1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------------
Commission File Number: 0-20331
---------------------------------------------------
Midwest Federal Financial Corp.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1725856
- --------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1159 Eighth Street, Baraboo, Wisconsin 53913
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 356-7771
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past
90 days. X YES NO
---- ----
Registrant became subject to the filing requirements of the Act on July 7,
1992.
As of November 12, 1996, there were 2,069,998 shares, $ .01 par value, of the
registrant's common stock issued and 1,634,379 shares or common shares
equivalents are outstanding.
2
Midwest Federal Financial Corp.
And Subsidiary
Table of Contents
PART I - Financial Information
Consolidated Statements of Financial Condition (unaudited) 1
Consolidated Statements of Operations (unaudited) 2
Consolidated Statements of Cash Flows (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 5
Managements discussion and Analysis of financial
Condition and Results of Operations 12
PART II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to Vote
of Securities Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
3
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
09/30/96 12/31/95
-------- --------
ASSETS
Cash $ 6,792,499 $ 6,332,222
Interest bearing deposits 18,375 147,681
------------ ------------
Cash and cash equivalents 6,810,874 6,479,903
Other interest-bearing deposits 100,000 598,999
Loans held for sale 688,750 847,155
Securities available for sale:
Investment securities 18,686,835 24,600,319
Mortgage-backed securities 17,952,719 11,359,554
Securities held to Maturity:
Investment securities 1,300,000 2,095,025
Investment in Federal Home Loan Bank stock 1,205,000 936,100
Interest receivable on interest-bearing deposits and investment securities 538,374 611,890
Loans receivable - net 140,330,695 122,925,422
Interest receivable on loans 996,566 785,172
Office properties and equipment 4,020,069 4,012,669
Deferred income taxes 178,189 38,000
Other asset 1,179,029 1,088,984
Deposit Base Intangible 719,493 784,901
------------ ------------
TOTAL ASSETS $194,706,593 $177,164,093
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Deposit accounts $153,277,980 $142,590,514
Borrowed funds 22,100,000 16,000,000
Advance payments by borrowers for taxes and insurance 513,103 176,921
Accrued and other liabilities:
Interest 611,330 657,696
Deferred compensation and director fees 346,265 317,465
Other 1,517,988 880,185
------------ ------------
Total liabilities 178,366,666 160,622,781
------------ ------------
Commitments and contingencies
Stockholders' Equity:
Common Stock--$.01 par value:
Authorized--3,000,000 shares
Issued--2,069,998 shares and 1,034,999 shares respectively 20,700 10,350
Additional Paid-in capital 6,495,310 6,500,960
Retained earnings-substantially restricted 14,030,898 13,162,529
Unrealized Gains (Losses) on securities available for sale, net of tax (289,000) 187,600
Loan to ESOP (389,353) (419,142)
Treasury stock at cost--466,018 shares and 437,118 shares respectively (3,528,628) (2,900,985)
------------ ------------
Total Stockholders' equity 16,339,927 16,541,312
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $194,706,593 $177,164,093
============ ============
See accompanying notes to consolidated financial statements
Page 1
4
Midwest Federal Financial Corp.
And Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Nine Months Ended
------------- -----------------
09/30/96 09/30/95 09/30/96 09/30/95
-------- -------- -------- ---------
Interest and dividend income:
Mortgage loans $2,266,211 $1,951,714 $ 6,486,808 $5,538,233
Other loans 915,025 880,247 2,703,476 2,398,819
Investment securities and interest-bearing deposits 362,606 304,526 1,093,875 761,011
Mortgage-backed securities 285,950 123,511 729,197 425,111
Dividends on stock in Federal Home Loan Bank 18,679 10,500 48,539 35,369
---------- ---------- ----------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 3,848,471 3,270,498 11,061,895 9,158,543
---------- ---------- ----------- ----------
Interest Expense:
Deposits 1,722,391 1,595,250 5,009,995 4,462,817
Borrowed funds 308,037 93,764 714,208 320,328
---------- ---------- ----------- ----------
TOTAL INTEREST EXPENSE 2,030,428 1,689,014 5,724,203 4,783,145
---------- ---------- ----------- ----------
Net interest income 1,818,043 1,581,484 5,337,692 4,375,399
Provision for loan losses 145,000 45,000 250,000 100,000
---------- ---------- ----------- ----------
Net interest income after provision for loan losses 1,673,043 1,536,484 5,087,692 4,275,399
---------- ---------- ----------- ----------
Non-interest income:
Loan fees and service charges 60,520 53,566 197,609 140,747
Deposit account fees and service charges - Net 207,612 181,371 591,553 461,861
Net gain on sale of investment and mortgage-backed securities 100,008 4,825 258,942 90,796
Net gain on sale of loans 213,805 46,013 352,818 123,337
Other income 141,274 106,681 400,111 311,239
---------- ---------- ----------- ----------
TOTAL NON-INTEREST INCOME 723,219 392,457 1,801,033 1,127,980
---------- ---------- ----------- ----------
Operating Expenses:
Compensation and other employee benefits 755,933 607,527 2,182,923 1,748,988
Occupancy 192,539 174,520 589,189 511,806
Office supplies, telephone and postage 92,215 71,652 267,552 232,248
Data processing 89,708 85,059 270,674 270,999
Federal deposit insurance premiums 914,121 73,747 1,051,815 205,264
Other 203,430 225,260 591,048 615,895
---------- ---------- ----------- ----------
TOTAL OPERATING EXPENSES 2,247,946 1,237,765 4,953,201 3,585,200
---------- ---------- ----------- ----------
Income before provision for income taxes 148,316 691,176 1,935,523 1,818,179
Provision for income taxes 45,600 253,100 688,800 665,400
---------- ---------- ----------- ----------
NET INCOME $ 102,716 $ 438,076 $ 1,246,723 $1,152,779
========== ========== =========== ==========
Total earning per share $ .06 $ .25 $ .73 $ .65
========== ========== =========== ==========
See accompanying notes to consolidated financial statements
* Earnings per share for prior periods have been restated to reflect a 2 for 1
stock dividend executed in May 1996.
Page 2
5
Midwest Federal Financial Corp.
And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
09/30/96 09/30/95
-------- --------
Cash Flows from operating activities:
Net Income $ 1,246,723 $ 1,152,779
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 282,224 241,038
Net amortization of premiums and discounts on
Investment and mortgage-backed securities 12,636 27,035
Provision for loan losses 250,000 100,000
Gain on sale of investment and mortgage-backed securities (258,942) (90,796)
Dividends reinvested in Federal Home Loan Bank Stock 0 (11,100)
Gain on sale of loans (352,818) (123,338)
Origination of loans held for sale (18,693,960) (8,393,858)
Proceeds from sale of loans originated for sale 18,834,706 8,624,708
Provision (credit) for deferred taxes 140,189 (496,511)
Increase (decrease) in other assets 24,637 (826,748)
Increase (decrease) in other liabilities 620,237 217,005
------------ -----------
Total adjustments 858,909 (732,565)
------------ -----------
Net cash provided by operating activities 2,105,632 420,214
------------ -----------
Cash flows from investing activities
Net (increase) decrease in interest-bearing deposits 498,999 (201,999)
Securities available for sale:
Purchase of investment securities (10,365,272) (9,774,313)
Proceeds from sale of investment securities 13,509,854 2,405,486
Proceeds from maturities of investment securities 2,220,000 3,500,000
Purchases of mortgage-backed securities (8,577,941) 0
Proceeds from sale of mortgage-backed securities 0 2,106,749
Principal repayment on mortgage-backed securities 1,780,967 819,871
Securities held to maturity:
Purchase of investment securities 0 (2,994,800)
Proceeds from maturities of investment securities 800,000 0
Redemption of Federal Home Loan Bank stock 136,100 0
Purchase of Federal Home Loan Bank Stock (268,900) 0
Net increase in loans (17,405,273) (9,408,849)
Capital expenditures (283,073) (665,018)
Payment received on loan to ESOP 29,789 19,135
------------ -----------
Net cash used in Investing activities (17,924,750) (14,193,738)
------------ -----------
Page 3
6
MIDWEST FEDERAL FINANCIAL CORP
And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Nine Months Ended
-----------------
09/30/96 09/30/95
-------- --------
Cash Flows from financing activities:
Net increase (decrease) in deposits 10,687,466 15,062,888
Net increase (decrease) in borrowed funds 6,100,000 (1,000,000)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 336,182 551,076
Net proceeds from sale of stock 0 0
Purchase of treasury stock (751,688) (402,373)
Dividends paid (304,148) (166,241)
Proceeds from the exercise of stock options 82,277 25,200
----------- -----------
Net Cash provided by financing activities 16,150,089 14,070,550
----------- -----------
Net increase (decrease) in cash and cash equivalents 330,971 297,026
Cash and cash equivalents at beginning 6,479,903 5,876,454
----------- -----------
Cash and cash equivalents at end $ 6,810,874 $ 6,173,480
=========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 5,009,995 $ 4,462,817
Interest on borrowings 714,208 320,328
Income taxes 688,800 665,400
See accompanying notes to consolidated financial statements.
