar Graph - Total Deposits]
[GRAPHIC OMITTED -- Bar Graph - Net Interest Income]
[GRAPHIC OMITTED -- Bar Graph - Net Income]
(1) Amounts reported have been adjusted for the three for two stock split
paid January 2, 1997 in the form of a 50 percent stock dividend.
(2) Reflects the one-time, industry-wide special assessment to recapitalize
the Savings Association Insurance Fund. Excluding the special
assessment, Net income, Diluted earnings per share, Return on average
assets, and Return on average equity would have been $3,209,000, $1.19,
1.01%, and 8.22%, respectively.
(3) Cash earnings exclude the amortization of goodwill from net income, net
of related income taxes.
The company and its subsidiaries exceed their regulatory capital requirements.
Advancing into the next millenium
Contents
Company Vision,
Mission, and Values ...... C1
Company Profile .......... C2
Financial Highlights ..... C3
Chairman's Letter ........ 2
Bank Highlights .......... 4
Financials ............... 8
Directors ................ 53
Executive Officers ....... 54
Office Locations ......... 55
Corporate and Stock
Market Information ....... 56
Economic Data ............ C4
Chairman's Letter
To our
Shareholders
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Asset growth of 22 percent boosted the Company past the half billion-dollar
milestone, to a record $511 million in assets.
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The Company faced challenging business conditions in 1999. The economic
environment in our agriculturally-based markets continues to impact farmers and
main street. Despite hardships, our earnings per share increased to $1.04, up
from $1.03 in 1998. Asset growth of 22 percent boosted the Company past the half
billion-dollar milestone, to a record $511 million in assets.
Continued turbulence in agricultural markets is evident. We remain committed
to serving the ag credit needs of our communities. However, current and
projected conditions demand that we be selective. We have upgraded our lending
staff, redoubled our efforts to manage credit quality, and further diversified
our loan portfolio to benefit both customers and shareholders. In addition, the
Company proactively increased the reserve for loan loss to protect future
earnings.
Deposit growth is a highlight for the Company. Core deposits rose over 7
percent amidst heightened competition in the financial services industry. Our
strategy to lower the Company's cost of money by increasing demand deposit
balances is working as intended. Demand deposits increased 44 percent this past
year.
On the lending side, the Company benefited from both increased loan volume
and improved credit quality. Loan growth totaled nearly 11 percent for the year.
The percentage of loans greater than 30 days past due dropped from 6.36 percent
in 1998 to 1.59 percent in 1999, while the percentage of nonperforming loans
dropped from 2.59 percent to .73 percent. These positive results are a
reflection of our upgraded lending team and our focus on credit quality.
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"We are poised to expand operations, pursue profitable growth, and increase the
Company's value in 2000 and beyond."
- --------------------------------------------------------------------------------
The Company's branding program is taking shape as we make adjustments to our
product mix and introduce new or revamped products to meet
2
our customers' needs. Timeless Checking, a nationally recognized packaged
account that promotes cross-selling and relationship banking, and the QUICKcard
Cash & Check help differentiate us from our competitors. QUICKbank, a 24-hour
telephone banking service, is slated for introduction during the first half of
2000. This additional delivery channel offers our customers another convenient
option to conduct account transactions 24 hours a day, seven days a week.
We recognize that our competitors are not just the banks across the street.
Regulatory changes, advances in technology, and consolidation in the financial
services industry have produced fewer differences among financial service
providers. Customers have a choice where to conduct their financial business. We
are actively implementing operational and marketing strategies designed to
enhance our competitive position.
First Midwest is committed to profitable growth. We continue to seek
opportunities to expand our branch network and to acquire savings banks,
commercial banks, and other related-service companies in our geographical area.
In addition, we consider dividend and stock repurchase possibilities. The
Company analyzes each capital leverage and capital management strategy carefully
before taking action. We are dedicated to increasing return on equity that will
provide increased shareholder value for you.
In the spring of 2000, we break ground on the construction of two new
locations: Iowa Savings Bank's new headquarters in Urbandale, Iowa and a new
office building in Sioux Falls, South Dakota. Both are prime locations and we
anticipate a timely return on our investment in these expanding markets.
- --------------------------------------------------------------------------------
"First Midwest Financial, Inc. is a stronger company today than it was two years
ago, and we believe our stock remains an attractive investment."
- --------------------------------------------------------------------------------
For the past three years, we have worked closely with regulators to ensure
our banks are Y2K ready. Donna Tanoue, Chairperson of the Federal Deposit
Insurance Corporation, stated earlier this year that nearly all federally
insured financial institutions are prepared for the Year 2000. Only about one
quarter of one percent of the federally insured institutions have a Y2K
supervisory rating of less than satisfactory. I am confident January 1, 2000
will be business as usual for the Company.
On behalf of the Board of Directors and employees, thank you for your
confidence and support. First Midwest Financial, Inc. is a stronger company
today than it was two years ago, and we believe our stock remains an attractive
investment. You will find, as you read this report, many signs that you are
investing in the right company. We are poised to expand operations, pursue
profitable growth, and increase the Company's value in 2000 and beyond. The
First Midwest team is proudly advancing into the next millennium, dedicated to
increasing shareholder value and enhancing your investment.
Sincerely,
/s/JAMES S. HAAHR
JAMES S. HAAHR
Chairman of the Board,
President & CEO
December 22, 1999
3
Advancing into the next Millennium
Tradition
Ready. Set. Grow.
First Midwest's banks rely on a strong history of trust, customer loyalty,
community, and financial strength. The Company's founding bank, First Federal,
was established in 1954 to help local families buy homes and earn a fair return
on their savings. Today, we still uphold the ideals of yesterday as we position
ourselves for profitable growth into the next millennium. Our bank structure and
mission have expanded to better meet the changing needs of our customers.
The 1993 conversion to stock ownership was our first step in creating a
super-community bank system. Capital raised during the conversion allows the
Company to acquire additional banks and broaden our branch network. The new
structure offers improved service to our customers, streamlined operating
efficiencies for each bank, and greater market potential for the Company.
In 1994, Brookings Federal Bank merged with First Federal to become part of
First Midwest. Iowa Savings Bank joined the Company in 1995, with Security State
Bank following in 1996. Together, we are driven toward one vision: Be the bank
of choice for financial services in our market areas. Employees support this by
executing our company values each day: Customer Service, Continuous Improvement,
Great Work Environment, and Results.
- --------------------------------------------------------------------------------
"The Company began 45 years ago with a small group of friends, $10,000, and a
vision. Our goal was to provide competitive mortgage lending and savings
products to meet the needs of our local customers. Today, the banks provide a
wide range of financial services that help over 25,000 customers throughout the
Midwest. I am proud of the progress, and I am still a loyal customer and
investor."
STANLEY H. HAAHR, FOUNDER AND PAST CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
4
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"We're not just a bank anymore. Today's savvy customers demand that we offer
services beyond traditional bank products. We embrace the challenge and are
actively implementing strategies designed to provide better customer service and
to increase revenue."
ELLEN MOORE, SENIOR VICE PRESIDENT OF MARKETING AND SALES
- --------------------------------------------------------------------------------
Innovation
Exceeding customer
expectations
requires an on-going commitment to excellence. The only way to move ahead of the
competition is to embrace change and strive toward continuous improvement in
everything we do.
Our employees are empowered to make changes that benefit the Company.
Employee ideas saved the Company thousands of dollars in expense and added
thousands of dollars to revenue this past year. The implementation of innovative
ideas fosters healthy growth.
We look at technology as an opportunity to improve our operating efficiencies
and to provide 24-hour service options for our customers. Our product mix
continues to be updated and united across the company to offer unique solutions
for customers.
Better than Free
Timeless Checking | Commercial Checking | Photo ID QUICKcard Cash & Check |
Money Market Accounts | Certificates of Deposit | Savings Accounts | Mortgage
Lending | Commercial Lending | Agricultural Lending | Consumer Lending | Credit
Life Insurance | Crop Insurance | Credit Cards | Retirement and Trust Services |
Ready Reserve | Overdraft Protection | Automated Clearing House Origination |
Direct Deposit | Automatic Payment | Investments(1)
(1) Non traditional bank products offered through LaSalle St. Securities, Inc.;
Ameritas Investment Corp.; Central Financial Group; and Primevest Investment
Center are not FDIC insured, nor are they guaranteed by the banks of First
Midwest or any affiliate.
5
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"Our customer satisfaction surveys show that a high percentage of current and
past customers would recommend our bank to a friend. We are using that feedback
to improve our service and to continually increase customer satisfaction."
TIM HARVEY, PRESIDENT OF BROOKINGS FEDERAL BANK DIVISION
- --------------------------------------------------------------------------------
Customer Service and Teamwork
The driving force
behind First Midwest is our people. The talents, dedication, and experience they
offer establish a competitive advantage for the Company. We combine individual
efforts with teamwork to pass major milestones on the road of success.
Employees are encouraged to expand their professional skills through
individual development plans. The plans are tied to the company values and
business plan goals. We believe that training our employees to be their best
will encourage them to go the extra mile for customers.
We strive to develop mutually beneficial partnerships between our banks,
customers, and the communities we serve. Employees' financial knowledge and
needs-based approach add genuine value to customer relationships. Our customer
service goal is simple. We want every customer to have a positive experience
with our banks. We think customer loyalty is a true measure of our success.
6
Results
Our team
follows the motto "Do the Right Things Right." That is why each year we review
past performance, update our strategies, and develop specific action plans to
achieve our goals. Employees participate in the business planning process so
that all personnel understand how they affect results. The Company believes that
hardworking people, working together toward common goals, drives results.
Results are promising as we proudly advance into the next millennium.
1999 Bank Highlights
FIRST FEDERAL SAVINGS BANK
- -- Demand deposit balances
increase 28 percent.
- -- Home and commercial loan
volumes grow 44 percent
and 25 percent respectively.
- -- Enhanced lending staff provides
additional expertise and improved
loan quality.
SECURITY STATE BANK
- -- Earnings increase 7 percent,
a record high.
- -- Demand deposit balances grow over 17 percent.
- -- Gene Richardson joins the Security State Bank team
as President.
IOWA SAVINGS BANK
- -- Demand deposit balances grow 187 percent.
- -- Loan volume rises 27 percent.
- -- Announcement that a new
division headquarters will
be built next year in Urbandale, Iowa.
BROOKINGS FEDERAL BANK
- -- Enhanced lending staff
provides additional expertise and
improved loan quality.
- -- Renovated facilities streamline operations
and improve customer service.
- -- Deposit balances increase
12 percent.
7
FINANCIAL CONTENTS
9 SELECTED CONSOLIDATED FINANCIAL INFORMATION
11 MANAGEMENT'S DISCUSSION AND ANALYSIS
22 CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1999
AND 1998
23 CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS
ENDED SEPTEMBER 30, 1999, 1998 AND 1997
24 CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY FOR THE YEARS ENDED
SEPTEMBER 30, 1999, 1998 AND 1997
26 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998
AND 1997
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
52 REPORT OF INDEPENDENT AUDITORS
8
First Midwest Financial, Inc. and Subsidiaries
SEPTEMBER 30, 1999 1998 1997 1996 1995
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SELECTED FINANCIAL CONDITION DATA
(IN THOUSANDS)
Total assets $511,213 $418,380 $404,589 $388,008 $264,213
Loans receivable, net 303,079 270,286 254,641 243,534 178,552
Securities available for sale 178,489 120,610 115,985 109,492 70,232
Excess of cost over net assets acquired, net 4,133 4,498 4,863 5,091 1,690
Deposits 304,780 283,858 246,116 233,406 171,793
Total borrowings 164,369 89,888 112,126 106,478 52,248
Shareholders' equity 39,771 42,286 43,477 43,210 38,013
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YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total interest income $ 35,373 $ 32,059 $ 29,005 $ 24,337 $ 21,054
Total interest expense 22,176 19,230 17,059 13,978 11,649
-------- -------- -------- -------- --------
Net interest income 13,197 12,829 11,946 10,359 9,405
Provision for loan losses 1,992 1,663 120 100 250
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 11,205 11,166 11,826 10,259 9,155
Total noninterest income 1,918 1,875 1,700 1,419 2,286
Total noninterest expense 8,645 8,253 7,382 7,568(2) 5,576
-------- -------- -------- -------- --------
Income before income taxes 4,478 4,788 6,144 4,110 5,865
Income tax expense 1,837 2,003 2,502 1,696 2,321
-------- -------- -------- -------- --------
Net income $ 2,641 $ 2,785 $ 3,642 $ 2,414(2) $ 3,544
======== ======== ======== ======== ========
Earnings per common and common equivalent share:
Net income(1)
Basic earnings per share $ 1.07 $ 1.08 $ 1.34 $ 0.95(2) $ 1.39
Diluted earnings per share $ 1.04 $ 1.03 $ 1.28 $ 0.90(2) $ 1.34
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
SELECTED FINANCIAL RATIOS AND OTHER DATA
Performance Ratios
Return on average assets 0.54% 0.68% 0.98% 0.77%(2) 1.31%
Return on average shareholders' equity 6.35 6.43 8.41 6.22(2) 9.86
Interest rate spread information:
Average during year 2.55 2.76 2.80 2.83 3.13
End of year 2.40 2.74 2.78 2.84 2.85
Net yield on average interest-earning assets 2.83 3.26 3.38 3.47 3.63
Ratio of operating expense to average
total assets 1.80 2.00 2.00 2.40(2) 2.06
Quality Ratios
Non-performing assets to total assets .47 1.94 .82 .75 .29
Allowance for loan losses to non-performing
loans 137.16 41.15 75.36 83.49 227.27
Capital Ratios
Shareholders' equity to total assets 7.78 10.11 10.75 11.14 14.39
Average shareholders' equity to average
assets 8.65 10.51 11.62 12.44 13.28
Ratio of average interest-earning assets to
average interest-bearing liabilities 108.39 110.22 112.00 113.72 111.35
Other Data
Cash earnings (in thousands) (3) $ 3,006 $ 3,150 $ 4,006 2,584(2) $ 3,670
Cash earnings per share - diluted (1) (3) $ 1.18 $ 1.17 $ 1.40 $ 0.96(2) $ 1.39
Cash return on average assets (3) .61% .77% 1.08% .82%(2) 1.36%
Cash return on average equity (3) 7.23% 7.27% 9.25% 6.66%(2) 10.21%
Book value per common share outstanding (1) $ 15.86 $ 16.56 $ 16.11 $ 14.81 $ 14.13
Dividends declared per share (1) $ 0.52 $ 0.48 $ 0.36 $ 0.29 $ 0.20
Dividend payout ratio 48.24% 44.05% 26.41% 30.90% 14.53%
Number of full-service offices 13 13 13 12 8
(1) Amounts reported have been adjusted for the three-for-two stock split paid
January 2, 1997 in the form of a 50% stock dividend.
(2) Reflects the one-time industry-wide special assessment to recapitalize the
Savings Association Insurance Fund.
(3) Cash earnings excludes from net income the amortization of goodwill, net of
related income taxes.
9
First Midwest Financial, Inc. and Subsidiaries
Management's Discussion and Analysis
GENERAL
First Midwest Financial, Inc. (the "Company" or "First Midwest") is a bank
holding company whose primary assets are First Federal Savings Bank of the
Midwest ("First Federal") and Security State Bank ("Security"). The Company was
incorporated in 1993 as a unitary non-diversified savings and loan holding
company and, on September 20, 1993, acquired all of the capital stock of First
Federal in connection with First Federal's conversion from mutual to stock form
of ownership. On September 30, 1996, the Company became a bank holding company
in conjunction with the acquisition of Security. All references to the Company
prior to September 20, 1993, except where otherwise indicated, are to First
Federal and its subsidiary on a consolidated basis.
The Company focuses on establishing and maintaining long-term relationships with
customers, and is committed to serving the financial service needs of the
communities in its market area. The Company's primary market area includes the
following counties: Adair, Buena Vista, Calhoun, Ida, Guthrie, Pocahontas, Polk,
and Sac located in Iowa, and Brookings county located in east central South
Dakota. The Company attracts retail deposits from the general public and uses
those deposits, together with other borrowed funds, to originate and purchase
residential and commercial mortgage loans, to make consumer loans, and to
provide financing for agricultural and other commercial business purposes.
