Pathward Financial, Inc. Annual Report 1996

← All annual reports

FY1996 Annual Report · Pathward Financial, Inc.

Loading PDF…

Lorporate

First Midwest Financial,

Inc.

is the holding company for

First Federal Savings Bank of the Midwest and Security

State Bank. First Federal Savings Bank has its main bank

ofice in Storm Lake, Iowa and its 6 branch offices in a

four-coun~ area of Northwest

Iowa.

It also includes the

2 offices of the Brookings Federal Bank Division in

Brookings, South Dakota, and the Iowa Savings Bank

Division in Des Moines,

Iowa. Security State Bank, with

ofices in Stuati, Casey and Menlo,

Iowa, operates as a

commercial bank chartered by the State of Iowa.

The Company’s prima~ business is marketing financial

deposit and loan products to meet the needs of its retail

bank customers.

LaSalle St. Securities,

Inc., operating

through

First

Services Financial Limited, a subsidia~ of First Federal,

offers discount brokerage

service and non-insured

investment products.

PrimeVest

Investment

Center,

operating

through

Brookings Service Corporation,

a subsidiary of First

Services, offers full semice brokerage and a wide range

of non-insured investment products.

\
\

[

Financia

Highlights

At September30 ...............................

1992

1893

1994

1995

1996

(Dollars in Thousands except Per Share Data)

Total Assets ...... ........................

$171,030

$160,827

$274,115

$264,213

$388,008

Total Loans ..............................

74,561

80,224

155,497

178,552

243,534

Total Deposits ................... .......

147,289

122,813

176,167

171,793

233,406

Stockholders’ equity ..................

14,970

33,438

34,683

38,013

43,210

Book value per common share ..

NIA

16.82

18.69

21.19

22.21

Total equity to assets ............. ...

8.75%

20.79%

12.6570

14.39%

11.14~o

Ferthe Fiscal Yeer ............................

1992

1993

1994

19H
(Dollars in Thousands exe@ Per Share Data)

1995

Net interest income ............ ........

$4,609

$5,077

$7,870

$9,405

$ 10,359

Net income ................................

1,020

1,352

2,729

3,544

2,414(2)

Net income per share ................

N/A

$0.66(”

$ 1.37

$ 1.99

1.34’2’

Netyield oninterest-earning assets

2.637.

Return on average assets ...........

Return on average equity ..........

.57%

7.08%

3.21~o

.84’%

7.10~o

3.94yo

1.2970

7.89%

3.63?’o

1.31yo

3.47%

.767’0(2]

9.867.

6.18% ’21

(1) Net income per share is based on the assumption that tbe weigbted average shares outstanding at September 30,

1993, were outstanding tbe entireyear.

(2) Ref7ects the one-time industiy-m”de special assessment to reapitulize tbe Savings AssociationInsuranceFund.

TotalASSIMS

MetIncome
~

TotalDeposits

NetkuerestIncome

All fi”guresindiute dollar amounts in tbosssands

On September 30, 1996, First Midwest ~inancial ItIc. acquired Security State Bank, the subsidiary of Cemcal Wr%t

Bancorporation.
In conjunction with this~acquisition, First Midwest, which was originally formed as a unitary savings
and loan holding company, was convert+d to a bank holding company. Security StatE Bank’s asaots at the time of
acquisition were approximately $33 milli~n. As a separate subsidiary of First Midwest, Security State Bank continues

to operate as a commercial bank chartere+ by the State of Iowa, with offices irrStuam Casey and Menlo, Iowa, Claude
continues to serve as Presidaht of the bank. The acquisition of Security State Bank by First h&dwest
F. I-hick

facilitates more flexibility for growth in a@ukural

and commercial loans.

It was announced on October 18, 1996,’ that the First Midwest Board of Directors has authorized the Company to
repurchase up to 150,000
shares of its outstanding common stock. The Company intends to repurchase the shares
from time to time, depending upon markr$ conditions, over a twelve month period.

On October 28, 1996,
the First Midwbst Board of Directors accepted the resignation of Steven P. Myers, Vice
Chairman of the Board and Senior Vice president for First IWdwest Financial, Inc. and First Federal Savings Bank of
the Midwest. The Company benefitted frbm his past service.

On November 25, 1996, First Midwes~ Financial, Inc. announced an increase in the corporation’s quarterly cash

dividend from 11 cents per share to 13.5 cents per share. In additio~ the First Midwest Board declared a 50% stock

dividen~ which will pay First Midwest spdcholders one share for every two shares held on the record date. Both the

quarterly cash dividend and the stock di~idend will be payable on or about January 2, 1997 to stockholders of record
on December 16, 1996. We are pleased tb pay this increased cash dividend and a stock dividend to our stockholders.

OPERATING HIGHLIGHTS Net income for fiscal 1996, after the impact of a

one-time special assessment paid to the Federal

Deposit insurance Corporation (FDIC) to recapitalize the Savings Awociation Insurance Fund (SAW), was $24 million.
charge, net of tax, resulted from federal legislation passed and signed into law on September 30, 1996,
The $795,000
for each $100 of insured deposits held on
requiring all SAIF insured institutions to pay a one-time fee of $0.657

March 31, 1995 to restore the SAIF to its

statutory reserve level. Without
assessment,

this special
the Company’s net income for

fiscal 1996 would have totaled $3.2 million,
or $1.78 per share.

Beginning January 1, 1997, First Federal’s

annual deposit
reduced from $.23 per $100

insurance premium will be

of insured

deposits
Based on
insured deposits at September 30, 1996, First

per $100.

to $0.064

Federal will see its annual SAIF expense
result-
reduced from $478,000

to $133,000,

ing in after-tax savings of $216,000.

Earnings were enhanced during fiscal 1996 by

a 10 0/0 increase in net interest income. This

was due to a significant increase in the Company’s loan portfolio, which resulted from the acquisition of Iowa Savings
Bank, and the increased origination of consumer and agriculture-related loans. Net interest income will continue to be

enhanced in future periods by the acquisition of Security State Bank, which was completed at the end of the fiscal year.

Deposit balances totaled $233.4 million at the close of fiscal 1996, a 36% increase over the previous year. Lending

activity continued to increase during fiscal 1996, with originations of $90.6 million. At September 30, 1996,

the loan

portfolio balance totaled $243.5 million, which reflects a $65.0 million increase from the previous year. Total assets at
the end of fiscal 1996 were $388.0 million, compared to $264.2 million a year ago.

Stockholders’ equity at the close of fiscal 1996 totaled $43.2 million, a 14~o increase over the previous year, with
shares issued and outstanding. This increase indicates the Company’s strong earnings performance during
1,945,735

the fiscal year, in spite of the one-time special assessment, and reflects the issuance of additional shares in conjunction

with the acquisition of Security State Bank.

At September 30, 1996, First Federal and Security State Bank both significantly exceeded their regulatory capital

requirements.

LOOKING AHEAD First Midwest Financial,

opportunities to acquire savings banks, commercial banks, and other
related-service companies in our geographic areas. Each opportunity will be carefully evaluated and we will actively
pursue any that we believehave the potential to contribute to increasing value for our stockholders.

Inc. continues

to look for additional

With the rapidly expanding uses and availability of electronic technology, customers’ needs and expectations for the

delivery of financial services are also expanding. We will be responsive to any reas of change that are deemed to be
beneficial to the needs of customers and the interests of ou stockholders. At the same time, we are committed to

maintaining a competitive position in offering traditional bank products and delivering them with the high level of
quality service our customers have come to expect.

We are confident that our commitment to achieving profitable long term &owth will benefit you through a continued
increase in stockholder value, and we appreciate your support.

‘inm

JAMESS. HAAIU -
Chairman Of The Board, President& CEO
December 12, 1996

Firs

I Federal
>avmgs Ban

Creating

a more

customer-friendly

retail

bank environment

and increasing

internal

OF THE MIDWEST

operating

efficiencies

have been important

on-going

objectives

for First Federal.

Significant

improvements

are being seen in each of these areas, due primarily to a

series of capital

improvements made over

the last couple of years. A major

enhancement

to the bank’s data processing system, which was installed dwing fiscal

year 1995,

continues

to provide more productive

and efficient methods of operation

as management

and staff become more

adept

at various ways

to use this

technology.

The remodeling and redecorating

of the main bank office in Storm

Lake, most of which was completed at the end of last year, and the redecorating of

branch offices which was completed this year, have added comfort and convenience

for retail bank customers and to staff’s efforts to serve them more efficiently.

First Federal’s Agricultural Loan Department

continues

to compete

for quality

loans. Financing

and servicing

are available

for both start up and existing

operations of any size. This includes everything from short term operating loans,

to intermediate term loans for machinery and livestock,

to longer term loans for

agricultural

real estate. Other

types of commercial

loan services,

in addition to

those for agricultural, are also available at First Federal.

A strong emphasis on consumer

loan services, including home equity loans, makes

this particular product an important part of First Federal’s total

loan program.

addition, since consumer loans are used for such a wide range of needs by so many

different customer

segments,

they are a valuable link to cross selling other bank

products and services.

First Federal

continues

to offer all areas of home

lending,

including

new

construction,

purchase,

refinancing,

and home improvements,

as well as special

assistance loans through the Affordable Housing Program. All loan servicing is

done locally.

This includes handling payments

and responding

to customer

questions on their loan and escrow accounts.

First Federal

Savings

Bank of the Midwest

Main Bank Office:

Fifth at Erie, Storm Lake,

Iowa.

Richard A. Wehde

- Vice President

- Commercial/Agricultural

Loans, visits with Willard

Schmidt

and his sons Ryan and Rick Schmidt

at their

farm near Aka,

Iowa.

The Schmidts

farm

700 acres

of corn and soybean

rotation,

and Ryan feeds

up to 350 head of cattle

per year.

First

Federal

is pleased

to provide

financing

for their grain and Iivestockfarming

operation.

First Federal

is pleased

to assist

Scott

and Amy Bailey with a

mortgage

loan for the purchase

their home

in Storm Lake.

!
I

Deposit customers

can satisfy their needs at First Federal with a wide choice of

FDIC-insured accounts.

These include the traditional passbook savings account

and the Savings Starter Account

for young savers;

the First Federal Passcard

Account

for statement

savings;

the Daily Access Account,

a money market

type

account with limited access by check;

the Savings Plus Account, offering a higher

yield for higher balances; and a full range of cefificates of deposit.

;

First Federal’s Trust and Retirement Department has experienced personnel to help

meet customers’ needs in specialized areas. Trust services focus on the professional

administration and management of assets, which includes serving as executor

for

estates,

and handling

agency and conservatorship

accounts.

In the area of

retirement plans, First Federal

trustees tax-deferred IRA, KEO, and SEP plans with

a full range of investment choices. The Trust and Retirement Department

staff is

always attentive to any legislative actions that may impact

this area of service,

including several enhancements

in the area of qualified plans, scheduled to become

effective January 1, 1997.

FIRST SERVICES
FINANCIAL LIMITED ingthro.ghFir5tservice5

LaSalle St. Securities, Inc., operat-

Financial Limited, a subsidiary of First Federal, offers discount brokerage services

and non-insured investment products.

This provides bank customers with the

opportuni~ to expand their use of financial services in addition to traditional bank

products.

(These products are not FDIC-insured, nor guaranteed by First Federal

or any affiliates. )

FIRST FEDERAL
BOARD OF DIRECTORS

JAMESS. HAAHR

E. WmmE COOLEY

Chairman of the Board, President& CEO for
First Midwest Financial, Inc., and First Federal Savings
Bank of the Midwest

Executive Secretary, Iowa Girls’ High School Athletic
Union, Des Moines, Iowa

E. THURMANGASKILL

Owner, Grain Farming Operation, Corwith, Iowa

J. TYLER HAAHR

Partner in the law firm of Lewis and Rota L. L. P.,
Phoenix, Arizonu

RODNEY G. MUILENBURG

Dairy Specialist, Sioux City Division Purina Mills, Inc.,
-
Stow Lake, Iowa

Fall1996enrollment
Lake campus

totals

at Buana Vista University’s

Storm

1,1B8 students,

the highast

in the

history of the main campus.

Another

1,319 students

are

enrollad

at BVU Centers

throughout

Iowa.

The recently

completed

Information

Technology

Center houses Ballou

Libra~,
education

Stewart

Siebens Computer
Technology

and distance

Center,
links BVU faculty

and

classrooms,

studants

across

campus,

at BV

Centers,

and beyond

campus walls to p nts around the globe.

Jay Butterfield,

Owner

- Silk Screen

Ink, Storm Lake.

Silk Screen

Ink

specializes

in custom embroide~

and screen

printing

on wearables

and many other promotional

items.

First Federal

is proud to provide

commercial

checking

and lending

services

to Silk Screen

Ink.

Matt Korrel

enjoys

his jet ski

on beautiful

Storm Lake.

First

Federal

provides

consumer

loans for most any need.

Br(

)olmas
A/lslo 1 First Federal

is proud

of its 1

inkings Division and their contribution to the Company’s earnings since

they wc

~acquired in the Spring of 1994.

Brooki]

;$ Federal continues their commitment

to agricultural

lending, the results of

which i

~ evidenced by significant growth in their base of agricultural

customers

over th

l~st 2 years. This growth can be attributed to the bank’s active marketing

efforts

); new loan prospects,

their competitive posture in structuring loans for

various

~pes of ag financing, and their consistency in providing quality customer

service.