Page 4
7
Midwest Federal Financial Corp.
And Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Midwest Federal Financial Corp. and Subsidiary (the
Company) conform to generally accepted accounting principles and prevailing
practices within the thrift industry. A summary of the more significant
accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Midwest Federal Financial Corp., its wholly-owned subsidiary, Baraboo Federal
Bank, FSB (the Bank), and the Bank's wholly-owned subsidiary, BF Financial
Services, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation. BF Financial Services, Inc. offers full
service brokerage services and insurance annuity contracts to its customers.
CASH EQUIVALENTS
The Company generally considers all highly liquid debt instruments with
original maturities when purchased of three months or less to be cash
equivalents.
INVESTMENT IN SECURITIES
The Company's investments in securities are classified in two categories and
accounted for as follows:
Securities held to maturity - Debt and mortgage-backed securities for which
the Company has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized in interest income using the interest
method over the period to maturity.
Securities available for sale - Securities available for sale consist of
equity securities and certain debt and mortgage backed securities not
classified as securities held to maturity. Unrealized holding gains and
losses, net of tax, on securities available for sale are reported as a net
amount in a separate component of stockholders' equity until realized, if
judged to be temporary.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
LOANS HELD FOR SALE
Mortgage loans held for sale generally consist of current production of certain
fixed-rate first mortgage loans. Mortgage loans held for sale are carried at
the lower of cost (less principal payments received) or market value.
LOANS RECEIVABLE
Loans receivable are stated as unpaid principal balances, less the allowance
for loan losses and net deferred loan origination fees. Interest income is
recognized using methods which approximate a level yield on principal amounts
outstanding. Accrual of interest is discontinued either when reasonable doubt
exists as to the full, timely collection of interest or principal or when a
loan becomes contractually past due by 90 days or more with respect to interest
or principal. At that time, any accrued but uncollected interest is reversed,
and additional income is recorded only to the extent that payments are received
and the collection of principal is reasonably assured.
LOAN FEES AND RELATED COSTS
Certain loan origination fees, commitment fees and direct loan origination
costs are being deferred and the net amounts amortized as an adjustment of the
related loan's yield. The Bank is amortizing these amounts into interest
income, using the level yield method, over the contractual life of the related
loan.
Other origination and commitment fees not required to be recognized as a yield
adjustment are included in loan fees and service charges.
Page 5
8
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORECLOSED PROPERTIES
Real estate acquired by foreclosure or deed in lieu of foreclosure, is adjusted
to its fair market value upon acquisition and is subsequently carried at the
lower of cost or net realizable value. Costs related to the development and
improvement of property are capitalized; holding costs are charged to expense.
ALLOWANCE FOR LOSSES ON LOANS AND FORECLOSED PROPERTIES
Management periodically reviews loans and foreclosed properties to determine
whether the estimated realizable value of the related asset is less than the
carrying amount. In making such determinations, consideration is given to
estimated sales price, refurbishing costs, and direct holding and selling
costs. When a loss is anticipated, an allowance for the estimated loss is
provided. In addition, general loss allowances are established in excess of
identifiable losses. This allowance is based on the Bank's own loss
experience, that of the financial services industry, and management's ongoing
assessment of the credit risk inherent in the portfolio.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which was subsequently amended by SFAS No. 118. This
statement addresses the accounting by creditors for certain impaired loans and
requires that applicable impaired loans be measured based on future cash flows
or fair value of the underlying collateral. The statements have been adopted
by the Company effective January 1, 1995. The adoption of SFAS No. 114 and
SFAS No. 118 has had a minimal effect on the Company's financial position.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are recorded at cost. Maintenance and repair
costs are charged to expense as incurred. When property is retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is recorded
in income. The cost of office properties and equipment is being depreciated
principally by accelerated and straight-line methods over the estimated useful
lives of the assets for both financial reporting and tax reporting purposes.