The Company's basic mission is to maintain and enhance core earnings while
serving its primary market area. As such, the Board of Directors has adopted a
business strategy designed to (i) maintain the Company's tangible capital in
excess of regulatory requirements, (ii) maintain the quality of the Company's
assets, (iii) control operating expenses, (iv) maintain and, as possible,
increase the Company's interest rate spread, and (v) manage the Company's
exposure to changes in interest rates.
FINANCIAL CONDITION
The following discussion of the Company's consolidated financial condition
should be read in conjunction with the Selected Consolidated Financial
Information and Consolidated Financial Statements and the related notes included
elsewhere herein.
The Company's total assets at September 30, 1999 were $511.2 million, an
increase of $92.8 million, or 22.2%, from $418.4 million at September 30, 1998.
The increase in assets was due to the purchase of securities available for sale
and the increased origination and purchase of loans during the period. The
increase in assets was funded by an increase in retail deposits and an increase
in advances from the Federal Home Loan Bank of Des Moines (the "FHLB").
The Company's portfolio of securities available for sale, excluding
mortgage-backed securities, decreased $13.1 million, or 22.5%, to $45.1 million
at September 30, 1999 from $58.2 million at September 30, 1998. The decrease in
securities available for sale was the result of securities that matured, were
called or were sold during the period in an amount greater than new security
purchases. During fiscal 1999, the Company sold securities available for sale
totaling $24.8 million, consisting primarily of government agency issued
securities that had appreciated over purchase cost.
The balance in mortgage-backed securities available for sale increased by $70.9
million, or 113.4%, from $62.5 million at September 30, 1998, to $133.4 million
at September 30, 1999. The increase resulted from the purchase of fixed-rate
mortgage-backed securities in conjunction with an investment strategy designed
to enhance net interest income through leverage of the balance sheet at an
acceptable spread to funding cost. The purchase of mortgage-backed securities
was generally funded by proceeds from the maturity, call, or sale of other
securities available for sale, advances from the FHLB and increases in customer
deposits.
The Company's portfolio of net loans receivable increased by $32.8 million, or
12.1%, to $303.1 million at September 30, 1999 from $270.3 million at September
30, 1998. The increase in net loans receivable is due to the increased
origination and purchase of residential mortgage loans, the increased purchase
of commercial and multi-
10
family real estate loans, and the increased origination of commercial business
loans. Construction, consumer and agricultural-related loan balances declined as
a result of repayments in excess of new originations during the period.
The balance of customer deposits increased by $20.9 million, or 7.4%, from
$283.9 million at September 30, 1998 to $304.8 million at September 30, 1999.
The increase in deposits resulted from management's continued efforts to enhance
deposit product design and marketing programs. Deposit balances increased for
noninterest-bearing demand accounts, interest-bearing transaction accounts and
other time certificates of deposit in the amounts of $709,000, $17.2 million and
$3.0 million, respectively.
The Company's borrowings from the FHLB increased by $76.0 million, or 89.1%,
from $85.3 million at September 30, 1998 to $161.3 million at September 30,
1999. The increased borrowings were used in the purchase of fixed-rate
mortgage-backed securities, as noted above, and to fund growth of the Company's
loan portfolio.
Shareholders' equity decreased $2.5 million, or 5.9%, to $39.8 million at
September 30, 1999 from $42.3 million at September 30, 1998. The decrease in
shareholders' equity is the result of stock repurchases during the year, the
payment of cash dividends on common stock, and an increase in net unrealized
losses on securities available for sale.
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations should be read
in conjunction with the Selected Consolidated Financial Information and
Consolidated Financial Statements and the related notes included elsewhere
herein.
The Company's results of operations are primarily dependent on net interest
income, noninterest income and the Company's ability to manage operating
expenses. Net interest income is the difference, or spread, between the average
yield on interest-earning assets and the average rate paid on interest-bearing
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 financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets mature or reprice at
different times, or on a different basis, than its interest-bearing liabilities.
The Company's noninterest income consists primarily of fees charged on
transaction accounts and for the origination of loans, both of which help offset
the costs associated with establishing and maintaining deposit and loan
accounts. In addition, noninterest income is derived from the activities of
First Federal's wholly-owned subsidiaries, First Services Financial Limited and
Brookings Service Corporation. Both engage in the sale of various non-insured
investment products. Historically, the Company has not derived significant
income as a result of gains on the sale of securities and other assets. However,
during the years ended September 30, 1999, 1998, and 1997, gains were recorded
in the amounts of $332,000, $399,000, and $217,000, respectively, as a result of
the sale of securities available for sale.
11
The following table sets forth the weighted average effective interest rate on
interest-earning assets and interest-bearing liabilities at the end of each of
the years presented.
AT SEPTEMBER 30, 1999 1998 1997
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WEIGHTED AVERAGE YIELD ON
Loans receivable 8.09% 8.80% 8.84%
Mortgage-backed securities 6.38 7.15 7.34
Securities available for sale 6.14 6.40 6.41
FHLB stock 6.25 6.75 7.00
Combined weighted average yield on interest-earning assets 7.39 8.13 8.11
WEIGHTED AVERAGE RATE PAID ON
Demand, NOW deposits and Money Market 3.24 3.00 2.61
Savings deposits 2.50 2.48 2.49
Time deposits 5.32 5.80 5.79
FHLB advances 5.38 5.91 5.86
Other borrowed money 5.28 5.68 5.64
Combined weighted average rate paid on interest-bearing liabilities 4.99 5.39 5.33
- ----------------------------------------------------------------------------------------------------------------
Spread 2.40% 2.74% 2.78%
================================================================================================================
RATE/VOLUME ANALYSIS
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate (i.e., changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume that cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.
YEAR ENDED SEPTEMBER 30, 1999 vs. 1998 1998 vs. 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE INCREASE TOTAL INCREASE INCREASE TOTAL
(DECREASE) (DECREASE) INCREASE (DECREASE) (DECREASE) INCREASE
(IN THOUSANDS) DUE TO VOLUME DUE TO RATE (DECREASE) DUE TO VOLUME DUE TO RATE (DECREASE)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
Loans receivable $ 2,399 $(1,658) $ 741 $ 665 $ (43) $ 622
Mortgage-backed securities 4,088 (262) 3,826 1,402 (65) 1,337
Securities available for sale (1,276) (72) (1,348) 814 293 1,107
FHLB stock 114 (19) 95 (2) (10) (12)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 5,325 $(2,011) $ 3,314 $ 2,879 $ 175 $ 3,054
------- ------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES
Demand, NOW deposits and
Money Market $ 587 $ 210 $ 797 $ 101 $ 17 $ 118
Savings deposits (65) 10 (55) (12) 8 (4)
Time deposits 997 (665) 332 1,403 (67) 1,336
FHLB advances 2,233 (343) 1,890 860 (153) 707
Other borrowed money (7) (11) (18) (18) 32 14
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 3,745 $ (799) $ 2,946 $ 2,334 $ (163) $ 2,171
------- ------- ------- ------- ------- -------
Net effect on net interest income $ 1,580 $(1,212) $ 368 $ 545 $ 338 $ 883
======= ======= ======= ======= ======= =======
====================================================================================================================================
12
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments have been
made. All average balances are quarterly average balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED YIELD OUTSTANDING EARNED YIELD OUTSTANDING EARNED YIELD
(DOLLARS IN THOUSANDS) BALANCE /PAID /RATE BALANCE /PAID /RATE BALANCE /PAID /RATE
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
Loans receivable(1) $285,232 $ 23,796 8.34% $256,482 $ 23,055 8.99% $249,076 $ 22,433 9.01%
Mortgage-backed securities 115,784 7,504 6.48 52,722 3,678 6.98 32,618 2,341 7.18
Securities available for sale 58,190 3,604 6.19 78,789 4,952 6.29 65,843 3,845 5.84
FHLB stock 7,278 469 6.44 5,514 374 6.78 5,546 386 6.96
-------- -------- -------- -------- -------- --------
Total interest-earning assets 466,484 $ 35,373 7.58% 393,507 $ 32,059 8.15% 353,083 $ 29,005 8.21%
======== ======== ========
Noninterest-earning assets 14,719 18,415 19,408
-------- -------- --------
Total assets $481,203 $411,922 $372,491
======== ======== ========
INTEREST-BEARING LIABILITIES
Demand, NOW deposits and
Money Market $ 51,778 $ 1,730 3.34% $ 34,202 $ 933 2.73% $ 30,398 $ 815 2.68%
Savings deposits 17,528 447 2.55 20,090 502 2.50 20,538 506 2.46
Time deposits 221,873 12,330 5.56 203,932 11,998 5.88 180,088 10,662 5.92
FHLB advances 135,846 7,483 5.51 95,328 5,593 5.87 80,685 4,886 6.06
Other borrowed money 3,348 186 5.56 3,473 204 5.87 3,543 190 5.36
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 430,373 $ 22,176 5.15% 357,025 $ 19,230 5.39% 315,252 $ 17,059 5.41%
======== ======== ========
Noninterest-bearing:
Deposits 5,749 5,646 5,619
Liabilities 3,451 5,956 8,320
-------- -------- --------
Total liabilities 439,573 368,627 329,191
Shareholders' equity 41,630 43,295 43,300
-------- -------- --------
Total liabilities and
shareholders' equity $481,203 $411,922 $372,491
======== ======== ========
Net interest-earning assets $ 36,111 $ 36,482 $ 37,831
======== ======== ========
Net interest income $ 13,197 $ 12,829 $ 11,946
======== ======== ========
Net interest rate spread 2.43% 2.76% 2.80%
==== ==== ====
Net yield on average interest-
earning assets 2.83% 3.26% 3.38%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities 108.39% 110.22% 112.00%
====== ====== ======
====================================================================================================================================
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
13
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
General
Net income for the year ended September 30, 1999 decreased $144,000, or 5.2%, to
$2,641,000, from $2,785,000 for the same period ended September 30, 1998. The
decrease in net income reflects increases in the provision for loan losses and
noninterest expense, which were partially offset by increases in net interest
income and noninterest income.
Net Interest Income
Net interest income for the year ended September 30, 1999 increased by $368,000,
or 2.9%, to $13,197,000 compared to $12,829,000 for the same period ended
September 30, 1998. The increase in net interest income reflects an overall
increase in the balance of average interest-earning assets during the period.
The net yield on average earning assets decreased to 2.83% for the period ended
September 30, 1999 from 3.26% for the same period in 1998. The decrease in net
yield is primarily due to interest rates remaining generally at historically low
levels throughout the period, which resulted in the continued refinance and
repayment of relatively higher yielding loans and mortgage-backed securities.
These earning assets were replaced through the origination and purchase of loans
and mortgage-backed securities at comparatively lower yields. The reduction in
yield on earning assets was partially offset by a reduction in the cost of
interest-bearing liabilities.
During recent years, the Company has increased its origination and purchase of
multi-family and commercial real estate loans and has increased its origination
of commercial business loans. The Company anticipates activity in this type of
lending to continue in future years. This lending activity is considered to
carry a higher level of risk due to the nature of the collateral and the size of
individual loans. As such, the Company anticipates continued increases in its
allowance for loan losses as a result of this lending activity.
Interest Income
Interest income for the year ended September 30, 1999 increased $3,314,000, or
10.3%, to $35,373,000 from $32,059,000 for the same period in 1998. The increase
reflects a $2,478,000 increase in interest earned on the portfolio of securities
available for sale, which increased to $11,108,000 for the year ended September
30, 1999 from $8,630,000 in 1998. The increase in interest income from
securities resulted from a higher average securities portfolio balance which was
partially offset by a lower average yield on the securities portfolio during
fiscal 1999 compared to 1998. In addition, interest income was higher due to a
$741,000 increase in interest earned on the loan portfolio as a result of a
higher average loan portfolio balance which was partially offset by a lower
average yield during fiscal 1999 compared to 1998.
Interest Expense
Interest expense increased $2,946,000, or 15.3%, to $22,176,000 for the year
ended September 30, 1999 from $19,230,000 for the same period in 1998. The
increase in interest expense is due to increases in the average outstanding
balance of demand deposits, time deposits, and FHLB advances during the year
ended September 30, 1999 as compared to the same period in 1998. The increase in
the average balance of demand and time deposits resulted from internal growth of
the deposit portfolio. The average balance of FHLB advances increased due to
borrowing activity throughout the period used to fund growth of the loan
portfolio and the purchase of securities available for sale. The increase in
interest expense was partially offset by lower interest rates paid on time
deposits and FHLB borrowings during the year ended September 30, 1999 as
compared to the previous year, as market interest rates have generally trended
downward.
Provision for Loan Losses
The provision for loan losses for the year ended September 30, 1999 was
$1,992,000 compared to $1,663,000 for the same period in 1998. Management
believes that, based on a detail review of the loan portfolio, historic loan
losses, current economic conditions, and other factors, the current level of
provision for loan losses, and the resulting level of the allowance for loan
losses, reflects an adequate reserve against potential losses from the loan
portfolio.
Current economic conditions in the agricultural sector of the Company's market
area indicate potential weakness due to a continuation of historically low
commodity prices. The agricultural economy is accustomed to commodity price
fluctuations and is generally able to handle such fluctuations without
significant problem. However, an extended period of low commodity prices could
result in additional weakness of the Company's agricultural loan portfolio and
could create a need for the Company to increase its allowance for loan losses
through increased charges to provision for loan losses.
14
During recent years, the Company has increased its origination and purchase of
multi-family and commercial real estate loans and has increased its origination
of commercial business loans. The Company anticipates activity in this type of
lending to continue in future years. This lending activity is considered to
carry a higher level of risk due to the nature of the collateral and the size of
individual loans. As such, the Company anticipates continued increases in its
allowance for loan losses as a result of this lending activity.
Although the Company maintains its allowance for loan losses at a level that it
considers to be adequate, there can be no assurance that future losses will not
exceed estimated amounts, or that additional provisions for loan losses will not
be required in future periods. In addition, the Company's determination of the
allowance for loan losses is subject to review by its regulatory agencies, which
can require the establishment of additional general or specific allowances.
Noninterest Income
Noninterest income for the year ended September 30, 1999 increased $43,000, or
2.3%, to $1,918,000 from $1,875,000 for the same period in 1998. The increase in
noninterest income reflects an increase in loan fees and deposit service charges
of $83,000 for fiscal 1999 compared to the same period in 1998 as a result of
increased lending activity and increased activity on transaction accounts
subject to service charges. Noninterest income also increased due to an increase
in brokerage commissions from sales of non-insured investment products through
First Federal's subsidiaries and increased as a result of a net gain on sales of
foreclosed real estate compared to a net loss on sales in 1998. Noninterest
income reflects lower net gain on the sales of securities available for sale for
fiscal 1999 compared to 1998.
Noninterest Expense
Noninterest expense increased by $392,000, or 4.7%, to $8,645,000 for the year
ended September 30, 1999 compared to $8,253,000 for the same period in 1998. The
increase in noninterest expense for fiscal 1999 reflects a $491,000 increase in
employee compensation and benefits expense primarily due to the addition of
personnel and the upgrade of expertise in existing positions to support current
and anticipated growth of the Company. In addition, other noninterest expense
increased for fiscal 1999 by $123,000 compared to 1998 due primarily to expenses
related to the recruitment of new personnel. Noninterest expense for fiscal 1998
included a $300,000 charge to provision for losses on foreclosed real estate for
which there was no comparable charge in fiscal 1999.
Income Tax Expense
Income tax expense decreased by $167,000, or 8.3%, to $1,837,000 for the year
ended September 30, 1999 from $2,004,000 for the same period in 1998. The
decrease in income tax expense reflects the decrease in the level of taxable
income for the period ended September 30, 1999 compared to the same period in
1998.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
General
Net income for the year ended September 30, 1998 decreased $857,000, or 23.5%,
to $2,785,000, from $3,642,000 for the same period ended September 30, 1997. The
decrease in net income reflects an increase in charges to the provision for loan
and foreclosed real estate losses and an increase in noninterest expense for
fiscal 1998 compared to 1997.
