UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------------------
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _________________
Commission File Number 0-20620
MIDWEST BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 42-1390587
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3225 Division Street, Burlington, Iowa 52601
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 754-6526
--------------
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Transitional Small Business Form Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock 340,339
------------ --------------------
Class Shares Outstanding
as of August 7, 1997
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
INDEX
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Page
----
Part I. Financial Information
Item Financial Statements
Consolidated balance sheets June 30, 1997 and December 31, 1996 1
Consolidated statements of operations, for the three
months and six months ended June 30, 1997 and 1996 2
Consolidated statements of cash flows, for the six
months ended June 30, 1997 and 1996 3
Notes to consolidated financial statements 4
Item Management's discussion and analysis of financial condition
and results of operations 5 through 9
Part II.Other Information 10
Signatures 11
Exhibit 11 Computation of per share earnings
Exhibit 27 Financial Data Schedule
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
June 30, 1997 December 31, 1996
------------- -----------------
Assets
Cash and cash equivalents $2,119 $3,998
Securities available for sale 27,999 23,784
Securities held to maturity (estimated
fair value of $23,204 and $21,764) 23,158 21,811
Loans receivable, net 87,221 81,225
Real estate owned and in judgment, net 473 12
Federal Home Loan Bank stock, at cost 1,960 1,960
Office property and equipment, net 2,382 2,447
Accrued interest receivable 1,094 1,007
Other assets 136 181
-------- --------
Total assets $146,542 $136,425
======== ========
Liabilities
Deposits $106,786 $101,918
Advances from Federal Home Loan Bank 28,500 24,000
Advances from borrowers for taxes and insurance 378 378
Accrued interest payable 120 74
Accrued expenses and other liabilities 635 455
-------- --------
Total liabilities $136,419 $126,825
-------- --------
Stockholders' equity
Serial preferred stock, $.01 par value,
500,000 shares authorized, none issued $ --- $ ---
Common stock, $.01 par value, 2,000,000 shares
authorized, 455,000 issued and outstanding 5 5
Additional paid-in capital 4,037 4,037
Retained earnings, substantially restricted 8,269 7,837
Treasury stock, at cost, 106,661 shares
for 1997 and 105,621 shares for 1996 (2,241) (2,211)
Employee stock ownership plan (120) (120)
Unrealized appreciation on securities
available for sale, net of taxes on income 173 52
-------- --------
Total stockholders' equity $10,123 $9,600
-------- --------
Total liabilities and stockholders' equity $146,542 $136,425
======== ========
See accompanying notes to consolidated financial statements.
Page 1
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
Loans receivable $1,742 $1,587 $3,401 $3,149
Securities available for sale 572 564 1,061 1,100
Securities held to maturity 314 348 646 707
Deposits in other financial institutions 14 13 44 28
Other interest-earning assets 34 34 68 67
------ ------ ------ ------
Total interest income 2,676 2,546 5,220 5,051
------ ------ ------ ------
Interest expense:
Deposits 1,264 1,160 2,480 2,334
Advances from FHLB and other borrowings 399 388 751 734
------ ------ ------ ------
Total interest expense 1,663 1,548 3,231 3,068
------ ------ ------ ------
Net interest income 1,013 998 1,989 1,983
Provision for losses on loans 12 12 24 24
------ ------ ------ ------
Net interest income after provision for losses on loans 1,001 986 1,965 1,959
------ ------ ------ ------
Non-interest income:
Fees and service charges 65 42 134 81
Other 13 76 31 88
------ ------ ------ ------
Total non-interest income 78 118 165 169
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 301 275 627 576
Office property and equipment 94 82 189 170
Deposit insurance premiums 16 59 20 120
Data processing 37 41 79 82
Other 173 177 365 336
------ ------ ------ ------
Total non-interest expense 621 634 1,280 1,284
------ ------ ------ ------
Earnings before taxes on income 458 470 850 844
Taxes on income 168 169 313 308
------ ------ ------ ------
Net earnings $290 $301 $537 $536
====== ====== ====== ======
Earnings per share $0.78 $0.81 $1.44 $1.41
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
Page 2
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Six months ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $537 $536
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for losses on loans 24 24
Depreciation 80 66
Amortization of recognition and retention plan benefits --- 10
ESOP expense 28 22
Amortization of loan fees, premiums and discounts (3) 55
(Increase) decrease in accrued interest receivable (87) (129)
(Increase) decrease in other assets (25) 17
Increase (decrease) in accrued interest payable 46 46
Increase (decrease) in accrued expenses and other liabilities 151 (62)
-------- --------
Net cash provided by operating activities 751 585
-------- --------
Cash flows from investing activities:
Purchase of securities (4,555) (7,605)
Proceeds from maturities of securities --- 5,543
Loans purchased (3,942) (4,006)
Purchase of mortgage-backed securities (3,484) (2,014)
Repayment of principal on mortgage-backed securities 2,671 2,757
Decrease (increase) in loans receivable (2,576) (1,624)
Proceeds from sale of real estate owned, net 38 27
Purchase of office property and equipment (15) (191)
-------- --------
Net cash (used in) provided by investing activities (11,863) (7,113)
-------- --------
Cash flows from financing activities:
Increase (decrease) in deposits 4,868 (1,077)
Proceeds from advances from FHLB 4,500 7,500
Treasury stock acquired (30) (511)
Payment of cash dividends (105) (94)
Net (decrease) increase in advances from borrowers
for taxes and insurance --- (12)
-------- --------
Net cash provided by (used in) financing activities 9,233 5,806
-------- --------
Net (decrease) increase in cash and cash equivalents (1,879) (722)
Cash and cash equivalents at beginning of year 3,998 2,305
-------- --------
Cash and cash equivalents at end of period $2,119 $1,583
======== ========
Supplemental disclosures:
Cash paid during the six months for:
Interest $3,184 $3,023
Taxes on income 161 351
Transfers from loans to real estate owned 497 191
======== ========
See accompanying notes to consolidated financial statements.