INTANGIBLES
The deposit base intangible is being amortized on a straight-line basis over a
ten-year period.
INCOME TAXES
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based upon the difference between the
financial statement and tax bases of assets and liabilities, as measured by the
enacted tax rates which will be in effect when these differences are expected
to reverse. Deferred tax expense is the result of changes in the deferred tax
asset and liability.
PER SHARE AMOUNTS
Earnings per share are based on the weighted average number of common shares
outstanding during each period and common stock equivalent shares, using the
treasury share method, as adjusted for the two-for-one stock split effected in
the form of a dividend during 1996. Primary and fully diluted earnings per
share are the same. The Company's common stock equivalents consist entirely of
stock options. The resulting weighted average number of shares used in
computing earnings per share for the quarter ending September 30, 1996 and 1995
were 1,744,313 and 1,795,836 respectively. The resulting weighted average
number of shares used in computing earnings per share for the year to date
period ending September 30, 1996 and 1995 were $1,746,177 and $1,785,954. All
other references to numbers of shares and dividends per share in these
financial statements have also been restated to reflect the stock split
effected in the form of a dividend.
Page 6
9
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments." This statement requires disclosure of
the fair value of financial instruments, both assets and liabilities, whether
or not such instruments are recognized in the balance sheet. Financial
instruments involve either a right or an obligation to receive or deliver cash
or an equivalent to another entity. Such disclosure could be on the face of
the financial statements or in footnotes thereto to the extent that such fair
value is reasonably attainable, and would not necessarily result in any
adjustment to the carrying amounts of such instruments on the Company's
statement of financial condition. As it relates to the Company, financial
instruments include primarily cash equivalents, investment securities,
mortgage-backed securities, loans receivable and deposits. SFAS No. 107 has
been adopted by the Company for the fiscal year ending December 31, 1995.
The financial Accounting Standards board (FASB) issued SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" in March 1995. SFAS No. 121 requires long-lived assets and
certain intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. The statement also requires long-lived assets
and certain intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell (except assets covered by APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions"). This statement has been adopted by the
Company on January 1, 1996. The adoption of SFAS No. 121 is not anticipated to
have a significant impact on the Company's financial condition or results of
operations once implemented.
The FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights" in May
1995. SFAS No. 122 requires accounting recognition of the rights to service
mortgage loans for others. The total cost of the mortgage loan will be
allocated between the relative fair values of the loan and the mortgage
servicing rights. The cost allocated to mortgage servicing rights will be
recognized as a separate asset and amortized over the period of estimated
servicing income. This statement has been adopted by the Company as of January
1, 1996. The actual impact of adoption is contingent on the future levels of
mortgage loan sales.
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" in
October 1995. SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. The statement
encourages a "fair value based method" of accounting for stock-based
compensation plans. Upon adoption of SFAS No. 123, the Company will be
required to disclose in the notes to the financial statements the difference
between the "fair value method" and the "intrinsic value method" as prescribed
by APB Opinion No. 25 "Accounting for Stock Issued to Employees". The Company
will continue to account for stock-based compensation in accordance with APB
Opinion No. 25 on the Company's financial statements. SFAS No. 123 is required
to be adopted as of January 1, 1996 and will not have a significant impact on
the Company's financial condition or results of operations.
RECLASSIFICATIONS
Certain amounts in these financial statements for prior years have been
reclassified to conform to the September 30, 1996 presentation.
Page 7
10
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of investment securities
available for sale.