Brookings Federal also continues to seek qualiry commercial

loans for any

size bu~

IWS, in addition to those for agricultural and ag-related businesses.

Consu:

~r loans

is a very active

segment

of lending for Brookings

Federal.

Recogn

@g that relationship building is the key toward more profitable customer

househ

$s,

the Brookings Division actively cross sells other consumer banking

services

+ their consumer loan customers.

Brooki

~ Federal is an active home mortgage lender in their market area, including

constru

ion loans and permanent

financing,

as well as special assismnce

loans

for

first-tin

:~and low-income

home buyers.

Loan officers

the Brookings Division

have th

~xperience

to help make the process of home financing

a manageable

one,

even fo

first time buyers.

Deposi

insured

Plus, a]

offers 3

~ustomers

at Brookings

Federal have access

to a complete

line of FDIC-

~ccounts

including Statement

Savings,

“Money Market”

Savings, Savings

~certificates

of deposit

for a variety of rates and terms.

Brookings

Federal

~ersions of the Timeless Checking Account,

each designed with features and

benefit!

P meet the needs of different types of customers.

4’

i$t Federal
~:

Brookings

Federal

Benk,

a Division

Savings

Bank of the Midwest

600

Main Avenue,

Brookings,

South Dakote.

James

Hemmer

(center)

and his sons Brad, Jaff, Stava

and Mike

visit with Stave Almos

Agricultural

Loan Officer,

as his grandson

Brandon

looks on. Their

4,000 acre family

farming

operation

is located

25 miles south of Brookings

and includes

10,000 feeder

pigs, 450 stock

cows

and

l,500feeder

cattle.

This is one of many

area

farming

operations

financed

by Brookings

Faderal.

With financing

from Brookings

Federal,

OonDiebert

Counterparts,

and Jeff Jacobson
Inc.

in Brookingsr

- Owner.+
were

able to start

a new manufacturing

company

that produces metal parts for

information

display

systems.

South Dakota
in Brookings,

State University
South Dakota.

1996 Fall enrollment

on and off

campus

is 8,350.

BROOKINGS SERVICE
CORPORATION As an enhancement

to traditional

banking

service, PrimeVest

Investment Center, operating

through Brookings

Service

Corporation (a subsidiary of First Services Financial Limited), offers full brokerage

services with a wide range of alternative investment products.

(These products are

not FDIC-insured nor guaranteed by First Federal or any affiliates. )

BROOKINGS FEDERAL
ADVISORY BOARD

JAMES C. WJNTERBOER

President, Brookings Federal

O. DALE LARSON

FREDJ. RITI’ERSHAUS

VIRGJL G. ELLERBRUCH

Chairman of the Advisory Board
Owner, Larson Manufacturing

Vice Chairman of the Adviso~ Board
Consulting Engineer and Partner
Banner and Associates, Inc.

Assistant Dean of Engineering
South Dakota State University

Em R. RUE

Consulting Manager, Running’s

Mary

Jensen

- Customer

Sarvice

Represantative

at Larson

Manufacturing

- participates

in Preferred

Banking

Benefits,

Brookings

employaes

Federal’s

special
package
of Larson Manufacturing.

of banking

services

for
Tha company manu-

factures

and distributes

a line of energy-saving

storm doors.

Wth

the help of a consumer

loan from Brookings

Federal,

Steve

and Kami Jensen

- Brookings

- ere

enjoying

their new pickup

and camper.

Brookings

Federal

has provided

financing,

from construction

permanent,

for two blocks of new

homes

to the Volga Golf Course.

lowa Savings

Bank - currently

located

3624 Sixth Avenue

- Des Moines,

Iowa

owa

Savings Ban <

Iowa Savings Bank, Des Moines,

Iowa,

was acquired

by First Midwest

Financial,

DIVISION

Inc.,

on December

29,

1995,

and now operates

as a Division

of First

Federal

Savings Bank of the Midwest.

Jeanne Partlo’w, who was President and CEO of

Iowa Savings Bank prior to the acquisition, now serves as President of this Division

and also as a director of First Midwest Financial, Inc,

Iowa Savings Bank was one of the best capitalized financial institutions in the State

of Iowa.

They succeeded by carving out a market niche and doing well what

savings banks have traditionally done: making loans for single-family homes. Over

time, they established a very loyal base of customers. As a Division of First Federal,

Iowa Savings Bank gained the resources to expand their product

line which now

includes checking accounts,

consumer

loans, and some additional

types of savings

accounts and mortgage loans programs.

The bank is currently evaluating other

financial products and services to determine which would best serve the needs of

customers, and help to grow their customer base.

Plans are being finalized to open an Iowa Savings Bank office in West Des Moines

at the corner of 35th Street and Westown Parkway, a location formerly occupied by

Norwest Bank. Occupancy is anticipated early next year, following remodeling and

redecorating.

This new location will be a real asset

to the Division’s efforts to

increase

their

customer

base and to market new products

and services not

previously offered by Iowa Savings Bank,

IOWA SAVINGS BANK
ADVISORY BOARD

JEANNE PARTLOW

President, Iowa Savings Bank, Des Moines, Iowa

ROBERT J. KIRKE

SCOTTSTOUFFER

Propetty Manuger, Arnerus Properties, lnc,

Architect, StoufferSmith Architects PC

Future

location

- lowa Savings

Bank -

3438 Westown

Parkway

- West Des Moines,

Iowa

Savings

plans

and consumer

loans at

Iowa Savings

Bank

assist

customers

in achieving

their goals.

Leona Ross, Pella,

lowa,

enjoys

her new car.

Iowa Savings

Bank is pleased

to have provided

financing

for the Urbandale,

Iowa

home

of Joseph

and Kathleen

Fitzgerald

and their

family.

Howard

and Ardella

Goetz, Des Moines,

Iowa,

have been long-time

savings

customers

Iowa Savings

Bank.

Securi~

State Bank - Main Office

615 South Division

Street

in Stuart,

Iowa.

becurl
Sta

Security State Bank, Stuart, Iowa was acquired by First Midwest Financial,

Inc. on

September 30, 1996,

and now operates as a separate subsidiary of First Midwest.

The Stuart office is a new 4200

sq. ft. buildi;g located in a growing commercial

area. Branch offices in Casey and Menlo were established over 40 years ago.

As a commercial

bank, chartered

by the State of Iowa, Security State Bank’s

predominant

area of service is agriculture or ag-related business. Commercial,

consumer

and real estate business have been increasing as a percentage of total

business. Continued growth in these areas is anticipated as the bank is focusing on

increasing market share in their primary trade area.

Security State Bank serves most of its agricultural borrowers with variable rate,

revolving lines of credit. This loan product has been well received, due to the added

convenience

it offers for seasonal borrowing, which is typical

in farming or ag-

related businesses.

Security State Bank offers a full line of commercial bank deposit products including

service charge free checking accounts,

savings accounts,

“money market” savings

accounts, and certificates of deposit. The bank’s commitment

to friendly, personal

service is often cited as a primary

source of customer

satisfaction

and as an

important key to attracting new customers.

DIRECTORS OF
SECURITY STATE BANK

JAMES S. I-IAAHR

JEFFREY N. BUMP

E. WAYNE COOLEY

Chairman of the Board, President& CEO for
First Midwest Firumciai, Inc., and First Federal Savings
Bank of the Midwest

Partner, Bump and Bump Law Offices
Stuart and Panora, Iowa

Executive Secretary, Iowa Girls’ High School Athletic
Union, Des Moines, Iowa

E. THURMANGASKILL

Owner, Grain Farming Operation, Corwith, Iowa

J. TYLER HLAI-IR

Partner in the law firm of Lewis and Rota L. L. P,,
Phoenix, Arizom

CLAUDE F. H.AVICK

President, Security State Bank, Stuart, Iowa

RODNEY G. MUILENBURG

Dairy Specialist, Sioux City Division Pwinu Mills, Inc.,
Storm Lake, Iowa

,
i
,
I

1
,

,
I

Brothers

Charles

Shafer

and Wlliam

Shafer

- Owners

- Agri Orain Corp. near Adair,

lowa.

Agri Drain’s

business

includes

the manufacturing

of drain tile inlet screens,

The company

operates

out of a new 40,500

square-foot

building

with 50 full

time employees

and sells their product

in all 50 states, Canada, Mexico

and Australia.

Securi~

State Bank

provides

both short

term and long term financing

as part of the banking

services

available

to commercial

customers.

Michaelle
lowa,

Peterson

enjoys

of Ceseyr
her new car,

purchased

with a consumer

loan

through

Security

State Bank.

Security State Bank is pleased
provide

ag financing

to father

to
and

son, Gary and Vance

Cunningham,
1,600 acre grain farming

for their

operation

near Menlo,

lowa.

First Federal

Savinas Bank

OF THE MIDWEST

Office Locutions

STORMLAKE

Main Bank Office

Fifth at Erie, P.O. Box 1307

Storm Lake, Iowa 50588

712-732-4117

800-792-6815

Storm lake Plaza

1415 North Lake Avenue

l-wrens

104 North Third Street

Laurens, Iowa 50554

712-845-2588

Manson

Eleventh at Main

Manson,

Iowa 50563

712-469-3319

Storm Lake, Iowa 50588

Odebolt

712-732-6655

lake View

Fifth at Main

219 South Main Street

Odebolt, Iowa 51458

712-668-4881

Lake View, Iowa 51450

Sec City

712-657-2721

518 Audubon Street

Sac City, Iowa 50583

712-662-7195

B~m

FEosRAL DIVISION

600 Main Avenue

Brookings, South Dakota

57006

605-692-2314

800-842-7452

Eastbrook Branch

425 22nd Avenue South

Brookings, South Dakota

57006

605-692-2314

IOWASAVINGSSANK OIVISION

3624 Sixth Avenue

Des Moines, Iowa 50313

515-288-4865

Oflice Locations

S’NART

Main Office

615 South Division, P.O. Box A

Stuart, Iowa 50250

515-523-2203

800-523-8003

Casey

101 East Logan, P.O. Box 97

Casey, Iowa 50048

515-746-3366

800-746-3367

Menlo

501 Sherman, P.O. Box 36

Menlo, Iowa 50164

515-524-4521

(

S&ted Consolidated Financial Information

2%255

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8alactd Fsna!cid CenditionDatm
Total aSSetS
Loans

receivable,

net

available

. . . .. . . .. . . . .. ... . . . . . .. . .. . . . .. . . .. .. .. . . .. . . . .. .
for sale ........................................
Securities
Securities held to maturity ..........................................
Excess of cost over net assets acqtie~
net ................
......................................................................
Deysifi
Total kmoti~
........................................................
Shareholders’ equity ..................................................

Yaar EndadSa@mbar =,
(In Thonvzruk , Ekcept Per Share Data)
Saktad OperationsDatw
Total interest hcome ..................................................
Total interest expense ................................................
Net interest income ................................................
Provision for loan losses ........................................
Net interest income after provision for loan losses ....
Total norsinterestincome............................................
Total noninterest expense ..........................................

Income before income taxes. extraordinu

items and cumulative effect of changes in
accounting principles........................................
Income tax expense ..................................................
Extraordinary items— net of taxes............................
Cumulativeeffectof changesin accountingprinciples
Netincome ................................................................

Earnings per share (fully diluted):

Income before extraordinary items and

cumulative effect of changes in accounting
principles ..........................................................
Net income ............................................................

19W

1995

1s4

$388,008
243,534
109,492
—

5,091
233,406
106,478
43,210

$264,213

178,552

$274,115
15s,497

70,232
—

1,690
171,793
52~48
38,013

37,180
65,917
1,815
176,167
61218
34,683

$160,827

80~24

20
56,085
—

122,813
3,115
33,438

$171,030
74,561

20
87,401
—

147289
7,554
14,970

19M

1893

19W

$24,337

$21,054

$15,153

$11,586

$13,791

13,978

10,359

100

10,259

1,419

7,568

4,110

1,696

—
—

11,649

9,405

250

9,155

2,286

5,576

5,865

2,321

—
—

’105

7,765

1,078

4,938

3,905

1,433

—

257

6,509

5,077

225

4,852

1,555

3,725

2,682

1,045

(285)
—

3,544

2,729

1,352

9,182

4,609

4,559

1,047

3,995

1,611

591
—

1.34

1.99

1.24

1.37

0.80

0.66

—

Yaw EndadSaptalnbarm

1s86

1995

1894

19W

1992

8alactad I%arscialRatiosandOtharData:
PERFORMANCE FUTIOS:

Return on assets (ratio of net income

to averagetotal assets)(’)..................................

0.76%

1.31yo

1.29%

Return on stockholders’equity(ratio of net
incometo averageequity)(’)..................................
Interestrate spreadinformation:

Averageduringyear ........................................
End of year ......................................................
Net yield on average interest-earning assets ..........
Ratio of operating expense to average total assets

QUALITY RATIOS:

Non-performing assets to total assets at end of year
Aflowance for loan losses to non-performing loans

CAPITALRATIOS:

Shareholders’ equity to total assets at end of period
Average shareholders’ equity to average assets ....
Ratio of average interest-earning assets to

6.18

2.88

2.84

3.47

2.40

.70
89.04

11.14

12.45

9,86

3.13

2.85

3.63

2.06

.29

227.21

14.39

13.28

7.89

3,25

2.96

3.94

2.30

.34

148.51

12.65

20.52

0.8470

7.10

2.69

2.88

3.21

2.31

.78

65.42

20.79

11.83

().57~o

7.08

2.25

2.55

2.63

2.22

.23

239.04

8.75

8.00

average interest-bearing liabilities ... .................

