Corporate
Profile
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FINANCIALHIGHLIGHTS
At September 30 ......................
1991
1992
1993
1994
1995
(Dollars
in Thousands except Per Share Data)
Total Assets .......... . . . . .... . . . $188,946
$171,030
$160,827
$274,115
Total Loans
. .
. . .
. .
. .
68,237
\
74,561
v
80,224
u
155,497
v
178,552
$264,213
/
Total Deposits ............................
163,688
147,289
122,813
176,167
Stockholders’ equity
. .
. . .
13,950
14,970
33>438
34,683
171,793
38,013
Book value per common share
N/A
NIA
$
16,82/
$
18.69 I
$
21.19 w
Total equity to assets
. . .
. .
7.38%
8,75%
20,79%
12.65%
14,39yo
For the Fiscal Year ....................
1991
1992
1993
1994
1995
Dollars
in Thousands except Per Share Data)
Net interest income ....................
$3,960
$4,609
Net income ................................
Netincome pershare
.. . . . .......
594
N/A
(
Netyield oninterest-eaming assets
2.01%
Retumon average assets
. .
.29%
Retumon average equity . . .....
4.41%
1,020
N/A
2.63%
.5770
7.08%
$5,077
1,352
$o,66(’~
3.21~o
.84%
7.10%
$7,870
2,729
$ 1.37
3.94%
1.29%
7.89%
$9,405
3,544
$1.99
3.63%
l.al~o
9.86%
{1) Net
income Per ~har. k based on the assumption that
the entire year.
30, 1993, were outstanding
Sepkmber
the wekhted auera~e shares outstanding at
13
$176,1
$3,544
$163,6 08
$147.2E
$1ea,9
146
$171,0
$1,352
I
AU&res
kdicate
doUar amou.t.s
k thoman~
Total Assets
Total Deposits
Net Income
Net InterestIncome
$9.405
[1]
CHAIRMAN’S LETTER
To Our Stockholders:
First }liriwest Financial.
III(. achieved
ex(;ellerll
results in
fisfal
1995 with net income
of $375+ +.000., or $1,99
pcr
share. W~el]lan to do even better in the tears ahead.
0114 ugust 22.199<5
Jve anno(lncrd
the antic ilJat ed
accluisilion
of Iowa BaIlcorl),
Inc.., 13arent (:onlflanl
of
[owa Savings Bank
a federal
savings bank.
in Dt:s
Nfoines,
]owa,
I Tndt:r the (Infinitive agreelnent
execul ed
with Iowa Barlcorl).
IIIC:,, First Nli dm-est Finatlcial.
Jrl(:.
\vill acql~ire al I o[ltstan{ling
shares.
inc”ludir]g shares
~uhle(;t to oI~tion. of Io\va Bancorp.
Inc.
for $8 ~nillion.
Sul~je(-t to a[)l)ro~ al of the shar~;holder-s of lo\\a Bancorp.
lrl(’. and the office
of’ Thrift SuI~(~r\ision, we ant it:iIjat e
that the iransa(;tiorr ~~ilI he corn[)lei ed 1)~ the end of the
year.
lrtwa Savings Bank is onc of the best (aI}ita[ized
[inan(ial
illstil Iltior]s in the state of
[ow:l with a tangil)le
arid (’ore (a[)ital
ratio in f’.x(’ess
0[
21
‘Yoas of Sc’i]terrlher
~lo, 1995. The lr](:rgcr of Iow-a Savirtgs Bank into Firsl
Federal Savings BaIIk of the Nlicl\\~,st m-ill Ijroyid(’
the
o~)])ort Illlit v to PX1}:U1({ollr retail
l~allking netw-ork inlo
Iles N’[oint’s. givi]lg Lls a I)rt’sence in the larg(’st market
in
Ioty a. Jeann(;
I’artlom-.
l’residrr]t
and ChiL’f Exec[lli~e
officer
of IoI\a Ban(orl).
111(I.\vill k~ra~)~)ointed to t11(:
Board of l)ire(tor~
of First kfidw-est Finall(:ial.
In(.. n[)on
(.orn[)letion of the Inelger, N’Irs. PaIllOm- mill also remain
as [)r[~,sident of Ioyra .Sa\-ing7.sBal 1k. Tvhich \till o~)erat(: ati
a di}”ision of First ~“c(h’ral,
TIIe
stock rt:l)urchase
f)rogr-arrl annonn(>r([ SeIjtenl])(r
20, 1 ‘)9+ ~~-as(oln~)letc’d on February
27. 1995. Dl[rillg
that ~)eriod. 9+.228
bharcs. or a~~proxilnatel]-
.5[% of the
shart’s outstaudills
at that tirrle. were r(>~)llr(’based at
[~rt~vailill: nlarket
I)rices.
,fnotlltr
stock repl~r{;h:~,se
l)rt)gran] was a]lnoun(;ed
oll Se[)tern~jer 25. 199<7 with
I)l:inh 10 re[)llrchase
af)~)roxiIt all ely 50/0 of the then
o[lt standin~ 1 ,798.22,5
shares in the open nlarket h}-
Septelnher
~30. 1996.
/1 major ellll:ltl~>t~r]lt,rlito the Bank-s (Iata f)rocessing
sl-stcrll
w as ac(,oll~l)lisht>d tllifi [}ast year. resulting
in
irll~)roved I)ro(lu(’tiv-itv and i]llerr]al ol~(:ratil)g effi(.ierl(’ies.
l]) af{dilion,
ext(:llsi~ e renlodelillg
and re(le(orating
was
re(;ently (Iorll[]leted in First Federal-s Nlairl Bank office
in
Stornl
lake, These irnl)ro~ ernents ha}e
(’rested a lnore
customer-friendly
retail banking
environment
and are
of credit risk in the Bank’s
loan portfolio
and other
benefiting
our staff
in their effotis
to serve customers
investments, was 20.420/o, which is more than two and
more efficiently. Other First Federd
bank offices are
one half
times that required
by federal
regulation.
scheduled
for redecorating
in 1996.
On November
27, 1995 First Midwest Financial,
Inc.
Expectationsfor FutureSucc=s
announced
that the corporation will
increase
its
First Midwest Financial,
Inc. continues
to seek out
quarterly
cash dividend
from 7 1/2 cents per share to
additional
acquisitions
of savings banks,
commercial
11 cents per share for the first fiscal quarter
of 1996.
banks,
and other related-service
companies
in our
The dividend, which represents
an increase
of 47°k,
geographic
areas. We will evaluate
them careftily
and
will be payable
on January 2, 1996 to stockholders
of
pursue my
that represent
opportunities
to help achieve
record on December
15, 1995. We are pleased to pay
our goal of profitable
long term growth.
this additional
cash dividend
to the stockholders
of
First Federal management
is implementing
a variety
First Midwest Financial,
Inc.
of strategies
for improving
growth in our retail banking
operations.
These include
defining
expectations
and
Operating Highlights:
increasing
accountability
for sales and service efforts by
Net income
for fiscal 1995 exceeded
$3.5 million.
all bank employees,
activating more aggressive
Earnings were enhanced
by a 20% increase
in net
marketing
to prospective
customers,
and directing
interest
income. This was due to a significant
increase
better focused
cross selling efforts
to current
customers,
in the Bank’s
loan portfolio
and the benefits
of a full
Our satisfaction with the Company’s
fiscal 1995
year of operations
from First Federal’s Brookings
results is exceeded
only by our expectations
for future
Division. Operating
results were further
enhanced
by a
success ! Driven by the desire to “work smarter”, we are
gain on the sale of securities
resulting
from
actively defining how that philosophy
can be put into
restructuring
of the bank’s mortgage-backed
securities
practice
every day, by every employee
in each
portfolio.
department,
each office and each division of this
Deposits
totaled $171.8 million, with assets of
Company. We are confident
that your investment
in
$264.2 million at the close of fiscal 1995.
Lending
First Midwest Financial,
Inc. will be rewarded with
activity increased
during fiscal 1995 with originations
increased
stockholder
value as a restit
of our continued
of $65.3 million.
As of September
30, 1995 the loan
efforts
to achieve profitable
long term growth.
portfolio
balance
totaled $178.6 million, which was a
15y0 increase
from the previous
year.
Stockholders’
equity at the end of fiscal 1995 totaled
$38.0 million,
compared
to $34.7 million at the end of
the previous
year, which was an increase
of over 9%.
This increase
is a result of the Company’s
strong
“m
earnings
during the fiscal year, and reflects
the effect of
James S. Haahr
‘“”
the stock repurchase
programs
during that same
CWIWW
OF T= Bo.4RD, pmsmEm
& CEO
period.
December
13.1995
First Federal’s
tangible
and core capital as a
percentage
of total assets increased
to 12.377.
at the
end of fiscal 1995 which exceeds
the regulatory
requirements
by 10. 87°A and 9 .37°/0,
respectively.
Risk-based
capital, which is an indication
of the level
[3]
[4]
-~m
~mcoNRNus
ITS L-TERM
colw~
To
HOME -w.
lHls~
~FoRluEw
PURCHASE,
REFINANCING,
AND HOME
IMPROVEMENTS.
The management md staff of First Federal have renewed our mmmitment
to
achieving
profitable
growth in nur retail bank network. Capital
improvements
made during 1995 have provided
valuable
support
to our efforts
in achieving &at
goal. The up-grade
to the Bank’s data processing
system and the remodeling
of
the Main Bank Office have resulted in numerous
opportunities
for staff to improve
their efficiency
and productivity.
Improved
productivity means more time for sales
and service as we work together
to aggressively market bank products
to current
and prospective
customers.
First Federal
offers all types of loans, with home lending
as the cornerstone
of
our loan portfolio.
The Bank’s
commitment
to home financing
includes
loans for
A VARl~
OF LOAN
new construction,
purchases,
refinancing,
and home improvements.
The Key Plan
~,
m
SOTHFIXEDAND
ADJumAsLE RATE
OPnoNs, ENAsLE
US TO SERVE THE
UNIQUE NEEDS
OF INDMDUAL
~.
Thane and Jenn~er
Brown work to complete
a new home for their
famdy on mite Cap
Road in Storm Lake,
with the he~ of a
contraction loanfiom
First Federal.
for Homeowners,
which was introduced
last year, has become
the most popular
choice
for mortgage
loans at First Federal. This product
packages
core bank
products,
including
checking,
savings,
and escrow accounts, with a reduced
rate
mortgage
loan. Key Plan customers
save money on mortgage
loan interest e~ense
and the Bank benefits
from multiple-account
relationships with those customers.
In an effort
to help make home ownership
affordable
for more people, First
Federd
continues
to participate
in a variety of special assistance
programs,
including
the Affordable Housing Program through the Federal Home Bank of
Des Moines,
the Iowa Housing Assistance Program through tie Iowa Finance
Authority,
and the Iowa League
of Savings
Institutions’
Affordable Housing
Program.
First Federal
is proud to be a portfolio
lender, dike
the current
trend in
banking, which is to package
and sell loans. As a portfolio
lender, mortgage
loans
originated
at First Federal are serviced by First Federal. This gives the Bank more
flexibility
in structuring
rates and terms to the unique needs of individual
borrowers.
Customers
also benefit
from local
service in handling
their payments
and by getting prompt
responses
to any questions
on their loan and escrow
accounts.
. ___
ECONOMIC
HIGHLIGHTS:
Storm bke,
Iowa
Average Land Value
for prime farm land
in a 12 county area
of Northwest Iowa:
$1,972
per acre
(November 1B95)
Building Permks:
Residential
$1,978,337
Commercial
@.326r763
(YTD 1995 thru 10/31 )
Taxable Retail Sales:
$105,937,705 (19B4)
Unemployment Rate
for Buena Vista
Coun~
2.4 %
(September 1995)
[6]
(:oIlsunier
lcndiug.,
including
borne c(~ui~- loans.
contiuues
to ht: an important
segment
of First Federal’s
total
loan program,
In order to help inrrease
{;()~lsumer
loan prorluclioll.
~rc havf} established
a nlltnher of dralt;r Ioatl accounts,. Tilese
relationships
enable First Federal
to be a source of financing
thruu:h
dealers
for
(-onsunler ~)urchases
such as autoh., appliances,
and furnitl~rf,.
In addition;
a pre -
a])proved
consumer
loan calupaigll
targ(’ting
seleclr=d First Fe(lera I customers
is in
~~rogress.
The Ifgr’i{”u Itural aud (;ommer’(:ial
Loan Dt’partrnc~lt at First Federal provides
financing
and service for start-up
alld exi~ling t)perations
of any size. Nlany of Ihe
Bank’s new agricultural
and conullercial
loan custoulers
zareheiug rcf’crrt;d 1u (]s
hy our (urreut
rustomers, which is au enclor~e[nen(
of our commitrnf’nt
to clualit~
servi{’e,
First F(’(leral offf’rs che(;king
ac-(-ounts dcsigne(i
to satisfy different
tJ-pes of
(’ llst olller needs.
ii full range of FDI(U - insured savings at”couuts an(l certificates
of
deposit are offere(l
to savers. The Savil 1:s Plus .Ac(;olnlt was irltroflllced
last spring
as an attractive
(.hoi(:c for depositors with short tt’rm Sak’iugs needs. SaYirl$s Plus
offers the (ollvenif’n{;(’
of slaiemen~ fiavings “’plus’” a higher T-ield.
The Trl]st and Rt;tirenlent Department
at First Federal
trustees
IR,I, KE(),
and
SEPP plans. These tax-deferred
ret ircmerrt plans offer cuht omr=rs a full range of
(~ualificd investment
choices.
In addition.
they offer trust services
suc:h as the
professional
administration
and management
of assets.
including
estates and
agency ac(;ounts.
First Services Financial Limited
Investment Services Division
The Invc’stment Se1x7ic.esDivision of First Federal-’s suhsidia~-3 First Servi(:es
Financial
1,imit ed, has offices
located
at 118 East Fifth Street in Storm Lake
and in the Bank-s Nfansou office. Registered Representatives
providr
alternative
invf:stment
produrts,
including
i ax-deferred
annuities
(fixed and variable).
mutual
funds,
life insurance., and discount
brokerage
servi(;es.
(These products
are not FDl(l-i nsu red nor gllar-:irltee d l)y First Federal
or any affiliates.)
[7]
[5]
Brookings Federal Bank, a Division of First
Federal Sauings Bank of the Midwest,
600 Main Avenue, Brookings, South Dakota.
BROOKINGS DIVISION
ECOWMIC
HIGHIJG-
Brookinga,
Bouth Dakota
AvsraP Land Valua
in Ea~ Central %uth
Dakota: $475 par
acre (February 1995)
Building Permk
Residential
$2,790,050
Commercial
$B*,1OO
(YTD
1995 thm B/30)
Taxeble Retail Bales:
$190,163,113(1994)
Unemployment Rstw
The Brookings Division has made a significant
contribution
to the Bank’s net
earnings
since they were acquired
in March 1994. Fiscal 1995 was the first fu~
year of Brookings Federal
operating
as a Division of First Federal,
and the
benefits
of that are reflected in the Bank’s
increase
in net income.
Brookings Federal
continues
to be one of the dominant
home mortgage
lenders
in their market area. The Kev Plan for Homeowners
was introduced
in the
Brookings market
this past year and has been well received by new mortgage
loan
customers.
In order to help make home
ownership
affordable
for first-time
and
low-income
home buyers,
the Brookings Division participates
in the South Dakota
Housing Authority’s Assistance Program.
Consumer
lending
through the Brookings Division continues
to increase.
Brookings Federal
is also involved with dealer loan accounts
and the pre-
.8Y.
(5aptambar 1995]
approved
loan campaign,
Brookings
Federal
increased
their commitment
to agricultural
lending
this past
year with the addition of Steve Almos as .4ssistant Vice President
- Agricultural
Loans. A long-time
resident
of the Brookings
area, he brings
over 16 years of
agricultural
banking
experience
to Brookings Federal,
.4s a result,
the Bank’s base
of agricultmal
customers
has increased
significantly
and continues
to grow.
Commercial
lending has also increased. Brookings Federal
continues
to seek
qualiv
commercial
loans for any size business.
Brookings Federal
offers a full
line of deposit products
including
checking
accounts,
savings accounts,
and certificates
of deposit. The Savings Plus account
was also introduced
in the Brookings market
this past year.
F;arlier this year, Brookings Federal developed
Preferred Banking Benefits,
a
special package
of banking
services
featuring
a pre-approved
line of credit
loan,
tied to direct deposit
of payroll. The program was introduced
to employees
of
Larson Manufacturing
Company
in Brookings.
South Dakota,
as a part of their
benefit package.
Larson Manufacturing
Company
rnanufacturt’s
and distributes
a
line of energy-efficient
storm doors and employs
over 600 people at their
[9]
Brookings
Federal
is
plea,sed to hare
[>rorided
a con,ftr((ctior(
loan us u’el[ as
perlnarlerttjinartcirlg
for
Ben and Sht>lley Crrtrs ’
f~orne in Brook;ngs.
South Dakota State University, Brookings,
South Dakota, 1995 Fall term rnro[lment
and on- camp us is 9, ~~~, an incrra,~efrom
of-
9,140 last }/ear.
llot~ l~izk~man, OamFr
o/ Brookin,gs EJ7gru1‘ir/g
Inc. ajtd Botr’s .~port
.~hop,
located
in
doa,lltol!,ll
Brookings.
Brook-ings
Fed~ral
proliciesfiltartc
irtgfo:
this 1]lt,~iness, u,h ich
!auttl(fctctltres
~ttgrat,ed
p[rrle;
that at-e
distrihil
ted throllgh out
2.7 Strrles.
Brookings
location.
Preferred Banking Benefits
is pro~ing
to be successful
in
attracting neiv bank customers w,ith checking
accounls
and consumer
loans. as
m~ellas other bank products.
Brookings Service Corporation
AS an enhancement
to traditional
banking
services, PrimeVest
In~estnlent Centert
operating
through Brookings
Se~7it;e (~orporation
(a subsidiaq’
of First Ser}~ices
Financial Limited),
offers full ser~ice brokerage with a wide range of aliernati~~e
in}restment products,
(These products
are not FDIC1-insllred nor guaranteed
by
First Federal
or any affiliates.
)
Brookings Federal Advisory Board
The Brookings
Federal Ad\isory Board is instrumental
in proliding
ad~’ice and
counsel
to ihe Brookings Di\’ision regarding
business
and social
issues in the
Brookings market area.
}len~bers
of this hoard as pictured L-R 1JC’1OWinclude:
J~YIF,sC. ~TIN’l’EHBok;R:
Presider)
t. BrooA-ings Federal
~AR1. R. R[E;:
Retail
;}lan(~ger. Rt[nnittg >
~IRGII, ~. ~T.I.ERBRL(;I
[:
.,4s,$i Board
Oa!rlt’r, Ilarson ;}{artt~fwl assets............................................................... $264,213
4,616
Cash andcash e~ivdents.,...,...,...,..,......,...,.,.,...,...
48,829
......................................
Securities avtidle.for.sde
21,403
Mortgage-backed securities available-for-sale .
.
Securities held.t{J.ma~ri@ .......................................
—
Mortgage-backed securitiesheld-to-maturi~.
..........
Loans recei~’able,net ................................................
Excess of cost over net assets acquired, net
Deposits ....................................................................
Total borrowtilgs ......................................................
.
Stockholrfers’ equity ..
178,552
1,690
171,793
52>248
38,013
. . . ....... ... ... ...
..
..
.
.