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ----------- -----------
September 30, 1996
------------------
U.S. government and agencies securities $12,542,019 $ 41,238 $216,685 $12,366,572
Obligations of state and political subdivisions 4,578,338 21,499 29,308 4,570,529
Other 857,385 20,933 878,318
Equity securities - Common stock 794,416 88,262 11,262 871,416
----------- -------- -------- -----------
TOTALS $18,772,158 $171,932 $257,255 $18,686,835
=========== ======== ======== ===========
December 31, 1995
-----------------
U.S. government and agencies securities $20,486,905 $242,154 $ 11 $20,729,048
Obligations of state and political subdivisions 2,875,769 63,957 11,356 2,928,370
Other 24,000 24,000
Equity securities - Common stock 885,901 33,000 918,901
----------- -------- -------- -----------
TOTALS $24,248,575 $363,111 $ 11,367 $24,600,319
=========== ======== ======== ===========
The amortized cost and estimated market values of mortgage-backed securities
available for sale.
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ------------
September 30, 1996
------------------
Participation certificates:
FHLMC $ 5,722,384 $ 982 $ 81,710 $ 5,641,656
FNMA 4,091,338 19,560 64,150 4,046,748
GNMA 4,599,204 4,945 37,229 4,566,920
SBA 283,099 570 283,669
Other 312,698 4,529 317,227
Real estate mortgage investment Conduits
("REMICS") 2,158,204 2,906 47,771 2,113,339
Adjustable rate mortgage mutual fund 346,960 2,776 344,184
Collateralized mortgage obligations (CMO's) 664,509 25,533 638,976
----------- ------- -------- -----------
TOTALS $18,178,396 $33,492 $259,169 $17,952,719
=========== ======= ======== ===========
December 31, 1995
-----------------
Participation certificates:
FHLMC $ 2,004,515 $ $ 39,527 $ 1,964,988
FNMA 1,572,252 8,165 8,359 1,572,058
GNMA 4,744,533 11,750 17,208 4,739,075
SBA 288,088 7,117 295,205
Collateralized mortgage Conduits (REMICS") 1,582,318 10,147 1,592,465
Collateralized mortgage obligations (CMOs) 867,032 124 17,312 849,844
Adjustable rate mortgage mutual fund 346,960 1,041 345,919
----------- ------- -------- -----------
TOTALS $11,405,698 $37,303 $ 83,447 $11,359,554
=========== ======= ======== ===========
Page 8
11
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of investment securities held to
maturity.
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
September 30, 1996 --------- ---------- ---------- ---------
------------------
U.S. Treasury obligations and obligations of U.S. agencies $1,300,000 $ 120 $10,190 $1,289,930
========== ======= ======= ==========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1995 --------- ---------- ---------- ---------
-----------------
U.S. Treasury obligations and obligations of U.S. agencies $2,095,025 $16,997 $2,112,022
========== ======= ==========
NOTE 3 - LOANS RECEIVABLE
Details of loans receivable
09/30/96 12/31/95
-------- --------
First Mortgage Loans:
One-to-four family residential $ 59,717,432 $ 59,178,880
Multi-family residential 6,683,639 7,328,630
Commercial 30,812,397 18,082,781
Construction 6,134,307 4,661,327
------------ ------------
Total first mortgage loans 103,347,775 89,251,618
Consumer and other loans:
Home Equity 13,807,034 12,171,585
Consumer 14,678,076 12,692,942
Commercial 8,939,799 9,032,325
Education loans 947,413 711,066
Savings account 304,738 244,217
Agricultural 1,470,342 1,763,872
------------ ------------
Total consumer and other loans 40,147,402 36,616,007
------------ ------------
Subtotals 143,495,177 125,867,625
Less:
Undisbursed Loan Proceeds 1,687,281 1,620,226
Allowance for Estimated Losses 1,482,198 1,320,734
Deferred Loan Fees - Net (4,997) 1,243
------------ ------------
Totals $140,330,695 $122,925,422
============ ============
Page 9
12
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - DEPOSIT ACCOUNTS
Deposit accounts are summarized as follows:
09/30/96 12/31/95
-------- --------
Amount Percent Amount Percent
Demand Deposit Accounts (noninterest-bearing) $ 13,537,598 8.83% $ 13,273,632 9.31%
Negotiable Orders of Withdrawal (NOW) Accounts