Net Interest Income
Net interest income for the year ended September 30, 1998 increased by $883,000,
or 7.4%, to $12,829,000 compared to $11,946,000 for the same period ended
September 30, 1997. The increase in net interest income reflects an overall
increase in the balance of average interest-earning assets during the period.
The net yield on average earning assets decreased to 3.26% for the period ended
September 30, 1998 from 3.38% for the same period in 1997. The decrease in net
yield is due to a decline in the ratio of total average interest-earning assets
compared to total average interest-bearing liabilities and an increase in the
average balance of non-accruing loans during the 1998 period.
Interest Income
Interest income for the year ended September 30, 1998 increased $3,054,000, or
10.5%, to $32,059,000 from $29,005,000 for the same period in 1997. The increase
reflects a $2,444,000 increase in interest earned on the portfolio of securities
available for sale, which increased to $8,630,000 for the year ended
15
September 30, 1998, from $6,185,000 in 1997. The increase in interest income
from securities resulted from a higher average securities portfolio balance and,
to a lesser extent, to a higher average yield on the securities portfolio during
fiscal 1998 compared to 1997. In addition, interest income increased due to a
$622,000 increase in interest earned on the loan portfolio as a result of a
higher average loan portfolio balance during fiscal 1998 compared to 1997.
Interest Expense
Interest expense increased $2,171,000, or 12.7%, to $19,230,000 for the year
ended September 30, 1998 from $17,059,000 for the same period in 1997. The
increase in interest expense was due to increases in the average outstanding
balance of demand deposits, time deposits, and FHLB advances during the year
ended September 30, 1998, compared to the same period in 1997. The increase in
the average balance of demand and time deposits resulted from internal growth of
the deposit portfolio. The average balance of FHLB advances increased due to
borrowing activity throughout the period used primarily to fund growth of the
loan portfolio and the purchase of securities available for sale. The increase
in interest expense was partially offset by lower interest rates paid on time
deposits and FHLB borrowings during the year ended September 30, 1998, compared
to the previous year, as market interest rates generally have trended downward.
Provision for Loan Losses
The provision for loan losses for the year ended September 30, 1998 was
$1,663,000 compared to $120,000 for the same period in 1997. During 1998, the
Company determined that an agricultural loan officer located in a subsidiary
branch office had, through abuse of position, misrepresentation to management
and possibly fraud, authorized the disbursement of funds on loans for which
collateral was inadequate. This mismanagement and possible fraud was discovered
as a result of the Company's routine internal audit procedures. The loan officer
involved is no longer with the Company. A thorough review was performed by the
Company of the accounts in which the loan officer was involved. Management
believes all loans were identified for which material weaknesses exist and has
classified those loans accordingly.
Noninterest Income
Noninterest income for the year ended September 30, 1998 increased $174,000, or
10.2%, to $1,875,000 from $1,701,000 for the same period in 1997. The increase
in noninterest income reflects an increase in loan fees and deposit service
charges of $155,000 for fiscal 1998 compared to the same period in 1997 as a
result of increased lending activity and increased activity on transaction
accounts subject to service charges. In addition, gain on sales of securities
available for sale increased by $182,000 for the year ended September 30, 1998
compared to 1997. Noninterest income was reduced for fiscal 1998 compared to
1997 due to a decline in brokerage commissions from sales of non-insured
investment products through First Federal's subsidiaries and as a result of an
increase in net loss on sales of foreclosed real estate.
Noninterest Expense
Noninterest expense increased by $871,000, or 11.8%, to $8,253,000 for the year
ended September 30, 1998 compared to $7,382,000 for the same period in 1997.
Noninterest expense for employee compensation and benefits, and occupancy and
equipment expense increased during fiscal 1998, compared to the same period in
1997, as a result of the full year operation of a new branch office in West Des
Moines, Iowa. In addition, noninterest expense reflects a $300,000 charge to
provision for losses on foreclosed real estate primarily related to a 104 unit
apartment complex located in Madison, Wisconsin, which was acquired through
foreclosure during fiscal 1998.
Income Tax Expense
Income tax expense decreased by $498,000, or 19.9%, to $2,004,000 for the year
ended September 30, 1998 from $2,502,000 for the same period in 1997. The
decrease in income tax expense reflects the decrease in the level of taxable
income for the period ended September 30, 1998 compared to the same period in
1997.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Qualitative Aspects of Market Risk
As stated above, the Company derives its income primarily from the excess of
interest collected over interest paid. The rates of interest the Company earns
on assets and pays on liabilities generally are established contractually for a
period of time. Market interest rates change over time. Accordingly, the
Company's results of operations, like those of many financial institution
holding companies and financial institutions, are impacted by changes in
interest rates and the interest rate sensitivity of its assets and liabilities.
The risk associated with changes in interest rates and the Company's ability to
adapt to these changes is known as interest rate risk and is the Company's
significant market risk.
16
Quantitative Aspects of Market Risk
In an attempt to manage the Company's exposure to changes in interest rates and
comply with applicable regulations, we monitor the Company's interest rate risk.
In monitoring interest rate risk, we continually analyze and manage assets and
liabilities based on their payment streams and interest rates, the timing of
their maturities, and their sensitivity to actual or potential changes in market
interest rates.
An asset or liability is interest rate sensitive within a specific time period
if it will mature or reprice within that time period. If the Company's assets
mature or reprice more rapidly or to a greater extent than its liabilities, then
net portfolio value and net interest income would tend to increase during
periods of rising rates and decrease during periods of falling interest rates.
Conversely, if the Company's assets mature or reprice more slowly or to a lesser
extent than its liabilities, then net portfolio value and net interest income
would tend to decrease during periods of rising interest rates and increase
during periods of falling interest rates.
The Company currently focuses lending efforts toward originating and purchasing
competitively priced adjustable-rate and fixed-rate loan products with
relatively short terms to maturity, generally 15 years or less. This allows the
Company to maintain a portfolio of loans that will be sensitive to changes in
the level of interest rates while providing a reasonable spread to the cost of
liabilities used to fund the loans.
The Company's primary objective for its investment portfolio is to provide the
liquidity necessary to meet loan funding needs. The investment portfolio is also
used in the ongoing management of changes to the Company's asset/liability mix,
while contributing to profitability through earnings flow. The investment policy
generally calls for funds to be invested among various categories of security
types and maturities based upon the Company's need for liquidity, desire to
achieve a proper balance between minimizing risk while maximizing yield, the
need to provide collateral for borrowings, and to fulfill the Company's
asset/liability management goals.
The Company's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the results
of operations are generally influenced by the level of short-term interest
rates. The Company offers a range of maturities on its deposit products at
competitive rates and monitors the maturities on an ongoing basis.
The Company emphasizes and promotes its savings, money market, demand and NOW
accounts and, subject to market conditions, certificates of deposit with
maturities of six months through five years, principally in its primary market
area. The savings and NOW accounts tend to be less susceptible to rapid changes
in interest rates.
In managing its asset/liability mix, the Company, at times, depending on the
relationship between long- and short-term interest rates, market conditions, and
consumer preference, may place somewhat greater emphasis on maximizing its net
interest margin than on strictly matching the interest rate sensitivity of its
assets and liabilities. Management believes the increased net income that may
result from an acceptable mismatch in the actual maturity or repricing of its
asset and liability portfolios can, during periods of declining or stable
interest rates, provide sufficient returns to justify the increased exposure to
sudden and unexpected increases in interest rates which may result from such a
mismatch. The Company has established limits, which may change from time to
time, on the level of acceptable interest rate risk. There can be no assurance,
however, that in the event of an adverse change in interest rates, the Company's
efforts to limit interest rate risk will be successful.
Net Portfolio Value
The Company uses a net portfolio value ("NPV") approach to the quantification of
interest rate risk. This approach calculates the difference between the present
value of expected cash flows from assets and the present value of expected cash
flows from liabilities, as well as cash flows from off-balance-sheet contracts.
Management of the Company's assets and liabilities is performed within the
context of the marketplace, but also within limits established by the Board of
Directors on the amount of change in NPV that is acceptable given certain
interest rate changes.
Presented below, as of September 30, 1999 and 1998, is an analysis of the
Company's interest rate risk as measured by changes in NPV for an instantaneous
and sustained parallel shift in the yield curve, in 100 basis point increments,
up and down 200 basis points. As illustrated in the table, the Company's NPV is
more sensitive to rising rate changes than declining rates. This occurs
primarily because, as rates rise, the market value of fixed-rate
17
loans and mortgage-backed securities declines due to both the rate increase and
the related slowing of prepayments on loans. When rates decline, the Company
does not experience a significant rise in market value for these loans and
mortgage-backed securities because borrowers prepay at relatively higher rates.
The value of the Company's deposits and borrowings change in approximately the
same proportion in rising and falling rate scenarios. The Company experienced an
increase in interest rate sensitivity at September 30, 1999 as compared to the
end of the previous year due primarily to the purchase of fixed-rate
mortgage-backed securities in conjunction with a leveraged growth strategy.
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------
Change in Interest Rate Board Limit At September 30, 1999 At September 30, 1998
(BASIS POINTS) % CHANGE $ CHANGE % CHANGE $ CHANGE % CHANGE
==========================================================================================================
+200 bp (40)% $(10,919) (25)% $(2,957) (7)%
+100 bp (25) (5,200) (12) (1,477) (3)
0 - --- -- --- --
- 100 bp (10) 4,441 10 1,115 3
- 200 bp (15) 5,095 12 1,877 4
==========================================================================================================
Certain shortcomings are inherent in the method of analysis presented in the
foregoing tables. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets such as adjustable-rate mortgage loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. Further, in the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate from those assumed
in calculating the tables. Finally, the ability of some borrowers to service
their debt may decrease in the event of an interest rate increase. The Company
considers all of these factors in monitoring its exposure to interest rate risk.
Management reviews the OTS measurements and related peer reports on NPV and
interest rate risk on a quarterly basis. In addition to monitoring selected
measures of NPV, management also monitors the effects on net interest income
resulting from increases or decreases in interest rates. This measure is used in
conjunction with NPV measures to identify excessive interest rate risk.
Asset Quality
It is management's belief, based on information available, that the Company's
current asset quality is satisfactory. At September 30, 1999, non-performing
assets, consisting of non-accruing loans, accruing loans delinquent 90 days or
more, real estate owned, and repossessed consumer property, totaled $2,381,000,
or 0.47% of total assets, compared to $8,132,000, or 1.94% of total assets, for
the fiscal year ended 1998. The decrease in non-performing assets during fiscal
1999 reflects management's effort to strengthen the quality of its loan
portfolio through adherence to written underwriting guidelines, an on-going
credit review program, and diligent collection practices.
Liquidity and Sources of Funds
The Company's primary sources of funds are deposits, borrowings, principal and
interest payments on loans and mortgage-backed securities, and maturing
investment securities. While scheduled loan repayments and maturing investments
are relatively predictable, deposit flows and early loan repayments are
influenced by the level of interest rates, general economic conditions, and
competition.
Federal regulations require First Federal to maintain minimum levels of liquid
assets. Currently, First Federal is required to maintain liquid assets of at
least 4% of the average daily balance of net withdrawable savings deposits and
borrowings payable on demand in one year or less during the preceding calendar
quarter. Liquid assets for purposes of this ratio include cash, certain time
deposits, U.S. Government, governmental agency, and corporate securities and
obligations, unless otherwise pledged. First Federal has historically maintained
its liquidity ratio at levels in excess of those required. First Federal's
regulatory liquidity ratios were 9.1%, 15.4% and 9.8% at September 30, 1999,
1998 and 1997, respectively.
18
Liquidity management is both a daily and long-term function of the Company's
management strategy. The Company adjusts its investments in liquid assets based
upon management's assessment of (i) expected loan demand, (ii) the projected
availability of purchased loan products, (iii) expected deposit flows, (iv)
yields available on interest-bearing deposits, and (v) the objectives of its
asset/liability management program. Excess liquidity is generally invested in
interest-earning overnight deposits and other short-term government agency
obligations. If the Company requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the Federal Home Loan Bank
of Des Moines and has collateral eligible for use with reverse repurchase
agreements.
The primary investing activities of the Company are the origination and purchase
of loans and the purchase of securities. During the years ended September 30,
1999, 1998 and 1997, the Company originated loans totaling $143.3 million,
$147.2 million and $135.7 million, respectively. Purchases of loans totaled
$77.3 million, $36.9 million and $29.8 million during the years ended September
30, 1999, 1998 and 1997, respectively. During the years ended September 30,
1999, 1998 and 1997, the Company purchased mortgage-backed securities and other
securities available for sale in the amount of $125.4 million, $89.9 million and
$67.6 million, respectively.
At September 30, 1999, the Company had outstanding commitments to originate and
purchase loans of $33.2 million. (See Note 15 of Notes to Consolidated Financial
Statements.) Certificates of deposit scheduled to mature in one year or less
from September 30, 1999 total $168.9 million. Based on its historical
experience, management believes that a significant portion of such deposits will
remain with the Company, however, there can be no assurance that the Company can
retain all such deposits. Management believes that loan repayment and other
sources of funds will be adequate to meet the Company's foreseeable short- and
long-term liquidity needs.
The Company has initiated plans to construct two new offices to be located in
Urbandale, Iowa and Sioux Falls, South Dakota. The construction of these offices
is anticipated to be completed during the first quarter of the 2001 fiscal year.
The source of funds for capital improvements of this type is from the normal
operations of the Company.
On September 20, 1993, the Bank converted from a federally chartered mutual
savings and loan association to a federally chartered stock savings bank. At
that time, a liquidation account was established for the benefit of eligible
account holders who continue to maintain their account with the Bank after the
conversion. The liquidation account is reduced annually to the extent that
eligible account holders have reduced their qualifying deposits. At September
30, 1999, the liquidation account approximated $2.7 million.
First Federal and Security are in full compliance with their capital
requirements. See Note 14 of Notes to Consolidated Financial Statements for
additional information.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The primary impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, virtually all the assets and liabilities of the Company
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction, or to the same extent, as the prices of goods and services.
Impact of New Accounting Standards
SFAS No. 133 on derivatives will, beginning with the quarter ended December 31,
2000, require all derivatives to be recorded at fair value in the balance sheet,
with changes in fair value run through income. If derivatives are documented and
effective as hedges, the change in the derivative fair value will be offset by
an equal change in the fair value of the hedged item. The adoption of SFAS No.
133 is not expected to have a material impact on the results of operations or
financial condition of the Company.
19
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The issue is whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company is heavily
dependent on computer processing in its business activities and the Year 2000
issue creates risk for the Company from unforeseen problems in the Company's
computer system and from third parties whom the Company uses to process
information. Such failures of the Company's computer system and/or third parties
computer systems could have a material impact on the Company's ability to
conduct its business.
The Company's primary data processing is provided by a major third party vendor.
This provider has advised the Company that it has completed the renovation of
its system to be Year 2000 ready, and has provided users of the system the
opportunity to test the system for readiness. The Company has completed testing
of its primary data processing system for Year 2000 readiness with satisfactory
results.
The Company has performed an assessment of its internal computer hardware and
software and, where needed, has upgraded those systems to be Year 2000 ready. In
addition, the Company has reviewed other external third party vendors that
provide services to the Company (i.e. utility companies, electronic funds
transfer providers, alarm companies, insurance providers, loan participation
companies, and mortgage loan secondary market agencies), and has received
certification letters from these vendors that their systems will be Year 2000
ready on a timely basis. Testing has been performed with these service
providers, where possible, to determine their Year 2000 readiness.