6.430
13,222
23.958
18.000
47,917
155.497
1.815
176,167
61.218
34,683
20.544,
~o
31,293
24,792
80,224
—
122,813
3,115
33.438~
/
;
Year Ended September 30,
1995
/
1994 /
1993 /
Selected Operations Data:
Total ktel.est incoIne ................................................ S21,054
,11649
Totdinterest exI)ense..........................................
Net iIlterestillrfllrle.........................................
..................................
Prolisiou forloanlosscs
.
97405
250
9,155
illcorne after prolision for loan losses
income:
Net interest
h-orl-inierrst
Loa]~ fees andsemic~
charges .
.
...
.. ... ..
... .
?12
Gain (loss) on sales of loans. mortgage-backed
securities, Irl\”CShIICntsecurihes and othtr assets
Otl]crrlorl-interest
irlcoIlle,..,.,
.. . . . .. .. . . . . .. .. . .. .. . ..
Totdrlo[l-interest
irlct>Irle . . . . . . .. . . .. . . . . .. . . .. . . .
Total non-irrierest expense . . . .. . . .. . . . . .. . . .. . . . . . .
Income bcforp income taxes. cxtraordiuq
item and t.urmdative effect of change in
accounting prirlciple ..,.. ,., . . .. . .. .. . .. .. . .. . .. .. . .. ..
Ir]c[Jrll(.ttlxex]Jerlse
. .. .. . .. . .. .. . . . . .. . . . .. .. . .. .. . ... . .. .. . . . . .
Income before t’xtraordiurrry item arul cmnrrlalive
cffrct of change in accounting principle
Extraordiuarv
itcrns — net of taxes . . . .. . . . .. . . .. . . .
(;unnrhitive rffett of change in accounting principle
l,o~o
.504
27286
,5.,576
5.865
2,321
3.5-t4
—
S15,153
7,283
7,870
105
~ 765
.598
9
471
1.078
4.938
:3.905
1 +33
-
2.472
257
225
+,852
708
3~+
1.555
3725
2.682
1 0?5
-
1.637
( 285)
—
4,377
/
29,844
20
—
5+,494
32.907
74.561,
—
147.289
7,55+ ‘
14,970
4,656
—
43.327
38,193
68,237,
163,688
9,115
13,950
1992
1991
(In Thousands)
$13,791
$ 17,42+
9,182
4,609
/
50 ,
4,5.59
518
19 .
510
1.047
3,995,
1.611
~
591
1.020
‘
13,464
3,960
238.
;~7~~
4.52
538
372
1.362
3,962
15122
518
604
(lo)
Netin(.ollle
. .. . .. .. . .. . .. .. . .. .. . . . . .. .. . . . .. . .. . .. . .. ...'. . . . . .. .. . .
S 3.544
$ 2.729
$
1.352
$1,020
$
594
Year Ended September 30,
1995
.1994
1993
1992
1991
Selected Financial Ratios and Other Data:
R 4TIOS:
PERFORM,kNCE
Retllrn
on assels (ratio of net incomr
to avcragr
total asset s)(l’’ ... .. .. ... .. .. .. .. ... .. .. ..
1.31%
lnterrst rate spread informo(ion:
.\\t.rilgel lllri]lg~.rar .
. .. .. .. .. .. .. ... .. .. .. .. .. ... . ... .
End of year . ... .. .. .... .. ... .. .. .... .. .. .. ... .. .. .. .. .. ... ..
Net !-i~ld on averagr
itlttrc’st-e[lrlli]]g
asse[s ...,.
Ra~io of ol]t,racir~: expense to averagr total asseti
Retl~rrl OT)retain~d earnings
(ratio of net
i]lco~]rf, to averagr e(plity) [’:
Q[’,A1.[TJ’ R.lTIOS:
. . .
. .. . . . .
.
.. ..
N-oll-[)erfl)rming a~sel> to totfil assfts al end of year
3.13
2.85
:\.6:3
2.06
(1.86
.~()
:U1owaTlce
f(>rl(,au losses to rl(lrl-[}t’l-forrllklg Ioarls
‘) ’)7 ‘)7
i.-.
--
(APITtI
R:[~loS:
l{~tahled earlrin:s to totrrl ZS ,?.)
#---
7.08
.23
239,0+
8.?5
8.00
1.57
1,+:3
2,01
1,96
+.+1
77
.,,
56.37
7.38
6.68
1 12.69%
~
10~.18%
10
106.~6Y0
13
for fiscal year 79W is 7. 17% and 7.54%,
respedively,
excluding
the cumulative
efict
of change
in accounting principle.
Management’s Discussion and Analysis
General
Acquisition Announced
First Midwest Financial,
Inc.
(the “Company”
) is
On August 21, 1995,
the Company
entered into an
savings and loan holding
The Company
in 1993 and, on September 20,
a unitary non-diversified
company whose primary asset is First Federal Savings
Bank of the Midwest
(the “Bank”).
w-as incorporated
1993, acquired all of the capital stock of the Bank in
connection with the Bank’s conversion from mutual
to stock form of ownership.
Company prior to September 20, 1993, except where
otherwise indicated,
subsidiary
are to the Bank and its
basis.
All references to the
on a consolidated
The Company- offers a variety of financial
services
the counties of
in its market area.
and Sac
county
Ida, Pocahontas
Iowa, and Brookings
to meet the needs of customers
The Company’s market area includes
Buena Vista, Calhoun,
located in northwest
located in east central South Dakota. The Company
attracts retail deposits from the general public and
together with.
used those deposits,
has historical}
other funds,
residential
to originate single-family
mortgage
activities have expanded to include increased
originations
commercial
origination of agricultural
and purchases
real estate loans and the increased
loans. Recently,
of multi-family
the Company’s
related loans.
lending
and
The Company’s
basic mission is to maintain and
enhance core earnings while se~,ing its primag
market area. As such, the Board of Directors has
adopted a business strategy designed to (i) maintain
the Company’s
requirements,
Compan~’s
(iii) control operating expenses,
(ii) maintain the quality of the
tangible capital
in excess of regulatog
assets,
(iv) nlaintain and. as possible.
Company’s
Compan~-’s exposure to changes in interest rates.
interest rate spread and (v) manage the
increase the
Agreement and Plan of Merger and Reorganization
(“Iowa
(the “Agreement”’) with Iowa Bancorp,
Iowa
Bancorp’? ), and its wholly-owned
subsidi~,
Inc.
located in Des
calls far the Company
shares of Iowa Bancorp in
Savings Bank, a federal savings bank,
Moines,
Iowa. The Agreement
to acquire all outstanding
exchange for a cash payment
subject
to adjustment
the Agreement.
approval by Iowa Bancorp’s
stockholders
The transaction is subject
of $8.0 million, which is
in accordance with the terms of
to
and to
aPProval bY the office
of Thrift supervision,
At September 30, 1995,
Iowa Bancorp had total
assets and stockholders’
$24.9 million and $7.0 million,
equi~ of approximately-
respectively.
Acquisition Completed
On March 28, 1994,
the Company
acquired
(“Community”)
Inc.
located in Brookings,
subsidiary, Brookings Federal
Community Financial Systems,
and its wholl;r-owned
Bank, a federal savings bank.
South Dakota.
approximately
$31.38 per share to acquire all of the 333,513
of Community’s
stock). At the date of acquisition, Brookings Federal
Bank had total assets of $69.4 million and deposits of
The cash purchase price totaled
$10.5 million (purchase price of
issued and outstanding
common
shares
$57.2 million. The two offices of Brookings Federal
now operate as the Brookings Federal Bank Division
of First Federal Savings Bank of the Midwest. The
acquisition was accounted for as a purchase and,
accordingly,
Statement of Operations
results of Brookings Federal beginning Ylarch 28.
1994, The excess of cost over assets acquired,
includes the operating
the accompanying
Consolidated
The follo(Ling table sets forth the a,eighted aterage eflectiue interest rate on interest-enrning assets and interest- bearir[g
~iabilities ot the end of ear-h qf th~ .Iears ~~resented.
At September 30,
1995
1994
1993
7.99%
6.8,5
?.66
+.66
7.+6
2,28
2,30
+.87
5.10
+7~
4.50
8.18%
8.(>6
5.90
2.81
7 ‘>j
, .-c
~,:~~
2,56
5.04
6.59
6.8:3
+.37
2.880/0
3.00
2.<55
5.80
6.14
,;,7>
.>.g~
$1.8 million,
totaling approximately
amortized over a fifteen year period, which totaled
$1257000
1994,
Consolidated Financial Statements).
for fiscal years 1995 and
and2 to the
respectively
(see h’otesl
and$63,000
is being
The following
discussion of the Company’s
financial
condition and results of
consolidated
should be read in conju~ction with the
operations
Selected Consolidated
and
Consolidated Financial Statement and the related
notes included elsewhere herein.
Information
Financial
Financial Condition
The Company’s
total assets at September 30,
1995 were $264.2 million (which consisted primarily
of the assets of the Bank), a decrease of $9.9 million,
or 3.6Y0, from S274.1 million at September 30, 1994.
The decrease in assets is primarily due to the sale of
mortgage-backed
was partially offset by increased origination and
purchase
securities during the period, and
of loans.
During the ‘quarter ended June 30, 1995, all
securities previously
including mortgage-backed
reclassified to the available-for-sale
reclassification was performed
designated as h~ld-to-maturity,
securities, were
category.
after consideration
The
of interest J
,
risk to the market value of this
provided
opinion that the
It was management’s
of a pending regulatory policy
management
clarification regarding the measurement
sensitivity of adjustable-rate mortgage-backed
securities.
pending regulatory policy clarification
sufficient potential
type of security to warrant reclassification
securities held by the Company
sale designation.
ments of SFAS 115 (see Notes 4 and 5 to the
Consolidated Financial Statements),
all other
securities previously designated as held-to-maturi~
were also reclassified to available-for-sale.
the quarter ended June 30, 1995,
adjustable-rate mortgage-backed
In accordance with the require-
of the
to the available-for-
During
the reclassified
securities were sold.
The Company’s
portfolio
of securities held-to-
excluding ~
securities,
increased $17.6 million,
maturity and securities available-for-sale,
mortgage-backed
or 56.4’%., to $48.8 million at September 30, 1995
from S31.2 million at September 30, 1994. The
increase was due to the acquisition of securities,
primarily issued by agencies of the federal
government with relatively short terms to maturit~’,
an amount
period.
that exceeded maturities during the
in
The balance in mortgage-backed
securities,
by
including
those designated as held-to-maturity
and
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
oatstandirtg
balances
and that due to the le[els and [,olatili&
of interest
rates.
For each catego~
of interest-
earning
assets and interest-bearing
liabilities,
information
is proeided
on changes
attributable
to (~ changes
in L,olurne
(i.e..
c;tlanges
Forpllr[)oses
itt colume mult@lied
of this table,
changes
by old rate) and (i~ changes
in rate (i.e.,
changes
in rate mult+lied
by old rolume).
attributable
to both rate and (oLame,
u>hich cannot
be segregated
have been allocated
proportion
ate(~ to the change
due to {~olurrle and the changp
due to rate.
Yaar Ended September 30,
1994 vs. 1995
1993 vs. 1994
Tl]rreas?
Inrrea.e
[Drcr?as?)
(Derrease)
Total
Incrrasc
Dl,c. t,, \ ,,11,,11,.
Due to Rate
(Decrease)
T1lcrease
Irlcreas?
(DPcrrasr)
D\,? t“
V,lllllne
(Decrease)
DI,C
t<, Rate
Total
Irlcrcase
(Decrease)
INTEREST-EARNING
Loans rccci~-able
Nlortgage-hacked
Srcuritics
other
(F13LB Stock)
securities
.\SSETS:
$4.180
$
(156)
609
26
106
130
1,007
A
$
Total
interest-earning
assets
S 4,921
980
$5.901
(I)ollr,r,r
ir, Thol,,fands)
$3,058
S
3+6
1,190
(489)
(533)
(47)
$3.40+
657
(536)
s +.024
739
1.033
105
IXTEREST-BEARINC
LIABILITIES:
Time (leposits
DCIII:LII(l an(I S0\17 {ieposits
Savings deposit~
F] ILB acivances
other Borrom’ings
Total
interest -1)earing liabilities
1,+1+
6+
6
1,.580
(60)
(19)
3+0
l?
1
934
(5+)
(214)
(5)
(62)
(109)
(7+)
126
(:?)
82.5
(128)
s 3.00+
$1.362
S 1,238
$ (+64)
$
774
\-et effect on nri
itltercst
incolne
$ 1,91?
s
(382)
$1,535
$2.581
[16]
to
or
decreased by $50.5 million,
horn the sale ‘of approtiately
%vailable-for-sale,
70.2°h1 from $71.9 miUion at September 30, 1994,
$21.4 million at September 30, 1995. The decrease
restdted p~arily
$47.9 million in adjustfile-rate
securities which had been match-fuded
adjustable-rate
Lom’Bank
million decrease in mortg~-backed
due to re@ar
portfolio.
$2.6
securities was
received on &e
of Des Moines. The remaining
from the Federal Hom~
mortgage-backed
of principal
borrowings
repayment
with
During the year, the Company’s
net portfolio
of
increased by
to $178.6 million at
and loans held-for-sale
loans receivable
$23.2 million,
or 14.9%,
September 30, 1995 from $155,5 million
September 30, 1,994. The increase in the loan
portfolio was due,to increased origination of resi-
dential and commercial mortgage
loans, consumer
loans and agricultural
loan portfolio
multi-family
loans.
the
increased as a result of the pur~hase of
residential and commercial
related loans.
In addition,
real estate
at
The balance
of customer deposits decreased by
$4.4 millian, or 2.5%,
September 30, 1994 to $171.8 million at September
from $176.2 million at
30, 1995. The decrease in deposits was primdy
(governmental
tie restdt of &_e withdrawal
customers
to meet cash needs, and for reinvestment
tively higher interest rates. Deposit balances -in retail
customer accounts declined mitiWy
period.
of funds by non-ret~
and other public agencies)
at competi-
during the
The Company’s
borrowings
from ~e Federal
from $60.3 million at September 30, 1994 to
Des Moines decreased by $9.2
Home Loan B-of
million,
$51.1 million at September 30, 1995. The decrease
was due to the repayment
from the sde of adjustable-rate mortgage-backed
securities, offset by additional borrowings used to
fund the increases in the loan portfolio
investment
of borrowings
securities.
resulting
and
Results of Operations
The Company’s
results of operations are primarily
dependent
income and the Company’s
on net interest income, non-intbrest
ability to manage
operating expenses. Net interest income is th;
difference,
interest-earning
interest-bearing
or spread, between the average yield on
assets and the average rate paid on
liabdities.
The’interest
rate spread is
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total douar amount of interest income from average interest-earning asseti and
the resultanty”elds, as weti as the interest expense on avemge interest-bearing liabdities, expressed both in dollars and mtes. No tu
equtualent
the table as loam caqing a zero y“eld.
ad]”ustrnentihave been made. AU auemge balances are guarterly auemge bai!arwes. Non-accruing loaw ha[,e been included in
Year Ended September 30,
~EBEST-E@WG
ASSETS:
Aversge
Outstanriing
Batmc.
1995
Interest
Emedl
Ptid
Yield/
Rste
Aveq
Oubmding
Balance
1994
Intmst
Emed/
Paid
Average
Yield/
Rate
out5tan@
M..
1993
Interest
Esmed/
Psid
Yield/
Ba&
(Dollars
in Thousands)
Loans receivable[’)..,
.............. .... ...... $161,243
$13,768
8.54% $112,317
$ 9,744
8,68% $ 75,768
$6,340
8.37%
Mortgage-backed
securities .. .... .......
Securities ... ............. .........................
FHLB stock ........... .... ................... ...
51,157
42,674
3,720
3,905
3,111
270
7,63
7,29
7,26
42,914
42,130
2,262
3,166
2,078
165
7.38
4.93
7.29
29,106
51,846
1,522
2,509
2,614
123
8.62
5.04
8.15
Total
interest-earning
assets ,...,. $ 258,?94
./”-
8.14% $ 199,623~’
$15,153
7,59% $158,242
~~REST-BEABING
LIAB-S:
Time deposits,,..,,..,.,.,...,...,...,..,,..,..
$132,856$
7,232
5.44% $104,283
$ 5,158
Savings deposits,...,...,...,..,,..,,..,,..,,,
Demand and NOW deposits..,..,,..,..
FHLB advances,...,...,...,...,..,,.,,.,.,..
Otberborrowred money.,......,,..,...,..
Total
interest-bearing
10,431
317139
56,820
1,159
277
736
3,344
60
2.66
2,36
5.88
5.18
7,933
30,861
22.579
2,043
208
737
1,041
139
/
&l,586
—
7,32%
_
$5,032
5,17%
+,95 7. S 97,344
7,331
2.60
2,38
4,61
6,80
30,865
‘
2,321
2.556
196
798
216
267
2.67
2.58
9.31
=5
liabilities .,.......,......,...,...,...,..
$232,405
/$11,649
—
5.01% $167,699
—
/ $ 7,283
4.3+% $140,417~
—
$6,509
—
4,63%
—
Net earning assets . ... ... ... ... ... ... .. ... $ 26,389
$31,924
Net interest ticome
.......... ........ ... .... .....
Netinterest
rate spread .,...,,.,,..,...,
.......
Net ~tield on a>-erage interest-
earning assets .......... .... ................... .
Average interest-earning
assets to
$9.405
-
$7870
-
3,13~o
3.63%
$17,825
$5077
-
3.25~0
3,94%
.. .
2.69%
_
~/0
average interest-bearing liabilities .... .
lll,35~o
119.04~o
112.69%
(1) Calculated
net of deferred
loan fees,
loan discounts,
Ioana
in process
and loss resewea.
[17]
,-
an overall reduction in net eatig
reduction in the net interest rate spread.
assets and to a
-
to a
or
to $13.8 million for the year ended
to $21.1 million from $15.2 million for the
Interest Income Interest income for the year ended
September 30, 1995 increased $5.9 million,
38.9%,
same period in 1994. The increase is attributable
$4.o million increase in interest earned on the loan
portfolio
September 30, 1995 from $9.7 million the pretious
year. ~is
increase in loan interest income resulted
from a significantly higher average portfolio
balance of loans receivable during the period due to
internal growth of the loan portfolio and to the kll-
year effect of the acquisition of Brookings Federal.
Interest income on mortgage-backed
enhanced ~y $739,000
primarily as a result of the increase in the average
portfolio balance.
In addition,
the Company’s
and securities available-for-sale
million for the year ended September 30, 1995
compared to 1994 due to higher yields received on
the portfolio.
interest income from
of securities held-to-maturity
compared to the pretious
increased by $1.0
securities was
portfolio
year
balance
compared to the same period in 1994. The
increase in
of time deposits and
Interest expense increased $4.4
or 60. OYO,to $11.7 million for the period
Interest Expense
million,
ended September 30, 1995 from $7.3 million for the
same period in 1994. The increase in interest
expense was due primarily to a significant
the average outstanding
FHLB advances during the year ended September
30, 1995,
increase in the average balance of time deposits
resulted from the full-year
The average outstanding
Federal acquisition.
of FHLB advances
increased due to borrowing
activity throughout
the period used to fund growth of
To a lesser extent, the increase in
the loan portfolio.
interest expense reflects higher interest rates paid on
interest-bearing
September 30, 1995,
liabilities during the year ended
effect of the Brookings
to the previous year.
compared
balance
for the
increase in the
related, multi-family,
compared to $105,000
Provision for Loan Losses The provision for
possible loan losses for the ~ear ended September 30,
1995 was S250,000
same period in 1994. The $145,000
provision., and a resulting increase in the allowance
for loan losses, reflects the increase in the level of
agricultural
and commercial
real estate lending activi~.