112.58~o

111.35~o

119.04%

112.6970

107.18%

O~R

DATA:

Book value per common share outstanding ..........
Dividends declared per share .......... ......................
Dividend payout ratio ..........................................
Number of full-service offices.., .............................

22.21

0.44

30.90%
11

21.19
0.30

14.53%

18.69

—
—

16.82
—
—

—

(1) Return on assets and return on equity for fisal year 1994 u 1.17% and 7.54%, respectively,excluding the cumulative effects of changes

in accountingprinciples.

Management’s Discussion and Analysis

General

First Midwest Financial,

Inc. (the “Company”

assets

in 1993

are First Federal

is a bank holding

and loan holding

company
Savings
(“First Federal”) and Security
was
The Company
as a unitary non-diversified
on
company
acquired all of the capital stock
in connection with First Federal’s
to stock form of owner-

“First Midwest”)
whose primary
Bank of the Midwest
State Bank (“Security”).
incorporated
savings
September 20,1993,
of First Federal
conversion from mutual
ship. On September
became
with the acquisition of Security. AU references to the
Company
except
where otherwise indicated, are to First Federal and
its subsidiary on a consolidated basis.

1996,
a bank holding company

the Company
in conjunction

to September

prior

1993,

and,

20,

30,

area

focuses

includes

The Company

on establishing

primary market

of Adair, Buena Vista, Calhoun,

and
maintaining long-term relationships with customers,
and is committed to serving the financial
services
in its market area. The
needs of the communities
Company’s
the
Ida,
counties
Guthrie, Pocahontas, Polk and Sac located in Iowa,
central
and Brookings
South Dakota.
retail
from the general public and uses those
deposits
deposits,
funds,
to originate
and com-
mercial mortgage loans, and to provide financing for
consumer,
business purposes.

located
The Company

together with other borrowed

in east
attracts

and purchase

agricultural

commercial

and other

residential

County

tangible

market area. As such,
the Board of Directors has
adopted a business strategy designed to (i) maintain
the Company’s
of
(ii) maintain the quality of
regulatory requirements,
the Company’s
assets,
expenses,
Company’s
Company’s exposure to changes in interest rates,

(iv) maintain and, as possible, increase the
interest rate spread and (v) manage the

in excess

operating

control

capital

(iii)

Acquisitions (hmpletad

On September 30,1996,

First Midwest completed

offices

in Stuart,

subsidiary

and Security

in Stuart, Menlo

State Bank located

operates
Iowa. At

of Central West Bancorporation

the acquisition
(“Central West”), and its wholly-owned subsidiary,
Security
Iowa.
Upon acquisition, Central West was merged into
a wholly-
First Midwest,
became
of First Midwest.
owned stand-alone
Security
and
the date of acquisition, Central
Casey,
West had assets of approximately
$33 million and
equity of $2.6 million. Central West shareholders
received cash of $18.04
shares of the
for each Central
common stock of First Midwest
West share held,
considera-
$5.2 million. The acquisi-
tion of approximately
tion was accounted
and the
accompanying
reflect
acquisition,
The excess of cost over the estimated fair value of
the assets acquired and liabilities assumed,
totaling
$2.8 million, is being amortized over
approximately
1 and 2 to the
a fifteen year period (see Notes
Consolidated Financial Statements).

statements
the date of
the effect of which was not material.

totaling an aggregate

financial
since

for as a purchase,

the combined

consolidated

and 2.3528

results

The Company’s basic mission is to maintain and
core earnings while serving its primary

enhance

On December 29, 1995, First Midwest completed
(“Iowa
of Iowa Bancorp,

the acquisition

Inc.

The following table sets forth the weighted average
liabilitiesat the end of each of the years presented.

effective

interest

rate on interest-earning

assets and interest-bearing

Atsqtmber

30,

WEIGHTED AVERAGEYIELD ON:

bans
rweivable ......................................................................................................
Mortgage-backed securities ....................................................................................
Securities..................................................................................................................
Other interest-earning assets ..................................................................................
Combined weighted average yield on interest-earning assets..................................

WEIGHTED AVERAGERATE PAIDON:

Demand, NOW deposits and Money Market ........................................................
Savings deposits ......................................................................................................
Time deposits ..........................................................................................................
HUB advances
. .. . . .. . .. .. . . . .. .. .. . .. . . . .. . . . . .. . . .. . . .. . . .. . . .. .. .. . . . . . ... .. . . .. . .. . . . .. . . . .. . . .. . . .. . . .. . . . . .. ..
Other borrowed money ........ ..................................................................................
Combined weighted average rate paid on interest-baring liabilities......................

19M

1995

19M

8.74%
7.06
5.99
5.04
7.87

2.35
3.22
5.78
5.81
5.48
5.03

8.58?40
7.97
6.79
5.44
8.13

2.55
3.00
5.80
6.14
5.75
5.28

7.9%
6.85
7.66
4.66
7.46

2.30
2.28
4.87
5.10
4.70
4.50

Spread ................................................... .......................................................................

2.84%

2.85%

2.967’0

located

a federal

all of Iowa Bancorp’s

had assets of approximately

The Iowa Savings office operates

savings
in Des Moines,

subsidiary,
bank,
Iowa.

Iowa
Bancorp” ), and its wholly-owned
(“Iowa
Savings Bank,
Upon
Savings”)
acquisition,
Iowa Bancorp was merged into the
Company and Iowa Savings was merged into First
Federal.
as the
Iowa Savings Bank Division of First Federal Savings
Bank of the Midwest. At the date of acquisition,
Iowa Bancorp
$25
million and equity of $7.2 million. The Company
purchased
out-
379,980
shares subject to option
standing shares and 36,537
for a cash payment of $20.39
less the
exercise price of shares subject to option, for a total
net purchase price of $8.0 million. The acquisition
and the accom-
was accounted for as a purchase,
panying consolidated
reflect
the combined results since the date of acquisition.
The excess of cost over the estimated fair value of
total-
the assets acquired and liabilities assumed,
ing approximately
is being amortized
over a fifteen year period (see Notes 1 and 2 to the
Consolidated Financial Statements).

statements

per share,

financial

$760,000,

located

outstanding common stock,

( “Brookings
South Dakota.

Federal Bank, a federal savings bank,
Federal”)
in Brookings,
Upon acquisition, Community was merged into First
and Brookings Federal was merged into
Midwest
The Company paid a cash price of
First Federal.
$31.38 per share to acquire all of the 333,513
shares
of Community’s
for a
total purchase price of approximately $10.5 million.
At the date of acquisition, Brookings Federal had
$69 million and deposits of
assets of approximately
approximately
The two offices of
Brookings Federal operate as the Brookings Federal
Bank Division of First Federal Savings Bank of the
The acquisition was accounted for as a
Midwest.
purchase and, accordingly,
con-
the combined
solidated financial statements
operating results since the date of acquisition. The
excess of cost over the estimated fair value of the
assets acquired and liabilities
totaling
$1.8 million, is being amortized over
approximately
a fifteen year period (see Notes
1 and 2 to the
Consolidated Financial Statements).

the accompanying

$57 million.

assumed,

reflect

On March 28,

1994,

the Company

acquired

Community Financial Systems, Inc. (“@nrnunity”)
Brookings
and its wholly-owned

subsidiary,

Financial Condition
The following

discussion

of the Company’s

consolidated financial condition should be read in

Rata/Voluma Analvsis
The follom”ng tible ~resents the dolkm amount of changes in interestrncome and interestexpense for major components of
interest-earningassetsand interest-bearingliabilities.It distinguishesbetween the increaserekatedto bigber outstanding
balancesand that due to the levels and volatility of interestrates. For each mtegory of interest-timing assetsand interest-
bearing liabilities, information is provided on changes a~”butable to (i) changes in volume (i.e., changes in volume
multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For puQoses of thistable,
changes attributable to both rate and volume, which cannot be segregated, have been allocuted proportionately to the
change &e to volume and the change due to rate.

Yaw EndedSe@emberXL

lsvsm 1995

1985va.1994

Increase
(Decreaae)

Total
Increase
Due to Volume Dueto Rate (Decrease)

Increast
[Decrease)

INTEREST-EARNING ASSETS:

Loans receivable ..
.
,.. ... ..........................
Mortgage-backed securities.,..................
Securities ................................................
............................................
HBstmk
Total interest+arrsing assets ........................

INTEREST-BEARINGLIABILITIES:

Demand and NOW deposits..................
Savings deposits......................................
Time deposits ; .......................................
FIUB advances ......................................
Other borrowed money ........................
Total interest-bearing liabilities ..................

$4,170

(1,251)
500

_d)—
$3,4::

629
(133)
(695)

$J?!Z?)

(41)
121
953
732

(34)
4
518
11

—
$ 1,8;!

—
$

50:

Net effect on net interest income ................

$1,660

$~)

$4,799

(1,384)
(195)

(75)
125
1,471
743

—
$ 2,3;

$953

Increase
(Decrease)

Increase
(Decreaae)
Due to Volume Duem Rate

Total
Increase
(Decrease)

(Dollars in Thousands)

$4,180

609
26
— 106
$4,921

(156)

$4,024

130

1,007

3—
980
$

739

1,033

“105

$5,901

64
1,414
1,580

~+!@

(7)
5
660
723

(1)
69
2,074
2,303

,
$1917

$-(3!!4

$11535

conjunction with the Selected Consolidated Financial
Information and consolidated
Financial Statements
and the related notes included elsewhere herein.

The Company’s total assets at September 30,1996
were $388.0 million, an increase of $123.8 million,
or 46.97.,
30,
from $264.2 million at September
The increase in assets is due to completed
1995.
acquisitions during the period of Iowa Bancorp and
Central West, which had assets
the dates of
$25 million and $33
acquisition of approximately
in assets also
respectively.
million,
resulted from the purchase
securities and other investment securities, and from
the increased
of loans
during the period.

of mortgage-backed

and purchase

The increase

origination

rndhon, or S1 .4’?!o, to $73.9
30,

The Company’s portfolio of securities available
securities,
rdion

for sale, excluding mortgage-backed
increased $25.1
at September
at
September 30, 1995. The increase in securities avail-
able for sale, primarily short-term treasury and fed-
eral agency securities, is due to securities acquired in
acquisitions completed during the fiscal year and as
that
the result of securities purchased in amounts

from $48.8 million

1996

exceeded maturities during the period.
in mortgage-backed
.-

The balance

securities

for sale increased by $14.2 million, or
available
from $21.4 million at September 30, 1995,
66.37.,
to $35.6 million at September
The
increase resulted from the purchase of adjustable-
securities that were funded by
rate mortgage-backed
adjustable-rate borrowings
from the Federal Home
Loan Bank of Des Moines.

1996.

30,

The Company’s net portfolio of loans receivable

to $243.5

increased by $65.0 million, or 36.47.,
million at September 30, 1996 from $178.5 million
The increase in net loans
at September 30, 1995.
to the acquisitions of Iowa
receivable is due, in part,
the dates of
Bancorp and Central West which, at
$16 million
acquisition, had loans of approximately
and $20 million,
also
resulted from increased origination of residential and
commercial
loans and
real estate loans, consumer
the loan portfolio
In addition,
ag-related
increased as a result of purchases of multi-family
residential and commercial

real estate loans.

The increase

respectively.

loans.

The balance of customer deposits

increased by
from $171.8 million at

$61.6 million, or 35.9%,

Average Balances, Interest Rates and Melds
The fo~ow”ng table presents for the pm”odsindicated the total dollar amount of interest income from average intmest-eaming assets and
the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax
equivakmt adjustments have been made. All average balances are quarterly average balamxs. Non-accruing loans have been included in
the tubk as loans carying a zero yield.

Year EndedSeptember30,

Avezage
Oumanding
Salance

19M

ImerESt
Famed/
Paid

Averaw
Outsmsding

Ylew
sate

19s5

InLmSr
Famed
Paid

Yield
be

INTEREST-EARNINGASSETS:

Average
Oumramkg

hterest
Eamedl
Paid
(Dollars in Thousands)

Yield/
Rate

bans
Mortgage-backed

receivable(’) .......................... $207,983
34,213

. . .. .. .. .. ..

securities

$18,567
2,521

8.93% $161,243
51,157
7.37

$13,768
3,905

8.54% $112,317
7.63

42,914

Secllrities

. . . .. . . .. . . .. . . .. . . .. . . . .. . . .. .. ... . . . ..

51,494

2,916

5.66

42,674

3,111

7.29

42,130

FHLB

4,644
Total interest-earning assets ................ $298.334

. . . .. . . .. . . .. . . .. ... .. . . .. . . . . .. . . ..

stock

333
$24,337

7.17
3,720
8.16% $258,794

270
$21,054

8.14% $199,623

INTEREST-BEARINGLIABILm:

Demand and NOW deposits ..........$
Savings deposits ..............................
Time deposits..................................
FHLB advances ..............................
Other borrowed money, .................

29,377
14,906
149247
69~65
2.198

661
402
8,703
4,087
126

Totil interest-bearing liabilities .......... $264.993

$13,979

Average interest+arning assets ............$
Net interest income ..............................
Net interest rate spread........................
Net yield on average interest-

eamingassets..................................