The Company could incur losses if loan payments are delayed due to Year 2000
problems affecting significant borrowers. The Company is communicating with such
parties to assess their progress in evaluating and implementing any corrective
measures required by them to be Year 2000 ready. To date, the Company has not
been advised by such parties that they do not have plans in place to address and
correct the issues associated with the Year 2000 problem; however, no assurance
can be given as to the adequacy of such plans or to the timeliness of their
implementation. As part of the current credit approval process, new and renewed
loans are evaluated as to the borrower's Year 2000 readiness.
Based on the Company's review of its computer systems, management believes the
direct cost of the remediation effort to make its systems Year 2000 ready will
be approximately $60,000, of which approximately $40,000 has been incurred. Such
costs will be charged to expense as they are incurred.
The Company, as with all financial institutions, has reviewed the possibility of
some level of reduction in its deposits during December 1999. Based on its
review, the Company has determined that alternate sources of funds should be
available to maintain adequate funding throughout this period.
The Company has developed a Year 2000 contingency plan that addresses, among
other issues, critical operations and potential failures thereof, and strategies
for business continuation. Virtually all of the Company's mission critical
systems are dependent upon third party vendors or service providers, therefore,
contingency plans include the selection of a new vendor or service provider and
the conversion to a new system. For some systems, contingency plans consist of
using internal spreadsheet software or reverting to manual systems until system
problems can be corrected.
Although management believes the Company's computer systems and service
providers will be Year 2000 ready, there can be no assurance that these systems,
or those systems of other companies on which the Company's systems rely, will be
fully functional in the Year 2000. Such failure could have a significant adverse
impact on the financial condition and results of operations of the Company.
20
FORWARD-LOOKING STATEMENTS
The Company, and its wholly-owned subsidiaries First Federal and Security, may
from time to time make written or oral "forward-looking statements," including
statements contained in its filings with the Securities and Exchange Commission,
in its reports to shareholders, and in other communications by the Company,
which are made in good faith by the Company pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, expectations, estimates, and intentions, that are subject to
significant risks and uncertainties, and are subject to change based on various
factors, some of which are beyond the Company's control. Such statements address
the following subjects: future operating results; customer growth and retention;
loan and other product demand; earnings growth and expectations; new products
and services; credit quality and adequacy of reserves; technology; and our
employees. The following factors, among others, could cause the Company's
financial performance to differ materially from the expectations, estimates, and
intentions expressed in such forward-looking statements: the strength of the
United States economy in general and the strength of the local economies in
which the Company conducts operations; the effects of, and changes in, trade,
monetary, and fiscal policies and laws, including interest rate policies of the
Federal Reserve Board; inflation, interest rate, market, and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users; the impact of changes in financial services' laws and
regulations; technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The foregoing list of factors is not exclusive. Additional discussion of factors
affecting the Company's business and prospects is contained in the Company's
periodic filings with the SEC. The Company does not undertake, and expressly
disclaims any intent or obligation, to update any forward-looking statement,
whether written or oral, that may be made from time to time by or on behalf of
the Company.
21
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
1999 1998
- --------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,165,895 $ 908,984
Interest-bearing deposits in other financial institutions -
short-term 4,208,016 5,818,460
------------- -------------
Total cash and cash equivalents 5,373,911 6,727,444
Securities available for sale 178,489,030 120,609,531
Loans receivable, net of allowance for loan losses
of $3,092,628 in 1999 and $2,908,902 in 1998 303,078,500 270,286,189
Federal Home Loan Bank (FHLB) stock, at cost 8,125,800 5,505,800
Accrued interest receivable 5,046,234 4,968,607
Premises and equipment, net 4,770,056 4,048,945
Foreclosed real estate, net of allowances of $-0- in 1999 and
$299,532 in 1998 142,901 1,063,317
Other assets 6,186,320 5,170,562
------------- -------------
Total assets $ 511,212,752 $ 418,380,395
============= =============
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing demand deposits $ 5,680,923 $ 4,971,562
Savings, NOW and money market demand deposits 75,003,028 57,755,615
Other time certificates of deposit 224,095,970 221,130,975
------------- -------------
Total deposits 304,779,921 283,858,152
Advances from FHLB 161,348,071 85,263,562
Securities sold under agreements to repurchase 3,020,951 4,074,567
Other borrowings -- 550,000
Advances from borrowers for taxes and insurance 422,593 405,218
Accrued interest payable 875,365 834,741
Accrued expenses and other liabilities 995,103 1,108,592
------------- -------------
Total liabilities 471,442,004 376,094,832
SHAREHOLDERS' EQUITY
Preferred stock, 800,000 shares authorized; none issued -- --
Common stock, $.01 par value; 5,200,000 shares authorized;
2,957,999 shares issued and 2,507,073 shares outstanding at
September 30, 1999; 2,957,999 shares issued and 2,553,245
shares outstanding at September 30, 1998 29,580 29,580
Additional paid-in capital 21,305,937 21,330,075
Retained earnings - substantially restricted 29,352,943 27,985,814
Accumulated other comprehensive income,
net of tax of $(1,494,005) in 1999 and $474,346 in 1998 (2,520,633) 798,820
Unearned Employee Stock Ownership Plan shares (167,200) (367,200)
Treasury stock, 450,926 and 404,754 common shares, at cost,
at September 30, 1999 and 1998, respectively (8,229,879) (7,491,526)
------------- -------------
Total shareholders' equity 39,770,748 42,285,563
------------- -------------
Total liabilities and shareholders' equity $ 511,212,752 $ 418,380,395
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
22
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Interest and dividend income
Loans receivable, including fees $ 23,795,796 $ 23,054,813 $ 22,432,828
Securities available for sale 11,108,170 8,629,761 6,185,385
Dividends on FHLB stock 468,765 374,220 386,462
------------ ------------ ------------
35,372,731 32,058,794 29,004,675
Interest expense
Deposits 14,506,472 13,432,454 11,982,913
FHLB advances and other borrowings 7,669,408 5,797,499 5,076,144
------------ ------------ ------------
22,175,880 19,229,953 17,059,057
------------ ------------ ------------
Net interest income 13,196,851 12,828,841 11,945,618
Provision for loan losses 1,992,000 1,662,472 120,000
------------ ------------ ------------
Net interest income after provision for loan
losses 11,204,851 11,166,369 11,825,618
Noninterest income
Loan fees and deposit service charges 1,346,117 1,263,367 1,108,233
Gain on sales of securities available for sale, net 331,611 398,903 216,614
Gain (loss) on sales of foreclosed real estate, net 16,513 (33,034) (6,722)
Brokerage commissions 79,159 52,479 69,379
Other income 144,625 193,158 313,168
------------ ------------ ------------
1,918,025 1,874,873 1,700,672
Noninterest expense
Employee compensation and benefits 5,135,672 4,644,809 4,341,038
Occupancy and equipment expense 1,158,946 1,133,187 1,006,190
SAIF deposit insurance premium 155,901 143,199 220,849
Data processing expense 378,709 339,385 321,369
Provision for losses on foreclosed real estate - 299,532 -
Other expense 1,815,730 1,692,728 1,492,819
------------ ------------ ------------
8,644,958 8,252,840 7,382,265
------------ ------------ ------------
Income before income taxes 4,477,918 4,788,402 6,144,025
Income tax expense 1,836,786 2,003,520 2,502,069
------------ ------------ ------------
Net income $ 2,641,132 $ 2,784,882 $ 3,641,956
============ ============ ============
Earnings per common and common equivalent share
Basic earnings per common share $ 1.07 $ 1.08 $ 1.34
============ ============ ============
Diluted earnings per common share $ 1.04 $ 1.03 $ 1.28
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
23
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
Accumulated Unearned
Other Employee
Additional Comprehensive Stock
Common Paid-in Retained Income, Ownership
Stock Capital Earnings Net of Tax Plan Shares
- -----------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $19,905 $20,862,551 $23,748,383 $ 28,698 $(767,200)
Comprehensive Income:
Net income for the year ended
September 30, 1997 - - 3,641,956 - -
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - - - 931,673 -
Total comprehensive income
Purchase of 248,419 common shares of
treasury stock - - - - -
Retirement of 3,474 common shares (35) 35 - - -
30,000 common shares committed to be
released under the ESOP - 295,740 - - 200,000
Amortization of management recognition
and retention plan common shares and
tax benefit of restricted stock under
the plans - 93,401 - - -
Cash dividends declared on common stock
($.36 per share) - - (961,849) - -
Issuance of 970,978 common shares for
stock dividend declared on common
stock, net of cash paid in lieu of
fractional shares 9,710 (9,710) (833) - -
Purchase of 7,263 common shares upon
exercise of stock options - - - - -
Issuance of 41,347 common shares from
treasury stock due to exercise of
stock options - (257,263) - - -
------- ----------- ----------- ----------- ---------
Balance at September 30, 1997 $29,580 $20,984,754 $26,427,657 $ 960,371 $(567,200)
==========================================================================================================
Balance at September 30, 1997 $29,580 $20,984,754 $26,427,657 $ 960,371 $(567,200)
Comprehensive income:
Net income for the year ended
September 30, 1998 - - 2,784,882 - -
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - - - (161,551) -
Total comprehensive income
Purchase of 152,226 common shares of
treasury stock - - - - -
30,000 common shares committed to be
released under the ESOP - 454,460 - - 200,000
Cash dividends declared on common stock
($.48 per share) - - (1,226,725) - -
Purchase of 1,033 common shares upon
exercise of stock options - - - - -
Issuance of 7,600 common shares from
treasury stock due to exercise of
stock options - (109,139) - - -
------- ----------- ----------- ----------- ---------
Balance at September 30, 1998 $29,580 $21,330,075 $27,985,814 $ 798,820 $(367,200)
==========================================================================================================
Total
Treasury Shareholders'
Stock Equity
- ------------------------------------------------------------------------
Balance at September 30, 1996 $ (682,635) $43,209,702
Comprehensive Income:
Net income for the year ended
September 30, 1997 - 3,641,956
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - 931,673
-----------
Total comprehensive income 4,573,629
Purchase of 248,419 common shares of
treasury stock (4,268,777) (4,268,777)
Retirement of 3,474 common shares - -
30,000 common shares committed to be
released under the ESOP - 495,740
Amortization of management recognition
and retention plan common shares and
tax benefit of restricted stock under
the plans - 93,401
Cash dividends declared on common stock
($.36 per share) - (961,849)
Issuance of 970,978 common shares for
stock dividend declared on common
stock, net of cash paid in lieu of
fractional shares - (833)
Purchase of 7,263 common shares upon
exercise of stock options (175,445) (175,445)
Issuance of 41,347 common shares from
treasury stock due to exercise of
stock options 768,699 511,436
----------- -----------
Balance at September 30, 1997 $(4,358,158) $43,477,004
========================================================================
Balance at September 30, 1997 $(4,358,158) $43,477,004
Comprehensive income:
Net income for the year ended
September 30, 1998 - 2,784,882
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - (161,551)
-----------
Total comprehensive income 2,623,331
Purchase of 152,226 common shares of
treasury stock (3,271,203) (3,271,203)
30,000 common shares committed to be
released under the ESOP - 654,460
Cash dividends declared on common stock
($.48 per share) - (1,226,725)
Purchase of 1,033 common shares upon
exercise of stock options (21,972) (21,972)
Issuance of 7,600 common shares from
treasury stock due to exercise of
stock options 159,807 50,668
----------- -----------
Balance at September 30, 1998 $(7,491,526) $42,285,563
========================================================================
24
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
Accumulated Unearned
Other Employee
Additional Comprehensive Stock
Common Paid-in Retained Income, Ownership
Stock Capital Earnings Net of Tax Plan Shares
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $29,580 $21,330,075 $27,985,814 $ 798,820 $(367,200)
Comprehensive income (loss):
Net income for the year ended
September 30, 1999 - - 2,641,132 - -
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - - - (3,319,453) -
Total comprehensive income (loss)
Purchase of 79,647 common shares of
treasury stock - - - - -
30,000 common shares committed to be
released under the ESOP - 255,220 - - 200,000
Amortization of management recognition
and retention plan common shares
and tax benefits of restricted stock
under the plans - 101,634 - - -
Cash dividends declared on common stock
($.52 per share) - - (1,274,003) - -
Issuance of 23,051 common shares from
treasury stock due to exercise of
stock options - (222,026) - - -
Issuance of 10,424 common shares from
treasury stock for award of stock
under management recognition and
retention plans - (158,966) - - -
------- ----------- ----------- ----------- ---------
Balance at September 30, 1999 $29,580 $21,305,937 $29,352,943 $(2,520,633) $(167,200)
==========================================================================================================
Total
Treasury Shareholders'
Stock Equity
- ------------------------------------------------------------------------
Balance at September 30, 1998 $(7,491,526) $42,285,563
Comprehensive income (loss):
Net income for the year ended
September 30, 1999 - 2,641,132
Net change in net unrealized gains
and losses on securities available
for sale, net of reclassification
adjustments and tax effects - (3,319,453)
-----------
Total comprehensive income (loss) (678,321)
Purchase of 79,647 common shares of
treasury stock (1,289,186) (1,289,186)
30,000 common shares committed to be
released under the ESOP - 455,220
Amortization of management recognition
and retention plan common shares
and tax benefits of restricted stock
under the plans - 101,634
Cash dividends declared on common stock
($.52 per share) - (1,274,003)
Issuance of 23,051 common shares from
treasury stock due to exercise of
stock options 391,867 169,841
Issuance of 10,424 common shares from
treasury stock for award of stock
under management recognition and
retention plans 158,966 -
----------- -----------
Balance at September 30, 1999 $(8,229,879) $39,770,748
========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
25
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 2,641,132 $ 2,784,882 $ 3,641,956
Adjustments to reconcile net income to net cash
from operating activities
Depreciation, amortization and accretion, net 1,757,207 973,454 1,092,782
Provision for loan losses 1,992,000 1,662,472 120,000
Provision for losses on foreclosed real estate -- 299,532 --
Gain on sales of securities available for sale, net (331,611) (398,903) (216,614)
Proceeds from the sales of loans held for sale 7,403,780 5,613,115 3,592,055
Originations of loans held for sale (7,403,780) (5,613,115) (3,592,055)
(Gain) loss on sales of foreclosed real estate, net (16,513) 33,034 6,722
Net change in
Accrued interest receivable (77,627) 397,502 (337,062)
Other assets 113,315 46,622 223,344
Accrued interest payable 40,624 (231,005) (205,719)
Accrued expenses and other liabilities 360,857 (152,159) (2,348,712)
------------- ------------- -------------
Net cash from operating activities 6,479,384 5,415,431 1,976,697
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Net change in interest-bearing deposits in other
financial institutions -- 200,000 100,000
Purchase of securities available for sale (125,354,705) (89,877,636) (67,569,576)
Proceeds from sales of securities available for sale 24,791,295 18,280,412 804,067
Proceeds from maturities and principal repayment of
securities available for sale 37,255,192 67,062,074 61,943,630
Loans purchased (77,329,717) (36,947,582) (29,819,316)
Net change in loans 42,151,758 18,415,456 18,519,590
Proceeds from sales of foreclosed real estate 1,357,430 440,401 93,453
Purchase of FHLB stock (2,620,000) (447,700) (104,600)
Proceeds from redemption of FHLB stock -- 571,200 --
Purchase of premises and equipment, net (1,110,859) (227,895) (842,423)
------------- ------------- -------------
Net cash from investing activities (100,859,606) (22,531,270) (16,875,175)
- ------------------------------------------------------------------------------------------------------------
26
First Midwest Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net change in noninterest-bearing demand,
savings, NOW, and money market demand deposits $ 17,956,774 $ 7,316,146 $ 599,642
Net change in other time deposits 2,964,995 30,426,308 12,110,330
Proceeds from advances from FHLB 278,950,000 198,850,000 143,000,000
Repayments of advances from FHLB (202,865,491) (221,012,663) (137,861,578)
Net change in securities sold under agreements
to repurchase (1,053,616) 2,274,567 (989,918)
Net change in other borrowings (550,000) (2,350,000) 1,500,000
Net change in advances from borrowers for taxes
and insurance 17,375 (44,269) (40,756)
Cash dividends paid (1,274,003) (1,226,725) (962,682)
Proceeds from exercise of stock options 169,841 28,696 335,991
Purchase of treasury stock (1,289,186) (3,271,203) (4,268,777)
------------- ------------- -------------
Net cash from financing activities 93,026,689 10,990,857 13,422,252
------------- ------------- -------------
Net change in cash and cash equivalents (1,353,533) (6,124,982) (1,476,226)
Cash and cash equivalents at beginning of year 6,727,444 12,852,426 14,328,652
------------- ------------- -------------
Cash and cash equivalents at end of year $ 5,373,911 $ 6,727,444 $ 12,852,426
============= ============= =============
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 22,135,256 $ 19,460,958 $ 17,264,776
Income taxes 1,919,389 1,795,805 2,415,042
Supplemental schedule of non-cash investing and
financing activities
Loans transferred to foreclosed real estate $ 420,501 $ 1,679,984 $ 169,657
============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
27
First Midwest Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of First Midwest Financial, Inc., a bank holding company located in
Storm Lake, Iowa, (the "Company") and its wholly-owned subsidiaries which
include First Federal Savings Bank of the Midwest (the "Bank" or "First
Federal"), Security State Bank ("Security"), First Services Financial Limited,
which offers brokerage services and non-insured investment products and
Brookings Service Corporation. All significant intercompany balances and
transactions have been eliminated.