(2.25% at December 31, 1995 and at September 30, 1996) 8,455,578 5.52% 6,921,389 4.85%
Super NOW Accounts
(2.40% at December 31, 1995 and at September 30, 1996) 1,473,257 0.96% 1,663,425 1.17%
Savings Accounts
(2.25% at December 31, 1995 and at September 30, 1996) 11,403,485 7.44% 11,609,058 8.14%
Cash Management Accounts
(3.50% to 5.25% at December 31, 1995 and 3.30% to
5.00% at September 30, 1996) 27,816,528 18.15% 23,457,210 16.45%
Money Market Accounts
(2.40% to 3.25% December 31, 1995 and at 3,180,388 2.07% 3,238,356 2.27%
September 30, 1996)
Certificate Accounts:
8,566 0.00% 11,204 0.01%
Less than 3.00% 1,287,617 0.84% 1,264,327 0.89%
3.00% - 3.99% 4,500,793 2.94% 9,652,733 6.77%
4.00% - 4.99% 46,287,341 30.20% 31,222,733 21.90%
5.00% - 5.99% 32,727,019 21.35% 37,185,191 26.07%
6.00 - 6.99% 2,599,810 1.70% 3,091,256 2.17%
------------ ------- ------------ -------
7.00 - over $153,277,980 100.00% $142,590,514 100.00%
Totals
Weighted Average Savings Interest Rate 5.13% 5.24%
===== =====
Page 10
13
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RETAINED EARNINGS - SUBSTANTIALLY RESTRICTED
Under the provisions of FIRREA, the Savings Bank is required to meet certain
tangible, core and risk-based capital requirements. Tangible capital generally
consists of stockholders' equity minus certain intangible assets. Core capital
generally consists of stockholders' equity. The risk-based capital
requirements presently address risk related to both recorded assets and
off-balance-sheet commitments and obligations.
The following table summarizes the Savings Bank's capital ratios and the ratios
required by FIRREA and subsequent regulations at September 30, 1996:
Tangible Core Risk-Based
Capital Capital Capital
------------ ----------- -----------
Savings Bank's regulatory percentage 7.13% 7.13% 12.07%
Required regulatory percentage 1.50% 3.00% 8.00%
----------- ----------- -----------
Excess regulatory percentage 5.63% 4.13% 4.07%
----------- ----------- -----------
Savings Bank's regulatory capital $13,765,000 $13,765,000 $15,247,000
Required regulatory capital 2,895,000 5,790,000 10,101,000
----------- ----------- -----------
Excess regulatory capital $10,870,000 $ 7,975,000 $ 5,146,000
=========== =========== ===========
NOTE 6 - SAIF ASSESSMENT
Midwest Federal Financial Corp. has taken a one-time $506 thousand after tax
charge against earnings for the third quarter, 1996. The one-time assessment,
which affected all SAIF insured FDIC depository institutions, was a result of
legislation passed to fully fund the Savings Association Insurance Fund (SAIF).
The legislation was signed into law by President Clinton on September 30,
1996. The special assessment was fully and eagerly anticipated by Midwest
Federal. The decline in FDIC insurance cost from an annual charge of 23.4
basis points to 6.4 basis points, (which occurs as a result of this
assessment), will have a long-term positive effect on our ability to compete
for deposits in our marketplace.
Page 11
14
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSIONS AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL DATA SUMMARY
TOTAL ASSETS
Total assets have increased by $17.5 million from December 31, 1995 to
September 30, 1996. This is an increase of 9.9%. Deposit growth and
borrowings, have funded increases in earning assets.
LOANS
Net loans receivable have increased by $17.4 million from December 31, 1995 to
September 30, 1996, an increase of 14.2 %. Commercial mortgage loans account
for $13.5 million of this increase. Adjustable rate mortgage loans, commercial
and consumer loans are put into the portfolio of the Bank. Fixed rate mortgage
originations continue to be sold to FHLMC.
CASH AND INVESTMENTS
Mortgage backed securities and investments have decreased by $.1 million, a
decrease of .3%. Proceeds from this decrease in investments were used to fund
loan growth.
DEPOSITS
Deposit growth from December 31, 1995, to September 30, 1996, was $10.7
million, an increase of 7.5%. Deposit growth was used to fund loan growth.