Average interest-eaming assets to

33,341

$10,358

2.25% $ 31,139
2.70
10,431
132,856
5.83
5.90
56,820
5.73
1.159
5.28% $232,405
_

—

$ 26,3S9

736
277
7,232
3,344
60
$11,649

$9,405

2.88%

3.47yo

2.36% .$ 30,861
7,933
2.66
5.44
104~83
5.88
22,579
5.18
2,043
5.01% $167,699

——

—

$31.924

3.13%

3.63%

average interest-beasing liabilities .. 112.58 0/0

111.35yo

119.04%

w ~\m~@d WLof &ferred loan fees, loan discounts, ioans in @OUSS and lo= TSSSIWS

$ 9,744
3,166

2,078

165
$15,153

737
208
5,158
1,041
139
$ 7,283

$7,870

8.68%
7.38

4.93

_ 7.29

7.59%

2.39%
2.62
4.95
4.61

4.34%

3.257.

3.94yo

—

the dates

to monitor

of approximately

of acquisition,
$15 million

September 30, 1995 to $233.4 million at September
30, 1996.
The increase in deposits resulted partly
from the acquisitions of Iowa Bancorp and Cermal
West which,
had
deposits
and $28
In addition, customer deposits
rn.ilhon, respectively.
continued
increased as a result of management’s
efforts
and enhance deposit product
design and marketing programs.
from the Federal
borrowings
Home Loan Bank of Des Moines increased by $51.2
rrillion, horn $51.1 million at September 30, 1995
The
to $102.3 million at September
1996.
increased borrowings were used primarily
in the
purchase of securities,
securities,
loan portfolio.

including mortgage-backed
and to fund growth of the Company’s

The Company’s

30,

Results of Operations

The following discussion of the Company’s results
of operations should be read in conjunction with the
Selected Consolidated
and
Consolidated
and the related
notes included elsewhere herein.

Financial Statements

Information

Financial

ability

income

interest

expenses.

The Company’s

and the Company’s

results of operations

assets and the interest
liabilities.. Net

are pri-
marily dependent on net interest income, noninterest
income
to manage
is the
Net
operating
difference between the interest earned on interest-
expense paid on
earning
interest-bearing
income is
interest
affected by regulatory,
that
factors
and deposit
flows.
financial institutions,
the extent
reprice at different
than its interest-bearing liabilities.

and competitive
loan demand
like other
is subject to interest rate risk to
its interest-earning assets mature or
times, or on a different basis,

influence interest

The Company,

economic

rates,

that

noninterest

The Company’s

income
of First Federal’s wholly-owned
First Services

consists
income
primarily of fees charged on transaction
accounts
and for the origination of loans, both of which help
the costs associated with establishing and
to offset
maintaining
In
these deposit and loan accounts.
is derived from the
addition, noninterest
sub-
activities
sidiaries,
and
Brookings Service Corporation, which engage in the
sale of various non-insured
Historically,
significant
income as a result of gains on the sale of
securities and other assets. Howeveq dining the year
ended September 30, 1995,
a $1.1 million gain was
recorded as a result of the sale of mortgage-backed
securities.

investment products.
has not derived

the Company

Financial

Limited,

On September 30, 1996,

federal

signed into law requiring that all thrift
pay a one-time

assessment

to restore

legislation was
institutions
the Savings

is 0.6577.

The assessment

Association Insurance Fund (SAIF)
to its statutory
reserve level of at least 1.250/0 of insured depositor
of First
accounts.
Federal’s
insured deposits as of March 31, 1995,
including those held by Iowa Savings at that date.
As a result of the special assessment,
the Company
charge of $1.27 million, or
recognized
$795,000
as of the
taxes,
September 30, 1996 effective date of the legislation.
Beginning January 1, 1997,
the legislation provides
that First
Federal’s
premium (including
Financing Corporation
from 0.23 YO
deposits.

on the
payments
obligation) will be reduced
of insured

a pre-tax
net of related income

to an estimated 0.0647.

annual
required

insurance

deposit

31.9~0,

income for the year ended September

Comparison of Operating Results for the Years Ended
September 30, 19S and September 30,1995
General Net
30, 1996 decreased $1.13 million,
from $3.54 million for the same
$2.41 million,
period ended September 30, 1995.
The decrease in
net income reflects the one-time special assessment
net
to recapitalize the SAIF, which totaled $795,000,
of income taxes.
the decrease in net
In addition,
income resulted from the previous year recognition
of gains on the sale of securities resulting primarily
of the Company’s mortgage-
from the restructure
backed securities portfolio, which increased fiscal
year 1995 income by $720,000,

net of income wxes.

30,

Interest

interest
1996

lncotrM The Company’s net

for the year ended September

or 10.1%,
to $9.4o million for

Net
30,
income
to $10.36 million
increased by $954,000,
the same period
compared
ended September
in net
1995.
interest income reflects an overall increase in average
net interest-earning assets during the period resulting
from the acquisition of Iowa Bancorp during the
first
in the
portfolio of loans and securities. The net yield on
average interest-earning assets declined to 3 .47 °/0 for
from 3.63 Y.
the period ended September

fiscal quarter,

The increase

and internal

increases

1996

30,

for

the same period in 1995.

The reduction

in net

yield is due primarily
time deposits
resulting
for such deposits during the period.

from aggressive

to the increased cost of retail

competition

increased

loans and,

the Company

During the fiscal years ended September 30, 1996
its origina-
and 1995,
tion and purchase of multi-family and commercial
its
real estate
origination of consumer
and agricultural business
loans. The Company anticipates activity in this type
to
of lending to continue
market demand, Net interest income is expected to
trend upward as a result of this lending activity as
interest rate yields are generally higher on this type

in future years,

in addition,

increased

subject

compared
single-family

to yields provided by
of loan product
conventional
real estate
residential
loans. This lending activity is considered to carry a
higher level of risk due to the name of the collateral
the
and the size of individual
Company
in its
allowance for loan losses.

anticipates

continued

As such,

increases

loans.

30,

1996

Merest Income Interest income for the year ended
September
increased $3.28 million, or
15.6’3’.,
to $24.34 million from $21.05 million for
the same period in 1995. The increase was primarily
due to a $4.80 million increase in interest earned on
to $18.57 million for the year
the loan portfolio,
ended September 30, 1996,
from $13.77 million in
The increase in loan interest income resulted
1995.
from higher average loan portfolio balances due to
internal
and the
acquisition of Iowa Bancorp and, to a lesser extent,
yield on the loan portfolio
to a higher
during the period.
income from mortgage-
backed securities declined $1.38 million for the year
to $2.52 million from
ended September
$3.90 million in 1995 due primarily to the reduction
in the average portfolio balance during the period.

of the loan portfolio

30, 1996

average

Interest

growth

of time deposits

Interest expense increased $2.33
Interest Expense
million, or 20.0?4.,
to $13.98 million for the period
ended September 30, 1996 from $11.65 million for
The increase in interest
the same period in 1995.
in the average
expense was due to an increase
outstanding
and FHLB
balance
advances during the year ended September 30, 1996,
compared to the sam-e period in 1995. The increase
in the average balance of time deposits resulted from
and the
internal growth of the deposit portfolio
average
The
acquisition
of
increased
outstanding
balance of FHLB advances
due to borrowing
the period
used primarily to fund growth of the loan portfolio
the
and the purchase of securities. To a lesser extent,
increase in interest expense reflects higher interest
liabilities during the
rates paid on interest-bearing
year ended September 30, 1996,
compared to the
previous year.

activity throughout

Iowa Bancorp.

Prevision ~or Loan Losses The provision for loan
losses for the year ended September 30, 1996 was
$1 OO,OOOcompared
the same
period in 1995. The comparatively higher provision
for loan losses during the previous year
resulted
from management’s election to increase the balance
in the allowance for loan losses in conjunction with
during that period.
growth of the loan portfolio

to $250,000

for

that

will

reserve

reflects

continue

the current

an adequate

believes, based on review of historic
Management
conditions, and other
loan losses, current economic
level of provision for loan
factors,
for
losses, and the resulting level of the allowance
against
loan losses,
potential
In addi-
losses from the loan portfolio.
tion, because of the Company’s extremely low loan
also
10SSexperience during its history, management
considers
the loan loss experience of similar port-
folios in comparable lending markets. Accordingly,
the calculation of the adequacy of the allowance for
loan losses is not based solely on the level of non-
performing assets.
Management

the
allowance for loan losses and make future additions
through the provision for loan
to the allowance
losses as economic
and loan portfolio
conditions
quality dictate. Although the Company maintains
its allowance for loan losses at a level which it con-
siders to be adequate to provide for losses, there can
be no assurance that
future losses will not exceed
estimated amounts or that additional provisions for
loan losses will not be requtied in future periods.. In
the determination as to the amount of its
addition,
allowance for loan losses is subject to review by the
Company’s
process, which may result in the establishment of an
additioml
allowance based upon their judgment of
the information available to them at the time of their
examination.

regulators, as part of their examination

to monitor

Income

Noninterest

income for the

Aloninterest
year ended September 30, 1996 decreased $867,000,
or 37.9y0,
to $1.42 million from $2.29 million for
the same period in 1995. Noninterest
income for
the previous fiscal year included gains on the sale of
for
securities of $1.07 million, compared to $79,000
year ended September
income from loan fees and service charges increased
for fiscal 1996 compared to the same
by $118,000
as a result of increased
lending
period in 1995
activity
activity
and increased
accounts subject to service charges.

on transaction

Noninterest

1996.

30,

E@mse

Noninterest expense increased
Abtzin&rest
by $1.99 million, or 35.7%,
to $7.57 million for the
year ended September 30, 1996 compared to $5.58
million for the same period in 1995.
The increase
primarily reflects the one-time special assessment of
$1.27 million,
of
for
SAIF. In addition, noninterest expense increased as a
result of additional operating expenses associated
with the acquisition of Iowa Bancorp during the fimt
quarter of fiscal 1996.

the recapitalization

pre-tax,

Expense

or 26.9%,

Income T-
Income tax expense decreased
by $624,000,
to $1.70 million for the
year ended September 30, 1996 from $2.32 million
for the same period in 1995. The decrease in income
tax expense
in the level of
taxable income for the period ended September 30,
1996 compared to the same period in 1995.

the reduction

reflects

or 29.97.,

increased $815,000,

The increase in net

Comparison 01 Oparating Results for tha Yaars Endad
Saptember ~, 1995 and Septembar 30,1994
General Net
income for the year ended September
to $3.5
30, 1995
million, from $2.7 million for the same period ended
September 30, 1994.
income
reflects higher net interest income as a result of a full
year of operations after the acquisition of Brookings
In addition, net income was enhanced by a
Federal.
gain on the sale of securities
from the
restructure of the Company’s portfolio of mortgage-
income for the year ended
backed securities. Net
September
compared
$145,000
overall
primarily as a result of the Ml year operation of the
Brookings Federal division. Operating results for
the year ended September
the
cumulative effect of a change in accounting principle
of SFAS 109
resulting
(Accounting for Income Taxes), which increased net
income by $257,000.

to the previous year by an increase of
in the provision for loan losses, and by an

from the implementation

1995 was negatively

in other expenses,

of $638,000

impacted

resulting

increase

include

1994

30,

Income

Interest

reflects

30, 1994,

an overall

interest
1995

The Company’s net

for the year ended September

Net
income
increased by $1.5 million, or 19.5’Yo, to $9.4 million
compared to $7.9 million for the same period ended
interest
September
The increase in net
income
in average
increase
interest-earning
assets during the period resulting
primarily from the full-year effect of the acquisition
The net yield on average
of Brookings
interest-earning
for the
period ended September 30, 1995
from 3.94% for
the same period ended in 1994. The reduction in net
yield was due to an overall reduction in average net
interest-earning assets and to a reduction in the net
interest rate spread,

assets declined to 3.630/0

Federal.