Nature of Business, Concentration of Credit Risk and Industry Segment
Information: The primary source of income for the Company is the purchase or
origination of consumer, commercial, agricultural commercial real estate, and
residential real estate loans. See Note 4 for a discussion of concentrations of
credit risk and, addition-ally, see "Provision for Loan Losses" discussion in
management's discussion and analysis of financial condition and results of
operations for discussion of risks related to agricultural loans. The Company
accepts deposits from customers in the normal course of business primarily in
northwest and central Iowa and eastern South Dakota. The Company operates
primarily in the banking industry which accounts for more than 90% of its
revenues, operating income and assets. While the Company's chief decision makers
monitor the revenue streams of the various Company products and services,
operations are managed and financial performance is evaluated on a Company-wide
basis. Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.
Assets held in trust or fiduciary capacity are not assets of the Company and,
accordingly, are not included in the accompanying consolidated financial
statements. At September 30, 1999 and 1998, trust assets totaled approximately
$14,405,000 and $14,165,000, respectively.
Use of Estimates in Preparing Financial Statements: The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain Significant Estimates: The allowance for loan losses, fair values of
securities and other financial instruments, and stock-based compensation
expense, involve certain significant estimates made by management. These
estimates are reviewed by management routinely and it is reasonably possible
that circumstances that exist at September 30, 1999 may change in the near-term
future and that the effect could be material to the consolidated financial
statements.
Certain Vulnerability Due to Certain Concentrations: Management is of the
opinion that no concentrations exist that make the Company vulnerable to the
risk of near-term severe impact.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents is defined to include the Company's cash on hand and due from
financial institutions and short-term interest-bearing deposits in other
financial institutions. The Company reports net cash flows for customer loan
transactions, deposit transactions, interest-bearing deposits in other financial
institutions, and short-term borrowings with maturities of 90 days or less.
Securities: The Company classifies securities into held to maturity, available
for sale and trading categories. Held to maturity securities are those which the
Company has the positive intent and ability to hold to maturity, and are
reported at amortized cost. Available for sale securities are those the Company
may decide to sell if needed for liquidity, asset-liability management or other
reasons. Available for sale securities are reported at fair value, with net
unrealized gains and losses reported as other comprehensive income or loss and
as a separate component of shareholders' equity, net of tax. Trading securities
are bought principally for sale in the near term, and are reported at fair value
with unrealized gains and losses included in earnings.
28
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses on the sale of securities are determined using the specific
identification method based on amortized cost and are reflected in results of
operations at the time of sale. Interest and dividend income, adjusted by
amortization of purchase premium or discount over the estimated life of the
security using the level yield method, is included in earnings.
Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized in a valuation allowance by
charges to income.
Loan Servicing Rights: Effective October 1, 1996, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights." This Statement changed the accounting for mortgage servicing
rights retained by a loan originator. Under this standard, if the originator
sells or securitizes mortgage loans and retains the related servicing rights,
the total cost of the mortgage loan is allocated between the loan (without the
servicing rights) and the servicing rights, based on their relative fair values.
Under prior practice, all such costs were assigned to the loan. The costs
allocated to mortgage servicing rights are now recorded as a separate asset and
are amortized in proportion to, and over the life of, the net servicing income.
The carrying value of the mortgage servicing rights are periodically evaluated
for impairment. The effect of adopting the statement was not material.
Loans Receivable: Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal balances adjusted for any charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Premiums or discounts on purchased loans are amortized to income using the level
yield method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Interest income on loans is accrued over the term of the loans based upon the
amount of principal outstanding except when serious doubt exists as to the
collectibility of a loan, in which case the accrual of interest is discontinued.
Interest income is subsequently recognized only to the extent that cash payments
are received until, in management's judgment, the borrower has the ability to
make contractual interest and principal payments, in which case the loan is
returned to accrual status.
Loan Origination Fees, Commitment Fees, and Related Costs: Loan fees and certain
direct loan origination costs are deferred, and the net fee or cost is
recognized as an adjustment to interest income using the interest method.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. The allowance for loan losses is
increased by a provision for loan losses charged to expense and decreased by
charge-offs (net of recoveries). Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur.
Loans are considered impaired if full principal or interest payments are not
anticipated in accordance with the contractual loan terms. Impaired loans are
carried at the present value of expected future cash flows discounted at the
loan's effective interest rate or at the fair value of the collateral if the
loan is collateral dependent. A portion of the allowance for loan losses is
allocated to impaired loans if the value of such loans is deemed to be less than
the unpaid balance. If these allocations cause the allowance for loan losses to
require an increase, such increase is reported as a component of the provision
for loan losses.
29
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, and automobile, manufactured homes,
home equity and second mortgage loans. Commercial loans and mortgage loans
secured by other properties are evaluated individually for impairment. When
analysis of borrower operating results and financial condition indicates that
underlying cash flows of the borrower's business are not adequate to meet its
debt service requirements, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 90 days or more. Nonaccrual
loans are often also considered impaired. Impaired loans, or portions thereof,
are charged off when deemed uncollectible.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of
acquisition, establishing a new cost basis. Any reduction to fair value from the
carrying value of the related loan at the time of acquisition is accounted for
as a loan loss and charged against the allowance for loan losses. Valuations are
periodically performed by management and valuation allowances are adjusted
through a charge to income for changes in fair value or estimated selling costs.
Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
Premises and Equipment: Land is carried at cost. Buildings, furniture, fixtures
and equipment are carried at cost, less accumulated depreciation and
amortization computed principally by using the straight-line method over the
estimated useful lives of the assets ranging from 3 to 40 years. These assets
are reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable.
Employee Stock Ownership Plan: The Company accounts for its employee stock
ownership plan ("ESOP") in accordance with AICPA Statement of Position ("SOP")
93-6. Under SOP 93-6, the cost of shares issued to the ESOP, but not yet
allocated to participants, are presented in the consolidated balance sheets as a
reduction of shareholders' equity. Compensation expense is recorded based on the
market price of the shares as they are committed to be released for allocation
to participant accounts. The difference between the market price and the cost of
shares committed to be released is recorded as an adjustment to additional
paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction
of retained earnings. Dividends on unearned shares are used to reduce the
accrued interest and principal amount of the ESOP's loan payable to the Company.
Financial Instruments with Off-Balance-Sheet Risk: The Company, in the normal
course of business, makes commitments to make loans which are not reflected in
the consolidated financial statements. A summary of these commitments is
disclosed in Note 15.
Intangible Assets: Goodwill arising from the acquisition of subsidiary banks is
amortized over 15 years using the straight-line method. As of September 30, 1999
and 1998, unamortized goodwill totaled approximately $4,132,883 and $4,497,815,
respectively. Amortization expense was $364,932, $364,932 and $363,923 for the
years ended September 30, 1999, 1998 and 1997.
Securities Sold Under Agreements to Repurchase: The Company enters into sales of
securities under agreements to repurchase with primary dealers only, which
provide for the repurchase of the same security. Securities sold under
agreements to purchase identical securities are collateralized by assets which
are held in safekeeping in the name of the Bank by the dealers who arranged the
transaction. Securities sold under agreements to repurchase are treated as
financings and the obligations to repurchase such securities are reflected as a
liability. The securities underlying the agreements remain in the asset accounts
of the Company.
Stock Dividends: Common share amounts related to the ESOP plan, stock
compensation plans and earnings and dividends per share are restated for stock
splits and stock dividends, including the three-for-two stock split effected in
the form of a 50% stock dividend which was paid on January 2, 1997.
30
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common Share: Basic earnings per common share is based on the net
income divided by the weighted average number of common shares outstanding
during the period. ESOP shares are considered outstanding for earnings per
common share calculations as they are committed to be released; unearned ESOP
shares are not considered outstanding. Management recognition and retention plan
("MRRP") shares are considered outstanding for basic earnings per common share
calculations as they become vested. Diluted earnings per common share shows the
dilutive effect of additional potential common shares issuable under stock
options and nonvested shares issued under management recognition and retention
plans.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in net
unrealized gains and losses on securities available for sale, net of
reclassification adjustments and tax effects, and is also recognized as a
separate component of shareholders' equity. The accounting standard that
requires reporting comprehensive income first applies for 1999, with prior
information restated to be comparable.
Stock Compensation: Expense for employee compensation under stock option plans
is based on Accounting Principles Board ("APB") Opinion 25, with expense
reported only if options are granted below market price at grant date. If
applicable, disclosures of net income and earnings per share are provided as if
the fair value method of SFAS No. 123 were used for stock-based compensation.
New Accounting Pronouncements: SFAS No. 133 on derivatives will, beginning with
the quarter ended December 31, 2000, require all derivatives to be recorded at
fair value in the balance sheet, with changes in fair value run through income.
If derivatives are documented and effective as hedges, the change in the
derivative fair value will be offset by an equal change in the fair value of the
hedged item. The adoption of SFAS No. 133 is not expected to have a material
impact on the results of operations or financial condition of the Company.
Note 2. EARNINGS PER COMMON SHARE
A reconciliation of the numerators and denominators used in the computation of
basic earnings per common share and diluted earnings per common share is
presented below.
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share:
Numerator
Net income $ 2,641,132 $ 2,784,882 $ 3,641,956
=========== =========== ===========
Denominator
Weighted average common
shares outstanding 2,510,494 2,646,105 2,822,021
Less: Weighted average unallocated
ESOP shares (41,327) (71,327) (101,375)
----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common share 2,469,167 2,574,778 2,720,646
=========== =========== ===========
Basic earnings per common share $ 1.07 $ 1.08 $ 1.34
=========== =========== ===========
31
Note 2. EARNINGS PER COMMON SHARE (CONTINUED)
YEAR ENDED SEPTEMBER 30, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share
Numerator
Net income $ 2,641,132 $ 2,784,882 $ 3,641,956
=========== =========== ===========
Denominator
Weighted average common shares outstanding
for basic earnings per common share 2,469,167 2,574,778 2,720,646
Add: Dilutive effects of assumed exercises of
stock options and average nonvested MRRP
shares, net of tax benefits 79,681 127,862 130,638
----------- ----------- -----------
Weighted average common and dilutive potential
common shares outstanding 2,548,848 2,702,640 2,851,284
=========== =========== ===========
Diluted earnings per common share $ 1.04 $ 1.03 $ 1.28
=========== =========== ===========
Stock options totaling 100,448 shares and 55,500 shares were not considered in
computing diluted earnings per common share for the years ended September 30,
1999 and 1997, respectively, because they were antidilutive.
During the year ended September 30, 1999, the Company redeemed approximately
3.1% (79,647 shares) of its beginning of year outstanding common shares under
its common stock repurchase program. This repurchase will affect the Company's
future earnings per common share computations by reducing amounts available for
investment and weighted average shares outstanding.
Note 3. SECURITIES
Year end securities available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
Debt securities
Trust preferred $ 27,629,975 $ 34,696 $ (667,073) $26,997,598
Obligations of states and
political subdivisions 1,360,307 37,368 (10,830) 1,386,845
U.S. Government and
federal agencies 15,922,716 - (430,409) 15,492,307
Mortgage-backed securities 136,600,215 425,464 (3,596,526) 133,429,153
------------ -------------- ------------ ------------
181,513,213 497,528 (4,704,838) 177,305,903
Marketable equity securities 990,455 302,168 (109,496) 1,183,127
------------ -------------- ------------ ------------
$182,503,668 $ 799,696 $ (4,814,334) $178,489,030
============ ============== ============ ============
32
Note 3. SECURITIES (CONTINUED)
Gross Gross
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
Debt securities
Trust preferred $ 27,638,030 $ 61,333 $ (443,567) $ 27,255,796
Obligations of states and
political subdivisions 1,307,076 34,588 (711) 1,340,953
U.S. Government and
federal agencies 26,985,523 786,407 (77) 27,771,853
Mortgage-backed securities 61,767,555 778,961 (92,073) 62,454,443
------------ ------------- ------------- ------------
117,698,184 1,661,289 (536,428) 118,823,045
Marketable equity securities 1,638,181 315,815 (167,510) 1,786,486
------------ ------------- ------------- ------------
$119,336,365 $ 1,977,104 $ (703,938) $120,609,531
============ ============= ============= ============
The amortized cost and fair value of debt securities by contractual maturity are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
SEPTEMBER 30, 1999
------------------------------
Amortized Fair
Cost Value
- ------------------------------------------------------------------------------------------------------------
Due in one year or less $ 105,000 $ 105,231
Due after one year through five years 5,923,132 5,898,459
Due after five years through ten years 11,254,891 10,875,462
Due after ten years 27,629,975 26,997,598
------------ ------------
44,912,998 43,876,750
Mortgage-backed securities 136,600,215 133,429,153
------------ ------------
$181,513,213 $177,305,903
============ ============
Activities related to the sale of securities available for sale and
mortgage-backed securities available for sale are summarized as follows:
YEARS ENDED SEPTEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Proceeds from sales $24,791,295 $18,280,412 $ 804,067
Gross gains on sales 331,611 398,903 216,614
33
Note 4. LOANS RECEIVABLE, NET
Year end loans receivable were as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------
One to four family residential mortgage loans:
Insured by FHA or guaranteed by VA $ 107,610 $ 299,454
Conventional 110,209,779 85,499,468
Construction 28,379,330 32,989,982
Commercial and multi-family real estate loans 85,793,177 66,845,149
Agricultural real estate loans 9,873,850 10,536,857
Commercial business loans 29,941,661 21,587,249
Agricultural business loans 29,284,440 37,233,902
Consumer loans 23,425,672 26,238,825
------------- -------------
317,015,519 281,230,886
Less: Allowance for loan losses (3,092,628) (2,908,902)
Undistributed portion of loans in process (10,494,446) (7,738,379)
Net deferred loan origination fees (349,945) (297,416)
------------- -------------
$ 303,078,500 $ 270,286,189
============= =============
Activity in the allowance for loan losses for the years ended September 30 was
as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Beginning balance $ 2,908,902 $ 2,379,091 $ 2,356,113
Provision for loan losses 1,992,000 1,662,472 120,000
Recoveries 58,240 33,635 25,638
Charge-offs (1,866,514) (1,166,296) (122,660)
----------- ----------- -----------
Ending balance $ 3,092,628 $ 2,908,902 $ 2,379,091
=========== =========== ===========
Virtually all of the Company's originated loans are to Iowa and South
Dakota-based individuals and organizations. The Company's purchased loans
totalled approximately $125,475,000 at September 30, 1999 and were secured by
properties located, as a percentage of total loans, as follows: 12% in
Washington, 6% in North Carolina, 5% in Minnesota, 3% in Iowa, 2% in Wisconsin,
2% in New Mexico, 2% in South Dakota, 2% in Nebraska and the remaining 6% in
twenty other states. The Company's purchased loans totalled approximately
$93,482,000 at September 30, 1998 and were secured by properties located, as a
percentage of total loans, as follows: 10% in Washington, 5% in Wisconsin, 4% in
Minnesota, 2% in New Mexico, 2% in North Dakota, 2% in South Dakota, and the
remaining 8% in sixteen other states.