T&se qTes of lending
activities are considered to car~ a higher degree of
risk than single-family
loans due to the
nature of the collateral
generally larger average size of individual
ratio of non-performing
to .29?0 at September 30, 1995,
at the end of 1994.
residential
securing such loans, and the
loans. The
assets to total assets declined
compared to .34%
economic
and competitive
loan.demand
affected by regulatory,
factors that influence tiierest
flow~. The Company,
deposit
institutions,
extent that its interest-earning
reprice at different
its interest-bearing
The Company’s
rates,
like other financial
is subject b interest rate risk to the
as6ets mature or
or on a different basis,
ties,
liabilities.
non-interest
income consists
tid
than
and maintaining
these
In addition, non-interest
primarily
of fees charged on transaction accounts and
the origination of loans, which help to offset the costs
associated with establishing
deposit and loan accounts,
income is derived from the activities of the Bank’s
wholly-owned
subsidiaries, First Services Financial,
Limited, and Brookings Service Corporation, which
engage in the sale of various insurance and invest-
the Company has not
ment products. Historically,
derived significant
sale of securities and other assets. However, during
the year ended September 30, 1995, a $1.1 million
gain was recorded as a result of the sale of mortgage-
backed securities.
income as a result of gains on the
Comparison of Operating Results for the Yeare Ended
and September
September
30,1995
30,1994
by a
to $3.5
or 29.90/.,
of mortgage-backed
In addition, net income was enh~ced
from $2.7 million for the same period ended
General Net income for the year ended September
30, 1995 increased $815,000,
million,
September 30, 1994. The increase in net income
reflects higher net interest income as a result of a full
year of operations after the acquisition of Brookings
Federal.
gain on the sale of securities available-for-sale
resulting from the restructure of the Company’s
portfolio
for the year ended September 30, 1995 was
negatively impacted compared to the previous year by
an increa~e of $145,000
losses, and by an overall
other expenses, primarily as a result of the operation
of the Brookings Federal division. Operating results
for the year ended September 30, 1994 include the
cumulative
resulting from the implementation
(Accounting
income by $257,000.
in the provision for loan
in
increase of $638,000
for Income Taxes), which increased net
effect of a change in accounting
securities. Net ;ncome
of SFAS 109
principle
or 19.5°/0,
net interest
The increase in net interest
Aet Interest Income The Company’s
income for the year ended September 30, 1995
increased by S1.5 million,
to $9.4 million
compared to $7.9 million for the same period ended
September 30.1994.
income reflects an overall
earning assets during the period resulting primarily
from the full-year
Brookings Federal. The net yield on average earning
assets declined to 3.63% for the period ended
September 30, 1995 from 3 .gq~.
ended in 1994, The reduction in net yield was due to
increase in average interest-
effect of the acquisition of
for the salile period
[Iv]
.Non-Interest
Income Non-iriiereit
year ended September 30, 1995 increased $1.2.
income for the
= ~ million,
or 112.lYo,
to $2.3 million from $1.1 million
for the same period in 1994. The increase in non-’”
interest income during the period ;nded September
30, 1995 was primarily dtie to a $1.1 million gain on
of
the sde of securities restdtin$ from the res~cture
portfolio
of mortgage-backed
In addition, during the year ended
the Company’s
securities.
September 30, 1995, non-interest
service charges o,n deposit accounts and fees charged
on 10WS, increased by $114,000
same period in 1994.
income from
compared
to the
expense
or 12.9%,
to $5.6 million
Non-Interest Expense Non-interest
increased by $638,000,
for the year ended September 30, 1995 compared to
$4.9 million for the same period in 1994. The
increase primarily reflects the fuU-year effect of
additional
acquisition of Brookings Federal.
interest expense includes an increase of $54,000
federal deposit
average outstanding
balance
accounts during the period.
In addition, non-
in
operating expenses associated with the
insurance premiums due to the higher
of insured deposit
Non-iirterest
expense for the period ended
as
implementation
“Employer’s Accounting
(SOP 93-6).
for shares
stock
September 30, 1995 was increased by $140,000
a resuh of the Company’s
of the
American Institute of Certified Public Accountants
Statement of Position 93-6,
for Employee Stock Ownership Plans”
The SOP 93-6 addresses dre accounting
of stock issued to employees by an employee
(see Note 13 to the
ownership plan (ESOP)
Consolidated Financial Statements). The SOP 93-6
requires that the employer
record compensation
expense in an amount equal to the fair value of
shares committed to be released from the ESOP to
employees. Assuming shares of the Company’s
common stock appreciate
93-6 will
relative to the ESOP, as compared with prior
guidance which required the recognition of compen-
sation expense based on the cost of shares acquired
by the ESOP.
Federal
law requires that the FDIC maintain
likely increase compensation
in value over time, SOP
expense
and the Bank Insurance Fund (’LBIF”)
reserves at both the Savings Association Insurance
Fund (“SAIF”)
of at least 1.25~0 of insured depositor accounts. The
of insurance
reserves are funded through the payment
of each
premiums by the insured institution members
fund. The BIF reached this level during 1995, and the
FDIC reduced insurance premiums
to BIF-
insured institutions while retaining the premiums
applicabletoSAIF members.
their current level of .23 Y. of deposits until the SAIF
reaches its required reserve level. Proposed federal
legislation provides
to .go~.
S.&IF-insured deposits,
of insured deposits to be imposed on all
including
for a one time assessment of .85~0
such as First Federal, at
those held by
applicable
insurance
bond interest on a pro rata
bds,
and for BIF deposit
to be used to pay the Financing
co~ercial
premmms
( “FICO”)
Corporation
basis together with SAIF premiums.
were implemented
Bank to pay a one-time assessment equal
insured deposits,
wodd
would kIso be anticipated
would be significandy
be appro~rnately
as of Septerpber 30, 1995 for the
to .90°A of
,the amount of such assessment
$1.5 million, although it
that future SAIF premiums
lower than the current level. ~
If a re~irement
Income t= expense increased
or 61 .9~0, to $2.3 million for the year
Income Tax Expense
by $887,000,
ended September 30, 1995 from $,1.4 million for the
same period in 1994. The increase in income tax
expense reflects increased net income before taxes for
the period ended September 30, 1995 compared to
the same period in 1994.
due to the cumulative
Effect of Accounting Change For the yea; ended
September 30, 1994, net income was increased by
$257,000
accounting
principle
tation of SFAS 109 (Accounting
for Income Taxes).
There was no such effect on net income during the
year ended 1995.
resulting from the implemen-
effect of a change in
Comparison of Oparating Results for the Years Ended
and September
September
30, 1993
30,1994
J
,
The increase in net income
income. and an
expense. The acquisition of
to $2.7
from $1.3 million for the same period ended
General Net income for t@ year ended September
30, 1994 increased $1.4 million, or 101.8%,
million,
SeDtember 30.1993.
primarily reflects an increase in net interest income,
offset bv a reduction in non-interest
increase in non-interest
Brookings Federal during ;he year contri~uted
si~ificantlv
T~e increa;e
extent, due to a S120,000
for loan losses for the year ended September 30, 1994
compared to the previ~us year. Operating results for
the year ended September 30, 1994 include the
cumulative
resulting from the implementation
(Accou~ting
income bv $257,000.
to the overall
in net income was also, to a lesser
for Income T~es), which increased net
effect of a change in accounting
reduction in the provision
increase in net income.
During the year ended
of SFAS 109
principle
.
operat;ng
re;ults
gain on ;he sale”~f branch deposits and
and, additionally, was reduced by
reflected
a
expense of $285,000,
net of income
30, 1993,
September
non-recurring
assets of $708,000
an extraordinary
taxes, related to the payment
prepayment
of Federal Home Loan Bank advances.
of a penalty on the
Net Interest Income The Company’s
income of $7.9 million for the year ended
September 30, 1994 represents an increase of $2.8
million,
from $5.1 million for the same
period ended September 30, 1993, The increase in
net interest
or 55.0°/0,
[19]
In addition,
increase in
net interest income reflects an overall
interest earning assets resulting from the acquisition
of Brookings Federal,
the net yield on
average e~rning assets increased from 3.21 °/o for the
period ended September 30, 1993 to 3 .94~0 for the
same period ended in 1994, due to a higher average
~ield on interest-earning
assets and a lower average
cost on interestrbearing
liabilities.
or
factor
of loans
Interest income for the year ended
Interest income on mortgage-backed
The increase resulted from the si~wificantly
to $15.2 million from $11.6 million for the
Interest Income
September 30, 1994 increased $3.6 million,
30.8Y0.
same period in 1993. The most significant
causing the increase of interest income is the increase
of $3.4 million in interest earned on the loan
portfolio.
higher balance in the average portfolio
receivable and, to a lesser extent, the higher overall
yield on the loan portfolio during the period ended
September 30, 1994 compared to the same period in
securities
1993.
increased by $657,000
September 30, 1994 compared to the year ended
1993 due to the increase in the average portfolio
balance as a result of the structured purchase of
adjustable-rate
income on securities held-to-maturi~
available-for-sale
million for the year ended September 30, 1993 to
period in 1994.
$2.1 million during the comparable
The decline in interest income on securities was due
primarily to the decline in the average portfolio
balance of these securities during the period ended
September 30, 1994 compared to the same period
in 1993.
and securities
from $2.6
securities during the year.
during the year ended
decreased by $536,000
Interest
or 11 .9%,
Interest expense increased
to $7.3 million for the period
Interest Expense
$773,000.
ended September 30, 1994 from S6.5 million for the
same period in 199.3, The increase in interest
expense was primarilv due to a significant
the average outstanding
liabilities during the period ended September 30,
to the same period in 1993, The
1994 compared
effect of increased interest-bearing
liabilities was
offset bv an overall reduction in the rate of interest
paid on-these liabilities during the period ended
September 30, 1994.
balance of interest-bearing
increase in
,30,
ProL1isionfor Loan Losses Tbe provision for
possible loan losses for the ~ear ended September
for the
1994 was S1O,5,OOO compared to $225,000
same period in 1993. The decrease in the provision
for possible loan losses., and the resulting effect on the
allowance
analvsis of the Company’s
loan-portfolio.
the decline in non-performing
assets at September 30. 1994 compared to 0.7’8°/0 at
the end of 1993.
for loan losses, reflects management-s
The anal~sis took into consideration
In addition, management
loans to O,34% of
risk of loss on its
potential
[20]
considered factors such as the effect that improved
weather conditions would have on the Comp any’s
portfolio
the allowance
for loan losses.
of agricultural
loans and the relative level of
or 30.7%,
income for the
Income Non-interest
to $1,1 million from $1.6
Abn-Interest
year ended September 30, 1994 decreased
$478,000,
million for the same period in 1993. Non-interest
income during the period ended September 30, 1993
included a gain on the sale of branch office deposits
During the
and assets in the amount of $708,000.
period ended September 30, 1994, non-interest
income from service charges on deposit accounts and
fees charged on loans increased $75,000
compared to
the same period in 1993. Overall, non-interest
income increased during fiscal year 1994 compared
to 1993 due to the acquisition of Brookings Federal,
in 1993.
excluding the effect of the sale of branches
to $4.9 million
compared to
or 32.6°/0,
~W-on-Interest Experrse Non-int crest expense
increased by $1,2 million,
for the }Tear ended September 30.1994
$3.7 million for the same period in 1993, The
increase primarily reflects the additional
expenses associated with the acquisition of the
Brookings Federal,
interest expense includes an increase of $74,000
federal deposit
increase in insured deposit accounts,
In addition,
the increase in non-
in
insurance premiums due to the overall
operating
Income Tax Expense
bY $388,000,
Income tax expense increased
or 37’, lYo1 to $1.4 million for the year
ended September 30, 1994 from $1.0 million for the
same period in 1993. The increase in income tax
expense reflects net income before taxes that was
+5.6% higher for the period ended September 30.
1994 compared to the same period in 1993.
Item The Cornparry incurred an
Extraordina~
extraordinary
net of income
expense of $285.000.
taxes, during the year ended September 30, 1993.
This was due to the pa~rnent of a penalt~ on the
prepayment
No such extraordinary
the year ended September 30, 1994,
of Federal Home Loan Bank advances.
expense was incurred during
.30. 1994, net income was increased by
due to the cumulative
Effect of Accounting Change E-or the year ended
September
$237,000
accounting
tation of SFAS 109 (.Accounting for Income Taxes).
There was no such effect on net income during the
year ended 1993,
resulting from the implenlen-
principle
effect of a change in
Asset/Liability Management
J%TetPortfolio Value The Office of Thrift Supervision
(-LOTS”) provides a Net Portfolio Value (k’NPI’”)
aPPrOa~h 10 the q~lautification of interest rate risk.
This approach calculates
the difference bctweeu the
.-
.-,
,
,.
<
‘
/
----
.
-“,
. —.
,.
. .
,{
.-
.
. . .
..
.
.!,
,-
,,.
,,,
.
.-
,<.
,-.
/,
...
;...
. .
,.+
,J
,,‘
.
..7A
-,_,
,.
,,
,<~
..-
>.—.
.. ..-
...-!.
~,.,~
.,.
,,.
–’Y
.:.
‘.,,.:
:.
. ..
. .
‘P.
,.’,
-,
:. ”\-’
...
,.
.
.
,,/”
,.,
‘,
~
,,,
~
presem value of expeet~ wh
Ae preserit value of e~ected
cash flows from
flows from assefiti~
-
.
sheet
“ ‘liabfifies;
as well as wh
contracts. Under OTS re~ations,
“no~al% level of interest rate Ask in tbe event o} an
ffom from off-balmce
~ institution’s
assumed .2t)0 basis poht
decrease ti the tistitution’s WV in an amomt
exceed two percent of the present value of its assets.
is
cliange h interest rat~ldrrs'
e{luitl . .. .. .... .. . .. .. .. .. .... .. .. ... .. .. .. .. .. .. .. ... .. .. .... ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... ..
38.012,696
3+,683,288
Total
Iiabilitie> and stockholders”
(.cl[]ity . ... . ... .. .. ... ... .. ... .. .. .. .. .. .. ... .. .. .. .. .. . .. .. .. .. .... .. .. ... $26+.213,223
$27+.115.+61
See notes
to consolidated
financial
statements.
First Midwest Financial,
Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
for the yearn endad Septambar 30. 1SSS,1SS4and 1SS3
INTEREST INCOME:
Loans receiv&le ......................................................................................
.....................................................................
Securities avtilble.for.sale
Mofigage.backed sectities avd&le.for.sale
..........................................
Securities held.to.maturi@ ......................................................................
Mofigage.backed securities held. to.maturi~ ...........................................
Dividends on Federal Home Loan Bank stock . ...... . . ........ . . . ...... . . .
income ............................................................................
Totiltiterest
$13,7~8,064
$9,743,957
$6,339,392
3,110,480
3,904,665
—
—
1,810,662
2,032,268
261,133
1,139,691
270,261
164,980
860
—
2,613,315
2,509,125
123.228
21,053,470J
15,152,691~
11,585,920{
1 99a
19s4
1993
INTEREST EXPENSE:
Deposits ......... ............................. ..........................................................
....................................................................................
Other bonowings
Total interest expense ...........................................................................
NET INTEREST INCOME
8,245,227
3,403,497
11,648,724
J
6,102,042
1,180,452
7,282,494~
6,026,132
483,136
6,509,268/
9,404,746i
7,870,197~
5,076,6521
PROVISION FOR LO~LOSSES
..............................................................
250,000
~
1057000J
225,000
]
NET INTEREST INCONIE AFTER PROVISION FOR LOAN LOSSES ~....
9.154,746
7,765,197
4,851,652
OTHER INCOME:
Loan fees and service charges ..................................................................
Gain on sales of securities and mortgage-backed securities
available-for-sale - net .........................................................................
Brokerage commissions from subsi&a~ ..................................................
Gain on sale of assets and deposits . .......... . . . ......
. . . .... ... . . ........ .
Other income ...........................................................................................
Total other ticome ................................................................................
712,345
597,984
523,405
1,070,247 ]
297,777
9,170/
328,343
— i’
— ,,
206,101
142,270
2,286,470 ~ 1,077,767J
— ,,/
251,424
708,469~
72,291
1,555,589
I
OTHER EXPENSE:
. . . ..
Employee compensation and benefits . . . ...... . . . ........ . . . .. ..
..............................................
Occupancy andequipment
SAIF insurance premium and special assessments . ........ . . . .......... . . .
Data processing .......................................................................................
. .
Other general and administrative expense .
Total other expense ..............................................................................
...... . . ... .....
.,.,.,,,.,,.,...,.,.,.,
. . . ........
.
3,400,190
.I 3,079,769
J
2,070,500:
432,571.,
404,306
291,961
1,047,149
316,375,
350,314
200,219
991,020
250,558
‘
276,796
177,655
9497313
5,576 >177J
4,937,69?!
3,724,822
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CLNUL.ATI\TEEFFECTS OF CHANGES IN ACCOL~TING PRINCIPLES
5.865,039
3,905.267,
2,682,419,
INCONE T.4XEXPENSE .. .................................................................... ..
2,320,687
1,433,519>
1,045,300
INCOME BEFORE EXTRAORf)INARY ITEM AND C~ULATIVE
. .
EFFECTS OF CH.4NGES IX ACCOUNTING PRINCIPLES
.
.
3,544,352
2,471.748
1,637,119
EXTRAORDIN.4RY ITEM - Prepayment of Federal Home Loan Bank
advances penalty - net of income taxes of $167,000 ................................
—
—
284,611
13-COME BEFORE CUML-LATIVE EFFECTS OF CH.4NGES IN
ACCOL~-TING PRINCIPLES
.
.
.
.
.
.
.
.
.
3,54+,352
2,+71,7+8
1,352,508
CUMULATIVE EFFECTS OF CHANGES IN ACCOLTNTINGPRINCIPLES:
Change in method of accounting for income taxes . . . . . ...... . . . . .
...
—
257,163
NET INCOklE ............................................................................................
$ 3,544,352
~ $2,728,911
$1,352,508
EARNINGS PER SHARE:
FLdly diluted:
Income before extraordioam item and cumulative effects of changes in
accounting ~>rinciples...............................................................................
Extraordina~ iteln ..................................................................................
Cumulative effect of accounting principles ...............................................
NET INCO}lE ............................................................................................
See notes to consolidated
financial
statements.