30,

increased

$5.9 million,

Interest
1995

hn%wst konw
income for the year ended
or
September
38,9’Yo,
to $21.1 million from $15.2 million for the
same period in 1994. The increase was attributable
to a $4.0 million increase in interest earned on the
loan portfolio to $13,8 million for the year ended
September 30, 1995 from $9.7 million the previous
income resulted
yea~ This increase in loan interest

of Brookings

income on mortgage-backed

from a significantly higher average portfolio balance
of loans receivable during the period due to internal
and to the full-year
growth of the loan portfolio
effect of the acquisition
Federal.
Interest
enhanced by $739,000
year primarily
in the
interest
average portfolio
income from the Company’s portfolio of securities
for sale
held to maturity
and securities
ended
increased
by $1.0 million
due to
1995
September
30,
higher yields received on the portfolio.

as a result of the increase

compared to the previous

the year
to 1994

securities was

In addition,

compared

available

balance.

for

Expense

during

advances

the year

The increase

Interest expense increased $4.4
Interest
million, or 60.OYO, to $11.7 million for the period
ended September 30, 1995 from $7.3 million for the
in interest
same period in 1994.
expense was due primarily to a significant
increase
in the average outstanding balance of time deposits
and FHLB
ended
September 30, 1995,
compared to the same period
in 1994. The increase in the average balance of time
effect of the
deposits
Brookings
outstanding
due to borrowing
used to fund growth of the loan portfolio.
lesser extent,
higher
liabilities during the year ended September 30,1995,
compared to the previous year

average
increased
the period
To a
the increase in interest expense reflects
rates paid on interest-bearing

Federal
acquisition.
balance of FHLB advances

resulted from the full-year

activity throughout

interest

The

compared

to $105,000

for
increase

related, multi-family,

for Loan Losses The provision for loan
Prevision
losses for the year ended September 30, 1995 was
the same
$250,000
in the
The $145,000
period in 1994,
provision, and a resulting increase in the allowance
for loan losses, reflects the increase in the level of
agricultural
real estate lending activity. These types of lending
activities are considered to carry a higher degree of
risk than single-family residential
loans due to the
nature of the collateral securing such loans, and the
generally larger average size of individual loans. The
assets
ratio
declined to .29% at September 30, 1995,
compared
to .35~0 at the end of 1994.

of non-performing

and commercial

to total

assets

30,

Income

or 112.1%,

income
increased

Noninterest
1995

for the
$1.2
to $2.3 million from $1.1

AIoninterest
year ended September
million,
million for the same period in 1994. The increase in
ended
during
noninterest
September
30, 1995 was primarily due to a $1,1
million gain on the sale of securities resuking from

the period

income

of the Company’s
the restructure
mortgage-backed
securities.
year ended September 30, 1995, noninterest
from loan fees and service charges
$114,000

increased
compared to the same period in 1994.

of
In addition, during the
income
by

portfolio

N-omnkmst
Noninterest expense increased
by $638,000,
or 12.9’XO, to $5.6 million for the year
ended September 30, 1995 compared to $4.9 million
for the same period in 1994. The increase primarily
reflects the full-year effect of additional operating
of
expenses
In addition, noninterest expense
Bro&ings
in federal deposit
includes an increase of $54,000
average
insurance
premiums
accounts
outstanding
during the period.

due to the higher
balance of insured deposit

associated
Federal.

acquisition

with the

or 61.9%,

I?uo?ne Tax &bense
Income tax expense increased
to $2.3 million for the year
by $887,000,
ended September 30, 1995 from $1.4 million for the
same period in 1994.
The increase in income tax
increased income before income
expense
1995
taxes
compared to the same period in 1994,

for the period ended September

reflects

30,

For

Effect of Accounting
the year ended
Change
September 30, 1994, net income was increased by
due to the cumulative effect of a change in
$257,000
the
accounting
resulting
implementation
for
Income Taxes).
There was no such effect on net
income during the year ended 1995.

from
(Accounting

of SFAS 109

principle

AaaaWiability Managamant

and purchasing

currently focuses lending efforts

The Company
competitively
toward originating
priced adjustable-rate
loan products and fixed-rate
loan products with relatively short terms to maturity,
generally 15 years or less. This strategy allows the
of loans which
Company
will be relatively sensitive to changes in the level of
interest rates while providing a reasonable spread to
the cost of liabilities used to fund the loans.

to maintain a portfolio

changes

through earnings

The Company’s primary objective for its invest-
ment portfolio is to provide the liquidity necessary to
loan fundhig needs. This portfolio is used in
meet
the ongoing management
to the
Company’s asset/liability mix, while contributing to
profitability
flow. The invest-
ment policy generally calls for funds to be invested
types and
of security
among various
maturities
need for
based upon the Company’s
liquidity, desire to achieve a proper balance between
minimizing risk while maximizing yield, tie need to
provide collateral
and to fulfill the
for borrowings,
Company’s asset/liability management goals.

categories

1995,

securities,

regulatory

of a pending

mortgage-backed

ended June 30,

During the quarter

policy
of interest

all
securities previously designated as held to maturity,
were
including
reclassified to the available for sale category.
The
reclassification was performed after consideration by
management
clarification regarding the measurement
of adjustable-rate
sensitivity
securities.
It was management’s
pending regulatory
sufficient potential
risk to the market value of this
of the
type of security to warrant
reclassification
securities held by the Company to the available-for-
In accordance with the require-
sale designation.
ments of SFAS 115 (see Note 1 to the Consolidated
Financial Statements), all other securities previously
designated as held to maturity were also reclassified
to available for sale. During the quarter ended June
30, 1995,
the reclassified adjustable-rate mortgage-
backed securities were sold.

mortgage-backed
opinion that

the
provided

policy clarification

The Company’s cost of funds responds to changes

short-term

rates due to the relatively

in interest
nature of its deposit portfolio.
the
restilts of operations are influenced by the levels of
offers a
short-term interest
range of maturities
at
competitive rates and monitors the maturities on an
ongoing basis.

on its deposit

The Company

Consequently,

products

rates.

and promotes

The Company

its
emphasizes
savings, money market, demand and NOW accounts
and, subject
of
to market
deposit with maturities of six months
through five
years, principally from its primary market area. The
savings
tend to be less
susceptible to rapid changes in interest rates.

and NOW accounts

conditions,

certificates

interest

and short-term

on the relationship

and consumer
greater

h managing its assedliability mix,
times, depending

the Company,
between
at
rates, market
long-
preference, may place
conditions
its
on maximizing
emphasis
somewhat
the
interest margin than on strictly matching
net
rate sensitivity of its assets and liabilities.
interest
Management believes that
the increased net income
which may result from an acceptable mismatch in
of its asset and
the actual maturity
liability portfolios can, during periods of declining or
to
stable interest
justify
and
rates which may
unexpected
result from such a mismatch.
The Company has
established limits, which may change from time to
rate risk.
time, on the level of acceptable
There can be no assurance,
in the
the
change
event of an adverse
Company’s efforts to limit interest rate risk will be
successful.

the increased
increases

however,
in interest

exposure
in interest

rates, provide

or repricing

to sudden

sufficient

interest

returns

rates

that

institutions
calculates

such as First Federal.
the difference

Net Pmtfdo Value The Office of Thrift Supervision
(“OTS”) provides a Net Portfolio Value (“NPV”)
rate risk
approach to the quantification of interest
This
for thrift
approach
between the
present value of expected cash flows from assets and
the present
from
as well as cash flows from off-balance
liabilities,
sheet contracts.
of First Federal’s
Management
assets and liabilities is performed within the context
of the marketplace,
but also within limits estab-
lished by the Board of Directors on the amount of
change in NPV which is acceptable
given certain
interest rate changes.

value of expected

cash flows

“normal”

an institution’s

The OTS issued a regulation which uses a net
to measure the interest
market value methodology
rate risk exposure of thrift institutions. Under OTS
regulations,
level of
interest
rate risk in the event of an assumed 200
basis point change in interest rates is a decrease in
the institution’s NPV in an amount not
to exceed
two percent of the present value of its assets. Thrift
institutions with greater than “normal” interest rate
risk exposure must take a deduction from their total
risk-based capital
capital
requirement. The amount of that deduction is one-
the institution’s
half of the difference between (a)
actual
to a 200 basis point
results
interest rate increase or decrease (whichever
in the greater pro forma decrease in NPV) and (b) its
“normal”
level of exposure which is 2.00% of the
present value of its assets. The regulation, however,

calculated

available

exposure

to meet

their

rate

interest

determination.

been in effect

of First Federal’s

rate risk deduction

Had such regulation

will not become effective until the OTS evaluates the
process by which thrift institutions may appeal an
interest
It is
uncertain as to when this evaluation may be com-
pleted.
at
September 30, 1996, First Federal’s interest rate risk
would have been considered normal and no addi-
tional risk-based capital would have been required.
Presented below, as of September 30, 1996,

is an
analysis
risk as
measured by changes in NPV for an instantaneous
in 100
and sustained parallel shift in the yield curve,
up and down 400 basis
basis point
points,
As
illustrated in the table, First Federal’s NT%’ is more
sensitive to rising rate changes than declining rates.
This occurs primarily
the
market value of fixed-rate loans declines due to both
the rate increase and slowing prepayments. When
a
rates decline, First Federal does not experience
significant
these loans
because borrowers prepay at relatively higher rates.
The value of First Federal’s deposits and borrowings
change in approximately
in
rising and falling rate scenarios.

in accordance with OTS regulations.

the same proportion

rise in market

increments,

value for

because,

as rates

rise,

Management

reviews the OTS measurements and
related peer reports on a quarterly basis.
In addition
to monitoring
selected measures of NPV, manage-
income
ment also monitors
resulting from increases or decreases in interest rates.
This measure
is used in conjunction with NPV
measures to identify excessive interest rate risk.

effects on net interest

At SeptemberXl, 19S

Changein interestRate
(BasisPaints)

Beardlimit
% Change

$ Change
(Dollars in Thousands)

% Change

+400 bp
+300 bp
+2OObp
+100 bp
O bp
-100 bp
-200 bp
-300 bp
-400 bp

(60)%
(50)
(40)
(25)

(lo)
(15)
(20)
(25)

$(13,549)
(9,977)
(6,499)
(3,153)

2,447
4,131
5,885
8,068

(36)%
(26)
(17)
(8)

6
11
16
21

Interest Sensitivity GAP Analysis Management
of
interest sensitivity of Security State Bank is accom-
plished by matching
of interest-
earning assets and interest-bearing

liabilities. The

the maturities

following table illustrates the assed(liability) funding
gaps for selected maturity periods as of September
30, 1996 for Security State Bark.

k~mls

ASSETS
Interest-earning deposits in

Repricalsloor MaturingWtiin

o-6
Months

6-12
Montba

Total
1 Year

Over

1 Year

Total

(In Thousands)

other financial institutions ............................
Federal funds sold ..............................................
Securities ............................................................
Loans ..................................................................

100
0
2,516
9,437

0
2,250
2,570

100
0
4,766
12,007

0
5,150
8,968

100
0
9,916
20,975

Total interest-earning assets ..........................

$12.053

$4,820

$16,873

$14,118

$30,991

LIABILITIES
Interest-bearing deposits ....................................
Borrowed funds ..................................................

$8,761

1,400

$12,265
0

TOEI1interest-bearing liabilities......................

$21,026
1400

$22,426

$3,910

$24,936
1,400

$3,910

$*6

Asset/(Liability) funding GAP ............................

5X2

$ (7,445)

$10,208

$4,655

GAP ratio (assets/liabilities)................................

11970

39%

7s%
-

361’%0
-

l18V0

interest

or periods

the interest

are inherent

to repricing,

Certain shortcomings

in different degrees to changes
rates. Also,

in the method
of analysis presented in the foregoing tables.
For
example, although certain assets and liabilities may
have similar maturities
in
they may react
market
rates on
interest
certain types of assets and liabilities may fluctuate in
advance of changes in market
rates, while
interest rates on other types may lag behind changes
in market rates. Additionally, certain assets such as
adjustable-rate mortgage loans, have features which
restrict changes in interest rates on a short-term basis
and over the life of the asset. Further, in the event of
a change in interest
and early
withdrawal
levels would likely deviate from those
assumed in calculating the tables. Finally, the ability
of some borrowers to service their debt may decrease
in the event of an interest rate increase. First Federal
considers
its
exposure to interest rate risk.

all of these factors

rates, prepayments

in monitoring

1996,

non-performing

It is management’s belief, based on
Asset Quality
information available,
that the Company’s historical
level of asset quality has been satisfactory and that
asset quality will continue
to remain strong. At
30,
September
consisting of non-accruing loans, real estate owned
and repossessed
$2,733,000,
$759,000,
year ended 1995,
assets was due primarily
$1,623,000
a 104 unit multi-family
in Madison, Wisconsin.

of a
real estate participation loan secured by
complex located

or 0.70% of total assets, compared to
for the fiscal

The increase in non-performing

or 0.29% of total assets,

to the addition

apar;ment

consumer

property,

totaled

assets,

payments

and interest

Liquidity and Sources of Funds The Company’s
primary sources of funds are deposits, borrowings,
principal
and
mortgage-backed
invest-
ment securities. While scheduled loan repayments
and maturing investments are relatively predictable,
deposit
are
influenced by the level of interest
rates, general
economic conditions and competition.

loan repayments

and maturing

and early

securities,

on loans

flows

require

Federal

regulations

to
maintain minimum levels of liquid assets. Currently,
is required to maintain liquid assets of
First Federal
least
at
of net
withdrawable

the
savings

and borrowings

First Federal

daily balance

deposits

5°/0 of

average

payable
preceding
liquid

on demand

in one year or

less during

the

calendar month,

assets must

comprise

of which
not

less

short-term
than

1%.

Liquid assets for purposes

of this ratio include cash,

certain
mental

time deposits,
and
agency

U.S. Government,
corporate

securities

govern-
and

obligations

generally

having

remaining

terms

maturity

of less than five years,

unless otherwise

pledged.
liquidity

First Federal has historically maintained
ratio

levels well

in excess

those

its

required.

First Federal’s

regulatory

liquidity

ratios

were

5.4?!0,

12.2%

and 8.070

at September

30,

1996,

1995

and 1994,

respectively.

Liquidity management

is both a daily and long-

adjusts

management

The Company

the Company’s

term function
strategy.
liquid assets based upon management’s
of (i) expected
(ii) the projected availability of pur-
market
area,
flows,
chased loan products,
(iv) yields available on interest-bearing deposits, and

assessment
the Company’s

(iii) expected deposit

loan demand–in

its investments

—1

liquidity
overnight

is generally
deposits

(v) the objectives of its assedliability management
invested
program.
Excess
and other
in interest-earning
short-term government
If the
Company
ability
funds
to generate them internally, it has additional borrow-
ing capacity with the Federal Home Loan Bank
eligible for use
and has collateral
of Des Moines
with reverse repurchase agreements.

agency obligations.
its
beyond

requires

of securities.