The Company originates and purchases commercial real estate loans. These loans
are considered by management to be of somewhat greater risk of uncollectibility
due to the dependency on income production. The Company's commercial real estate
loans include approximately $13,022,252 and $8,100,000 of loans secured by
nursing homes at September 30, 1999 and 1998, respectively. The remainder of the
commercial real estate portfolio is diversified by industry. The Company's
policy for requiring collateral and guarantees varies with the credit-worthiness
of each borrower.
The amount of restructured and related party loans as of September 30, 1999 and
1998 were not significant. The amount of non-accruing loans as of September 30,
1999 and 1998 were $2,238,536 and $3,164,000, respectively.
34
Note 4. LOANS RECEIVABLE, NET (CONTINUED)
Impaired loans were as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------
Year end loans with no allowance for loan losses allocated $ 109,461 $ -
Year end loans with allowance for loan losses allocated 4,019,156 912,629
Amount of the allowance allocated 438,452 240,300
Average of impaired loans during the year 3,188,310 677,696
Interest income recognized during impairment 206,778 -
Cash-basis interest income recognized - -
============================================================================================================
Note 5. FORECLOSED REAL ESTATE
Year end foreclosed real estate was as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------
Foreclosed real estate $ 142,901 $ 1,362,849
Less: Allowance for foreclosed real estate losses - (299,532)
----------- ------------
$ 142,901 $ 1,063,317
=========== ============
Activity in the allowance for foreclosed real estate losses for the years ended
September 30 was as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 299,532 $ - $ 5,000
Provision for losses on foreclosed real estate - 299,532 -
Less: Losses charged against allowance (299,532) - (5,000)
----------- ---------- ------------
Balance, end of period $ - $ 299,532 $ -
=========== ========== ============
Note 6. LOAN SERVICING
Mortgage loans serviced for others are not reported as assets. The unpaid
principal balances of these loans at year end were as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------
Mortgage loan portfolios serviced for FNMA $ 4,941,000 $ 6,766,000
Other 11,040,000 4,198,000
------------ -------------
Total $ 15,981,000 $ 10,964,000
============ =============
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $97,074 and $111,000 at September 30, 1999 and
1998, respectively.
35
Note 7. PREMISES AND EQUIPMENT, NET
Year end premises and equipment were as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------
Land $ 935,289 $ 535,233
Buildings 4,858,210 4,674,969
Furniture, fixtures and equipment 2,969,748 2,450,526
------------- -------------
8,763,247 7,660,728
Less accumulated depreciation (3,993,191) (3,611,783)
------------- -------------
$ 4,770,056 $ 4,048,945
============ ============
Depreciation of premises and equipment included in occupancy and equipment
expense was $389,748, $355,261 and $346,444 for the years ended September 30,
1999, 1998 and 1997.
Note 8. DEPOSITS
Jumbo certificates of deposit in denominations of $100,000 or more was
approximately $20,533,000 and $14,183,000 at year end 1999 and 1998.
At September 30, 1999, the scheduled maturities of certificates of deposit were
as follows for the years ended September 30:
2000 $ 168,871,050
2001 37,302,497
2002 11,320,082
2003 4,882,051
2004 1,554,015
Thereafter 166,275
--------------
$ 224,095,970
==============
Note 9. ADVANCES FROM FEDERAL HOME LOAN BANK
At September 30, 1999, advances from the FHLB of Des Moines with fixed and
variable rates ranging from 4.06% to 7.82% are required to be repaid in the year
ending September 30 as follows:
2000 $ 53,794,620
2001 8,301,689
2002 11,961,763
2003 1,205,605
2004 6,270,778
Thereafter 79,813,616
--------------
$ 161,348,071
==============
36
Note 9. ADVANCES FROM FEDERAL HOME LOAN BANK (CONTINUED)
The Bank and Security have executed blanket pledge agreements whereby the Bank
and Security assign, transfer and pledge to the FHLB and grant to the FHLB a
security interest in all property now or hereafter owned. How-ever, the Bank and
Security have the right to use, commingle and dispose of the collateral they
have assigned to the FHLB. Under the agreements, the Bank and Security must
maintain "eligible collateral" that has a "lending value" at least equal to the
"required collateral amount," all as defined by the agreements.
At year end 1999 and 1998, the Bank and Security pledged securities with
amortized costs of approximately $88,067,000 and $41,980,000 and fair values of
approximately $86,741,000 and $42,636,000 against specific FHLB advances. In
addition, qualifying mortgage loans of approximately $107,712,000 and
$82,165,000 were pledged as collateral at year end 1999 and 1998.
Note 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Year end securities sold under agreements to repurchase totaled $3,020,951 and
$4,074,567 for 1999 and 1998.
An analysis of securities sold under agreements to repurchase is as follows:
YEARS ENDED 1999 1998
- ----------------------------------------------------------------------------------------------------------
Highest month-end balance $ 4,321,674 $ 4,074,567
Average balance 3,299,584 2,915,614
Weighted average interest rate during the period 5.38% 5.80%
Weighted average interest rate at end of period 5.28% 5.71%
==========================================================================================================
At year end 1999, securities sold under agreements to repurchase had maturities
ranging from 1 to 19 months with a weighted average maturity of 6 months.
The Company pledged securities with amortized costs of approximately $6,105,000
and $4,285,000 and fair values of approximately $6,079,000 and $4,439,000,
respectively, at year end 1999 and 1998 as collateral for securities sold under
agreements to repurchase.
Note 11. OTHER BORROWINGS
Other borrowings at year end 1999 and 1998 consisted of $-0- and $550,000 of
advances from the Federal Reserve Bank of Chicago. The advances outstanding at
year end 1998 had a 5.45% interest rate and were due October 2, 1998. The
Company pledged securities with amortized costs of approximately $1,499,000 and
fair values of approximately $1,512,000 at year end 1998 as collateral for other
borrowings.
37
Note 12. EMPLOYEE BENEFITS
Employee Stock Ownership Plan (ESOP): The Company maintains an ESOP for eligible
employees who have 1,000 hours of employment with the Bank and who have attained
age 21. The ESOP borrowed $1,534,100 from the Company to purchase 230,115 shares
of the Company's common stock. Collateral for the loan is the unearned shares of
common stock purchased with the loan proceeds by the ESOP. The loan will be
repaid principally from the Bank's discretionary contributions to the ESOP over
a period of 8 years. The interest rate for the loan is 8%. Shares purchased by
the ESOP are held in suspense for allocation among participants as the loan is
repaid. ESOP expense of $455,220, $654,460 and $495,740 was recorded for the
years ended September 30, 1999, 1998 and 1997. Contributions of $200,000,
$200,000 and $200,000 were made to the ESOP during the years ended September 30,
1999, 1998 and 1997.
Contributions to the ESOP and shares released from suspense in an amount
proportional to the repayment of the ESOP loan are allocated among ESOP
participants on the basis of compensation in the year of allocation. Benefits
generally become 100% vested after seven years of credited service. Prior to the
completion of seven years of credited service, a participant who terminates
employment for reasons other than death, normal retirement, or disability
receives a reduced benefit based on the ESOP's vesting schedule. Forfeitures are
reallocated among remaining participating employees, in the same proportion as
contributions. Benefits are payable in the form of stock upon termination of
employment. The Company's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated.
ESOP participants are entitled to receive distributions from their ESOP accounts
only upon termination of service.
For the years ended September 30, 1999, 1998 and 1997, 30,000, 30,000 and 30,000
shares with an average fair value of $15.17, $21.82 and $16.52 per share,
respectively, were committed to be released. Also, for the years ended September
30, 1999, 1998 and 1997, allocated shares and total ESOP shares reflects 18,540,
8,617 and 4,517 shares withdrawn from the ESOP by participants who are no longer
with the Company, net of shares purchased for dividend reinvestment.
Year end ESOP shares are as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Allocated shares 168,588 157,128 135,745
Unearned shares 25,080 55,080 85,080
----------- ------------ -----------
Total ESOP shares 193,668 212,208 220,825
=========== ============ ===========
Fair value of unearned shares $ 319,770 $ 950,130 $ 1,690,965
=========== ============ ===========
Stock Options and Incentive Plans: Certain officers and directors of the Company
have been granted options to purchase common stock of the Company pursuant to
stock option plans.
SFAS No. 123, which became effective for stock-based compensation during fiscal
years beginning after December 15, 1995, requires proforma disclosures for
companies that do not adopt its fair value accounting method for stock-based
employee compensation for awards granted in the first fiscal year beginning
after December 15, 1994. Accordingly, the following proforma information
presents net income and earnings per share had the fair value method been used
to measure compensation cost for stock option plans. The exercise price of
options granted is equivalent to the market value of underlying stock at the
grant date. Accordingly, compensation cost actually recognized for stock options
was $-0- for 1999, 1998 and 1997.
38
Note 12. EMPLOYEE BENEFITS (CONTINUED)
The fair value of options granted during 1999, 1998 and 1997 is estimated using
the following weighted-average information: risk-free interest rate of 6.17%,
4.49% and 6.44%, expected life of 7.0 years, expected dividends of 4.00%, 2.69%
and 2.02% per year and expected stock price volatility of 22%, 20% and 18% per
year.
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Net income as reported $ 2,641,132 $ 2,784,882 $ 3,641,956
Proforma net income $ 2,569,635 $ 2,689,596 $ 3,531,215
Reported earnings per common and
common equivalent share
Basic $1.07 $1.08 $1.34
Diluted $1.04 $1.03 $1.28
Proforma earnings per common and
common equivalent share
Basic $1.04 $1.04 $1.30
Diluted $1.01 $1.00 $1.24
============================================================================================================
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
Stock option plans are used to reward directors, officers and employees and
provide them with an additional equity interest. Options are issued for 10 year
periods, with 100% vesting generally occurring either at grant date or 48 months
after grant date. At fiscal year end 1999, 124,782 shares were authorized for
future grants. Information about option grants follows.
Number Weighted-average
of options exercise price
- ------------------------------------------------------------------------------------------------------------
Outstanding, September 30, 1996 308,706 $ 8.45
Granted 69,930 17.91
Exercised (51,838) 9.87
Forfeited (1,500) 14.75
-------
Outstanding, September 30, 1997 325,298 10.23
Granted 13,418 17.88
Exercised (7,600) 6.67
Forfeited - -
-------
Outstanding, September 30, 1998 331,116 10.62
Granted 26,335 13.00
Exercised (23,051) 7.37
Forfeited (9,000) 17.59
-------
Outstanding, September 30, 1999 325,400 $10.85
=======
The weighted-average fair value per option for options granted in 1999, 1998 and
1997 was $1.54, $2.01 and $4.15. At year end 1999, options outstanding had a
weighted-average remaining life of 5.70 years and a range of exercise price from
$6.67 to $20.13.
39
Note 12. EMPLOYEE BENEFITS (CONTINUED)
Options exercisable at year end are as follows.
Number Weighted-average
of options exercise price
- --------------------------------------------------------------------------------
1997 269,798 $ 8.77
1998 285,491 $ 9.54
1999 286,650 $ 10.09
================================================================================
Management Recognition and Retention Plans: The Company granted 10,424, 7,191
and 106,428 (8,986 of which have been forfeited under terms of the Plan due to
termination of service) shares of the Company's common stock on September 30,
1999, May 23, 1994 and September 20, 1993, respectively, to certain officers of
the Bank pursuant to a management recognition and retention plan (the "Plan").
The holders of the restricted stock have all of the rights of a shareholder,
except that they cannot sell, assign, pledge or transfer any of the restricted
stock during the restricted period. The stock granted in 1999 under the Plan
vests as follows: 5,212 shares vested at the date of grant on September 30, 1999
and 5,212 shares vests on September 30, 2000. Previously granted restricted
stock vests at a rate of 25% on each anniversary of the grant date. Expense of
$101,634, $-0- and $41,947 was recorded for these plans for the years ended
1999, 1998 and 1997. The remaining unamortized unearned compensation value of
the plans at September 30, 1999 and 1998 was $57,332 and $-0-.
Note 13. INCOME TAXES
The Company, the Bank and its subsidiaries and Security file a consolidated
federal income tax return on a fiscal year basis. Prior to fiscal year 1997, if
certain conditions were met in determining taxable income as reported on the
consolidated federal income tax return, the Bank was allowed a special bad debt
deduction based on a percentage of taxable income (8% for 1996) or on specified
experience formulas. The Bank used the percentage of taxable income method for
the tax year ended September 30, 1996. Tax legislation passed in August 1996 now
requires the Bank to deduct a provision for bad debts for tax purposes based on
actual loss experience and recapture the excess bad debt reserve accumulated in
tax years beginning after September 30, 1987. The related amount of deferred tax
liability which must be recaptured is approximately $554,000 and is payable over
a six year period beginning with the tax year ending September 30, 1999.
The provision for income taxes consists of:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Federal
Current $ 1,690,170 $ 2,012,841 $ 1,599,255
Deferred (90,137) (230,887) 569,133
------------ ------------ ------------
1,600,033 1,781,954 2,168,388
State
Current 250,616 304,679 314,712
Deferred (13,863) (83,113) 18,969
------------ ------------ ------------
236,753 221,566 333,681
------------ ------------ ------------
Income tax expense $ 1,836,786 $ 2,003,520 $ 2,502,069
============ ============ ============
40
Note 13. INCOME TAXES (CONTINUED)
Total income tax expense differs from the statutory federal income tax rate as
follows:
YEARS ENDED SEPTEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Income taxes at 34% Federal tax rate $ 1,522,000 $ 1,628,000 $ 2,089,000
Increase (decrease) resulting from:
State income taxes - net of federal benefit 156,000 146,000 220,000
Excess of cost over net assets acquired 124,000 124,000 124,000
Excess of fair value of ESOP shares released
over cost 87,000 155,000 101,000
Other - net (52,214) (49,480) (31,931)
------------ ------------ ------------
Total income tax expense $ 1,836,786 $ 2,003,520 $ 2,502,069
============ ============ ============
Year end deferred tax assets and liabilities consist of:
1999 1998
- ------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Bad debts $ 570,000 $ 375,000
Deferred loan fees 65,000 111,000
Net unrealized losses on securities available for sale 1,494,005 -
Allowance for foreclosed real estate losses - 118,000
Other items 72,000 46,000
--------------- ---------------
2,201,005 650,000
Deferred tax liabilities:
Federal Home Loan Bank stock dividend (452,000) (452,000)
Accrual to cash basis (133,000) (178,000)
Net unrealized gains on securities available for sale - (474,346)
Other (74,000) (76,000)
--------------- ---------------
(659,000) (1,180,346)
Valuation allowance - -
--------------- ---------------
Net deferred tax asset (liability) $ 1,542,005 $ (530,346)
=============== ===============
Federal income tax laws provide savings banks with additional bad debt
deductions through September 30, 1987, totaling $6,744,000 for the Bank.
Accounting standards do not require a deferred tax liability to be recorded on
this amount, which liability otherwise would total $2,300,000 at September 30,
1999 and 1998. If the Bank were liquidated or otherwise ceases to be a bank or
if tax laws were to change, the $2,300,000 would be recorded as expense.
41
Note 14. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
The Company has two primary subsidiaries, First Federal and Security. First
Federal and Security are subject to various regulatory capital requirements.
Failure to meet minimum capital requirements can initiate certain mandatory or
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, First Federal and
Security must meet specific quantitative capital guidelines using their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The requirements are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Regulations require First Federal to maintain minimum capital amounts and ratios
as set forth below. Management believes, as of September 30, 1999, that First
Federal meets the capital adequacy requirements.