Page 3
MIDWEST BANCSHARES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The consolidated financial statements for the three and six months
ended June 30, 1997, and 1996 have not been audited and do not include
information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows in conformity
with generally accepted accounting principles. However, in the opinion
of management, the accompanying consolidated financial statements
contain all adjustments, which are of a normal recurring nature,
necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results which may
be expected for an entire year.
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements contained in the
1996 Annual Report to stockholders and are incorporated herein by
reference.
Note 2. Reclassifications
Certain items on the consolidated financial statements as of, and for
the three and six months ended June 30, 1996, have been reclassified to
conform to the presentation as of, and for the three and six months
ended June 30, l997.
Page 4
MIDWEST BANCHSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
When used in this Form 10-QSB, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
Results of Operations
Midwest Bancshares, Inc. (the "Company") had net earnings of $290,000,
or $0.78 per share, and $537,000, or $1.44 per share, respectively, for the
three months and six months ended June 30, 1997, compared to net earnings of
$301,000, or $0.81 per share, and $536,000, or $1.41 per share, for the same
periods in 1996. The decrease in net earnings for the quarter was primarily due
to a one-time pre-tax gain of approximately $59,000 representing a cash
distribution received from the Association's data processor in the quarter ended
June 30, 1996 with no comparable gain in the quarter ended June 30, 1997. Other
comparisons are discussed in more detail below.
Net Interest Income
Net interest income increased $15,000 and $6,000, respectively, for the
three months and six months ended June 30, 1997, over the comparable periods in
1996. The Company's net interest rate spread was 2.65% and 2.62%, respectively,
for the three months and six months ended June 30, 1997, compared to 2.75% and
2.70% for the comparable periods in 1996. The Company's net interest margin on
interest-earning assets was 2.92% and 2.89%, respectively, for the three months
and six months ended June 30, 1997, compared to 2.99% and 2.97% for the
comparable periods in 1996.
Interest income increased by $130,000 and $169,000 for the three months
and six months ended June 30, 1997, respectively, over the comparable periods in
1996. Average interest-earning assets increased by approximately $5.6 million
and $3.9 million for the three months and six months ended June 30, 1997,
respectively, compared to the same periods in 1996. The increases in average
interest-earning assets were primarily due to increases in loans outstanding, a
combined result of loan originations and purchases. The average yield on
interest-earning assets increased by seven basis points and four basis points,
respectively, for the three months and six months ended June 30, 1997, over the
comparable periods in 1996. The slight increases in average yield were primarily
due to the origination and purchase of loans yielding higher market interest
rates and due to adjustable-rate loans, some of which have below-market initial
teaser rates, and mortgage-backed securities adjusting to higher rates in
response to higher market interest rates. Yield adjustments on the Company's
adjustable-rate portfolio occur periodically over time
Page 5
MIDWEST BANCHSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
Net Interest Income (continued)
and may tend to lag behind the changes experienced in the market. These
adjustments may also be limited by periodic and lifetime caps on such
adjustments.
Interest expense increased by $115,000 and $163,000, respectively, for
the three months and six months ended June 30, 1997, over the comparable periods
in 1996. Average interest-bearing liabilities increased by approximately $4.9
million and $3.8 million for the three months and six months, respectively,
primarily due to increases of $4.0 million and $2.9 million in average
interest-bearing deposits and increases of $0.9 million and $0.9 million in
average borrowings from the FHLB, respectively. The increases in average
deposits were primarily the result of more aggressive pricing subsequent to the
passage of the Deposit Insurance Funds Act of 1996 which reduced FDIC deposit
insurance assessments. The average rates paid on interest-bearing liabilities
increased 16 basis points and 12 basis points for the three months and six
months ended June 30, 1997, respectively, over the comparable periods in 1996.