1995 and 1994,

The primary investing activities of the Company
are the origination and purchase of loans and the
During the years ended
purchase
September 30, 1996,
the Company
originated loans of $95.8 million, $65.3 million and
$50.3 million,
of loans
$19.2 million and $22.1
totaled
million during the years ended September 30, 1996,
the years
1995
and 1994,
ended September
the
1996,
Company purchased mortgage-backed securities and
other
in the amount of $121.0 million,
$43.5 million and $76.4 million, respectively.

respectively.
30,

$24.9 million,

respectively.

and 1994,

Purchases

securities

During

1995

to mature

experience,

to originate

At September 30, 1996,

Certificates
in one year or

the Company had out-
and purchase
standing commitments
of deposit
loans of $20.7 million.
scheduled
less from
September 30, 1996 total $126.5 million. Based on
its historical
believes
management
of such deposits will
that
remain with the Company, howeveq there can be no
can retain all such
assurance
deposits. Management believes, however,
loan
of funds will be
repayment
adequate to meet the Company’s
foreseeable short-
and long-term liquidity needs.

the Company

a significant

and other

sources

portion

that

During the fiscal year ended September 30, 1996,

Iowa,

initiated

In addition,

remodeling of its
cost of

the Company completed a major
main office building at an approximate
$911,000.
the Company
negotiations for the purchase of an existing building
for the purpose of
located in Des Moines,
establishing a branch office of First Federal.
The
building
is anticipated
quarter of the 1997
year ended September
30,
completed an upgrade of its data processing system
at an approximate
The source of
funds for capital
improvements of this type is from
the normal operations of the Company.

remodeling,
during the first
fiscal year, During the fiscal

to be completed

cost of $300,000.

, and related

the Company

purchase

1995,

the benefit of eligible

On September 20, 1993,

the Bank converted from
a federally chartered mutual savings and loan asso-
ciation to a federally chartered stock savings bank.
time, a liquidation account was established
At that
for
holders who
continue to maintain their account with the Bank
after
is
that eligible account
reduced annually to the extent
deposits.
holders have reduced their qualifying
account
30, 1996,
At September

The liquidation account

the conversion.

the liquidation

account

approximated $3.8 million.

Under

the Financial

Institution’s Reform, Re-

(“FIRREA”)
covery, and Enforcement Act of 1989
Insurance Act of 1991
and the Federal Deposit
requirements applicable to
the capital
(“FDICIA”),
including First Federal and
all financial
institutions,
Security, were substantially increased.
First Federal
and Security are in full compliance with the fully
phased-in capital
(See note 14 of
requirements.
Notes to Consolidated Financial Statements).

Financial

presented

accounting

Statements

with generally
which require

herein have been prepared
accepted
the measurement

Impact of Inflation and Changing Prices The
Consolidated
and Notes
thereto
accordance
of
principles,
financial position and operating results in terms of
historical dollars without considering the change in
the relative purchasing power of money over time
due to inflation. The primary impact of inflation is
reflected in the increased cost of the Company’s
operations.
companies,
virtually all the assets and liabilities of the Company
interest rates
are monetary in nature. As a result,
impact
generally
on a
financial
than do the
effects of general levels of inflation.
Interest rates do
not necessarily move in the same direction, or to the
same extent, as the prices of goods and services.

have a more
institution’s

significant
performance

Unlike most

industrial

122,

entities

require,

Servicing

“Accounting

for Mortgage

SFAS No. 121,

“Accounting
Assets and for Long-Lived

Impact of New A.cconnting Stin&rds
Several new
accounting standards have been issued by the FASB
that will apply for the year ending September 30,
1997.
for the Impair-
ment of Long-Lived
Assets to be Disposed of” requires a review of long-
of recorded value and
term assets for impairment
resulting write-downs
if the value is impaired. SFAS
No.
Rights, ” requires
of an asset when
recognition
servicing rights are retained on in-house originated
loans that are sold. SFAS No. 123, “Accounting
for
” encourages, but does
Stock-Bused Compensation,
to use a “fair value based
not
for stock-based compensation
method”
plans and requires disclosure of the proforma effect
on net
income and on earnings per share had the
accounting
125,
“Accounting
for Transfms and Servicing of Finuncial
of Liabilities, ” provides
Assets and Extinguishment
accounting and reporting standards for transfers and
servicing of financial assets and extinguishment
of
common to banking
liabilities. Several transactions
including servicing of
are affected by SFAS No. 125,
loans
assets,
agreements,
tions, and transfers
Adoption of these statements
have a material
dated financial position or results of operations.

asset securitiza-
of receivables with recourse.

are not expected to
consoli-

effect on the Company’s

loan participations,

SFAS No.

and other

to account

repurchase

financial

adopted.

been

First Midwest Financial, Inc. and Subsidiaries

CoaaolidatadBalamxr Shaam

Sqtarnbar~, 19S and 1995

Cash and due from financial institutions ............................................................
Interest-brining deposits in other financial institutions - short-term ..................
Federal funds wld ................................................................................................
Total cash and cash equivalents ............................................. .......................

Interest-bearing deposits in other financial institutions

(cost approximates market value)

....................................................................
Securities available for sale ..................................................................................
Loans receivable, net of allowance for loan losses

of $2,356,113

in 1996 and $1,649,520

in 1995 ........................................... ...
Federal Home Loan Bank (FHLB) stock, at cost ................................................
Accrued interest receivable ..................................................................................
Premises and equipmen~ net ..............................................................................
Foreclosed real estate, net of allowances of $5,000 in 1996 and

1s%

736,979
4,743,636
8,848,037
14,328,652

1s
453J30
4,162,482

4,615,712

300,000
109,491,558

243,533,519
5,524,700
5,029,047
3,680,332

70,232,092

178,551,501
3,915,300
2,745,747
1,976,647

$-o- in 1995 . . .

, . .......... .......................................................................................
Other assets ...........................................................................................l............

86,818
6,033,672

48,41!3

2,127,806

Total assets ....................................................................................................

$388,008~98

$264~13,223

IJabiliiaa and Sharaholdam’Ersuitv

Noninterest-bearing demand deposits ................................................................
Savings, NOW and money market demand deposits ..........................................
Other time certificates of deposit ........................................................................
Total deposits ....................................................................................... .........
..........................................................................................
Advances fiom.B
Securities sold under agreements to repurchase ..................................................
Other borrowti~ ................................................................................................
Advances from borrowers for taxes and insurance ............................................
Accrued interest payable......................................................................................
Accrued expenses and other liabilities ................................................................
Total liabiLties................................................................................................

SHAREHOLDERS’EQUITY

Preferred stock, 800,000 shares authorized; none issued ....................................
Common stoclq $.01 par valuq 5~00,000

shares authorized;

shares issued and 1,94 S,735 shares outstanding

1,990,495
at September 30, 1996; 1,991,453
shares outstanding at September 30, 1995 ........................................................
Additional paid-in capital ....................................................................................
Retained earnings - substantially restricted ........................................................
Net unrealized appreciation on securities available for sale,

shares issued and 1,794,025

net of tax of $18,324 in 1996 and $340,190 in 1995 ......................................
Unearned Employee Stock Ownership Plan shares ............................................
Treasury stock, 44,760 and 197,428 common shares, at cost,

at September 30, 1996 and 1995, res~~ively ..................................................
Total shareholders’ equity ..............................................................................

5,452,911
49,358,478

2,076,671
40,407,661

178,594,337

233,405,726
102,287,803
2,789,918
1,400,000
490J43
1,271,465
3,153,441

129,308,665

171,792,997

51,098;388
1,149,918

501,522
788,008
869,694

344,798,596

226,200,527

19,905
20,862,551
23,748,383

19,915
19,310,045
22,080,579

28,698
(767~00)

571,564
(967~00)

(682,635)

43~09,702

(3,002,207)
38,012,696

Total liabilitiesand shareholders’ equi~ ........................................................

$388,008y298
——

$264,213,223

The accompanying notes are an integral part of these consoltited

financial statements.

First Midwest Financial, Inc. and Subsidiaries

MIdated SlnIomellbd InComa

INTEREST AND DMDEND INCOME

Loans receivable....................................................................
Securities available for sale .................................. ...........j....
Securities held to maturity ....................................................
Dividends on FHLB stock ....................................................

INTEREST EXPENSE

Deposits
. .... .............. ............ ........ ........ ........ .......................
FHLB advances and other borrowings ................................

YearsendedSeptembw~,

1= and lW

1988

1995

1994

$18,567,097
5,437,734

$13,768,064
7,015,145

332,634
24,337,465

270,261
21,053,470

9,766,586
4,212,024
13,978,610

8,245,227
3,403,497
11,648,724

$9,743,957
3,842,930
1,400,824
164,980
15,152,691

6,102,042
1,180,452
7,282,494

NET INTEREST WCOME ..............................................................

10,358,855

9,404,746

7,870,197

PROVISION FOR LOAN LOSSES ..................................................

100.000

250,000

105,000

NET INTEREST INCOME AFITR PROVISION

FOR LOAN LOSSES ................................................................ ..

10,258,855

9,154,746

7,765,197

NONTNTEREST INCOME

Loan fees and service charges ..............................................
Gain on sales of securities available for sale, net ..................
Gain (loss) on sales of foreclosed real estate, net ..................
Brokerage commissions ................................ ........................
Other ticome ........................................................................

NONINTEREST EXPENSE

Employee compensation and benefits ..................................
Occupan~ and equipment expense..., ..................................
SAIF deposit insurance premium ........................... ...............
Data processing expense ......................................................
Other expense ............................ ..........................................

830~56
79,317
(8,630)
292,189
226,163
1,419,295

3,732,839
668,784
1,699,363
289,390
1,177,886
7,568~62

712,345
l,070~47

297,777
206,101
2,286,470

3,400,190
432,571
404,306
291,961
1,047,149
5,576,177

597,984
9,170

328,343
142~70
1,077,767

3,079,769
316,375
350,314
200,219
991,020
4,937,697

INCOME BEFORE INCOME TAXES AND CUMULATIVE

EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES . ....

4,109,888

5,865,039

.3,905,267

INCOME TAX EXPENSE ..............................................................

1,696,323

2,320,687

1,433,519

INCOME BEFORE CUMULATIVE EFFECT OF

CHANGES IN ACCOUNTING PRINCIPLES..,

.........................

2,413,565

3,544,352

2,471,748

CUMULATIVE EFFECT OF CHANGES lN

ACCOUNTING PRINCIPLES:

Change in method of accounting for income taxes ..............

257,163

NET INCOME ................................................................................

$2,413,565

$3,544,352

$2,728,911

EARNINGS PER COMMON AND COMMON

EQUIVALENT SHARE
Fully diluted:

Income before cumulative effect of

changes in accounting principles ..................................

Cumulative effect of changes in

accounting principles ....................................................
................................................................................

~T~COME

$1.34

$1.99

$1.24

.13

$1.37

The accompa~”ng notss are an intigral part of these consolidated financial statements.

First Midwest Financial, Inc. and Subsidiaries

cOasofw ~

oiClrnnEOSin Shareholders”Equity

Years EndedSeptember3fl lSW, 18S5amf lSM

Addiil

Pa&in
Capital

S&ck

Saiaiad
Emnin9a

NOIUnmalizod
Appmcindoa

(Depredalioldon
~-#&

unearned

EIII@w@_~

NsIoiTti

Plan Shares

ToI,I
Treasury Shnmholrfera’
Equ~

Bahmm at October 1,1993

19,886

$18,480,114

$16,322,411

$ (1,384,100)

$33,438,311

Reduction

of conversion costs

93J1O

93410

Purchaseof 135,716 common

ShUt5

of tTWIMy

stock

I9,81o common sharescommitted
to be releaseduoderthe MOP

Issoanceof 4,794 sharesin

comection withrecognition
and retentionplan

Retirementof 1,918 common shares

(19)

Amortizationof recognitionand
retentionplancommonshares

Net changein unreakd

appreciation(depreciation)
on securitiesavailablefor
sale,net of tax of ($43,568)

Net incomefor theyear ended

septembet30,1994

(48)

381,897

(2,070,177)

198,100

381,897

(86,964)

—

2,728,911

$ 34,683i288

Balanceat September30,1994

19,915

$18,955,192

$19,051,322

(86,964)

$ (1,186,000)

$ (2,070,177)

Purchaseof 61,712 common
sharesof treasurystock

21,880 common sharescommitted
to be releasedundertheE.SOP

Amortizationof recognitionand
retentionplancommon shares
andtax benefitof restricted
stwk underplan

Cashdividendsdeclaredon

common stock ($.30 per share)

Net changein un.rdized

appreciation(depreciation)
on securitiesavailablefor
sale,net of tax of $383,758

Net incomefor the yearended

September30,1995

—

87,789

267,064

(515,095)

3,544,352

658,528

(932,030)

218,800

306,589

267,064

(515,095)

658,528

3,544,352

Balanceat September30,1995

19,915

$19,310,045

$22,080,579

571,564

(967~00)

$ (3,002~07)

$38,012,696

CwtsaJid6mdWtmnan8 of CIMngeain Shoreholdors’Equity(titsnued)

Yom EndedSeptember~,

1= and 1=

Addiirsnd
PaWn
bpital

StBds

M Uaraalizad
.