First Federal's actual capital and required capital amounts and ratios are
presented below:
Minimum
Requirement
Minimum To Be Well
Requirement Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
As of September 30, 1999
Total Capital (to risk
weighted assets) $35,111 12.0% $23,470 8.0% $29,338 10.0%
Tier 1 (Core) Capital
(to risk weighted assets) $32,172 11.0% $11,735 4.0% $17,603 6.0%
Tier 1 (Core) Capital
(to adjusted total assets) $32,172 7.0% $18,507 4.0% $23,134 5.0%
Tier 1 (Core) Capital
(to average assets) $32,172 7.3% $17,602 4.0% $22,002 5.0%
============================================================================================================
As of September 30, 1998
Total Capital (to risk
weighted assets) $33,520 13.2% $20,396 8.0% $25,495 10.0%
Tier 1 (Core) Capital
(to risk weighted assets) $31,113 12.2% $10,198 4.0% $15,297 6.0%
Tier 1 (Core) Capital
(to adjusted total assets) $31,113 8.3% $14,959 4.0% $18,699 5.0%
Tier 1 (Core) Capital
(to average assets) $31,113 8.8% $14,108 4.0% $17,635 5.0%
============================================================================================================
Regulations of the Office of Thrift Supervision limit the amount of dividends
and other capital distributions that may be paid by a savings institution
without prior approval of the Office of Thrift Supervision. The regulatory
restriction is based on a three-tiered system with the greatest flexibility
being afforded to well-capitalized (Tier 1) institutions. First Federal is
currently a Tier 1 institution. Accordingly, First Federal can make, without
prior regulatory approval, distributions during a calendar year up to 100% of
its retained net income for the calendar year-to-date plus retained net income
for the previous two calendar years (less any dividends previously paid) as long
as First Federal would remain well-capitalized, as defined in the Office of
Thrift Supervision prompt corrective action regulations, following the proposed
distribution. Accordingly, at September 30, 1999, approximately $1,229,000 of
First Federal's retained earnings was potentially available for distribution to
the Company.
42
Note 14. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require Security to maintain minimum amounts and ratios (set forth in the table
below) of total risk-based capital and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and a leverage ratio
consisting of Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of September 30, 1999, that Security meets all capital
adequacy requirements to which it is subject.
As of the most recent notification date, the Federal Deposit Insurance
Corporation categorized Security as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
Security must maintain minimum, Tier 1 risk-based, Tier 1 leverage and total
risk-based capital ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the institution's category. At September 30, 1999, approximately $53,000
of Security's retained earnings was potentially available for distribution to
the Company.
Security's actual capital and required capital amounts and ratios are presented
below:
Minimum
Requirement
Minimum To Be Well
Requirement Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
As of September 30, 1999
Total Capital (to risk
weighted assets) $3,890 14.8% $2,107 8.0% $2,634 10.0%
Tier 1 Capital (to risk
weighted assets) $3,670 13.9% $1,053 4.0% $1,580 6.0%
Tier 1 Capital (to
average assets) $3,670 9.4% $1,563 4.0% $1,954 5.0%
============================================================================================================
As of September 30, 1998
Total Capital (to risk
weighted assets) $3,751 16.7% $1,794 8.0% $2,242 10.0%
Tier 1 Capital (to risk
weighted assets) $3,469 15.5% $ 897 4.0% $1,345 6.0%
Tier 1 Capital (to
average assets) $3,469 8.8% $1,585 4.0% $1,981 5.0%
============================================================================================================
43
Note 15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company's subsidiary banks make various
commitments to extend credit which are not reflected in the accompanying
consolidated financial statements.
At September 30, 1999 and 1998, loan commitments approximated $33,212,000 and
$27,353,000, respectively, excluding undisbursed portions of loans in process.
Loan commitments at September 30, 1999 included commitments to originate
fixed-rate loans with interest rates ranging from 6.875% to 8.75% totaling
$865,000 and adjustable-rate loan commitments with interest rates ranging from
7.75% to 10.25% totaling $18,391,000. The Company also had commitments to
purchase adjustable rate loans of $7,056,000 with interest rates ranging from
7.50% to 9.25%, and commitments to purchase $6,900,000 in fixed rate loans with
interest rates ranging from 7.375% to 7.50% as of year end 1999. Loan
commitments at September 30, 1998 included commitments to originate fixed-rate
loans with interest rates ranging from 6.50% to 12.50% totaling $6,142,000 and
adjustable-rate loan commitments with interest rates ranging from 8.30% to
10.25% totaling $9,277,000. The Company also had commitments to purchase
adjustable-rate loans of $9,934,000 with interest rates ranging from 7.75% to
9.75%, and commitments to purchase $2,000,000 in fixed rate loans at 7.45% as of
year end 1998. Commitments, which are disbursed subject to certain limitations,
extend over various periods of time. Generally, unused commitments are canceled
upon expiration of the commitment term as outlined in each individual contract.
The exposure to credit loss in the event of non-performance by other parties to
financial instruments for commitments to extend credit is represented by the
contractual amount of those instruments. The same credit policies and collateral
requirements are used in making commitments and conditional obligations as are
used for on-balance-sheet instruments.
Since certain commitments to make loans and to fund lines of credit and loans in
process expire without being used, the amount does not necessarily represent
future cash commitments. In addition, commitments used to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract.
Securities with amortized costs of approximately $11,958,000 and $7,663,000 and
fair values of approximately $11,767,000 and $7,859,000 at September 30, 1999
and 1998, respectively, were pledged as collateral for public funds on deposit.
Securities with amortized costs of approximately $5,813,000 and $6,557,000 and
fair values of approximately $5,865,000 and $6,827,000 at September 30, 1999 and
1998, respectively, were pledged as collateral for individual, trust, and estate
deposits.
Under employment agreements with certain executive officers, certain events
leading to separation from the Company could result in cash payments totaling
approximately $2,392,000 as of September 30, 1999.
The Company and its subsidiaries are subject to certain claims and legal actions
arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position or results of operations of the Company.
44
Note 16. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Net change in net unrealized gains and losses
on securities available for sale
Unrealized gains (losses) arising during the year $ (4,956,193) $ 143,685 $ 1,697,976
Reclassification adjustment for gains
included in net income (331,611) (398,903) (216,614)
------------- -------------- --------------
Net change in net unrealized gains
and losses on securities available for sale (5,287,804) (255,218) 1,481,362
Tax effects 1,968,351 93,667 (549,689)
------------- -------------- --------------
Total other comprehensive income (loss) $ (3,319,453) $ (161,551) $ 931,673
============= ============== ==============
Note 17. PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company, First
Midwest Financial, Inc.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 435,866 $ 104,518
Securities available for sale 3,546,100 4,257,486
Investment in subsidiary banks 38,373,373 40,643,747
Loan receivable from ESOP 167,200 367,200
Other assets 272,713 131,945
-------------- --------------
Total assets $ 42,795,252 $ 45,504,896
============== ==============
LIABILITIES
Loan payable to subsidiary banks $ 2,750,000 $ 3,050,000
Accrued expenses and other liabilities 274,504 169,333
-------------- --------------
Total liabilities 3,024,504 3,219,333
SHAREHOLDERS' EQUITY
Common stock 29,580 29,580
Additional paid-in capital 21,305,937 21,330,075
Retained earnings - substantially restricted 29,352,943 27,985,814
Accumulated other comprehensive income,
net of tax of $(1,494,005) in 1999 and $474,346 in 1998 (2,520,633) 798,820
Unearned Employee Stock Ownership Plan shares (167,200) (367,200)
Treasury stock, at cost (8,229,879) (7,491,526)
-------------- --------------
Total shareholders' equity 39,770,748 42,285,563
-------------- --------------
Total liabilities and shareholders' equity $ 42,795,252 $ 45,504,896
============== ==============
45
Note 17. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Dividend income from subsidiary banks $ 2,350,000 $ 2,000,000 $ 6,000,000
Interest income 297,447 272,260 145,339
Gain on sales of securities available for sale, net 62,466 317,960 216,614
----------- ------------ ------------
2,709,913 2,590,220 6,361,953
Interest expense 210,444 72,581 132,014
Operating expenses 405,076 354,945 348,162
----------- ------------ ------------
615,520 427,526 480,176
----------- ------------ ------------
Income before income taxes and equity in
undistributed net income of subsidiaries 2,094,393 2,162,694 5,881,777
Income tax expense (benefit) (106,000) 50,000 (55,000)
----------- ------------ ------------
Income before equity in undistributed net
income of subsidiaries 2,200,393 2,112,694 5,936,777
(Distributions in excess of) equity in undistributed
net income of subsidiary banks 440,739 672,188 (2,294,821)
----------- ------------ ------------
Net income $2,641,132 $2,784,882 $3,641,956
========== ========== ==========
46
Note 17. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 2,641,132 $ 2,784,882 $ 3,641,956
Adjustments to reconcile net income to
net cash from operating activities
Distribution in excess of (equity in
undistributed) net income of subsidiary
banks (440,739) (672,188) 2,294,821
Amortization of recognition and retention
plan 101,634 - 41,947
Gain on sales of securities available for sale,
net (62,466) (317,960) (216,614)
Change in other assets (38,470) 174,711 (245,225)
Change in accrued expenses and other
liabilities 94,617 142,705 (611,711)
------------ ------------- ------------
Net cash from operating activities 2,295,708 2,112,150 4,905,174
Cash flows from investing activities
Purchase of securities available for sale (1,626,721) (5,150,000) (231,000)
Proceeds from sales of securities available
for sale 2,155,709 2,195,509 804,067
Repayments on loan receivable from ESOP 200,000 200,000 200,000
------------ ------------- ------------
Net cash from investment activities 728,988 (2,754,491) 773,067
Cash flows from financing activities
Proceeds from loan payable to subsidiary
banks 1,150,000 4,550,000 -
Repayments on loan payable to subsidiary
banks (1,450,000) (1,500,000) -
Cash dividends paid (1,274,003) (1,226,725) (962,682)
Proceeds from exercise of stock options 169,841 28,696 335,991
Purchase of treasury stock (1,289,186) (3,271,203) (4,268,777)
------------ ------------- ------------
Net cash from financing activities (2,693,348) (1,419,232) (4,895,468)
------------ ------------- ------------
Net change in cash and cash equivalents 331,348 (2,061,573) 782,773
Cash and cash equivalents at beginning of year 104,518 2,166,091 1,383,318
------------ ------------- ------------
Cash and cash equivalents at end of year $ 435,866 $ 104,518 $ 2,166,091
============ ============= ============
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 210,444 $ 72,581 $ 132,014
============ ============= ============
The extent to which the Company may pay cash dividends to shareholders will
depend on the cash currently available at the Company, as well as the ability of
the subsidiary banks to pay dividends to the Company (see Note 14).
47
Note 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
- ------------------------------------------------------------------------------------------------------------
December 31 March 31 June 30 September 30
- ------------------------------------------------------------------------------------------------------------
Fiscal year 1999:
Total interest income $ 8,761,124 $ 8,585,259 $ 8,842,903 $ 9,183,445
Total interest expense 5,342,257 5,472,837 5,577,855 5,782,931
Net interest income 3,418,867 3,112,422 3,265,048 3,400,514
Provision for loan losses 243,000 358,000 299,000 1,092,000
Net income 908,517 759,500 756,673 216,442
Earnings per common and
common equivalent share
Basic $ .37 $ .31 $ .31 $ .09
Diluted $ .36 $ .30 $ .30 $ .09
============================================================================================================
Fiscal year 1998:
Total interest income $ 7,894,734 $7,839,781 $ 7,996,291 $ 8,327,988
Total interest expense 4,712,639 4,622,771 4,815,319 5,079,224
Net interest income 3,182,095 3,217,010 3,180,972 3,248,764
Provision for loan losses 35,000 1,345,000 55,000 227,472
Net income 989,055 46,316 893,056 856,455
Earnings per common and
common equivalent share
Basic $ .38 $ .02 $ .35 $ .34
Diluted $ .36 $ .02 $ .33 $ .32
============================================================================================================
Fiscal year 1997:
Total interest income $ 7,305,929 $6,882,095 $ 7,331,501 $ 7,485,150
Total interest expense 4,288,793 3,973,985 4,356,367 4,439,912
Net interest income 3,017,136 2,908,110 2,975,134 3,045,238
Provision for loan losses 30,000 30,000 30,000 30,000
Net income 953,216 849,539 912,504 926,697
Earnings per common and
common equivalent share
Basic $ .34 $ .31 $ .34 $ .35
Diluted $ .33 $ .29 $ .33 $ .33
============================================================================================================
48
Note 19. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair value amounts of its financial
instruments. It is management's belief that the fair values presented below are
reasonable based on the valuation techniques and data available to the Company
as of September 30, 1999 and 1998, as more fully described below. It should be
noted that the operations of the Company are managed from a going concern basis
and not a liquidation basis. As a result, the ultimate value realized for the
financial instruments presented could be substantially different when actually
recognized over time through the normal course of operations. Additionally, a
substantial portion of the Company's inherent value is the subsidiary banks'
capitalization and franchise value. Neither of these components have been given
consideration in the presentation of fair values below.
The following presents the carrying amount and estimated fair value of the
financial instruments held by the Company at September 30, 1999 and 1998. This
information is presented solely for compliance with SFAS No. 107 and is subject
to change over time based on a variety of factors.
1 9 9 9 1 9 9 8
- ------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------
SELECTED ASSETS:
Cash and cash equivalents $ 5,373,911 $ 5,374,000 $ 6,727,444 $ 6,727,000
Securities available for sale 178,489,030 178,489,000 120,609,531 120,610,000
Loans receivable, net 303,078,500 302,980,000 270,286,189 273,096,000
FHLB Stock 8,125,800 8,126,000 5,505,800 5,506,000
Accrued interest receivable 5,046,234 5,046,000 4,968,607 4,969,000
SELECTED LIABILITIES:
Noninterest bearing demand
deposits (5,680,923) (5,681,000) (4,971,562) (4,972,000)
Savings, NOW and money
market demand deposits (75,003,028) (75,003,000) (57,755,615) (57,756,000)
Other time certificates of
deposit (224,095,970) (224,027,000) (221,130,975) (222,807,000)
--------------- -------------- -------------- --------------
Total deposits (304,779,921) (304,711,000) (283,858,152) (285,535,000)
Advances from FHLB (161,348,071) (159,253,000) (85,263,562) (87,360,000)
Securities sold under
agreements to repurchase (3,020,951) (3,026,000) (4,074,567) (4,095,000)
Other borrowings - - (550,000) (550,000)
Advances from borrowers
for taxes and insurance (422,593) (423,000) (405,218) (405,000)
Accrued interest payable (875,365) (875,000) (834,741) (835,000)
- ------------------------------------------------------------------------------------------------------------
OFF-BALANCE-SHEET INSTRUMENTS:
Loan commitments (33,212,000) - (27,353,000) -
============================================================================================================
49
Note 19. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth the methods and assumptions used in determining the
fair value estimates for the Company's financial instruments at September 30,
1999 and 1998.
Cash and Cash Equivalents: The carrying amount of cash and short-term
investments is assumed to approximate the fair value.
Securities Available For Sale: Quoted market prices or dealer quotes were used
to determine the fair value of securities available for sale.
Loans Receivable, Net: The fair value of loans receivable, net was estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for similar remaining
maturities. When using the discounting method to determine fair value, loans
were gathered by homogeneous groups with similar terms and conditions and
discounted at a target rate at which similar loans would be made to borrowers as
of September 30, 1999 and 1998. In addition, when computing the estimated fair
value for all loans, allowances for loan losses have been subtracted from the
calculated fair value for consideration of credit issues.
FHLB Stock: The fair value of such stock approximates book value since the
Company is able to redeem this stock with the Federal Home Loan Bank at par
value.
Accrued Interest Receivable: The carrying amount of accrued interest receivable
is assumed to approximate the fair value.