The increases in average rates paid were primarily due to deposits responding to
higher rates being offered by the Company.
Provision for Losses on Loans
The provision for losses on loans was $12,000 and $24,000 for the three
months and six months ended June 30, 1997, and 1996. The amount of provision was
a result of the determination by management to maintain the allowance for losses
on loans at an adequate level to absorb potential loan losses. At June 30, 1997,
and 1996, the Company's allowance for losses on loans totaled $710,000 and
$663,000, respectively, or 0.81% and 0.83% of total loans, excluding
mortgage-backed securities, and 109.06% and 348.95% of total non-performing
loans. The latter ratio was impacted by a $461,000 increase in non-performing
loans from $190,000 at June 30, 1996, to $651,000 at June 30, 1997, primarily
due to two multi-family loans totaling $399,000 which were placed on non-accrual
status. Non-performing loans decreased from the first quarter of 1997 by
$488,000 primarily due to the in-substance foreclosure and transfer to real
estate in judgment of one multi-family loan of $473,000. Management does not
anticipate a material loss on the resolution of these loan delinquencies and
real estate in judgment. The Company had no net charge-offs during the three
months and six months ended June 30, 1997, compared to zero and $37,000 for the
three months and six months ended June 30, 1996, respectively.
Non-interest income
Total non-interest income decreased by $40,000 and $4,000,
respectively, for the three months and six months ended June 30, 1997, compared
to the same periods in 1996. The decreases were primarily due to a $59,000
distribution from the sale of the Company's data processor in June 1996, with
only a $9,000 similar distribution received in the first quarter of 1997, which
represented the final distribution on this sale. Partially offsetting these
decreases were increases of $23,000 and $53,000 for the three months and six
months of fees and service charges, primarily a result of a revised fee
structure on certain deposit services and ATM usage.
Non-interest expense
Total non-interest expense decreased by $13,000 and $4,000 for the
three months and six months ended June 30, 1997, respectively, compared to the
same periods in 1996. The decreases were primarily due to decreases of $43,000
and $100,000 for the three months and six months, respectively, in deposit
insurance premiums, a result of the Deposit Insurance Funds Act of 1996 which
was passed on September 30, 1996, to recapitalize the SAIF insurance fund.
Page 6
MIDWEST BANCHSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
Non-interest expense (continued)
The decreases in deposit insurance premiums were partially offset by
increases for the three months and six months, respectively, of $26,000 and
$51,000 in compensation and benefits, and $12,000 and $19,000 in office property
and equipment, and an increase for the six months of $29,000 in other
non-interest expense. The increases in compensation and benefit expense were
primarily due to the hiring of a regulatory compliance officer and normal cost
of living increases. The increases in office property and equipment expense were
primarily due to the Company's expanded ATM network and computer equipment. The
increase in other expenses was primarily due to increased marketing and supplies
expenses related to the expansion of the Company's ATM network and the
introduction of a new product, the home equity line of credit.
Taxes on Income
Taxes on income were similar in both periods in 1997 compared to 1996
as the effective combined federal and state tax rate remained constant at
approximately 37%, less the effect of the dividends received deduction for
equity investments of the Company.
Financial Condition
The Company's total assets at June 30, 1997, were $146.5 million,
increasing from $136.4 million at December 31, 1996. The increase was due to an
intentional increase in interest-earning assets in an effort to increase net
interest income. The increase of approximately $10.1 million was primarily due
to the purchase of $4.6 million of securities available for sale, the purchase
of $3.5 million of mortgage-backed securities to be held to maturity, and the
net increase in loans receivable of $6.0 million through the purchase of $3.9
million in loans receivable and the net origination of loans receivable of $2.6
million, less $473,000 transferred to real estate in judgment, partially offset
by principal repayments of $2.7 million from mortgage-backed securities and a
net decrease in cash and cash equivalents of $1.9 million. The increase in total
assets was primarily funded by an increase in deposits of $4.9 million and an
increase of $4.5 million in advances from the FHLB.
Total stockholders' equity increased $523,000 due to $537,000 in net
earnings for the period less $105,000 in dividends declared during the period,
and the $121,000 increase in net unrealized gains on investments available for
sale (due to decreased market rates of interest) less a $30,000 increase in
treasury stock.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits and advances from
FHLB, amortization and prepayment of loan principal (including mortgage-backed
securities), sales or maturities of investment securities, mortgage-backed
securities and short-term investments and operations. While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan repayments are more influenced by interest rates, general
economic conditions and competition. The Company generally manages the pricing
of its deposits to maintain a steady deposit balance, but has from time to time
decided not to pay deposit rates that are as high as those of its competitors,
and, when necessary, to supplement deposits with longer term and/or less
expensive alternative sources of funds.