(-=:
saculi&#li&i Essrpb#l%s

Ttsbl

natairtod
Eansings

NctdTax

Owrmmkip
Plan8haraa

Treaaury 81sarahWam’

Siock

E@V

Balanceat September30,1995

19,915

$19,310,045

$22,080,579

571,564

(967,200)

$ (3,002207)

$38,012,696

purchaseof 27,940 common

S&KS

of treasurystock

Retirementof 958 commonshares

10)

(630,710)

20,000 commonsharescommitted
to bereleasedunderthe E-SOP

Amortizationof recognitionasrd
retentionplancommon shares
and tax benefitof remixed
stock undertheplan

Cashdividendsdecked on

common stock ($.44 per share)

Iasuarrceof 171,158 common

shamshm treasurystockin
connectionwithacquisitionof
CentmlWest Bancorporation

Issuanceof 9,450 commonshares

from treasurystock due to
exerciseof stockoptions

Net changein unrealized

apprrziation(depreciation)on
securitiesavailablefor wI%
netof tax of ($321,866)

Ner irmme for theyearended

September30,1996

Mance at September30,1996

303,524

200,000

503,524

(745,761)

168,120

1,192,990

(112,138)

168,120

(745,761)

43,644

3,936,634

06,638

94,500

(542,866)

—

2,413,565

—

19,905

$20,862,551

$23,748,383

28,698

L?uE!?9

!a22

The accompanying notes are an rntegal part of theseconroliakted~ncial

stutanents.

First Mic4wst Financial, Inc. and Subsidiaries

CASH FLOWS FROM OPERATING ACllWTIES

Net income ................................................................................
Adjustments to reconcile net income to net ash

from operating activities:
Cumulative effects of changes in accountig principles..........
Depreciation,amortizationand accredon, net........................
Provisionfor loan losses ..............................l.........................
Provisionfor losseson foreclosedreal estate..........................
Gain on salesof securitiesavailablefor sale, net ....................
Proceeds from the sales of loans held for sale ........................
originations of loans held for sale ..........................................
Stock dividends from FHLB stink ..........................................
(Gain) loss on sales of office property, net ..............................
(Gain) loss on sales of foreclosed real estate, net ....................
Net change in interest remivable ............................................
Net change in other assets ......................................................
Net change in accrued interest payable ..................................
Net change in accrued expenses and other liabilities..............
Net ash from operating activities ......................................

907,721
100,000
20,000
(79,317)
1,064,000
(1,064,000)
(78,900)
(24,739)
8,630
(1,406,034)
(399?200)
348,940
1,689,497
3,500,163

CASH FLOWS FROM INVESTINGACITWTIES

Net change in interest-bearing deposits in other

financial institutions .....................m........................................l.
l%rchase of securities available for sale......................................
Fhuchase of securities held to maturity ......................................
Proceeds horn sales of securities available for sale ....................
Proceeds from maturiti= and principal repayment of

(300,000)
(120,994,759)

366,829

19%

la6

$2,413,565

$3y544,352

$2,728,911

697,879
250,000

(257,163)
690,755
105,000

(1,070447)

(9,170)

(504,93;)
(55,643)
(47,662)
(122,777)
2,690,965

(221,613)
5,181
350.455
(34i537)
3,048,819

(31,580,132)
(11,888,625)
49,445~58

(10,342,30;)
(66,050,121)
16,136,827

mortgage-backed securities available for sale ..........................

95,068,472

29,105,289

15,975~60

Proceeds from maturities and principal repayment of

mortgage-backed securities held to maturity ............................
Loans purchased ........................................................................
Net change in loms ....................................................................
Proceeds horn sales of foreclosed real estate ..............................
Purchase of FHLB stock ............................................................
Purchase of GImmunity Financial Systems, Inc.,

net of cash received ..................................................................
Purchase of Iowa Bancorp, Inc., net of cash received ................
Purchase of Central West Bancorporatio~ net of cash

received ....................................................................................
Purchase of premises and equipmenL net ..................................
Proceeds from sales of aW6 ............................................m.........
Net cash from investing activities ..........................................

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in noninterest-bearing dernan~

savings, NOW, and money market demand deposits ..............
Net change in other time depsim ..............................................
Proceeds from advances from FHLB ..........................................
Repayments of advances from FIUB ........................................
Net change in securitiessold under agreemesmto repurchase...,....
Net change in advanceshorn borrowers for taxes and insurance ..
Cash dividends paid ..................................................................
Proceeds from exercise of stock options ....................................
Purchase of treasury swk ..........................................................
Net cash from financing activities ......................................

(24,975,540)
(3,599,754)
132,842
(1,355,100)

(5~17~65_)

(229,430)
(845,380)
72,925
(61,876,160)

(295,265)
18,548,037
210,000,000
(160,510,585)
1,640,000
(11,279)
(745,761)
94,500
(630,710)

68,088,937

27~05
(19411,940)
(4~80,762)
78,738
(899,800)

8~56,744
(22,059,813)
(2281,756)
2,000
(1,134,900)

(6,801,434)

(581,126)

(34,366)

10414,105

(68,333,86;)

(5,082,644)
708,934
246,000,000
(255,209,677)
240,000
70,919
(515,095)

(5,066,686)
1,829,381
298,300,000
(240,308,847)
(1,488,152)
(24,545)

(932,030)
(14,719,593)

(2,070,177)
51,170,974

Net change in cash and cash equivalents ......................................

9,712,940

(1,814,523)

(14,114,069)

Cash and cash equivalents at beginning of year .,.,. .......................

4,615,712

6,430,235

20,544,304

CASH AND CASH EQUIVALENTS AT END OF YEAR ....................

>14,328,652

$4,615,712

$6,430~35

First Midwest Financial, Inc. and Subsidiaries

ConsolidatedStatamonlsof CashFlows (Gmttid)

Years EndedSeptember30, 19S, 1995and 1894

1s8s

1ss5

1S96

Supplemental disclosure of cash flow information

Cash paid during the year for:

Interest ....................................................................................
Income taxes ..........................................................................

$13,629,670
1,736,192

$11,696,386
2,366,886

$6,594,377
1,463,427

Supplemental scheduleof non-cashinvestingand

financingactivities
Loans transferredto foreclosedreal estate ................................
Issuanceof common stock for purchaseof

220,474

129,408

CentralWest Bancorporation ..................................................

3,936,634

The aczompaqi”ng nokx are an intigra[ part of these consolidated @nxia[

s-ask

First Midwest Financial, Inc. and Subsidiaries

No@J5toComnlidatadhfmcid W@menta

Ssptamber~, 195,1985 and 1994

Financial,

Note 1- Summa~ of Significartt Accounting Policies
General:
First Midwest
Inc.
(the
Iowa, and
“Company” ) is located in Storm Lake,
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
(the “Bank” or “First
Savings Bank of the Midwest
Federal”) upon the conversion described below.

On September 20, 1993, First Federal Savings and

Loan Association of Storm Lake (the “Association”)
was converted from a federally chartered mutual
savings and loan association 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
and Nature of Bw”ness
The consolidat-
and Industry Segment h+mruztion:
include the accounts of the
ed financial statements
Company and its wholly-owned subsidiaries, which
include the Bank, Security State Bank (“Security” ),
First Services Financial Limited, which offers broker-
age services and non-insured investment products,
All significant
and Brookings Service Corporation.
intercompany
balances and transactions have been
eliminated.

The primary source of income for the Company is
commerc-
the purchase or origination of commercial,
real estate, and residential real estate loans. See
ial
Note 4 for a discussion of concentrations
of credit
risk. The Company accepts deposits from customers
in the normal course of business primarily in north-
Iowa and eastern South Dakota,
west and central
The Company
in the banking
industry which accounts
for more than 900/0 of its
revenues, operating income and assets.

operates primarily

Assets held in trust or fiduciary capacity are not
assets of the Company
are not
included in the accompanying consolidated financial
trust
statements. At September 30, 1996 and 1995,
assets
and
approximately
$9,245,000,

and, accordingly,

respectively.

$10,172,000

totaled

accepted accounting
to make
the reported amounts

We of IZstimutes in PreparingFinancial Statements:
The preparation of financial statements in conformi-
principles
ty with generally
and
requires management
assumptions
of
assets,
liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses
during the reporting period. Actual results could dif-
fer from those estimates.

that affect

estimates

instruments,

Certain Signi/kant Estimates: The allowance
for
fair val-
loan losses, deferred income tax provisions,
ues of securities and other financial
the
determination and carrying value of impaired loans,
goodwill amortization and depreciation of premises
involve certain significant estimates
and equipment,
These estimates are reviewed
made by mamgement.
routinely and it is reasonably possi-
by management
ble that circumstances
30,
1996 may change in the near-term future and that
the effect could be material
state-
ments.

that exist at September

to the financial

Certain Vulnerability Due to Certain Concentra-
tions: Management
is of the opinion that no con-
centrations exist that make the Company vulnerable
to the risk of near-term severe impact.

For purposes

Cash and Cash Equivalents:
of
reporting cash flows, cash and cash equivalents
is
defined to include the Company’s cash on hand and
due from financial institutions and short-term interest-
institutions. The
bearing deposits in other financial
Company reports net cash flows for customer
loan
transactions,
deposits
term borrowings with maturities of 90 days or less.

interest-bearing
and short-

transactions,

institutions,

financial

in other

deposit

Investments

Effective October 1, 1993,
of Statement

the Company
Securit&
of Financial
adopted the provisions
Accounting Standards (SFAS) No. 115, “Accounting
in Debt
for Certain
and Equity
Securities”.
The Company now classifies securities
as securities held to maturity, available for sale and
trading securities.
Securities held to maturity are
those which the Company has the positive intent
and ability to hold to maturity, and are reported at
amortized cost. Securities available for sale are those
the Company may decide to sell if need~d for liquidi-
ty, asset-liability management
reasons.
Securities available for sale are reported at fair value,
with unrealized gains and losses included as a sepa-
equity, net of tax.
rate component of shareholders’
Trading securities are bought principally for sale in
the near term, and are reported at fair value with
unrealized gains and losses included in earnings.
The effect of adopting SFAS No. 115 was not mater-
ial to the consolidated financial statements.

or other

1, 1993

Securities

securities.

SFAS No. 115,

In implementing

including mortgage-backed

the Company
originally designated the securities and mortgage-
as avail-
backed securities held at October
able-for-sale
acquired since
October 1, 1993 have been designated at acquisition
as available-for-sale or held-to-maturity, howeveq in
all securities previously designated as
May 1995,
held-to-maturity,
securi-
ties, were transferred to the available-for-sale catego-
ry. The Company does not have any securities clas-
or trading at September
sified as held-to-maturity
30, 1996 or 1995. Although the Company does not
to sell the securities available
have a current
for sale, and it is management’s
the
Company has the ability to hold these securities to
considers the designation as
maturity, management
to provide flexibility in adjusting
available-for-sale
the composition
of the securities portfolio as may
become desirable in the future.

opinion that

intent

Gains and losses on the sale of securities

are
determined using the specific identification method
based on amortized cost and are reflected in results
of operations at the time of sale.
Interest and divi-
dend income, adjusted by amortization of purchase
premium or discount over the estimated life of the
security using the level yield method,
is included in
earnings.

Loans Hekf /br S&: Mortgage loans originated and
intended for sale in the secondary market are carried
at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized in a
valuation allowance by charges to income.

Loans:
Loans receivable that management has the
intent and ability to hold for the foreseeable future
or until maturity or pay-off are reported at their out-
standing principal balances adjusted for any charge-
offs, the allowance for loan losses, any deferred fees
or costs on originated loans and any unamortized
premiums or discounts on purchased loans.

Premiums or discounts on purchased loans are
amortized to income using the level yield method
over the remaining period to contractual maturi~,
adjusted for anticipated prepayments.

Interest income on loans is accrued over the term
of the loans b~sed upon the amount of ,principal out-
standing except when serious doubt exists as to the
in which case the accrual of
collectibility of a loan,
Lnterest income is subse-
interest
quently recognized only to the extent
that cash paY-
ments are received until, in management’s judgment,
the borrower has the ability to make contractual
interest and principal payments,
loan is returned to accrual status.

in which case the

is discontinued.

Loan Origination Fees, Commitment Fees and
Related Costs: Loan fees and certain direct
loan
origination costs are deferred, with the net fee or
cost recognized as an adjustment
to interest income
using the interest method.

The allowance

Allowance for Loan Losses: Because some loans
may not be repaid in full, an allowance for loan loss-
for loan losses is
es is recorded.
increased by a provision for loan losses charged to
expense and decreased by charge-offs
(net of recov-
eries). Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Manage-
ment’s periodic evaluation of the adequacy of the
allowance is based on the Company’s past loan loss
experience, known and inherent risks in the portfo-
lio, adverse situations that may affect the borrower’s
ability to repay, the estimated value of any underly-
ing collateral,
While management may periodically allocate por-
tions of the allowance for specific problem loan situ-
ations, the whole allowance is available for any loan
charge-offs that occur.

and current

conditions.

economic

114,

SFAS No.

“Accounting

by Creditors

for
Impairment of a Loan”,
as amended by SFAS No.
and
118, was adopted effective October
requires recognition of loan impairment.
Loans are
considered impaired if full principal or interest pay-
ments are not anticipated in accordance with the

1, 1995

loan terms.