Deposits: The fair value of deposits were determined as follows: (i) for
noninterest bearing demand deposits, savings, NOW and money market demand
deposits, since such deposits are immediately withdrawable, fair value is
determined to approximate the carrying value (the amount payable on demand);
(ii) for other time certificates of deposit, the fair value has been estimated
by discounting expected future cash flows by the current rates offered as of
September 30, 1999 and 1998 on certificates of deposit with similar remaining
maturities. In accordance with SFAS No. 107, no value has been assigned to the
Company's long-term relationships with its deposit customers (core value of
deposits intangible) since such intangible is not a financial instrument as
defined under SFAS No. 107.
Advances from FHLB: The fair value of such advances was estimated by discounting
the expected future cash flows using current interest rates as of September 30,
1999 and 1998, for advances with similar terms and remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowings: The fair
value of securities sold under agreements to repurchase and other borrowings was
estimated by discounting the expected future cash flows using derived interest
rates approximating market as of September 30, 1999 and 1998 over the
contractual maturity of such borrowings.
Advances From Borrowers for Taxes and Insurance: The carrying amount of advances
from borrowers for taxes and insurance is assumed to approximate the fair value.
Accrued Interest Payable: The carrying amount of accrued interest payable is
assumed to approximate the fair value.
Loan Commitments: The commitments to originate and purchase loans have terms
that are consistent with current market terms. Accordingly, the Company
estimates that the fair values of these commitments are not significant.
50
19. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Limitations: It must be noted that fair value estimates are made at a specific
point in time, based on relevant market information about the financial
instrument. Additionally, fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the value
of anticipated future business, customer relationships and the value of assets
and liabilities that are not considered financial instruments. These estimates
do not reflect any premium or discount that could result from offering the
Company's entire holdings of a particular financial instrument for sale at one
time. Furthermore, since no market exists for certain of the Company's financial
instruments, fair value estimates may be based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with a high level of precision. Changes in
assumptions as well as tax considerations could significantly affect the
estimates. Accordingly, based on the limitations described above, the aggregate
fair value estimates are not intended to represent the underlying value of the
Company, on either a going concern or a liquidation basis.
51
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
FIRST MIDWEST FINANCIAL, INC. AND SUBSIDIARIES
STORM LAKE, IOWA
We have audited the accompanying consolidated balance sheets of First Midwest
Financial, Inc. and Subsidiaries (the "Company") as of September 30, 1999 and
1998 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended September 30, 1999, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 1999 and 1998 and the results of its operations and its cash flows
for the years ended September 30, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
October 15, 1999
52
Directors of First Midwest Financial, Inc.
[GRAPHICS OMITTED -- Photographs of Directors]
JAMES S. HAAHR -- Chairman of the Board, President and Chief Executive Officer
for First Midwest Financial, Inc. and First Federal Savings Bank of the Midwest;
Chairman of the Board for Security State Bank. Mr. Haahr has served in various
capacities since beginning his career with First Federal in 1961. He is a member
of the Board of Trustees and Chairman of the Investment Committee of Buena Vista
University. He is a member of the Board of Directors of America's Community
Bankers, member of the Savings Association Insurance Fund Industry Advisory
Committee, and member of the Legislative Committee of Iowa Bankers Association.
Mr. Haahr is former Vice Chairman of the Board of Directors of the Federal Home
Loan Bank of Des Moines, former Chairman of the Iowa League of Savings
Institutions, and a former director of the U.S. League of Savings Institutions.
Board committee: First Federal Trust Committee. James S. Haahr is the father of
J. Tyler Haahr.
J. TYLER HAAHR -- Senior Vice President, Secretary and Chief Operating Officer
for First Midwest Financial, Inc.; Executive Vice President, Secretary, Chief
Operating Officer, and Division President for First Federal Savings Bank of the
Midwest; Chief Executive Officer of Security State Bank; and Vice President and
Secretary of First Services Financial Limited. First Midwest and its affiliates
have employed Mr. Haahr since March 1997. Previously Mr. Haahr was a partner
with the law firm of Lewis and Roca LLP, Phoenix, Arizona. He is active in many
local charities and was Co-chair for Buena Vista University's 1998 Community
Campaign Fundraising. Board committee: First Federal Trust Committee. J. Tyler
Haahr is the son of James S. Haahr.
E. WAYNE COOLEY -- Member of the Board of Directors for First Midwest Financial,
Inc., First Federal Savings Bank of the Midwest, and Security State Bank. Dr.
Cooley has served as Executive Secretary of the Iowa Girls' High School Athletic
Union in Des Moines, Iowa, since 1954. He is Executive Vice President of the
Iowa High School Speech Association, a member of the Buena Vista University
Board of Trustees, a member of the Drake Relays Executive Committee, and on the
Board of Directors of the Women's College Basketball Association Hall of Fame.
Dr. Cooley has served as Chairman of the Iowa Heart Association and as Vice
Chairman of the Iowa Games. Board committees: Chairman of the
Audit-Compensation/Person-nel Committee and member of the Stock Option
Committee.
E. THURMAN GASKILL -- Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Gaskill has owned and operated a grain farming operation located near
Corwith, Iowa, since 1958. He has served as a commissioner with the Iowa
Department of Economic Development and also as a commissioner with the Iowa
Department of Natural Resources. Mr. Gaskill is the past president of Iowa Corn
Growers Association, past chairman of the United States Feed Grains Council, and
has served in numerous other agriculture positions. He was elected to the Iowa
State Senate in 1998 and represents District 8. He serves as Chairman of the
Senate Agricultural Committee. Board committees Chairman of the First Federal
Trust Committee and member of the Audit-Compensation/Personnel Committee.
G. MARK MICKELSON -- Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Mickelson is Vice President of Acquisitions for Northwestern Growth
Corporation in Sioux Falls, South Dakota. Northwestern Growth Corporation is the
unregulated investment subsidiary of Northwestern Public Service. Mr. Mickelson
graduated with high honors from Harvard Law School and is a Certified Public
Accountant. Board committees: First Federal Audit-Compensation/Personnel
Committee and Stock Option Committee.
RODNEY G. MUILENBURG -- Member of the Board of Directors for First Midwest
Financial, Inc., First Federal Savings Bank of the Midwest, and Security State
Bank. Mr. Muilenburg is employed as a dairy specialist with Purina Mills, Inc.
and supervises the sale of agricultural products in a region encompassing
northwest Iowa, southeast South Dakota, and southwest Minnesota. Board
committees: Chairman of the Stock Option Committee and member of the
Audit-Compensation/Personnel Committee.
JEANNE PARTLOW -- Member of the Board of Directors for First Midwest Financial,
Inc. Mrs. Partlow retired in June 1998 as President of the Iowa Savings Bank
Division of First Federal, located in Des Moines, Iowa. She was President, Chief
Executive Officer and Chairperson of the Board of Iowa Savings Bank, F.S.B.,
from 1987 until the end of December 1995, when Iowa Savings Bank was acquired by
and became a division of First Federal Savings Bank of the Midwest. Mrs. Partlow
is a past member of the Board of Directors of the Federal Home Loan Bank of Des
Moines. Board committee: Stock Option Committee.
53
Executive Officers
[GRAPHICS OMITTED -- Photographs of Executive Officers]
JAMES S. HAAHR
Chairman of the Board, President and Chief Executive Officer for First Midwest
Financial, Inc. and First Federal Savings Bank of the Midwest; and Chairman of
the Board for Security State Bank
J. TYLER HAAHR
Senior Vice President, Secretary and Chief Operating Officer for First Midwest
Financial, Inc.; Executive Vice President, Secretary, Chief Operating Officer,
and Division President for First Federal Savings Bank of the Midwest; and Chief
Executive Officer for Security State Bank
DONALD J. WINCHELL, CPA
Senior Vice President, Treasurer and Chief Financial Officer for First Midwest
Financial, Inc. and First Federal Savings Bank of the Midwest; and Secretary for
Security State Bank
ELLEN E. MOORE
Vice President, Marketing and Sales for First Midwest Financial, Inc.; and
Senior Vice President, Marketing and Sales for First Federal Savings Bank of the
Midwest
TIM D. HARVEY
President for Brookings Federal
Bank Division
TROY MOORE
President for Iowa Savings
Bank Division
I. EUGENE RICHARDSON, JR.
President for Security State Bank
SUSAN C. JESSE
Senior Vice President for First Federal Savings Bank of the Midwest
DIRECTORS OF FIRST FEDERAL SAVINGS BANK OF THE MIDWEST
JAMES S. HAAHR, CHAIRMAN
E. WAYNE COOLEY
E. THURMAN GASKILL
J. TYLER HAAHR
G. MARK MICKELSON
RODNEY G. MUILENBURG
DIRECTORS OF SECURITY STATE BANK
JAMES S. HAAHR, CHAIRMAN
JEFFREY N. BUMP
E. WAYNE COOLEY
E. THURMAN GASKILL
J. TYLER HAAHR
G. MARK MICKELSON
RODNEY G. MUILENBURG
I. EUGENE RICHARDSON, JR.
BROOKINGS FEDERAL BANK
ADVISORY BOARD
FRED J. RITTERSHAUS, CHAIRMAN
VIRGIL G. ELLERBRUCH
J. TYLER HAAHR
TIM D. HARVEY
O. DALE LARSON
EARL R. RUE
54
Office Locations
[GRAPHICS OMITTED -- Photographs of Branches with Map]
FIRST FEDERAL SAVINGS BANK OF THE MIDWEST
First Federal Savings Bank Division
Main Bank Office
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
712-732-4117
800-792-6815
712-732-7105 fax
Storm Lake Plaza Office
1415 North Lake Avenue
Storm Lake, Iowa 50588
712-732-6655
712-732-7924 fax
Lake View Office
Fifth at Main
Lake View, Iowa 51450
712-657-2721
712-657-2896 fax
Laurens Office
104 North Third Street
Laurens, Iowa 50554
712-845-2588
712-845-2029 fax
Manson Office
Eleventh at Main
Manson, Iowa 50563
712-469-3319
712-469-2458 fax
Odebolt Office
219 South Main Street
Odebolt, Iowa 51458
712-668-4881
712-668-4882 fax
Sac City Office
518 Audubon Street
Sac City, Iowa 50583
712-662-7195
712-662-7196 fax
Brookings Federal Bank Division
Main Office
600 Main Avenue
P.O. Box 98
Brookings, South Dakota 57006
605-692-2314
800-842-7452
605-692-7059 fax
Eastbrook Office
425 22nd Avenue South
Brookings, South Dakota 57006
605-692-2314
Iowa Savings Bank
Division
Main Office
3448 Westown Parkway
West Des Moines, Iowa 50266
515-226-8474
515-226-8475 fax
Highland Park Office
3624 Sixth Avenue
Des Moines, Iowa 50313
515-288-4866
515-288-3104 fax
SECURITY STATE BANK
Main Office
615 South Division
P.O. Box 606
Stuart, Iowa 50250
515-523-2203
800-523-8003
515-523-2460 fax
Casey Office
101 East Logan
P.O. Box 97
Casey, Iowa 50048
515-746-3366
800-746-3367
515-746-2828 fax
Menlo Office
501 Sherman
P.O. Box 36
Menlo, Iowa 50164
515-524-4521
55
Corporate Information
CORPORATE HEADQUARTERS
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders will convene at 1 p.m. on Monday, January 24,
2000. The meeting will be held in the Board Room of First Federal Savings Bank
of the Midwest, Fifth at Erie, Storm Lake, Iowa. Further information with regard
to this meeting can be found in the proxy statement.
GENERAL COUNSEL
Mack, Hansen, Gadd, Armstrong
& Brown, P.C.
316 East Sixth Street
P.O. Box 278
Storm Lake, Iowa 50588
SPECIAL COUNSEL
Silver, Freedman & Taff, LLP
1100 New York Avenue, NW
Washington, DC 20005-3934
INDEPENDENT AUDITORS
Crowe, Chizek and Company LLP
330 East Jefferson Boulevard
P.O. Box 7
South Bend, Indiana 46624
SHAREHOLDER SERVICES AND
INVESTOR RELATIONS
Shareholders desiring to change the name, address, or ownership of stock; to
report lost certificates; or to consolidate accounts, should contact the
corporation's transfer agent:
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Telephone: 1-800-368-5948
FORM 10-K
Copies of the Company's annual report or Form 10-K for the year ended September
30, 1999 (excluding exhibits thereto) are available without charge, upon request
to:
Investor Relations
First Midwest Financial, Inc.
First Federal Building, Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588
Telephone: 712-732-4117
- --------------------------------------------------------------------------------
STOCK MARKET INFORMATION
First Midwest Financial, Inc.'s common stock trades on the Nasdaq National
Market under the symbol "CASH." The Wall Street Journal publishes daily trading
information for the stock under the abbreviation, "FstMidwFnl," in the National
Market Listing. Quarterly dividends for 1998 and 1999 were $.12 and $.13
respectively. The price range of the common stock, as reported on the Nasdaq
System, was as follows:
FISCAL YEAR 1999 FISCAL YEAR 1998
- -------------------------------------------------------------------------------------------------------
Low High Low High
- -------------------------------------------------------------------------------------------------------
First Quarter $14.13 $19.63 $19.50 $22.63
Second Quarter $14.25 $16.00 $21.88 $23.25
Third Quarter $14.25 $15.50 $21.38 $25.25
Fourth Quarter $12.50 $14.75 $17.13 $24.00
========================================================================================================
Prices disclose inter-dealer quotations without retail mark-up, mark-down or
commissions, and do not necessarily represent actual transactions.
Dividend payment decisions are made with consideration of a variety of factors
including earnings, financial condition, market considerations, and regulatory
restrictions. Restrictions on dividend payments are described in Note 14 of the
Notes to Consolidated Financial Statements included in this Annual Report.
As of September 30, 1999, First Midwest had 2,507,073 shares of common stock
outstanding, which were held by 318 shareholders of record, and 325,400 shares
subject to outstanding options. The shareholders of record number does not
reflect approximately 565 persons or entities who hold their stock in nominee or
"street" name.
The following securities firms indicated they were acting as market makers for
First Midwest Financial, Inc. stock as of September 30, 1999: Everen Securities,
Inc.; Herzog, Heine, Geduld, Inc.; Howe Barnes Investments, Inc.; Spear, Leeds &
Kellogg; Sandler O'Neill & Partners; and Tucker Anthony Incorporated.
56
Economic Data
First Federal Savings Bank
AVERAGE LAND VALUE AS OF
SEPTEMBER 1999
High quality farmland in northwest Iowa: $2,334 per acre
BUILDING PERMITS 1998
Storm Lake
Residential -- $1,376,566
Commercial -- $6,677,743
TAXABLE RETAIL SALES 1998
Storm Lake -- $120,626,460
UNEMPLOYMENT RATE AS OF
AUGUST 1999
Buena Vista County -- 2.2%
Brookings Federal Bank
AVERAGE LAND VALUE AS OF
FEBRUARY 1999
High-productivity, non-irrigated
cropland in east-central
South Dakota: $949 per acre
BUILDING PERMITS 1998
Brookings
Residential -- $5,742,100
Commercial -- $12,032,000
TAXABLE RETAIL SALES 1998
Brookings -- $154,805,404
UNEMPLOYMENT RATE
AS OF AUGUST 1999
Brookings -- 1.6%
Iowa Savings Bank
AVERAGE LAND VALUE AS OF
SEPTEMBER 1999
High quality farmland in
central Iowa: $2,463 per acre
BUILDING PERMITS 1998 Metropolitan Statistical Area* Residential -- $246,210,000
Commercial -- $180,200,000
TAXABLE RETAIL SALES 1998
Des Moines -- $3,944,053,446
UNEMPLOYMENT RATE
AS OF AUGUST 1998
Polk County -- 2.0%
* MSA = Dallas, Polk, and
Warren Counties
Security State Bank
AVERAGE LAND VALUE AS OF
SEPTEMBER 1999
High quality farmland in west-
central Iowa: $2,354 per acre
BUILDING PERMITS 1998
N/A
TAXABLE RETAIL SALES 1998
Stuart -- $6,719,643
UNEMPLOYMENT RATE
AS OF AUGUST 1999
Guthrie County -- 1.8%
[GRAPHIC -- Logo]
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588