$
$
$
1.24
$
1.99
—
0.80
(0.14)
0.13
1.99
$
1,37
$
0.66
[2<5]
First Midwest Financial,
Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
forthepars ended 3e~mbar
30, 1995, 1994 and 1993
Common
Stock
Additional
Paid-in
Capital
Retainad
Earnings
ESOP
Borrowing
Treaau~
Net Unrealized
Gain (Loss) on
Stock Sacuritias Avail-
abla-For-Sala
Total
B.kL~CE,
Septeder
30, 1992 $
— $
–
$14,969,903
$–
$–$
–
$14,969,903,
Issuance of 1,917,625
cmnmon shares
Issuance of 70,952 shares in
connection with recognition
and retention plan
ESOP borrowing
Payment on ESOP borrowing
Net
income
19,176
18,480,824
710
(710)
—
—
—
—
—
—
—
–
—
—
1.352:508
(1,534,100)
150,000
BALANCE, September 30, 1993
19,886
18,480,114
16,322,411
(1.384,100)
93,210
—
—
—
—
—
—
—
—
—
— 18,500,000
—
–
—
—
—
—
(1,534,100)
150>000
1,352,508
33,438,311
93.210
BALAIi(E, September 30, 1994
19,915
18,9,5~,19~
19,051.322
(1,186,000)
(2,070,177)
(86.96+)
3+,683,288
Reduction of con~ersion costs
Purchase of 135,716
common shares
Payment on ESOP borrow-ing
and fair market ~~alue
adjustment
Issuance of 4,794 shares in
connection w,ith recognition
and retention plan
Retirement of 1,918
common shares
.tmorcizatiou of recognition
and retention plan
Net change in unrealized loss
on securities available-for-sale.
net of deferred income taxes
l-et
income
—
—
—
*8
(19)
—
—
Purchase of 6 1.?12
common shares
Payment 011ESOP borroming
and fair lnarket value
adjllhtment
fmortizatiou of recognition
and retention plan and
tax }Ienefit of restricted
stock under the plan
Dividends paid
N-etchange in unrealized gain
on securities available-for-sale,
net of deferred income taxes
Net income
—
—
—
—
(48)
19
381,897
—
—
—
–
—
—
2.728,911
(2,070,177)
–
(2,070,177)
198,100
198,100
—
—
—
—
—
—
381.897
—
(86,964)
(86.964)
~,728,911
—
—
—
—
(932,030)
87,789
218,800
—
26?,064
—
—
(315,095)
—
—
(932,030)
306,589
267,064
.
(.515,095)
—
:3.544,352
—
—
—
—
6,58,528
658,528
—
3,54*,352
BAL.LN(.;E, September 30, 1995
$19,,915
!$19,310.045
$22,080.579
$(3,002,207) $ 571.564 $38012696
See notes
to consolidated
financial statements.
[26]
First Midwest Financial,
Inc. and Subsidiaries
. .
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the vears ended September 30, 1995, 79S4 and 7993
CASH FLOV’S FROkl OPERATING ACTIVITIES:
Netkcome
Adjustments to reconcile net income to net cash provided
..............................................................................................
by operations:
Cumulative effects of changes in accounting principles ..... ........ . . . . .....
Depreciation, amortization of premiums and accretion of discounts .........
Provision forloanlosses
. .... . . . . . .... .
onreal estate owned ..................................................
Provisionf orlosses
Gain on sale of assets and deposits ......
. . . ........ . . .. ..... . . . .......... . .
Gain on sale of securities and mortgage-backed securities
. ...... . . . .......... .
. . ........ . .
available-for-sale .......... . . . ........ . . . ... ...... . . . ...... . . . . ........ . . . ..
Stock di~idends from Federal Home Loan Bank stock .............................
Proceeds from the sale of loalls ................................................................
Origination ofloans f[]rresale ..................................................................
(Increase) decrease in assets:
.Accrued interest receiv&le ...................................................................
()ther assets..........................................................................................
Increase (decrease) in liabili~ies:
.kccrued interest payable
Other liabilities
Netcash
. .. .. ... . . . . .. ..
.. . . .
from ope~.atirrg activities . .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... . ...
. .. .. . . . . . . .. .. . . .
. .
. . . . . . . . .. .. .
. . . . .. .. ... . .
. . . . . .. ..
. . .. ..
.. .. . .
. . .
.
.
CASH FLOWS FROM INVESTIN-G ACTIVITIES:
1995
1994
1993
$3,544,352
$2.728,911
$1,352,508
—
(:~::)
479,079
250,000
—
105;000
—
(1,070,247)
—
—
(9,170)
—
—
–
27~>~28
225,000
9,600
(708,469)
(9210;)
2,803,163
(4777144)
(504,937)
(55,643)
(221,613)
5,181
246,300
22,537
(47,662)
(122,777)
350,455
(343,,537)
2.4?2,165
2,850,719
(96,153)
369.798
3,933:668
. .
. .. .
3.+95,289
185,260
. .. ... . ... .. .. .. .. .. .. ... .. .. .. .. .. . .. . ... .. .. .. .
.... ... . ... .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .
. . . . .. .. . .
. . . ... . .
. . . .
securities atailable-for-sale.,,,,.,.
. .. .. ..
.. ... . .
Purchase
Purchase
Purchase
Pro~eeds
Proceeds
Pro{:eeds
Proceeds
Proceeds
Proceeds
llcld.to.nlaturitY
securities held-to-maturi~
of securities available-for-sale,,
of securities
of mortgage-backed
from sales of securities available-for-sale
from sale of mortgage-backed
from ruatlrrities of securities available-for-sale
of spcllrities held-to-matltrity
from maturities
from principal
of mortgage-backed
.. .
from principal
. .
. .. .. ...
of mortgage-hacked
.. . . . . .
repayment
. . . .. .. .
repayment
. .. .. . . . .
. . .
. ...
.
available-for-sale
.. .
. .
.
. . .. . . . . .
. . . .
.. .. .
.
. .
securities
. .
.. .. ..
serl~rities
. .. .. .
held-to-maturity
Loansoriginated
lJIJarls pllrcllase{i
L(Jarlprirlcipal
Proceeds
Purchate
Ircluisitionof
. . . . . .. ... . . .
. . . . .. .. . . .
... .. .. .. .... .. ... . ... .. .... .. ... . ... .. .... .. .. .. ... .. ... ... .. .. ... .. .... .. ... .. .. .. .
... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. . ... .. .. ... .. .. . ... .. .. ... .. .. .... .. ... .. .. .. .. .
rer~aylrlents . ... ... .. .. ... .. .. ... ... .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .
from sale of real estate [Jwned . .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ...
lInmt= I.oan Bank stork . .... .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. ... . ...
of Federal
.
. . .
Of e~lli~JmcrlT . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .
.... .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. . .... .. .. .. .. .. .. . .. .. .. .. .
ro,rls:lleo
. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. . .. .. .. .. .. ..
fasse,s.,.,.,
frcllll invrstillg activities,,,...,
assets and liabilities
. . . . . .. ..
. . .
. . .
.. . .
. .
pUrrhaSP
P]oree,isf
A"eTcasll
(.;ASH FI.OITS FRONI F13-AN(lN(;
ACTIVITIES:
...,....
for sccuritit,s
from advances
it) NOW. pa,ssl]ook and ruonev market accounts
ill certificate
lncrea~e (derrease)
acco~~llts .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .
Increase (decreasr)
from the FfiLB . .... .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .
Repayment.> of advanct,s
s(,ld lm{lrr agrf.crnents to repllrrhase . .. ... .. .. .. .. .
Rcl)a!-])lcuts
.. .. ... .. .. .. .. .. .. ... .. .. .. .... .. .. ... .. .. .. .. ..
proceeds
.. .. ... . ... .. .. .. .. ... .. .. .... .. ...
A,{I anre~ fronl borrf,wrrs
frc)Tll is,,[laIIcc (]fst(]ck . .. .. ... .. .. .. .... .. . .. .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... ..
\-t.llJr()cccds
E,nplo}-cc
stotk ,Iivnership plau borrow.illg . .. .. .. ... .. .. .. .. .. .. ... .. .. .. .... . .... .. .. ..
Di\i(lel)dsp:li( ~. . .. .. .. .. .. .... .. . .. .. .. .. .... .. .. .. ... .. .. .. .. ... .. .. .. .... .. .. ... .. .. .... .. ... .. .. .. .
. .. .. .. .. .. ... .. .. .. .. .. .. . ... ... .. .... .. .. .. ... .. .. .. .. .. ... .. .. .... .
l'tlrtll:lseo ftl.eas~ll.\.s t[jck .
i(tivities. . .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. . .. .. .. .. .. .. ..
Net cash fr(]lnfirl~ll[irlgt
from Th(kFIILB.
a,,lliIlsllraTlcc
f(,rtales
(31,380.132)
(11,888,625)
–
491,875
+8,953,383
25,610,000
(10,342,303)
(18,000.000)
(+8.050,121)
16.1:36,827
15,790,000
(8.952,207)
— 32.096,166
—
—
~77~05
(65,295.03+)
(19.211.9+0)
61,01+~7~
78,738
(899,800)
–
(581.126)
8,2++,508
(24.043.495)
(8.5+5.628)
~+,:]()~~+:j
+66,+02
8.256.7+4
(50.267.318)
(22,059.813)
+~,98,j7~62
2,000
( 1,13+.900)
(6.801,+34)
(3i.3tJ6)
—
(11.,8;)
5~~,56;~
10.21 +,1 05
(68.333,862)
24.08+.0+0
(~;~;~~;)
(255,209.677)
2+0.000
2+6.000.000”
~o,[)lo
—
218,800
(515,095)
(9:32,030)
(1+.500.793)
(5.066,686)
1.829.381
(2+0,308.8+7)
(1 .+88,152)
298,300,000
(+.201.056)
(20.275.671)
(4.008.088)
(+31 .2?5)
(24,5+5)
(50.110)
— 18.500.000
1(J8,100
(1 ,38+,100)
(2.070,17?)
51.:369,07+
(11.850.300)
NE’I- lN”(;RKASE (DECREASE)
IX (ASH AND
(:.ASII EQL;1V.4LENTS
. .. .. .. ... .. .. .. .... .. ... .. .. .. .. .. ... .. .. .. ....
(1.81+,523)
(1+.1 1+.069)
16.16 ?.+08
(;.4SH IN-I) CASI1 EQ1-IJ’.Al,k;\-TS AT BECll\”IYG
01 Y-EAR ..
. . .
.. .
6.+30,235
20..5++.30+
+,376,896
C.4SH AND CASH kGQII\”ALENTS
.\T IZND OF 17E.4R
. .
. .. .
. . .
. . .
$+.615,712
$6,+30.235
$20.5 ++,30+
See notes
to consolidated finarrcjal
statements
(Corltirt[lec~
[2?]
q
First Midwest Financial,
Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
for the yaara endad 3aptembar 30,
1393.
lW and 7W
1995
19e4
1993
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest .............................................................................................
_$_~
Income taxes . .. ... .. .. .. .. .. .. ... . .............................. . . . ...... ... . ........ .,.
_
$1,463,427
$
788,100
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Loastimsfened
to red estate ............................................................
$
129,408
$
–
$
47,850
See notes to consolidated financia/ statements.
First Midwest Financial,
Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the yaara e.dad Septambar
30, 1995,
19M and 1993
1. SUMMARY
OF SIGNIFICANT
ACCOUNTING
POLICIES
General - First Midwest Financial, Inc. (the “Company”)
is located in Storm Lake, Iowa, and was organized and
incorporated under the laws of the State of Delaware for the
purpose of acquiring all of the capital stock to be issued by
First Federal Savings Bank of the Midwest (the “Bank”)
upon the conversion described below.
On September 20, 1993, First Federal Savings and Loan
Association of Storm Lake (the “Associationn) was convert-
ed from a federally chartered mutual savings and loan asso-
ciation to a federally chartered stock savings bank and the
name of the Association was changed to First Federal
Savings Bank of the Midwest.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries, which include the Bank, First
Services Financial, Limited, which offers mutual funds,
insurance products. annuities and brokerage services and
Brookings Service Corporation (See Note 2). All significant
intercompany balances and transactions have been elimi-
nated.
In preparing such financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of
the balance sheet and revenues and expenses
for the period,
Assets held in trust or fiduciary
capacity are not assets of
the Company
and, accordingly,
are not included in the
accompanying
consolidated
finrmcial
statements.
At
September
30, 1995 and 1994,
trust assets totaled approxi-
mately $9,245,000,
and $9,194,000,
respectively.
Cash and Cash Equivalents
- For the purpose
of report-
ing cash flows,
cash and cash equivalents
include cash on
hand, demand deposits at other financial
institutions,
feder-
al funds sold and investments with original maturities
of
three months
or less. Generally,
federal
funds are pur-
chased and sold for one day periods,
Securities and Mortgage-Backed
Securities -
Effective October
1, 1993,
the Company
implemented
Statement
of Financial Accounting
Standards
(SFAS) No,
1157 Accounting for Certain Investments in Debt and Equity
Securities. SFAS 115 addresses
the accounting
and report-
ing for investments
in equity securities
that have readily
determinable
fair values and all investments
in debt securi-
ties. SFAS No. 115 requires
these securities
to be classified
in one of three categories
and accounted
for as follows:
l Debt securities
that the company has the positive
intent and ability to hold to maturity are classified
as ‘held-to-maturity
securities”
and reported at
amortized
cost.
Actual
results could differ significantly
from those esti-
l Debt and equity securities
that are acquired and
mates, Material
estimates
that are particularly
susceptible
held principally
for the purpose
of selling them in
to significant
change relate to the determination
of the
the near term are classified as “trading
securities”
allowance
for loan losses and the valuation of real estate
and reported at fair value, with unrealized
gains
acquired in connection with foreclosures
or in satisfaction
of
and losses included in earnings.
loans.
In connection with the determination
of the
l Debt and equity securities not classified as either
allowance
for loan losses and the valuation of real estate
held-to-maturity
or trading securities are classified as
owned, management
obtains
independent
appraisals
for
“available-for-sale
securities”
and repotied
at
significant
properties.
fair value, with unrealized gains and losses, after
[24]
applicable wes,
reported b“ a separate component of stockholders’
excluded from etigs
and
in the value of debt secm-itie~and
e@tY. Dec~es
marketable equity securities that are considered to
be other than temporary are recorded in noninter-
est income as a loss on inves~ent
securities,
est payments
on a notional amount. When using interest
rate cap agreements,
the Company
pays or receives a pre-
mium from another party in exchange
for interest payments
on a notional amount
in the event that a spec~led
index
(generally L~OR)
exceeds a specified rate. The notional
amounts
of interest rate protection
contracts
are not reflect-
ed in the mrtsolidated
statements
of financial
condition.
In implementing SFAS No. 115, the Company originally
Realized and unreahzed
gains and losses on interest rate
designated the securities and mortgage-backed securities
held at October 1, 1993 as available-for-srde securities,
Securities acquired since October 1, 1993 have been desig-
cap contracts designated as hedges are deferred and recog-
nized as income
or expense over the lives of the hedged
ins~ents.
Net interest settlements
on interest rate swap
nated at acquisition
as available-for-sale
or held-to-maturi-
contracts
are recognized
as interest
income
or expense over
ty, however,
in May 1995, all securities previously
desig-
the lives of the agreements,
nated as held-to-maturity,
including mo~age-backed
securities, were transferred
to &e available-for-sale
Rea[ Estate Owned and in Judgment - Real estate
categoq’
(See Notes 4 and 5). The Company
does not have
acquired through foreclosure
and real estate in judgment
any securities
classified as trading at September
30, 1995
are stated at the lower of cost or fair vahte minus estimated
or 1994. Although the Company
does not have a current
costs to sell. Costs relating to the development
and
intent to sell the securities available-for-sale,
and it is
improvement
of property
are capitalized;
holding costs are
management’s
opinion that the Company has the ability to
charged to expense. Valuation
allowances
for estimated
hold these securities
to maturity, management
considers
the
losses on real estate are provided when the carrying value
designation
as available-for-sale
to provide
flexibility
in
exceeds the fair value minus estimated costs to sell tie
adjusting
tie composition
of tie sectities
portfolio
as may
property.
become desirable
in the future.
Premiums
and discounts
are amortized over the con@ac-
Provisions for Losses
- Provisions
for losses include
tual lives of the related securities using the level yield
charges to reduce the recorded balances
of loans receivable
method. Gains or losses on sales of these securities are
and real estate to their estimated net realizable
value or fair
based on the specific
identification method,
value, as applicable.
Such provisions, which includes a
review of assets for which full collectibility may not be rea-
Loans Receivable and Loans Held-for-Sale
- The
sonably assured,
considers among other matters,
the esti-
Bank originates
loans for portfolio
investment
or for sale in
mated net realizable
and fair value of&e
underlying
collat-
the secondary market, During the period of origination,
eral, economic
conditions,
historical
loan loss experience
loans are designated
as held-for-sale
or for investment pur-
and other factors
that are particularly
susceptible
to
poses. Loans held-for-sale
are carried at ~e lower of cost
changes that could result in a material adjustment
to results
or fair value, determined
on an individual
loan basis.
of operations
in the near term. Recovery
of the carrying
Interest on Loans and Mortgage-Backed Securities -
extent on economic,
operating
and other conditions
that
Interest on first mortgage
loans is credited to income as
may be beyond the Company’s
control.
‘value of such loans and real estate is dependent
to a great
earned except
interest on loans that are contractually
past
due more than 90 days is charged off, or an allowance
is
Loan Fees - The Bank defers certain fees (net of direct
established
based on management’s
periodic
evaluation.
loan origination
costs)
incurred in the origination process,
The allowance
is established
by a charge to interest
income
with recognition
thereof over the contractual
life of the
equal
to all interest previously
accrued, and income
is sub-
related loan as a yield adjustment,
Any unamortized
fees
sequently
recognized
only to the extent that cash payments
on loans sold are credited to income in the year such loans
are received until,
in management’s
judgment,
the borrow-
are sold,
er’s ability to make periodic
interest and principal pay-
ments is back to normal,
in which case the loan is returned
Premises and Equipment
- Premises and equipment
are
to accrual
status,
carried at cost less accumdated
depreciation.
Depreciation
Premiums
or discounts
on loans and mortgage-backed
is computed
based on the straight-line method of deprecia-
securities are amortized into income
over their respective
tion over the estimated useful
lives of the assets. Estimated
lives using the interest method,
useful
lives are 20 to 30 years for buildings
and improve-
ments and 3 to 7 years for furniture,
fixtures and equiP-
Interest Rate Protection Contracts - The Bank utilizes
ment.
interest rate swap and interest rate cap contracts
(collec-
tively referred to as interest rate protection
contracts)
as an
Excess of Cost over Net Assets Acquired - cost
in
integral part of its asset/liability management
program.
excess of fair value of net assets acquired
(goodwill)
arising
Interest rate swap agreements have been utilized as a hedge
from the acquisition
(see Note 2) is being amortized
over 15
against both interest bearing liabilities and interest earning
years on a straight-line
basis, Amortization
expense for fis-
assets.
Interest rate swap agreements
are instruments
in
cal years 1995 and 1994 was $125,160
and $62,584,
which the Bank and another party agree to exchange
inter-
respectively,
[29]
Securities Sold Under Agreements
to Repurchase -
The Bank 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
and payment
of federal and state income taxes.
allocation
The provision for income taxes of each corporation is com-
puted on a separate company basis, subject to certain
adjustments.
agreements
ized bY assets which are held in safekeeping
to p~chase
identical
securities are collateral-
in the name of.
Reclassifications
- Certain amounts
reported in previous
the Bank by the dealers who arranged the transaction.
years have been reclassified
to conform with the financial
Securities
sold under agreements
to repurchase
are treated
statement presentation
used in the current year.
as financing
and the obligations
to repurchase
such securi-
ties are reflected as a liability
The securities underlying
the
agreements
remain in the asset accounts
of the Bank.
Earnings per Share - Earnings per share are calculated
on the basis of the weighted average common shares out-
standing and those outstanding
options
that are dilutive.
Income Taxes - Effective October
1, 1993.
the Company
Earnings per share as presented in the 1993 consolidat-
adopted SFAS No. 109, Accounting for Income Taes.
This
ed statement
of income is computed
assuming that the
statement
supersedes both .kccounting Principles Board
weighted average shares outstanding
at September
30,
(APB) Opinion No. 11 and the guidance
of APB Opinion
1993 were outstanding
the entire year and ignores the effect
No. 23 on the tax treatment
of savings and loan bad debt
of stock options as they were only outstanding
for the last
reserves.