Page 7
MIDWEST BANCHSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
Federal regulations require the Association to maintain minimum levels
of liquid assets consisting of cash and other eligible investments. The required
percentage is currently 5% of net withdrawable savings deposits and borrowings
payable on demand or in one year or less during the preceding calendar quarter.
For June 1997, the Association's liquidity ratio was 7.9% compared to 9.8% for
December 1996. The decrease was primarily due to increased utilization through
loan purchases and originations. Assuming market interest rates are stable or
decrease, a high level of liquidity may have a negative effect on the
Association's interest rate spread due to a larger amount of the Association's
assets earning the then-current lower rates of interest. However, a high level
of liquidity positions the Association to respond to possible higher interest
rates by providing the Association with the ability to deploy liquid assets into
higher yielding assets as rates increase. The Association intends to deploy
liquid assets by increasing its loan portfolio; however, its ability to do so
depends on the loan demand in its market areas, competition for such loans, to
the extent they meet the Association's underwriting guidelines, and
opportunities for participating in loans in nearby markets.
Liquidity management is both a daily and long-term responsibility of
management. The Association adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing deposits, and (iv) the
objectives of its asset/liability management strategy. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Association requires funds beyond its
ability to generate them internally, it has additional borrowing capacity with
the Federal Home Loan Bank.
The Association anticipates that it will have sufficient funds
available to meet current loan and purchase commitments. At June 30, 1997, the
Association had outstanding commitments to extend credit totaling $3.7 million
and commitments to purchase loans of $790,000 and investments of $735,000.
At June 30, 1997, the Association had tangible and core capital of $8.8
million, or 6.02% of total adjusted assets which exceeded the regulatory
requirements of 1.5% and 3.0%, respectively, by $6.6 million and $4.4 million,
respectively. The risk-based capital requirement is currently 8% of
risk-weighted assets. As of June 30, 1997, the Association had risk-weighted
assets of $65.5 million, a risk-based requirement of $5.2 million and risk-based
capital of $9.5 million, or 14.46%, which exceeds the requirement by $4.2
million. The following table shows the Association's regulatory capital
information.
Regulatory Capital Table
(In thousands)
Tangible Core Risk-based
Capital Capital Capital
--------------------------------
Association's capital $8,760 $8,760 $8,760
Additional capital - general allowances -- -- 710
------ ------ ------
Regulatory capital $8,760 $8,760 $9,470
Minimum capital requirement 2,184 4,369 5,239
------ ------ ------
Excess regulatory capital $6,576 $4,391 $4,231
====== ====== ======
Page 8
MIDWEST BANCHSHARES, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
Market Value Component of Stockholders' Equity
The unrealized appreciation on securities available for sale, which is
a component of stockholders' equity, is a result of the implementation of
Statement No. 115 of the Financial Accounting Standards Board. At June 30, 1997,
the net unrealized gain of $173,000, up from a net gain of $52,000 at December
31, 1996, consisted primarily of the net unrealized market gain, net of tax, due
to decreased market interest rates, on certain GNMA mortgage-backed securities,
U.S. Agency securities, and marketable equity securities which have been
identified as available for sale by management.
Page 9
MIDWEST BANCSHARES, INC.
PART II. Other Information
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual meeting date: April 28, 1997
(c) The matters approved by stockholders at the meeting and number of
votes cast for, against or withheld (as well as the number of
abstentious and broker non-votes) as to each matter are set forth
below:
Proposal Number of Votes
-------- ---------------
Broker
For Withheld Non-vote
--- -------- --------
Election of the following directors
for three-year terms:
1. Yuh-Fen (Boni) Lin 250,037 1,750 0
2. James E. Witte 247,802 3,985 0
Broker
For Against Abstain Non-vote
--- ------- ------- --------
Ratification of the appointment of
KPMG Peat Marwick LLP as auditors for
fiscal year ending December 31, 1997 251,637 0 150 0
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
Page 10
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDWEST BANCSHARES, INC.
Registrant
Date: August 7, 1997 /s/ William D. Hassel
-------------------- ------------------------------
William D. Hassel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 7, 1997 /s/ Robert D. Maschmann
-------------------- ------------------------------
Robert D. Maschmann
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 11
Index to Exhibits
Sequentially
Numbered Page
Exhibit Where Attached
Number Exhibits are Located
- ------ --------------------
11 Computation of Per Share Earnings
27 Financial Data Schedule