BORROWED FUNDS
The borrowed funds of the Bank have increased by $6.0 million, or 38.1%. The
increase in borrowed funds has helped fund loan growth.
EQUITY
Equity is down $.2 million or 1.2% due to the purchase of Midwest Stock for
treasury and unrealized losses on securities available for sale. The
unrealized losses of $289,000 are a result of a decrease in the market value of
the investment portfolio as of September 30, 1996. Additionally, the one time
FDIC insurance assessment had a negative $506,000 after tax impact to the
retained earnings section of total equity.
OPERATING DATA SUMMARY
NET INTEREST INCOME
Net interest income for the third quarter of 1996 is up 15.0% over the third
quarter of 1995. The increase in net interest income is due to growth in
assets of 16.1% from one year ago. Year to date net interest income is up
22.0% due to increases in asset growth and margin year to date.
Page 12
15
OPERATING DATA SUMMARY (CONT.)
NON-INTEREST INCOME
Non-interest income increased by 84.3% from the quarter ending September 30,
1995, compared to the quarter ending September 30, 1996, and is up 59.7% year
to date. Year to date increases in loan and deposit fee income of 40.4% and
28.1% are due to growth and the company's focus on opportunities in these
areas. Year to date gains on sale of investment securities are up $168,000
from last year due to investment strategies designed to take advantage of rate
swings. Year to date gains on sale of loans have increased primarily due to
the implementation of FAS 122 "Accounting for Mortgage Service Rights" in
calendar year 1996.
NON INTEREST EXPENSE
Non-interest expenses increased by 81.6% for the quarter ending September 30,
1996 when compared to the quarter ending September 30, 1995, and is up 38.2%
year to date. The primary reason for the increase is a one time FDIC insurance
assessment of $842,600 booked on 09/30/96. The lower FDIC insurance premium
resulting from the assessment will allow a 3.5 year recovery of the assessment.
NET INCOME
Net income for the third quarter of 1996 is down 83% from the third quarter of
1995 and earnings per share decreased from $ .25 to $ .06. Net income year to
date is 8.2% higher than 1995 and year to date earnings per share increased
from $ .65 to $ .73, or 12.3%.
Net income for the third quarter, exclusive of the one time FDIC assessment,
would have been up $609,000 or $.35 per share, up 39% from the quarter ending
September 30, 1995. Exclusive of the FDIC assessment, year to date 1996
earnings would have been 52% above year to date 1995 earnings.
Page 13
16
MIDWEST FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
KEY OPERATING RATIOS
(UNAUDITED)
ENDED SEPTEMBER 30,
Three Month Period
--------------------
1996 1995
---- ----
Return on assets
(Net income divided by average assets) (1) (2) .21% 1.08%
Return on average equity
(net income divided by average equity) (1) (3) 2.44% 10.86%
Average equity to average assets 8.78% 9.95%
Interest rate spread
(difference between average yield on interest earning assets and
average cost of interest bearing liabilities) (1) 3.62% 3.59%
Net interest margin
(net interest income as a percentage of average interest
earning assets) (1) 4.10% 4.19%
Non-interest expense to average assets (1) (4) 4.69% 3.06%
Average interest earning assets to interest bearing deposits 110.57% 113.50%
Allowance for loan losses to total loans at end of period 1.04% 1.02%
Net charge-offs to average outstanding loans during the period .05% .00%
Ratio of non-performing assets to total assets .24% .00%
Risk-based capital (of the Bank) 12.08% 14.09%
- ------------------------------------------------------------
(1) Annualized
(2) Before one time FDIC assessment: 1.27% (1)
(3) Before one time FDIC assessment: 14.45% (1)
(4) Before one time FDIC assessment: 2.93% (1)
Page 14
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Securities Holders
Not Applicable
Item 5. Other information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
During the quarter ended September 30,1996, the Registrant was not
required to file any Current Reports on Form 8-K, and no reports on
Form 8-K were filed.
Page 15
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDWEST FEDERAL FINANCIAL CORP.
/S/ Gary E. Wegner
- --------------------------------------------
Gary E. Wegner, President & CEO
/S/ Dean C. Carter
- --------------------------------------------
Dean C. Carter, Chief Financial Officer
Date: November 12, 1996