SF.4S No. 109 calculates
income
taxes on the lia-
10 days of the fiscal year, The difference
between primary
bility method, under which the net deferred tax asset or lia-
and fully diluted earnings per share is not material.
Pro
bilitv is determined
based on the tax effects of the differ-
forma earnings per share presented below is computed
as if
ences berween the book and tax bases of the various assets
and gives current recognition
and liabilities
of the Company
the net proceeds
of $18,500,000
from the issuance
of com-
mon stock had been invested at 7,32°10, the Company’s
to changes
in tax rates and laws.
average yield on interest earning assets during fiscal year
The effect of applying
tbe provisions
of SFAS No. 109
1993, adjusted for applicable
federal and state taxes.
was a one-time
adjustment
that increased net income for
fiscal year 1994 by $257,163
($.13 per share) recorded
as
Pro forma Earnings Per Share:
a cumulative
effect of change in accounting
principle.
Pro forma income before
The Company
files consolidated
federal and state income
extraordinary
item.,,,
. .. .. ... . ... .. .. .. .. .. ... .. .. .. .. .
S1,23
tax returns, The Company
and its subsidiaries
have
Extraordinam.
item .. ... .. .. .. .. .. .. ... . ... .. .. .. .. .. ... .. .. .
(,14)
entered into a tax-sharing
agreement
that provides
for the
Pro forma net income ... .. . ... .. .. .. .. ... .. .. .. .. .. .. ... ..
$1,09’
_
and its wholly-owned
Inc,
subsidiary,
2. ACQUISITIONS
On March 28, 199+ the Compan~- completed the
acquisition of Community Financial Systems.
(’LConlmunity’7),
Brookings Federal Bank, a federal savings bank,
located in Brookings, South Dakota.
tion, Community was merged into the Company
Brookings Federal Bank w-as merged into the Bank,
The two offices of Brookings Federal Bank will oper-
ate as the Brookings Federal Bank Division of First
Federal. The Company- purchased the 333,513
standing shares of Community’s
out-
common stock for a
Llpon acquisi-
and
In addi-
$243,000
$10.5 million.
cash pa~ment of $31.38 per share, or a total pur-
chase price of approximately
tion to the purchase price, approximately
in acquisition related costs were incurred.
The acqui-
sition has been accounted for as a purchase, and the
accompan~ing
statements for
the year ended September 30, 1994 reflect the com-
The fair
bined results since the date of acquisition.
value assigned to the assets and liabilities,
including
the core value of the existing customer deposit base is
as follows:
consolidated
financial
Cash
..... .
.. ....
. . . .
......
. . .
.. ... . . .
......
. . .
......
$ 3,664,204
10,877,419
51,206,527
907.86,5
1.085.,628
1,634,265
(56.591.421)
(2,318,849)
$10.+6.5.638
[30]
The unaudited
consolidated
results of operations
on a pro forma basis for the fiscal year ended September
30, 1994 and
1993, as though the acquisition Qf tie Community
had occurred
as of the beginning
of the fiscal years, are as follow=
1994
1993
Interest
ticome
. .. .. .. .. ... .. ... . .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. ... . ..
$
17,593,876
Interest expense
. ... .. . . . . .. ... .. . . . .. .. ... .. .. . . . .. ... .. . . . .. .. .. ... .. . . . . .. ... .
Netinterest
income
.. ... .. . . . .. .. ... .. .. . . .. .. ... .. . . . . ... .. .. . . . . . .. ... .. . .
Provision forloan
losses
.,,....
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest
income after provision for loan losses
. . . . . . . .
. . . . . .
Other income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income
taxes and cumulative
effects of changes
in
accotmting
principles
. . . . . . . . . . . .
. . . . . . . . . . . .
. .
Income taxes
. . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . .
. . .
Income before ex~aordinary
item and cumulative
effects
ofohanges
in accounting
principles
. . . . . . . . . . . .
. . . .
.
Extraordinary
item . . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . ,.
Income before cuulative
effects ofchages
inaccounttig
principles
.,
Cumtiative
effects ofchanges
inaccounting
principles
. .
. .
.
8,774,299
8,819,577
288,506
8,531,071
1,212,961
(5,717,351)
$17,095,958
9;858;058
7,237,900
325,494
6,912,406
1,882,962
(5.143,743)
4,026,681
1.479,824
$
3,651,625
1,367,816
2,546,857
—
2,546,857
257,163
2,283,809
(284,611)
1,999,198
—
Netincome
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
. . . . .
$
2,804,020
$
1,999,198
Earnings per common share:
Income before extraordinary
item and cumulative
effects of changes
inaccoonting
principles
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
Extraordinary
item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
Cumulative
effects ofchanges
in accounting
principles
. .
Netincome,
, . . . . . . . . . . . . . . .
. . . . . . . . . .
. . . . . .
. . . .
.
$
1.11
(0,14)
$
$
1.28
—
0.13
1,41
On August 21, 1995,
the Company
entered into an Agreement
and Plan of Merger and Reorganization
(the “Agreement”)
with Iowa Bancorp,
Inc.
(“Iowa Bancorp”
), and its wholly owned subsidia~,
Iowa Savings Bank, a federal
savings ba&.
located in Des Moines,
Iowa. The Agreement
calls for the Company
to acquire all outstanding
shares of Iowa Baucorp in
exchange
for a cash pa~ent
of $8,0 million, which is suhj ect to adjustment
in accordance with the terms of the Agreement,
The transaction
is subject
to approval
by Iowa Bancorp’s
stockholders
and to approval by the Office of Thrift Supervision.
3. STOCK
CONVERSION
On .kpril 9, 1993,
the Board of Directors
of the Association
tion account will be reduced annually to the extent that eli-
adopted a Plan of Conversion
(the “Conversion”)
to convert
gible account holders have reduced their qualifying
from a federally chartered mutual
savings and loan associa-
deposits,
Subsequent
increases will not restore an eligible
tion to a federally chartered stock savings bank with the
account holder’s
interest
in the liquidation
account,
In the
concurrent
formation
of a holding company
(the “Holding
event of a complete
liquidation
and only in the event of a
Company”).
complete
liquidation.
each eligible account holder will be
On September
20, 1993,
the Holding Company
received
entitled to receive a distribution
from the liquidation
subscriptions
for 1,917,625
shares of common stock at $10
account
in an amount proportionate
to the current adjusted
per share for subscription
proceeds
of $18,500,000,
net of
qualifying
bahmces
for accounts
then held,
costs of $676,250,
which wel-e reduced by $93,210
in fiscal
Subsequent
to the Conversion,
the Bank may not declare
year 1994.
or pay cash dividends
on or repurchase
any of its shares of
At the time of the Conversion
a liquidation
account
in an
common stock if the effect
thereof would cause stockhold-
amount
of $16,261,230
was established
for the benefit of
ers’ equity to be reduced below applicable
regulatory
capital
eligible account holders who continue
to maintain their
maintenance
requirements
or if such declaration
and pay-
account with the Bank after the Conversion.
The liquida-
ment would othercvise violate regulatory
requirements.
[31]
4.
SECURITIES
AND MORTGAGE-BACKED
SECURITIES
AVAILABLE-FOR-SALE
Securities and mortgage-backed securities classified as available-for-sale at September 30, 1995 and 1994 are as follows:
September
30, 1995
Amortized
cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
Securities:
U.S. Treasury and other Government
agency obligations
. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ..
$45,442,279
$
157,179
$ 87,473
Co~orate
obligations
. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. ..
Marketable
equity securities
. . . . . .
... .. . . . . .. ... .. .
Total
securities
.. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... ..
1,050,569
2:168,688
48,661,536
Mortgage-Backed
Securities:
Government National Mortgage Association
.. .. ... . .
Federal Home Mortgage Association Corporation
...
Federal National Mortgage Association,
... .. . . . . .. .. ..
Collateralized mortgage
obligations
. . . . . .. .. . . . . .
Privately issued mortgage pass-through
certificates
7,179,255
3,750,778
3,230,930
5,260,118
1,237,868
Total mortgage-backed
securities
.. .. .. .. .. ... .. .. .. .. .. ... .. ..
20,658,949
7,368
90,555
255,102
304,299
218,263
199,769
17,045
78,238
817,614
$45,511,985
1.057,875
2:259:243
62
—
87,535
48,829,103
.“
—
276
6,492
66,806
—
7,483,554
3,968,765
3,424.207
5,210,357.
1,316,106
‘
73,574
21,402,989.~
Securities:
L’.S. Treasury and other Government
agency obligations
Corporate
obligations
.. .. ... .. .. .. .. .. ... .. .. .. .... .. .. ... .. ... ... .. .
. . .
. . . . .. .. . . . . . . . ... .. .
.. .. .
\larketable
equity securities
. . . . . .. ... .. .. . . . .. .. ... . .
Total securities
.
.. .. ... . . . .. .. .. . .
. . . .. .. . . . . ... .. . . ..
Mortgage-Backed
Securities:
Government National Mortgage Association
. .. .. . .
Federal Home Mortgage Association Corporation
,.,.
Federal National Mortgage Association
. .. ... . . . . .. .. .
Collateralized mortgage
obligations
. . . . .. ... . . . .
Privately issued mortgage
pass-through
certificates
Total momgage-backed
securities
. . . . . .. . .
. . . .. .. ... .
$69,320,485
$1,072,716
$161,109
$70,232,092
September
30, 1994
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Appr;~~rmate
Value
Amortized
cost
$10,542,699
1,964,219
739,130
13,246,048
$ 55,962
—
38,750
94,712
$55,469
46,235
17,920
$10,543,192
1,917,984
759,960
119,624
13,221,136
~,gbs,o~l
5,074,410
3,985,373
5,604,716
1,442,199
247071.769
$37,317,817
2,641
189,703
151,082
791
78806
423,023
$517,735
152,471
30,385
4,203
330,206
—
7,815,241
5,213,728
4,132,252
5,275,301
1,521,005
537,265
23,957> 527
$656,889
$37,178,663
,
The amortized
cost value and approximate
fair value of debt securities by contractual maturity at September
30, 1995 are
shomm belom,. Actual maturities mill differ from original maturities due to certain borrowers having the right to prepav
obligations with or without penalty.
Dueinoneyear
or less . ... .. .. .. .. .. ... . ... .. .. .. .. ... . ... .. .. .. .. .. ... .. .... .. .. .. ... .. .. .. .. .. ..
Due after one year through five yrars . . . . .. .. ..
. . . .. .. .
. . . . .. ...
.
. . ..
Due after five years through ten years ... .. .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. ..
Dueafter
ten years .. ... .. .. .. .... .. ... . ... .. .. .. .. .. ... .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. ..
hIarketable
equity securities
.,.,...,.,.,
. .. ... .. .. .. .. .. ... .. .. .. .... .. ... .. .. .. .. .. ... . ... .. .. .
Amortizad
cost
$19,753,930
13.533,008
12.96.5,910
Approximate
Fair
Value
$19,791,501
13,622.109
12.916,250
240,000-
240,000
46,492,848
2,168,688
46.569,860
2,259,243
$48,661,536
$48,829,103
[32]
Mortgage-backed securities available-for-sale classified by type of interest payment and original maturity at September 30,
1995 and 1994, are shown below.
/
Adjustable
rate
. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ... . ... .. .. .. .. .. .. ... .. .
Ftied-rate,
5 year
. ... .. ..... .. ... ... .. ... .. .. .. .. .. .. .. ... .. .. .. .. ... . .
Fixed-rate,
15year
.. . .. .. .. ... .. .. . . .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. ..
Fixed-rate,
30year
~. . .... .. .. .. ... ... . .. .. .. .. ... .. .. .. .. .. .. ... .. .. .
Collateralized mortgage
obligations
.. .... .. .. .. ... .. .. .. .. .. .. .
Adjustable
rate
.. .. .. .. .. .. .. ... .. ... . .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .
Ftied-rate,
5yez
.. . . .. . .. .. ... . ... . .. ... .. . . . . .. .. ... .. . .
Fixed-rate,
7 year
. ... . . . . .. .. ... .. .. . . .. .. .. ... . . . .. .. .. ... .
Ftied-rate,
15year
. .. ... . . . . .. .. ... ..
. . . ... .. ..
. . . .. .. ..
Fixed-rate,
30 year
... .. .. . . . . ... . .. ... . . . . .. .. ... . . . . .. ..
Collateralized mofigage
obligations,
. .. .. ... .. .. .. .. .. .. ... .. ..
September 30, 19S5
Approximate
Feir
Value
Weighted
Rate
Amotiad
cost
$1,923,682
$2,000,015
469,123
1,186,790
11,819,236
15,398,831
5:260; 118
475,685
1,252,820
12,464,112
16,192,632
5;210;357
$20,658,949
$21,402,989
7.18°h
8.00
9.07
8.08
8.04
6.34
7.61?
September 30,1994
*P roximate
Fair
Value
Weighted
Rate
Amortized
cost
$2,276,003
$2,333,020
.
6.81°10
614,718
16,354
2,882,808
12,677,170
18,467,053
5,604,716
588,094
15,903
3,011,633
12,733,576
18,682,226
5,275,301
8.00
5.00
9.49
8.12
8.16
6.43
$24,071,769
$23,957,527
7.76%
\
\
Activities
related to the sale of securities available-for-sale
and mortgage-backed
securities available-for-sale
are summa-
rized as follows:
Proceeds
from sales ... .. . . . . .. .. ... . . . . . .. ... . . . . .. ... . ..
Gross gains on sales .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ...
Gross losses on sales
.. .. .. ... .. .. .... .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .
5.
SECURITIES
HELD-TO-MATURITY
Years Ended September
30
1995
$49,445,258
1,070,247
—
1994
$16,136,827
80,666
71,496
1993
$–
—
—
September
30,1994
Amortizad
cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Vaiue
U.S. Treasury
and other Government
agency obligations
.. .. ... .. .. .. .. .. . .... .. .. .. .... .. .. ... .. .. .. .. .
$18,000,000
+
$
—
—
$190,000
$17,810,000
There were no securities held-to-maturity
at September
30, 1995
During the period ending September
30, 1994,
there were no sales of securities held-to-maturity
or transfers of securities
between available-for-sale
and held-to-matiritY.
In May 1995,
the Company
reclassified
all securities,
including mort-
gage-backed
securities, previously
designated as held-to-maturity
to the available-for-sale
category.
The reclassification
was performed
after consideration
by management
of a pending regulatory policy clarification
in regard to the measure-
ment of interest sensitivity of floating-rate mortgage-backed
securities.
It was management’s
opinion that the pending reg-
ulatoq
policy clarification
provided
sufficient potential
risk to the market value of this @pe of security to warrant
reclassi-
[33]
fication of the securities held by the company
to the available-for-sale
designation.
The amortized
cost and approximate
fair value of securities and mortgage-backed
securities
that were transferred to the available-for-sale
category were
$77,832,845
and $78,948,854,
respectively,
6. MORTGAGE-BACKED
SECURITIES
HELD-TO-MATURITY
September
30,1994
Amortized
cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
Collateralized mortgage
obligations
.
. .
. .
. .
$47,917,370
$296,298
$1,045,869
$47,167,799
‘-
There were no mortgage-backed
securities beld-to-maturity
at September
30,1995.
Mortgage-backed
securities at September
30, 1994 consisted of collateralized mortgage-obligations
with a weighted aver-
age rate of 6.1370,
There was no activity related to the sale of mortgage-backed
securities held-to-matirity
for &e years ended September
30,
1994. During the period ended September
30, 1995, all mortgage-backed
securities were transferred to the available-for-
sale catego~
(see Note 5).
7. LOANS
RECEIVABLE
One to four family residential mortgage
loans:
Insured b~FHA orguaranteedbyl’.~
.
. . . . .. .. . . . . . . .. .. . . . . . . . .. ... . .
Conventional
.. .. ... .. . ... .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .... .. ... .. .. ..
Construction
.. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. ..
Commercial
andmtdti-family
real estate loans
. .
.
. . . .. ... .. . . . . .. .. ... . . .
Agricultural
real estate loans .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. ..
Commercial
business
loans
.. . . . . .. .. ... . . . ... .. .. . . . . ... .. .. ... . . . . . .. ... . .
.
Agricultural
business
loans
.. . . .
.. .. . . . .
. . .. ... . . . . .. .. ...
. . ... .. ..
. . . . ..
Consumer
loans ... .. .. .. .. . ... .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ..
September
1995
30,
1994
$
599,019
$
56,674,526
17,877,327
737418,931
7,021,264
8,172,989
11,905,367
13.007,467
748,983
54,413,516
10,247,875
59,920,149
8,063,734
8,930,949
7,784,275
10,597.790
Subtotal
.. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .. .... .. ... .. .. .. .. .. ... .. .. .. .... ..
188,676,890
160.707,271
Less: Allowance
for loan losses .. .. ... .. .. .. .. .. .. ... .. .. .. .... .. .. .. ... .. .. .. .. ... .. .. .. .. .. .. ..
Undistributed
portion of loans in process
. . . . .
. ..
. . . . .. .. ... .. . . . .. .. .. .
Deferred fees
. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. . ... ... .. .. .. .. .. .. .. .. .. ... .. .. .. .. ... .
1.649,520
8.071,693
404,176
1.+42,077
3,424,919
343,536
Total
-net
. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .
S17’8,551,501
$155.496.739
A snmma~
of The activity in the allowance
for loan losses is as follows:
Balance. beginningof
period .. .. ... . . . . .. .. . .
. . . . .. ...
ProvisioIl
.. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .... .. .. ... .. .. .. .. .. .. ..
Brookings
allowance
at acquisition
date...,,.,.,,,.,
. .. .. ... .
Less: Losses
charged against allowance . .. ... .. .. .. .. .. .. ... .
Years Ended September
1994
30,
1993
1995
S1.442,077
2.50,000
(+2,557)
{
,
$825,000
$600,000
105,000,
5173781
(5,7fJ4)
225,000
,
—
—
Balance.
tud of period
. . ... .. .. . . . . . . .. .. ... . . . . .. .. . . .
$1,649,520
~ $1,442,077
~
S825,000
[34]
Virtually
all of the Bank’s originated loans are to Iowa and SoUth Dakbta-based organizations. The Bank’s purchased
located, as a percentage of
loans tod approximately $78,760,000
total loans as follows: 1l% in Wisconsin, 7% in Minnesota, 5% in Iowa, 470 in South Dako@, 37. in New York and &e
remaining 14°A in fifteen atier states. me Bank’s purchased loans totalled $64,891,000
secured by properties located, as a percentage of totaf loans, as follows: 10% iu Wiscons~7 6% in Iowa, 5°A in South
Dako@ 4“/. in New York, 3% in Nebraska and the remaining 12% in tieen
at September 30, 1995 and=
fiecured by propefies
oher states.
at September 30,.1994 and were
The Bank originates Wd purchsa
commercial reai estate loans. These loans are considered by management to be of
greater risk of uncollecfiihty
$7,430,000
some~at
loans include appro~ately
1994, respectively. The remainder of&e commercial real estate portfolio is diversified by industry. The Bank’s policy for
reqaitig
due to the dependency on income production. The Bank’s commercial real estate
and $7,754,000 of loans secured by nursing homes at September 30, 1995 and
varies with the credit worthiness
collater~ and guarantees
of each borrower.
The amount of res~ctured
of non-accmfig
amo~t
and related party loans as of September
30, 1995 and 1994 were not significant.
The
‘
loans as of September
30, 1995 and 1994 were $726,000 and $734,000,
respectively.
8. REAL
ESTATE
OWNED
Real estate o~ed
. .. . . . .. .. ... .. .. . . . .. ... .. . . . . .. ... .. . . . . .. .. ... . . . . .. .. ... .. . . .
Less: Nowmcefor
losses ..~ .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .... ..
Total
. .. .. ... . . ... .. ... .. . . . ... .. .. ... . . . . .. ... .. . . . . .. ... .. . . . . . .. ... . . . . . .. ... . .. .
A summary of the activity in the allowance
for real estate owned is as follows:
Balmce,
begiting
of period .,..., . .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. .
Provision
. .. .. ... .. . . . . . .. ... . . ... . .. ... .. . . ... .. .. ... .. . . . .. .. .
Less: Losses
charged against allowance
... .. .. ... . .. ... . ...
Balance,
end of period
.. ... .. .. . ... .. ... .. . . . . .. ... .. .. . ... .. ..
9.
PREMISES
AND EQUIPMENT
September
30,
1995
1994
$48,418
—
$48,418
$
$
–
—
–
Years Ended September
1994
30,
1993
1995
$–
—
$
—
—
–-
$10,897
—
10,897
$89,653
9,600
88,356
$
–
$10,897
September
30,
1995
1994
Land . .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .... .. .. ... ..
$
446,547
$
446,547
Buildings and improvements
. ..
. . . . . .. .. ... .. . . . .. .. ... .. . . . .. .. ... .. . .
. . .. . . .
Furniture,
fixtures and equipment
.. .. . . .. .. ... .. .. .. .. .. .. ... .. .. .... .. .. ... .. .. .... .. .. ... .. ..
Total
. .. ... .. . . . . .. .. .. . .
. . . .. .. . . . . ... .. .. .. ... . . . .. .. ... .. . . . . .. .. ... . .
. . ..
. . .
Less accumulated
depreciation
. . . .. .. .. ... . . . . .. .. ... .. . . . . .. ... .. . . . . . . . . .
2,685,197
1,929,692
5,061,436
3,084,789
2,461,438
1,580,488
4,488,473
2.958,218
Total
. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. .. ... . .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. ..
$1,976,647
~
Depreciation
of premises and equipment,
included in occupancy
and equipment
expense, was $134,733,
$91,061,
and
$68,445
for fiscal years ended September
30, 1995, 1994 and 1993,
located on leased land. The lease requires annual payments
of $6,000
respectively,
One of the Bank’s branch offices
through fiscal year 2003 and has a purchase
is
option,
[35]
10. DEPOSITS
Balances by Interest Rate
Negotiable
orders of withdrawal
(NOW):
Variable
Passbook:
2,25-
4,70~o
Money market demand accounts:
Variable
Certificate
accounts:
Variable
Less than 3,00%
3.00y0 - 3.99~o
4.00y0 - 4.99yo
5.()()yo - 5.99%
6.00°h - 6,99~0
7.()()% - 7.99~o
8.000/.
-8.997.
97. and o~rer
September
30,
1995
1994
Amount
%
Amount
%
$ 15,535,519
J
9.070
$ 16,270,585
‘)
9.2%
12,112,476
‘;
14,836,337
“,
1,498,585
15,040
1,578,097
18,717,963
49,225,895
53,518,743
802,841
1,751,453
23200,048
7.1
8.6
0.9
0.1
0.9
10.8
28.6
31.2
0.5
1.0
1.3
9,256,724
~
16,248,089
1,047,792
753,709
17,335,624
57,170,385
40,046,055
12,060,297
1,779,710
~,744,858
2,452,879
&
j
J
~
5.3
9.2
0.6
0.4
9.8
32.6
22.7
6.8
1.0
1.0
1,4
76,3
100.0%
—
Total
certificate
accounts
Total deposits
129,308,665
$171,792,997
vi
/
73.3
134,391,309
100.0%
$176,166,707
Certificates
of deposit
in the amount
of $1 OO,OOOor more (jumbo
certificates)
total approximately
$6,957,500
and
$10,274,300
at September
30, 1995 and 1994,
respecti~ely.
A summary of certificate accounts by scheduled maturities at September 30, 1995,
is as follows:
1996
1997
1998
1999
2000
Thereafter
Variable
Less than 3.007.
3.00
4.00
5.00
6.00
7.00
8.00
- 3.99%
- 4.99yo
- 5.99yo
- 6.99%
- 7.99%
- 8.99y0
9.00y0 and over
$
941,607
$
556,978
$
3,051
1,573,203
—
12,169,250
5,633,310
4,894
766,490
30,059,351
14,8485341
3,684,236
118,185
598,542
–$–
—
6,839
$
–$
—
29,212,285
20,716,058
2,075,936
1,1+5,165
237,969
335.220
540,316
493,390
122.316
9,982
10,000
1,221,869
15,788
69>886
241,442
1,408,308
30,728
23,800
182,507
45,694
2,162
5,150
Total
— S 1,498,585
15,040
1,578,097
18,717,963
—
11,625
186,792
—
—
49,225,895
53,518,743
802,841
1,751,453
2,200,048
$75,072,252
$42,380,375
$8,004,867 @,362.713
$284,891
$203,567$129,308,665
A summa~-
of interest expense on deposit accounts
is as follows:
NOW accounts
.
.
.
.
Passbook
accoonts
. . .
. . . . .. ... . . .
.. ... . . . . . .. . . . . .
\loney market demand acco~ts
.,...,.,......,.,.,.,.,......,.,.,.,
Certificates
. . . .. .. .
. .
.. .. . . . . . . . .. .. . . . . . .. ... . . .
Years Ended September
30,
1995
1994
1993
$
295,930
276,665
440,393
77232,239
$
263,216
~08,-J16
473,246
5,157.564
$
25?>049
216.041
528,507
5,024,535
$ 8,2+5,227
$6,102,042
$6,026,132
[361
11.
ADVANCES
FROM FEDERAL
HOME
LOAN BANK
The Bank was indebted to the Federal Home Loan Bank of Des Moines
(FHLB)
on notes maturing
as follows:
September
30,
1995
1994
Amount
$–
31,200,000
8,200,000
10,200,000
200,000
200,000
200,000
898,388
—Y.
6,20
6,02
5.88
7.39
7.55
7.71
6.86
Amount
5.14%
$58,200,000
6.62
6.89
7.15
7.39
7.55
7.71
6.68
200,000
200,000
200,000
200,000
200,000
200,000
908,065
6.1370
$51,098,388
5.20yo
$60,308,065
The Bank has executed a blanket pledge whereby the Bank assigns,
transfers and pledges
to the FHLB and grants to the
FHLB a security interest
in all property now or hereafter owned. However,
the Bank has the right to use, comingle
and
dispose of the collateral
it has assigned to the FHLB.
LTnder the agreement.
the Bank must maintain “eligible
collateral”
that has a “lending
value” at least equal
to the “required
collateral
amount”,
all as defined by the agreement.
At September
30, 1995 and 1994,
the Bank pledged securities with amortized
costs of approximately
$22,500,000
and
$52.316,000
and fair values of approximately
$22,468,000
and $50,078,000
against specific FHLB advances.
In addi-
tion, certain loans are pledged as collateral,
12.
SECURITIES
SOLD UNDER
AGREEMENTS
TO REPURCHASE
At September 30, 1995 and 1994. securities sold under agreements to repurchase totaled $1,149,918
and $909,918,
respectively.
An analysis of securities
sold under agreements
to repurchase
is as follows:
Highest
lnollth.end
balmlce
.. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .
.A\.erage balance . .. .. .. ... . ... .. .. ... .. .... .. .. .. .. .... .. ... .. .. .. .... .. ... .. .. .. .. .. ... . ... .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .
Weighted
average iuterest rate during the period .. ... . . . . .. .. ..
. . .
.. ...
. . .
.. .. ... . . . .. .
Weighted
average interest rate at end of period . .. .. ... .. .. .. .. ... .. .. .. .. .. .. ... . ... .. .... .. ... .. .. .. .. .. .. .
Years ended SeDtember 30,
1995-
$1,312,411
$1,139,431
1994
$2,398,070
$2,042,876
5,300/0
5,75%
6.80%
4,?oyo
At September
30, 1995,
securities
sold under agreements
to repurchase had maturities
ranging from 2 to 15 months with a
weighted average maturih- at September
30. 199.5 of 8 months,
The Bank pledged securities with amortized
costs of approximately
$1,580,000
and $941,000
and fair values of
approximately
under agreements
to repurchase.
$1>603.000
and $921.000,
respectively,
at September
30, 1995 and 1994 as collateral
for securities
sold
EMPLOYEE
13.
~ro~it Sharing Plan - The profit-sharing
BENEFIT
PLANS
plan for sub-
la based on compensation,
Participant
benefits become
20
stantially all full-time
employees
provides
for the Company,
percent vested after three years of service and then increas-
at its option and subject
to a percentage
of emplo!-ee
earn-
es 20 percent each year until they are 100 percent ~~ested
ings limitation imposed by the Internal Re~,enue Code.
to
after seven years of service. ESOP expense w-as $358,613
contribute
to a trust created by the plan. Related expense
and $198.100
for the years ended September
30.1995
and
for years ended September
30, 1995, 199+ and 1993 was
1994.
$106.188,$113,343,
and $77,590,
respectively,
Emplou~ee Stock Oulnership Plan - A] I employees
Company which was used to purchase
153,410
shares of
meeting
age and service requirements
are eligible to p antici-
the Company
common stock. Through September
30,
pate in the Employee Stock Ovnership
Pla,l
(the “ESOP’-)
1995,
the ESOP has allocated to current and former partic-
The ESOP was capitalized with a $1,534,100
loan from the
established
in fiscal year 1993, Contributions made by the
ipants 56=690 shares.
Bank to the ESOP are allocated to participants
by a formu-
[37]
Incentive Compensation and Other Arrangements
-.
chase common stock of the Company
pursuant
to the option
The Bank has an incentive
compensation
plan (the “Plan”)
plan,
‘For *.
year ended September
30, 1995 options
in
for selected officers.
The Plan provides
for armud bonuses
based upon the achievement
of pre-determined
individual
3,50
d
of $20,0~~er
sharfi have been granted at an average exercise price
share and expire September
28? 2005
For
and Bank objectives.
The Bank’s policy is to fund incentive
the year ended September
30, 1994 options
on 172,
85
I
compensation
as accrued.
The totaf
incentive
compensation
shares h~ve been granted at an average exercise price of
expense was $93,400,
$125,000
~d
$58,140
for the years
$10.00
~ r share and expire September
20,2003.
No
ended September
30, 1995, 1994 and 1993,
respectively.
options h v. been exercised or have expired during fiscal
[
years 1995, 1994 or 1993,
The Bank has entered into employment
agreements with
certain executive
officers. Under the agreements,
in the
The Bank granted 4,794 and 70,952
restricted shares of
event of vohmta~
or involuntary
termination
of employ-
the Company’s
common stock on May 23, 1994 and
ment with the Bank and under specific
circumstances
(as
September
20, 1993,
respectively,
to certain officers of he
detailed in the agreements)
the officer would receive com-
Bank pursuant
to the recognition
and retention plan (the
pensation based on average annual compensation.
The
“Plan”).
The holders of the restricted stock have all of the
agreements
are in effect as long as the officer
remains
in the
rights of a shareholder,
except
that they cannot
sell, assi~m,
employ of the Bank.
pledge or transfer any of he restricted stock during the
restricted period,
The restricted stock vests at a rate of
Stock Option and Incentiue Plans - Certain officers
25~0 on each anniversary
of the grant date,
and directors
of the Bank have been granted options
to pur-
14.
INCOME
TAXES
The Company
is permitted under the Internal Revenue
Code (“the Code”
) to deduct an annuaf addition to a
reserve for bad debts in determining
taxable income
subject
to certain limitations,
The bad debt deduction
allowable
under this method equals 80/0 of taxable income determined
without
regard to that deduction
and with certain adjust-
in taxable
income
of later years if the bad debt
reserve is used subsequently
for purposes
other than to
absorb bad debt losses. Because the Company
does not
intend to use the resem-e for purposes
other than to absorb
losses, no deferred income taxes have been provided
in the
accompanying
consolidated
financial
statements.
Retained
ments. This addition differs from the bad debt experience
earnings at September:
30, 1995 includes approximately
used for financial
accounting
purposes.
Bad debt deduc-
$6,200,000
of such bad debt deductions
for which no
tions for income tax purposes
are included
deferred income
taxes have been provided.
Income tax expense
(benefit)
consists of the following:
Years Ended Sentember
. ...–.
–— –r
3d.
Current:
Federal
.
.
. .
. .
. .
.
. .
. .
.
State
. . . .. .. .. ... . . . . .. ... .. . . . . . .. ... . . . . . . . . .
.
. ..
.
,...
. . .
$1,9+6,687
$1,348,519
324.000
150.000
$
937,000
142,300
1995
1993
Deferred:
1.498.519
1.079”300
46,000
+.000
50,000
(59,700)
(5,300)
(65.000)
(30,000)
(+1000)
(34.000)
$2,.320,687
$1.433,519
$1.045,300
The ~;ompany’s
provision for income taxes is reconciled with the amount
of income tax computed
by applying the federal
statutory rate as follows:
Years Ended September
30,
1995
1994
1993
Taxat E”ederal rate
. . .
.. .. .. ... . . .
.. ..
. .
.. .. ..
. . . . .. .. .
. .
$1.995.000
$1,327.790
$
912.000
Increase (tiecreasc)
resulting from:
Baddebt
deductioI1 -net
. .. ..
. . .
.. .. ..
. .
.. ...
. .
. .. .
. . .
State income taxes - n~t of federal benefit
Excess of cost over net assets a. quired .,.,.,.........................,.,.,.,
Fair value of ESOP shares released
. .. .. ...
.
. . . . .. . . . . .
Otller.
net .. .. .. .... .. ... .. .. .. .... ... . ... .. .. .. .. .. . .... .. .. .... .. .. ... .. .. .... .. ... .. .. .
21+.000
4:3.000
+87000
20.687
(34.000)
99.000
21.279
—
19.+50
76,500
9+,000
—
(37.200)
Total
income tax expense
. .. . . . . . . . ..
.
. .
.. ... . . . . . .. .. . . . . .
$2,320.687
$1,433,519
$1.045.300
The tax effect of temporary
differences
that give rise to significant portions
of deferred tax assets and liabilities at
September
30, 1995 and 1994, are as follows:
Deferred w assets:
Reserve for losses on loans not currently deductible .. .... ... .................... ...
Deferred loan fees .. .... ... ............ .... ....................... .... ................... .... .... ...
Ma~ement
ticentive proWm . ....... ............ .... ... ........................ ... ........ J
Netunrealized
loss on securities available-for-sale
......... .... ...................
Other items
.............. ..... ............... .... .... ............... .... ....... ................ .... ....
Deferred tax liabihties:
Federd Home Loa Bdstock
... .... ................... .... ....................... ........ .
Net unrealized gain on securities available-for-sale
....... .... .... ....... ..........
Other ....................... .... ....................... ... .................... .... ................... ......
1995
1994
$228,000
$308,000
104,000
83,000
33.000
448.000
419,000
337,349
18,864
775.213
92,000
61,000
43,568
38,000
542,568
419,000
—
15,000
434,000
NetdefeITed tax asset (hdfi~)
.. ............... .... .... .... ........ ....... .... .... ... ......
$(327.213)
$108,568
Under APB No. 11, the provision for deferred income
taxes for fiscal year ending September
30, 1993 is as follows:
hterest
ondehqent
lores . .. .. . ... .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .... .. .. ... .. .. .. .. .. ... .. .. .. .... .. ... .. .
Cmhtoaccmd
mefiodadjustient
.... .. ... .. .. .. .. .. .. ... .. .. .. .... .. .. ... .. .. .. .. .. ... .. .. .. .... .. ..=. . .. .. .. .. .. ... ..
Deferred loanpardcipation
pretiums
. .. ... .. .. .. .... .. ... .. .. .. .. .. ..... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .
FHLBstock
dividend .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... . ... .. .. ..... .. .. .. .. . .. .. ... .. .. .. .. .. .. ... . ... .. .. .. .. ... .. . .. .... .. ..
Adjustientof
sectities
held forsdec.g
value . .... ............... .... .... .... .... ....................... .... ...
Deferred loan fees, net
.. .. .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. . ... .. ..
Write-down
ofrate
caps
............ .... ................... .... ... ................ .... .... ........................... ...............
Ofier. net . .... .. .. .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. . ... .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ..... .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. ......
Total deferred income tazbenefit
......... .... .... .... ............ .. ... ............... ..... ... ..... ....... ..... ..............
$(25,300)
34,300
(13,1X)
(24,300)
(5,600)
$(34.000)
15.
REGULATORY
CAPITAL
REQUIREMENTS
At September
30, 1995 the Bank’s
estimates
of its capital amounts and the capital
levels required under OTS capital
regu-
lations are as follows:
Actual
Requirement
Excess
Bank’s
stockholder’s
e~i@
. .. ... .. .. .. .... .. ... .. .. .. .... ..... .. . ... .. .. .. ... .. .. .. .
$35,036,349
Less unrealized holding gain on securities availdle-for-sale,
net..
Less intangible
assets
. . . . . .. . . . . . . . .. ... . . . .
.. ... .. . . . . . .. ... . .
Less phase-out
of investments
in non-includable
subsidiaries
.
(539:023)
(1,689,776)
(73+,448)
Tangible
capital
.. .. .. .. ... .. .. .. .. . ... .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. ..
$32,073,102
S3,890,652
$28,182,+50
Tangible
capital
to adjusted assets (1),.,...,
... .. . .. .. .. .... .. .. ... .. .. .. .. .. ..
12.37y0
/
l,so~o
10.87VO
Core capital
(Tier 1 capital)
. . . .
.. ...
. .
. . ... .. . . . . . ... . . . . . ..
$32,073,102
I
$7.781.304
S24.291.798
Core capital
to adjusted assets (l)
. .. .. .. ... . ... .. .. . ... ... .. .. .. .. .. .. ... .. .. .. ..
12.37yo
/
s:oo~o
9,37%
Core capital
. .. ... ... ... .. .. .. .. .. .... .. ... .. .. .. .. .. ... . ... .. ... ... .. ... .. .. .. .. .. .. ... .. .. ..
$32.073,102
Plus gerleral
loan loss allowances,,.,,,,,,...,,,...,....,.......,...,..............
Less assets requiredto
be ded~lcted . .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ... . .. ...
1,634,680
(~~,336)
Risk-based
capital
(Total
capital)
. . . .. .. . . . . . .
.. ...
. .
.. ...
. .
S33,633.4+6
$13,177,473
$20,+55,973
Risk-based
capital
to risk-weighted
assets (2)
.
.
. .
20,-f2Yo/
8.00%
12,42%
(1) Based on adjusted total assets totaling $259,376.80+.
(2) Based on risk-weighted
assets totaliug S164.718,+08.
[39]
The OTS, as the primary federal regulator of savings institutions, has broad supervisory
and enforcement
powers.
The
B~
is also subject
to regulatory ~d
supervisory
enforcement
authority under&e
Federal Deposit
Insurance Corporation
(FDIC) with respect
to certain activities
that may pose a risk to the deposit
insurance
fond. At periodic
intervals, both the
OTS and the FDIC routinely
examine the Bankis financial
statements as part of heir
legally prescribed
oversight
of the
satigs
and loan industry. Based on these exatninations,
the regulators
can direct
the Bank’s
financial
statements be
adjusted in accordance with their findings.
The Federal Deposit
Insurance Corporation
Improvement Act of 1991,
established
five regulatory
capital
categories:
well-capitalized,
adeqttately-capitahzed,
undercapitalized,
significantly
undercapitalized
and critically undercapitalized;
and authorized banking
regtdatory
agencies
to take prompt
corrective
action with respect
to institutions
in the three under-
capitalized
categories.
These corrective
actions become
increasingly more stringent as an institotionis
regulatory
capital
declines, At September
30, 1995,
the Bank exceeded the minimum requirements
for the well-capitalized
category as
shown in tie following
table.
Tier 1
Capital
to Adjusted
Total
Assets
Tier 1
Capital
to Risk-
Weighted
Assets
\
Total
Capital
to Rlsk-
Weighted
Assets
Actual
capital
.. .. ... .. .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .... ... .. .. .. .
$32,073,102
.~’,
$32,073,102
]
$33,633,446
J
Percentage
of adjusted assets .. .. .. .. .. ... .. .. .. .... .. .. ... .. .. .. .. .. .. ... .. .. .... .. .
12.37% /
Minimum requirements
to be classified well-capitalized
. .. . . ... .. .
5.00%
19.47%/’
6.00%
20.42%]’
10.00%
16.
COMMITMENTS
AND CONTINGENCIES
mitments d
conditional
obligations
as it does for on-bal-
In the normal
course of business,
the Bank makes various
ance sheet instruments.
cornrnitrnents
to extend credit which are not reflected in the
The Bank pledged securities with amortized
costs of
accompanying
consolidated
financial
statements.
At September
30, 1995 and 1994,
the Bank had loan
aPprofiatelY
values of approximately
$674657000
and $1074497000
~d
fair
$6,412,000
and $9,802,000
at
commitments
approtiating
$6,839,000
and $1,060,000,
September
30, 1995 and 1994 as collateral
for public
respectively,
excluding undisbursed
portions
of loans in
funds on deposit,
process.
Loan commitments
at September
30, 1995 include
The Bank also pledged securities with amortized costs of
commitments
to originate
fixed-rate
loans with interest
rates ranging from 7.75% to 11 .75Y.
totaling $551.000,
adjustable-rate
loan commitments with an interest rate of
7.75~0 to 9.507.
totaling $3,080,000
and purchase
approximately $999,000 and $592,000 and fair values of
approximately $1,006,000 and $578,000 at September 30,
1995 and 1994, respectively, as collateral for individual,
trust, and estate deposits.
adjustable-rate
loan commitments
of $3,208,000
with an
The Bank also pledged securities with an amortized cost
interest rate of 8.750/0 to 9.38°/0, Loan commitments
at
September
30, 1994 include
commitments
to originate
fixed-rate
loans with interest rates ranging from 8.757.
to
g.oo~o
totaling $237,500,
adjustable-rate
loan commit-
of approximately $690,000 and fair value of $691,000 as
collateral for other deposits at September 30, 1994. There
were no securities pledged as collateral for other deposits at
September 30, 1995,
ments with an interest rate of 6.500/0 to 8.250/0 totaling
The Bank had purchased interest rate cap contracts with
$822,500.
Commitments,
which are disbursed subject
to
certain limitations,
extend over various periods
of time.
Generally, unused commitments
are canceled upon expira-
tion of the commitment
term as outlined in each individual
contract.
The Bank’s
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 contract
tual amount of those instruments,
The Bank uses the same
credit policies and collateral
requirements
in making com-
at
a broker in the notional amount of $10,000,000
September 30, 1994, to reduce its long-term interest rate
exposure, The agreement provided for the Bank to receive
payments if the three month LIBOR rate exceeds a weighted
average protected rate of 12°L. During the year ended
September 30, 1994 and 1993, no payments were paid
under the interest rate cap contracts. This agreement
expired in fiscal year 1995,
utilized in fiscal years 1995, 1994 or 1993.
Interest rate swaps were not
17.
SALES
OF ASSETS
AND DEPOSITS
During the two years ended September
30, 1993,
the Bank
Loans held for sale, deposits and premises and equip
closed one branch office and consolidated
five others as part
ment with book values of $2,173,000,
S9.318,000
and
of management’s
long-tern
business plan.
$41,000.
respectively, were sold during the year ended
September
30.1993
resulting in a gain of $708,469.
[40]
18.
EXTRAORDINARY
ITEM
The Bank incurred prepayment
penalties
of $284,611,
net
Bank advances
of $4,000,000.
Such penalties vag
based
of tax benefits
of $167,000
for the y-ear ended September
on the remaining
term to maturity
(generally the closer the
30, 1993,
related to the prepa~ent
(with cash from opera-
advauce to maturity,
the less sibmificant
the penal~),
the
tiorrs) of primarily long-te-
fixed-rate Federal Home Loan
contractual
interest rate and *e
current borrowing
rate.
19.
FIRST MIDWEST
FINANCIAL,
INC.
(PARENT
COMPANY
ONLY)
FINANCIAL
INFORMATION
CONDENSED STATEMENTS OF FINANCIAL CONDITION
at Sentember 30.1995 and 7994
Cash and cash eqrrivalents
. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. ... ... ... .. .. .. .
Securities available.
for.sale
.. .. .. .. ... . ... .... .. .. ... .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .
Lomreceivables
from ESOP .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .
Other assets .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... . ... .. .... ... .. .. .. .. .. .. ... .
1995
$1,161,376
$
694,950
967,200
172,190
1994
415,412
235,625
1,186.000
463,297
Investment
in subsidiaries
.. .. ... .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ... .
34,497,327
32,493,650
Total assets .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .. ... . ... .. .. .. .. .. ... .. .... .. .. ... .. .. .. .. ..
$37,493,043
$34,793,984
.Accrued expenses and other liabilities . .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .... .. ... .. .. .. .. ..
$
19,370
$
11.588
Total
liabilities
... .. .. .. .. .. .. .. ... .. .... .. ... .. .. .... .. .. ... .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. ..
19,370
11,588
CoInl~lon stock . .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... ..
~ldditional paid. ill capital
. .. ... .. .. ... ... ... .. .. .. .. .. ... .. .. .. .. .. ... . ... .. .... .. ... .. .. .. .. .. ... ..
Employee Stock Ownership Plan . .. .... ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ...
Retairled earrlillgs . ... .. ... .. .. .... .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ...
Treasuw stock . .. .. .. .. .. ... .. .. .... .. .. ... .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ... .. .. .. .... ... .. .. .. .. .. ...
Llnrealizrd gain on securities available-for-sale,
net
.. .. .. .. .. ... .. .. .. .. ... .. .. . .. .. .
Total stockholders’
equih . .. .. ... .. .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ... . ... .. .. .. .. ... .. .. .. .. .
19.915
19,915
19;310,0+5
18,955,192
(967,200)
(1,186,000)
22,080,578
19,051,322
(3.002,207)
(2,070,177)
32,542
12 1~~
37,+737673
34,782,396
Total
liabilities and stockholders’
equity .. .. .... .. .. ... .. .. .. .. ... .. .. .. .... ... .. .. .. .. .
$37,*93,043
$3+.793,98+
CONDENSED STATEMENTS OF INCOME
for the years ended September
30, 1995.7994
and 7993
1995
1994
Dit-idend income
from the Bank .. .. .. .. ... . ... .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ..
hllerestincorne
.. .. .... .. .. ... .. .. .. .. .. ... .. .. .... .. ... .. .. .. .. .. ... .. .. .. .. ... .. .. .. .... .. ... .. .. .. .. ..
Gain on sale of securities available-for-sale
. . . . .. ... . .
olber
expeuscs
Iucomt before income taxe~ and equity in undi~tributed
t,arrllllgsofs~lbsldlarles
.
. ..
. .
. .. .
. .
. .. .
.
.
.
. .. ..
. . ... ..
S1.800,000
177,901
517250
(132.175)
l,g96,976
Itlcf)llletaxexperlse
.. .. .. .. .. .. ... .. ... ... .. ... .. .. .. .. .. ... .. .. .... .. ... .. .. .... .. ... .. .. .... ... .. .. ..
_.
50.000
blrolne before equity in undistributed
rarnings
of sub.sidiarics
. .
.. ..
. .
1,8+6,976
$4,500,000
$
~38,3~~
+6,342
(175.586)
+.609,113
——— .-
70,+82
+,538,631
1993
–
125+1
(5;)
1~,+8+
—
1~,+~+
Equily
(10ss) in undistributed
earniugs of subsidiaries
.
..
. .
.. ..
. . .
1.697,376
.—
~1.809,720)
1.3+0,02+
Net jllcome
. .. .. .. . .. .. ... .. .. .... .. ... .. .. .. .. .. .. ... .. .... .. .. ... .. .... ... . ... .. .. .. .. ... .. .. .. .. ... .. ..
$3,5+ +,332
$~,7~87911
$1.352,508
[+1]
—
‘,
.
CONDENSED STATEMENTS OF CA6H FLOWS
for ttseyeare -
September 30, 1995, 1994 and 1993
,.
CASH FLOWS FROM OPERAT~G
ACTIVITIES
:
Nettimme
.. ... .. .... .. .. .. .. ... .. .. .... .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. ...
$3,544,352
$.2,728,911
$
1,352,508
Eqoity
(1OSSJin undistributed
earnings of subsidiaries
.. .. . . . .. .
(1,697,376)
1,809,7{0
(1,340,024)
Amorttiationof
recognition
andretention
plan,.,
. .. .. .. .. ... ...7....
Gain on sale of securities available-f~-sale
. .. .. ... .. ... . .. .. .. ... .. .. .. .
(Increase) decrease in other assets . .. .. ... .. .. .. .. .. .. .. ... .. .. .. .. ... .. .. .. .
Increa]e
(decrease)
accmed
expenses . .. .. ... ... . .. .. .. ... .. .. .. .. .. .... . .. .
-
208,159
(51,250)
291,107
54,984
381,897
(46,342)
(463,297)
(82,764)
—
,
181,595
Netcash
flows from operathg
activities . .. .. .. .. .. ... .. .. .. .. .. ... .. .
2,349,976
4,328,125
‘
194,079
1995
1994
1933
CASH FLOWS FROM INVESTfNG ACTIVITIES:
Investment
in subsidiaries
.. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ..
Loanto ESOP .. ... .. .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ... .. .. .... .. .. .
Payment
onlomfrom
ESOP ... . .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. ..
Purchase
of securities availdle.for.sde
. .. .. .. .. ... .. .. .... .. ... .. .. .. .. ..
Proceeds
from sale of securities available-for-sale
.,.. ... .. ... . . . .
Acquisition
of assets and liabilities
. . . .. . . . . . .. .. ... .. . . . .. ... . . .
—
—
218,800
(617,562)
241,875
–
–
198,100
(333,550)
162,378
—
(9,929,443)
(9,250,000)
(1,534,100)
150,000
–
—
–
Net cash flows from investing activities . .. .. .. .. .. .. ... .. .. .. .. .. ... ..
(156,887)
(9,902,515)
(10,634,100)
CASH FLOWS FROM FINLNCING ACTIVITIES:
. ... .. ... .. . . .. ... ..
Proceeds
from stock issuance . .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. .
Stock issuance
costs .. .. .. .. .. .. ... .. .. .. .. .. .. ... . ... .. .. .. ... .. .. .. .. .. ... .. .. .. ...
Dividends
paid .. .. .. .... ... .. .. .. .. .. ... .. .. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .
Purchase
of treasuq
stock .. .. .. ... .. .. .. .. .. .. ... .. .. .. ... .. .. .. .. .. .. ... .. .. .. .
—
(515,0;)
(932,030)
—
:
(2,070,177)
19,176,250
(676,250)
–
—
Yet cash flows from financing
activities . .. .. .. .. ... .. .. .. .. .. .. ... .. .
(1,447,125)
(2,070,177)
18,500,000
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR..
745,964
415,412
(7,644,567)
8,059,979
8,059,979
—
CASH AND CASH EQUIVALENTS
AT END OF YEAR . .
.
$1,161,376
$
415,412
$8,059,979
20.
SELECTED
QUARTERLY
FINANCIAL
DATA
(UNAUDITED)
FISCAL YEAR 1995:
Total
interest
income
. .
.
.
. .
.
$5,202> 586 {
$5,558,039;
$5,162,491
~
$5,130,354{
December 31
March 31
Juna 30
September
30
Quarter Ended
Total
interest expense
. ... . . ... .. ... . . . . ... . . . . ..
2,815,729
,
3,154,619:
Net interest
income
.. .... .. .. ... .. .. .. .. ... .. .. .. .. .. ... .. ....
Provision forlorn
losses . .. ... .. .. .. .. ... .. .. .. .. .. ... .. .. ..
Net incolne . .. .. .. ... .. .. .. .. .. .. ... .. .. .. ... .. .. .. .. .. ... . ...
2,386,857
30,000
$
776,494,
2,403,420
30,000
~
j
2,897,007
2,265,484
J
I
2,7817369
.,,
2,348,985,
130,000
:
60.000
:
$
774,220
$1.262,075
$
731,563
Earnings per share (fully diluted):
Income before cumulative
effect
of changes
in accounting
principles
. .. ... . . . . .. .
Cumulative
effects of changes
in
accounting
principles
.. .. ... .. .. .... ... .. .. .. .. .. ... .. .. .. .
$0,43
,
$0,4+
/
$0.72
$0,41
Net income .. .. .. ... .. .. .... ... .. .. .... .. ... .. .. .... .. ... .. .. .
$0.;
$0.L
$0.77
z
~
$0,;
FISC;AL YEAR 1994:
Total
interest
income
. .. . . . . . . .. . . . . . .. ... . . . . ..
Total
interest expense .. .. .. . . . . .. .. ... .
.
.. . . . ...
Net interest
income
.. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. ... .. ..
Pro\.ision forloan
losses . .. .. .. .. ... .. .. .. .. ... .. .. .. .. ... ..
Income before cumulative
effect
$2,741,732
1,355:277
1,386,455
—
$2,894,417
1,211,200
1,683.217
255000
$4:506,061
2,169,440
2.336.621
—1
of changes
in accounting
principles
...,...,,.,,,.,..
382.994
601,972
844,?65
(cumulative
effects of changes
in
accounting
principles
.. .. .. ... .. .. .. .. .. ... .. .. .. .. ... . ... .
257,163
—
—
$5,010,481
2,546:57?
2,463.904
80,000
642,017
,
Netirlcome
.. .. .. .. .. ... .. .. .. .. ... .. .. .. .... ... .. .. .. .. ... .. .
S
640,157,
S
601,972
$
844.765
;
$
642,017
!
q
FISCAL YEAR 1993:
Total
interest
income
. . . . . .. ... .. . . . . ... .. . . . ...
$3,159,406
$2,930,886
$2,836,864
Total
titerest
e~ense
.,.,...,
. .. .. ... .. .. .. .. .. .. .. ... .. .. ..
Nettiterest
ticome
.. ... . ... .. .. .. .. .. ... . ... .. .. .... .. ... .. ..
Provision forlorn
losses . .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. .. .
Income before extraordinary
items..,...,......,.,.,.,
Extiaorti~
item . .. ... .. .. .. .... .. .. ... .. ... . .. .. .. ... .. .. .
1,878,482
1,280,924
50,000
278,581
—
1,728,919
1,201,967
150,000
563,547
(284,611)
1,458,187
1,378,677
25,000
453,882
d
J
~
$2,658,764~
1,443,680
1,215,084
‘
~
—
341,109
Netticome
... .. .. .. .. .. .. ... .. .. .. .... .. ... .. .. .. .. .. .. ... .. .
$
278,581
$
278,936
$
453,8;
$
341,1ti
21.
FAIR VALUE OF FINANCIAL
INSTRUMENTS
Statement
of Financial Accounting
Standards No. 107, Disclosures About Fair l’alue
of Financial
Instruments,
requires
that the Company
disclose
estimated fair value amounts
of its financial
instruments.
It is managements
belief
that the fair
values presented below are reasonable
based on the valuation techniques
and data available
to the Company
as of
September
30, 1995 and 1994, as more fu~y 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 reahzed for the financial
instruments
presented cotid be substantially
different when actually recognized
over time through the normal
course of
operations.
value. Neither of these components
Additionally,
a substantial
have been given consideration
in the presentation
capitalization
of fair values below.
portion of the Comp any’s inherent value is the Bank’s
and franchise
The following
presents the carrying value and fair value of the assets and liabilities held by the Company
at September
30,
1995 and 1994,
Tks
information
is presented solely for compliance with SFAS No, 107 and is subject
to change over time
based on a varie~ of factors.
C;ay::g
1995
Approximate
Fair
Value
Cy-r:g
1994
Approximate
Fair
Value
SELECTED ASSETS:
Cash (including
short-term investments),.,.
.
$4,615,712
$4,615,712
$ 6,430,235
$6,430,235
Securities available-for-sale
.. .. ... .. .. .. .. .. .. . .. .. .. .. .. .
Mortgage-backed
securities available-for-sale
,.,
48,829,103
21,402,989
48,829,103
21,402,989
Securities held-to-maturi~
.,...,.,..,.,.,.,.,.,.,,..,,.,.,
Mortgage-backed
securities held-to-maturity
—
—
—
13,221,136
23,957:527
18,000,000
47,917,370
13,221,136
23,957,527
17,810,000
47,167,799
Loans
receivable,
net
. . . . . .. . .
. ... .. ... . . . . . ..
178,551,501
181,147,759
155,496,739
151,968,998
Federal Home Loan
Bank stock .. .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. .. .. .. .. .. ... .. ..
SELECTED LIABILITIES:
Deposits:
32915,300
/
“)
3,915,300,
31015,500
;
3,015,50Q’
NOW checking
accounts,
. .. .. ... .. .. .. .. .. ... .. .. .. .. .. .
$15,535,519
$15,535,519
$16,270,585
Passbook
accounts
...,.,.,..........,.,.,.,.,........,.,.,,,
klarket
rate savings account
s.. ... .. .. .. .. .. .. ... .. .. .
12,112,476
14,836,337
12,112,476
14,836,337
9,256,724
16,248.089
$16,270,585
9,2~6,72~
16,248,089
Certificates
of deposit
. .. ... .. .. .. .. .. .. . .. .. .. .. .. .. ... .. .
129,308,665
130,292,108
134,391,309
134,376,913
Total deposits .. ... .. .. .. .... .. ... .. .. .. .. .. .. ... .. .. .. .. .. ..
171,792.997
172>776,440
176.166.707
176.152.311
Advances
from Federal Home Loan Bank . . . . ..
Other borrowtigs
. .. .. ... .. .. .... .. .. .. ... .. .. .. .. .. ... .. .. .. ..
51,098.388
1,149.91{
.51,123, +67
60;308,065
60.382,944
l,14?,622~
909,918
898,842
OFF-BAL.KNCE
SHEET INSTRLN~NTS:
Commitments
. ... .. .. .. .... .. .. .. ... .. .. .. .. ... .. .. .. . .. .. .. .. .
S 6.839,000
$ 6,839,000
$ 1,060,000
$ 1,060,000
[43]
The foHowing sets f~
financial
Company’s
he m;thods and tisumptions used in determiningg the fair vrdue estimates for the
irtsments
at Septetii
30,1995
and 1994.
Cash and Shor& Term Investments - The book value
Bank’s
long-term relationships with its deposit
custome~s
of cash and short-term investment
is assumed to approxi-
(core value of deposits
intangible)
since such intangible
is
mate the fair value of such assets.
not a financial
instrument
as defined under SFAS No. 107.
Securities - Quoted market prices or dealer qnotes were
Aduances from Federal Home Loan Bank - The fair
used to determine
the fair value of securities available-for-
value of such advances was estimated by discounting
the
“
sale and held-to-maturity,
Mortgage-Backed Securities - For mortgage-backed
securities available-for-sale and held-for-maturity,
the
Bank has utilized quotes for similar or identical securities in
an actively maded market, where such a market exists, or
has obtained quotes from independent security brokers to
determine the fair value of such assets.
expected future cash flows using current
interest rates as of
September
30, 1995 and 1994,
for advances with similar
terms and remaining maturities.
Securities Sold Under Agreements
to Repurchase -
The fair value of securities
sold under agreements
to repur-
chase was estimated by discounting
the expected future
cash flows using derived interest rates approximating mar-
ket over the contractual maturity of such borrowings.
Loans Receivable - The fair value of loans receivable was
estimated by discotmting the future cash flows using the
current rates at which similar loans would be made to bor-
Commitments
- The commitments
to originate and pur-
chase loans have terms that are consistent with current
rowers with similar
credit ratings and for similar remaining
market
terms, Accordingly,
the Bank estimates
that the
maturities. When using the discounting method to deter-
face amounts
of these commitments
approximates
amor-
mine fair value,
loans were gathered by homogeneous
tized cost,
groups with similar terms and conditions
and discount~at
a target rate at which similar loans wodd
be made to bor-
Limitations
- It must be noted that fair value estimates
rowers as of September
30, 1995 and 1994.
The fair value
are made at a specific point
in time, based on relevant mar-
of bans held for sale is determined
by outstanding
pmmit-
ket information
about
the financial
instrument.
Addition-
ments from investments
or current
investor yield require-
ally, fair value estimates are based on existing on- and off-
ments calculated
on an aggregate
loan basis,
In addition,
balance
sheet financial
instruments without attempting
to
wh~
computing
the estimated fair value for all loans,
estimate the value of anticipated
future business,
customer
allowances
for loan losses have been subtracted
from the
relationships
and the value of assets and liabilities
that are
calculated
fair value for consideration
of credit
issues,
not considered
financial
instruments.
These estimates do
not reflect any premium or discount
that could result from
Federal Home Loan Bank Stock - The fair value of
offering the Company’s
entire holdings
of a particular
such stock approximates
book value since the Bank is able
financial
instrument
for sale at one time. Furthermore,
to redeem this stock with the Federal Home Loan Bank at
since no market exists for certain of the Company’s
finan-
par value.
cial
instruments,
fair value estimates may be based on judg-
ments regarding
future expected loss experience,
current
Deposits
- The fair value of savings deposits were deter-
economic
conditions,
risk characteristics
of various
financial
mined as follows:
(i) for passbook
accounts, market
rate
instruments,
and other factors.
These estimates are subjec-
savings accounts
and NOW checking
accounts,
since such
tive in nature and involve uncertainties
and matters of sig-
deposits are immediately withdrawable,
fair value is deter-
nificant
judgment
and therefore
cannot be determined with
mined to approximate
the carrying value (the amount
a high level of precision.
Changes
in assumptions
as well as
payable
on demand);
(ii)
for certificates
of deposit,
the fair
tax considerations
could significantly
affect
the estimates.
value has been estimated by discounting
expected future
Accordingly,
based on the limitations
described
above,
the
cash flows by the current
rates offered on certificates
of
aggregate
fair value estimates are not intended to represent
deposit with similar remaining maturities.
In accordance
the underlying
value of the Company.
on either a going
with SFAS No. 107, no value has been assigned to the
concern or a liquidation
basis,
RECENT
ACCOUNTING
22.
Accounting bj- Creditors for Impairment of a Loan -
In hlay 1993. theFinancial Accounting
(FASB)
issued SFAS No. 114. Accounting
Standards Board
STATEMENTS
by Crrditorsfor
ized as well as collateralized,
except
large groups of smaller-
balance homogeneous
loans that are collectively
evaluated
for impairment,
loans that are measured at fair value or at
Impairrrrrnt
ofu Loan.
SFA6 N{). 114, as amended by
the lower of cost or fair value,
leases, and debt securities as
SFAS No, 118. Accounting
by Creditors
for
Irnptsirnzent
of a
defined in SFAS No. 115, Accoarltingfor
(Uertain
Loan
- Into/ne Recognition
and Disclosure
in October
1994,
Inl,estrnents
in Debt and Equit}-
Securities.
SFAS No. 114
is applicable
to all creditors and to all loans, uncollateral
-
aPPlies to all loaIls that are restructured
in a troubled
debt
[44]
restructuring
involving
a modification
of terms. SFAS No.
identifiable
intangibles
and goodwill.
This statement does
114 requires
that impaired assets which are within the
not apply to core deposit
intangibles
or mortgage
and other
scope of this Statement be measured based on the present
servicing rights. The provisions
of this statement
require
value of expected future cash flows discounted
at the loan’s
that long-lived
assets and certain identifiable
intangibles
to
effective
interest rate or, as a practical
expedient,
at the
be held and used should be reviewed for impairment when-
loan’s observable market price or the fair value of the col-
ever events or changes
in circumstances
indicate
that dre
lateral
if the loan is collateral dependent.
carrying amount of an asset may not be recoverable.
In
performing
the review of recoverability,
the provisions
of
SFAS No. 114 amends SFAS No. 5, Accounting for
SFAS No. 121 require tie estimation of the expected future
Contirsgerrcie~,
to clarify that a creditor
shotdd evaluate the
cash flows (undiscounted
and without
interest charges)
to
collectibili~
of both contractual
interest and contractual
result from the use of the asset and its eventuaf disposition
principal
of all receivables when assessing dre need for a
with an impairment
loss recognized
if the sum of such cash
loss accrual.
This Statement also amends SFAS No. 15,
flows is less than the carrying amount
of the asset. SFAS
.4ccounting by Debtors and Creditors for Troubled Debt
No. 121 is effective for fiscal years beginning
after
Re~tructurirrgs, to reqtiie
a creditor
to measure all loans
December
15, 1995,
or effective as of October
1, 1996,
for
that are restructured
in a troubled debt restructming
the Company. Management
of the Company has not deter-
involving
a modification
of terms in accordance with this
m’med the time period in which to implement
the provisions
Statement,
of SFAS No. 121 and does not believe such adoption of
SFAS No, 121 will have a material
effect on the Company’s
SFAS No. 114 and SFAS No. 118 applies to financial
state-
financial position or results of operations.
ments for fiscal years begiming
after December
15, 1994.
The Company
does not believe the effect of these statements
Accounting for Mortgage Seruicing Rights - In Mav
will have a significant
impact
on its financial
statements.
1995,
the FASB issued Statement
of Financial Accounting
Disclosure of Certain Significant Risk? and
Uncertainties - In December
the Accounting
1994,
Standards No. 122 (SFAS No, 122) entitled Accountingfor
,Mortgage Servicing Rights, SFAS No. 122 amends SFAS
No, 65, Accounting for Certain Mortgage Banking
Standards Executive Committee
issued Statement
of
Operations by eliminating
the distinction in accounting
for
Position 94-6 (SOP 94-6)
entitled Disclosure of Certain
mortgage
servicing rights depending
on whether
the loan
SignE~cant Risks and ~~rtcertuinties. The disclosures
was originated by the semricer or purchased.
SFAS No, 122
required by SOP 94-6 focus primarily
on risks and uncer-
requires mortgage
servicers
that sell or securitize
loans and
tainties that could significantly
affect
the amounts
reported
retain the servicing rights to allocate the total cost of the
m the financial
statements
in the near term or the near-
loans to the servicing rights and loans based on their fair
term functioning
of the reporting
enti~.
The risks and
value if practicable
to estimate.
If not practicable,
the cost
uncertainties
this SOP deals with result from the nature of
of acquiring
the 1oans should be allorated to the mortgage
the entity’s operations,
from the necessary use of estimates
loans only. Purchased mortgage
semticing rights are mort-
in the preparation
of the entity’s
financial
statements,
and
gage servicing rights that have been purchased
from other
from significant
concentrations
in certain aspects of the
parties. Originated mortgage
servicing rights generally rep-
entity’s operations.
This disclosure
requirements
of the
resent the mortgage
semicing
rights acquired when an insti-
SOP in many circumstances
arp similar to or overlap the
tution originates and subsequently
sell mortgage
loans but
disclosure
requirements
in certain pronouncements
of the
retains the servicing rights. Currentl~,
only purchased
F.4S13 and the Securities and Exchange Commission.
The
mortgage
servicing rights are capitalized
as assets.
provisions
of SOP 94-6 are effective for fiscal years ending
EIowever, upon implementation
of SFAS .No. 122. origi-
after December
5, 1995. or effective as of October
1, 199.5.
nated mortgage
servicing rights must be capitalized
as
for the Company,
and for financial
statements
for interim
assets on a prospective
basis.
In addition, SFAS No. 122
periods
in fiscal
!-ears subsequent
to the year for w-hich the
requires all capitalized mortgage
servicing rights, both orig-
SOP is first applied.
Since this statement
requires only dis-
inated and purchased
to be evaluated for impairment
closures,
in most cases, having already been met by compli-
based on their fair values,
ance with other authoritative
pronouncements,
the provi-
SFAS No. 122 is effectivp for fiscal years beginning
after
sions of SOP 9+-6 will not affect
the Con
nancial
December
15, 1995.
or effective as of October
1.1996
for
pt)sition or results of operations.
Accounting for the Impairment of I
.~s;sets - In }Iarcb
the 1’inancial
1995.
S( andards Board (FAS13) issue(l Statenl,
Accoun~ing Standards No. 121 (SFAS i’
the Company, with earlier application
encouraged
and
retroactive
resi alemenl prohibited. The eft”ec[ of SF.kS No.
122 is dependent,
among other items, upon the volume and
type of loans originated,
the general
levels of market
inter-
est rates and the rate of estimated loan prcpa~rneuts.
Management
of the Company
is currently reviewing
the
‘ed
ng
ancia]
?utitled
..lc..rol~rtting for
th~ Irrlpairrrtent
tsf Lrsng-L ired .Asset~ artdfor
prol-isious
of this statement
to determine
its ilrllJltlllerltatit]rl
Lortg-Lire(/
A.s.sets to be Disposed
Ofi SF.4S No. 121 estab-
date and has not as of this date (Irtermiuerl
(he effect of
lishes accounting
standards
for the rerogniiiou
and mea-
such impletnentalior~.
suuemeu{ oi the impairment
of loug-lived
assets, certain
[45]
.
Accounting for Stock-Based Compensation - In
by Accounting
Principles Bu~etin Opinion No, 25. Entities
October
1995,
the FASB issued SFAS No. 123 entitled
electing to remain with the accounting
in Opinion 25 must
Accounting for Stock-Based Compensation. SFAS No. 123
make pro forma disclosures
of net income and,
if presented,
establishes
financial
accounting
and reporting
standards
for
earnings per share, as if the fair value based method of
stock-based
employee
compensation
plans. Those plans
accounting
defined in SFAS No. 123 had been applied,
include all arrangements
by which employees
receive shares
The accounting
requirements
of SFAS No. 123 are effec-
of stock or other equity instruments
of the employer
or the
tive for transactions
entered into in fiscal years that begin
employer
incurs liabilities
to employees
in amounts based
after December
15, 1995 while the disclosure
requirements
on the price of the employer’s
stock including
stock pur-
are effective
for financial
statements
for fiscal years begin-
chase plans, stock options and restricted stock, The
Statement defines a fair value based method of accounting
ning after December 15, 1995. Pro forma disclosures
required for entities that elect to continue
to measure com-
for an employee
stock option or similar equity instrument
pensation cost using Opinion No. 25 must include the
and encourages
all entities to adopt
that method of account-
effects of all awards granted in fiscal years that begin after
ing for all of their employee
stock compensation
plans.
December
15, 1994. Management
of the Company
is cur-
However,
the Statement also allow-s an entity to continue
to
rently reviewing the provisions
of this statement
to deter-
measure compensation
cost for those plans using the intrin-
mine the effect of implementation.
sic value based method of accounting
presently prescribed
RodneyG.
Muilenburg
Dairl- Specialist.
Siollx (Jity
Division
l’~lril]a
l’Iills.
S~orlll Lake.
Inc.
Iolva
for
Board
Steven P. Myers
Tire (:llairlrlan
Ofthe
ancl Senior \;ice
Prrsidcnt
First Nlidw-est
Finantial.
and Senior \Tice
President
for
t;irsl Federal
Sa~-ings Bank of
the \lidwest
Inr,,
E.Wayne Cooley
Exe(’llti\e
Secretary
J. Tyler Haahr
Partner
in the
Law Firnl
of
Iow-a Cirls- High
Lrwis
and Rota
School
.Atldetic
[nion
IIes Nloincs,
Iowa
IJ.IJ.P,
Phoenix, Arizona
E.ThurmanGaskill
Ow-nt’r
(Jrain Farnling
operation
(jor\\-ith,
Iow-a
James S. Haahr
of the
(lhairrnan
Board. President
af]d (;E()
for
First Nlidwest
Finail( ial.
and
First Federal
Sa~~ings Bank of
tile l’Iidwest
Inr.,
[+7]
.
From left to right:
I.[]ri(
1.
\\
illll,(ttl(L
IJIIII,II(I
,1. \\
i!l(ll(,ll
Irlll
\.
il(,
\(ll
-
h]i. {i
[.
l’11~
sl(, \lll
[’. \l\(,l.
.I;LIII(. >.
I Iilclllr
+11.tIII (’. \ iIII Si,l,lt
Iil(llclr(l
\. \\ ,11(1(
\l(lo(l\ \. III I(LI,I1(I:IIII
E.XEC;~JTIK7E
OFFI(;ERS
[+5]
—
ADDITION.~LFl~srrFRD~R.~LSAJTINCSBANK
OFFICERSiINDM.AYAC~JT~NT
Main Bank Office — Storm Lake,
Iowa
Barbara A. Kestel
Lxectltive Secretar}-
Dan B. Berglund
Assistarlt Secreti~l?
Brad A. Lenhart
\ssistallt
(;ontr’ollt;r
Treasurer &
Nyla Bertram
,f~ssistant Secrt, Lar~-
Savings
Other Bank Offices
Linda L. Groth
:Issistani Secretary-
,4ccotlnt Ser~ices
Cindy J. Pudenz
Relireruelli Plans
.4c11nirlistrator
Vicki D. Page
)icc;oul~r Semi[;cs
Supervisor
Carol A. Pierce
Regio[la I l’i(e Prcsi(lel]t
la~lrells off’i(’c
Virginia M. Thayer
Bran(l)
h~ana:er
oclcl)olt
office
Deb Baker
offic:e Sul]ervi$or
Storul
l.alie Plaza Office
Marlene M. Nimke
offi[:e Supervisor
Nlanson of’fi(;e
Karen Wailer
Regions
1 Jice Prt>,si(ient
Jlallson O[lice
Marilyn C, Wlnkel
13ran[;ll N1ana:er
Sac Citl O(fire
Laureen L. Snyder
Brau(}l Nianaper
1,ake View- office
Renae Babcock
offite S~lpervisor
ociebolt
offi(e
Kate Ellis
office SuperTi.sor
I.atlrells
Office
Charlene M. Kilbride
office S(lpervisor
( :itl- office
Sa(
Brookings Division
James C.Wlnterboer
Presiclellt
Brookiugs
l~ecleral
Robert L. Brooks
I;i(:e Prchiclcllt/
Set)ior
Br-ookiugs Fc(leral
lJOatI offi(-er
Jay M, Johnson
Issistant Vice Presiciftnt
Brookillgs Fccleral
John D. Heylens
loan offi[’er
Brookiugs Fe{ieral
Steve C. Almos
.Lssistant Vice Presi[letlt
:Igriclllttlral
I,otins
Brookings Fe(lt’ral
Cheryl A. Engel
(l~lsto~llf’r Service
Supervisor
Brookings Fecieral
Susan E. Schutt
Director of N1arketirlg
& Sales
Brookings
lJcclcral
[+9]
CORPORATEINFORMATION
Corporate Headquatiers
Financial,
First Midwest
First Federal Building
IIIC..
Fifth at Erie
P.O. Box 1307
Storm Lake,
Iom7a 50588
Annual Meeting of Stockholders
The Annual Meeting of Stockholders will convene at
1 p.m. on Tuesday-, Janua~ 23, 1996. The meeting will
be held in the Board Room of First Federal Savings Bank
of the Midwest, Fifth at Erie, Storm Lake,
low’a. Further
information
=ith regard to this meei ing can be found in
the proxy statement.
General Counsel
Mack. Hansen. Gadd, Armstrong
& Schiller, P. C,
316 P;ast Sixth Street
Storm Lake.
Iowa 50588
Special Counsel
Silver, Freedman & Taff
1100 Neti
}’ork Avenue NVi
w~ashington. DC 20005-393+
STOCKMARKET INFORMATION
Independent Auditors
Deloitte & Touche 1.1P
2000 First A“ational Cellter
Omaha., Nebraska
68012
desiring to change the name, address or
Stockholder Services and Investor Relations
Stockholders
ownership of stock, to rcpor-t lost certificates
consolidate
transfer agent:
should contact
accounts
or to
the colporatiorl-s
Registrar & Transfer Company
10 Commerce Drive
Crallford, New Jersey 07016
1-800-368-.5948
investors and others seeking a copy
Analysts,
of the Form 10-K or other public
should contact:
fi nauc,i al infolmlation
- Attention: Kristi L. Fre~-,
l~inancial, Inc.,
In~cstor Relations
First Midwest
First Frdcral Building.
P,(), Box 1307.
Storm Lake.
Telephone
712-732-4117
Io~va 50.588
fiifth at Erie.
First Midwest Financial.
Inc. “s common
using the cornrnon stock symbol
for our stock under
the abbreviation
‘-CASH-7.
stock is traded through the A-asdaq A-al ional Market Slsteru
informai
The 1~’all Street Journal p ~lblishes daily trading
ion
‘LFst\fidmFnl”’
in the Natiolla]
l’larket Listin~,
199+
p:ji(’nd
1995
~)~iend
Fiscal Year 199+
Fiscal Y-ear 1995
Low
High
Low
High
First quarter
. .
Second
quarter
. .
.
. N/A
. N/A
Third
quarter
. . . . . . . . . . . . . . . . N/A
l;ourth
quarter
.,,,,...,,,.,.
N/,1
$,075
$.()?5
$,075
$,o~~
$1+,25
S1:3,25
SI:3,00
S1+,2S
$17.()()
$15.75
$15.00
$16.50
S1+,25
S1+,25
S1+,25
S17,38
S16,00
s16,25
S17, F50
S21,75
As of September
30,
1995.
thrre were
1,7?4,025
shares
of common
stock
outstanding
which were held by
3+6 stockholders
of record.
and 176.09+
shares
subject
to outstanding
options.
‘rhe
stockholders
of record
munber
doeh not reflect
the persoui
or entities who hold [heir stock in nominee
or ‘“’street’” nalne,
As or September
First MirlIvcst Financial.
:30.1 ‘)95.
Inc.. stock:
the follo~ving srct~rities
firnls illdical etf They were actiIlg as markel makers
for
Iierzog. Heine, Geduld,
Inc.
John C. Kinuard & Co.
Keruper Securities Group Inc.
Mayer & Schweitzer
Inc.
Inc.
Piper Jaffl-a\ Companies
Rolbert \V. Baird & Co.l Inc.
ln[-.
Sterue. Agee & Leach
IIo~~re,Barnes & Johnsont
Inc.
[.5oj