Impaired loans are carried
Contraaud
at the present value of exp&ed
future cash flows
discounted at the loan’s effective interest rate or at
the fair value of the collateral
if the loan is collateral
dependent. A pm-don of the allowance for loan loss-
es is allocated to impaired loans if the value of such
loans is deemed to be less than the unpaid balance.
Lf these allocations cause the allowance for loan loss-
es to require an increase, such increase is reported as
a component of the provision for loan losses. The
effect of adopting these standards was not material
to the consolidated iinancial statements.

loans.

residential

Commercial

construction

Smaller-balance homogeneous

loans are evaluated
for impatient
in total. Such loans include residen-
tial first mortgage loans secured by one-to-four
fami-
loans, and
ly residences,
automobile, manufactured homes, home equi~ and
second mortgage
loans and
mortgage loans secured by other properties are eval-
uated individually for impairment. When analysis of
borrower operating results and financial condition
indicates that underlying -cash flows of the borrow-
er’s business are not adequate to meet its debt service
the loan is evaluated for impairment.
requirements,
Often this is associated with a delay or shortfall
in
loans are
payments of 90 days or more. Nonaccrual
often also considered impaired.
Impaired loans, or
off when deemed
are charged
portions
uncollectible. The nature of disclosures for irnpaked
loans is considered generally comparable
to prior
nonaccrual and renegotiated loans and non-perform-
ing and past due asset disclosures.

thereof,

Foreclosed Real Estate: Real estate properties
acquired through, or in lieu of, loan foreclose
are
initially recorded at fair value at the date of acquisi-
reduction to
tion, establishing a new cost basis. hy
fair value from the carrying value of the related loan
at the tie
of acquisition is accounted for as a loan
loss and charged against the allowance for loan loss-
es. Valuations are periodically performed by man-
agement
are adjusted
through a charge to income for changes in fair value
or estimated selling costs.

and valuation

allowances

1, 1993,

Income Taxes:
the
Effective October
Company adopted SFAS No. 109, “Accounting for
Income Taxes”. Under SFAS No. 109 deferred tax
assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to
be realized or settled. As changes
in tax laws or
rates me enacted, deferred tax assets and liabilities
are adjusted through income tax expense.

The effect of applying the provisions of SFAS No.
109 resulted in a one-time adjustment
that increased
net income for the year ended September 30, 1994
($.13 per share) recorded as a cumula-
by $257,163
tive effect of a change in accounting principles.

P?en&sand&@ipwnk
Land is carried at cost.
furniture, fixtures and equipment are car-
Buildin~
and
ried at cost,
amortization
by using the
swiight-line method over the estimated useful lives
of the assets ranging from 3 to 40 years.

less accumulated
computed

depreciation

principally

for

the Company

as a reduction

began to account

PLzn: Effective October
Emptbyee Stuck Owned@
1, 1994,
its
employee stock ownership plan (“ESOP” ) in accor-
dance with AICPA Statement of Position (“SOP”)
the cost of shares issued to
93-6. Under SOP 93-6,
the ESOP, but not yet allocated to participants,
are
presented in the consolidated statement of financial
condition
equity.
based on the
Compensation
market price of the shares as they are committed to
be released for allocation to participant
accounts.
The difference between the market price and the cost
of shares committed to be released is recorded as an
adjustment
to additioml paid-in capital. Dividends
on allocated ESOP shares are recorded as a reduc-
tion of retained earnings; dividends are not paid on
unearned ESOP shares.

of shareholders’

is recorded

expense

ESOP shares are considered outstanding for ear-
ningsper share calculations as they are committed to
be released; unearned shares are not considered out-
standing.

Prior to the adoption of SOP 93-6,

the expense
recorded relative to the ESOP was limited to the
principal repayment on the loan and the earnings per
all
share
as outstanding
153,410
stock owned by the
ESOP.

included
shares of common

calculation

FinancialInstmmenti with Off-Balance-Sheet Risk:
course of business,
The Company,
makes commitments
to make loans which are not
reflected in the financial statements. A summa ry of
these commitments

is disclosed in Note 15.

in the normal

and 1995,

Intangibb Assets: Goodwill arising from the acqui-
sition of subsidiary banks is amortized over 15 years
using the straight-line method. As of September 30,
totaled
1996
respectively. Amortiza-
$5,090,958
for
and $62,584
tion expense was $170,070,$125,160
the years ended September
and
1995
1994,

and $1,689,776,

unamortized

respectively.

goodwill

1996,

30,

Securities Sold Under Agreements to Repur%zse:
The Company enters into sales of securities under
agreements to repurchase with primary dealers only,
which provide for the repurchase of the same securi-
ty. Securities
to purchase
sold under agreements
identical securities are collateralized by assets which
are held in safekeeping in the name of the Bank by
Securities
the dealers who arranged the transaction.
to repurchase are treated as
sold under agreements

und
acco
?

=d the oblations
such
are reflected & a liability. “l%e securities
remain in the asset

to repurchase

k-
lying the agreements
ts of the Company.

mgs per COIIMIIOIIsh~e iS
EU+WS p= *:
4com uted by dividing net income by the weighted

aver~e number of common shares outstanding and
co
on share equivalents which would arise from
consi
The difference
3
betw+m primary and fully diluted earnings per share

ring dilutive stock options.

is not material.
The weighted average mpnber of
shares for calculating fully diluted earnings per com-
mon share is:

Fully diluted ............ 1,798#73

1,780,592

1,98 S,064

Rakassi@tions:
Certain amounts in the 1995 and
1994 consolidated financial statements were reclassi-
fied to conform with the 1996 presentation.

Nets 2-Acquisitions

stock of Community

OrI March 28, 1994 the Company acquired 100%
Financial
of the common
Systerhs, Inc. (“Community”),
and its wholly-owned
subsidiary, Brookings Federal Bank, a federal savings
bank, in a purchase transaction with $69 million in
common stock
assets, Each share of Community’s
in cash, The Company
was exchanged for $31.38

$10.5 million.

paid approximately
Community’s
results of operations are included in the consolidated
income statement of the Company beginning as of
the purchase date.

Presented below are the proforma results of oper-
ations of the Company for the year ended September
assuming the Community acquisition had
30, 1994,
occurred as of October 1, 1993.

Net in~rest income ........................................................................................................................................
Net inwme ....................................................................................................................................................

$8,819,577
2,804,020

=fi~tc~mmon

and common equivalent share

Net income ...................l..................................l...................................................................................

$1.41

On December 29, 1995,

the Company acquired
Inc.
100’% of the common stock of Iowa Bancorp,
and its wholly-owned subsidiary,
(“Iowa Bancorp”),
Iowa Savings Bank, a federal savings bank, in a pur-
chase transaction with $25 million in assets. Each
share
stock was
in cash. The Company paid
exchanged for $20.39
Iowa Bancorp’s results of
approximately $8 million.

Iowa Bancorp’s

common

operations are included in the consolidated income
statement of the Company beginning as of the pur-
chase date.

the Company

Presented below are the proforma results of oper-
the years
ended
for
ations
of
September 30, 1996
assuming the Iowa
and 1995,
Bancorp acquisition had occurred as of the begin-
ning of each fiscal year.

Net interestincome..........................................................................................................
Net income ......................................................................................................................
Earnings per common and common equivalent share

Fully dduted:

Isa

1s95

$10,467,578
2~68,794

$9,872,a49
3,569,052

Net income ............................................................................................................

$1.26

$2,00

stock

On September 30, 1996,

the Company acquired
of Central West
100% of the common
Bancorporation
and its wholly-
(“Central West”),
owned subsidiary, security State Bank, in a purchase
transaction with $33 million in assets. Each share of
Central West’s common stock was exchanged for
$18.04
shares of the Company’s
common stock. The Company paid approximately
$1.3 miUion and issued 171,158

common shares val-

in cash and 2.3528

ued at $23 per share for a total value of $3,936,634.
Central West’s results of operations are included in
the consolidated income statement of the Company
beginning as of the purchase date.

Presented below are the consolidated

proforma
results of operations of the Company for the years
assuming the
ended September 30, 1996 and 1995,
Central West acquisition
as of the
beginning of each fiscal year.

had occurred

Net interestincome ..................................................................................................
Net income ..............................................................................................................
Eamhgs per common and common equivalentshare

Fullydiluted:

$11,326,730
2,410~18

$10265,360
3,481,751

Net income ....................................................................................................

$1.22

$1.78

Note 3- Securities

The amortized cost and fti value of securities available for sale areas

follows:

DEBT SECUIUTIES

Obligations of states and political subdivisions
U.S. Government and federal agencies ..........
obhgatiom ....................................
Coprate
Mortgage-backed securities ..........................

MARKETABLEEQUITY SECURITIES..................

1,392,354
69,595,584
199,971
35,278,943
106,466,852
2,977,684

$-$

63,693
2,466
633,751
699,910
125,983

$109,444,S36

$ 825,893

Amordzad
coat

Sapiarnbar 30,19W

Grnas
Unrealized
Gains

Gross
Unrealized
Loaaaa

Fair
Value

1,392,354
69~09,166
202,437
35,586,314
106,390,271
3,101,287

!l!?2@=

-
(450,111)

(776,491)
(2,380)

ti)

DEBT SE”CUFUTIES

U.S. Government and federal agencies ............
Corporate obligations ......................................
Mortgage-backed securities ............................

MARKETABLEEQUITY SECURITIES..................

SeptambarXl, 1995

Arnortizad
coal

Groaa
Unraalizad
Gaina

Grusa
Unraalizad

Fair
Vahra

$ 45,442y279
1,050,569
20,658,802
67,151,650
2,168,688

$ 157,179
7,368
817,761
982,308
90,555

(87,473)
(62)

(161,109)

$45,511,985

1,057,875
21,402,989
67,972,849
2~59,243

$ 69,32CJ338

$1,072,863

$70,232,092

The amortized cost and fair value of debt securities by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

Due in one year or less....................................................................... .......................
Due after one year through five years ...................................................... ..........
Due after five years through ten years ............................ ..........................................
Due after ten yem ....................................................................................................

Mortgage-backed securities......................................................................................

Saptamkr 30, 19M

Arnlrrtizad
Cosl

Fair
Vahur

$43,968,463
21,224,420
5,696,876
298,150
71,187,909
35~78,943

$43,977,423
20,891,552
5,636,832
298,150
70,803,957
35,586,314

$106,466,852
——

$106,390~71

Activities related to the sale of securities available for sale and mortgage-backed

securities available for

sale are summarized as follows:

Yrn EndedSs@unbwa
1=

Proceeds from sales ..................................................................................
Gross gains on sales ..................................................................................
Gross losses on dm ..................................................................................

$366,829
79,317

$49,445y258
1,070447

$16,136,827
80,666
71,496

During the period ended September

30,

1994,

In May 1995,

there were no sales of securities held to maturity or
transfers of securities between available for sale and
the Company reclas-
held to maturity.
secu-
sified all securities,
rities, 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 measurement of interest sensitivity of floating-

including mortgage-backed

securities.

reclassification

provided sufficient potential

It was manage-
rate mortgage-backed
the pending regulatory policy
ment’s opinion that
clarification
risk to
the market value of this type of security to war-
of the securities held by the
rant
Company to the available or sale designation.
The
amortized cost and approximate
fair value of securi-
securities that were trans-
ties and mortgage-backed
sale category were
ferred
for
to the available
respectively.
$77,832,845

and $78,948,854,

Nota 4- l.oana Receivable, Nat

Loans receivable as of September 30 are summarized as follows:

One to four family residentialmortgage loans:

Insuredby F’HAor guaranteedby VA ................................................................
Conventional......................................................................................................
co mtruction ............................................................................................................
Commercialand multi-familyreal estateloans........................................................
estateloans......................................m....l................m.......................
Agriculturald
Commercialbusinessloans ......................................................................................
A@ukurd businesshXUIS......................................................................................
.............................l...............................................m..........................
Consumerl.

hs: Allowance for loan losses.............................................l....................................
Undistributedportion of loans in process ..........................................................
Net deferredloan originationfees ......................................................................

19W

1s5

502,786
77,973,057
7,819,129
85,157278
11,068,059
15,468,175
30,364~35
20,427,632
248,780,351

(2,356,113)
(2~40,373)
(650,346)

599,019
56,674,526
17,877,327
73,418,931
7,021~64
8,172,989
11,905,367
13,007,467
188,676,890
(1,649,520)
(8,071,693)
(404,176)

$243,533,519

~8,551,501

Activity in the allowance for loan losses for the years ended September 30 is summarized as follows:

Balamz at *g
of ym ..............................................................
Provision for loan losses ............mm..................................m.............l.....
Community allowance at acquisition date .................... ...................
Iowa Bancorp allowance at acquisition date ....................................
Central West allowamx at acquisition date ......................................
Charge-offs ........................................................................................

189a

laaa

1994

$1,649,520
100,000

$1,442,077
250,000

$ 825,000
105,000
517,781

132,500
563,310
(89,217)

(42,55;)

(5,704)

Balance at end of yeu ........................................................................

$2,356,113

$1,649,520

:1,44~7

Viiy

of total

purchased

$76,444,000

The Company’s

all of the Company’s originated loans
are to Iowa and South Dakota-based individuals and
organizations.
loans
at September
totalle.d approximately
30, 1996 and were secured by properties locate~ as
as follows:
a percentage
loans,
in
Wisconsin,
4’?’. in Iowa, 2% in
5 YOin Minnesota,
South Dakota, 2% in New York, 29’o in Nebraska,
2% in North Dakota

7% in thir-
loans
teen other
totalled approximately
at September
30, 1995 and were secured by properties located, as
a percentage
in
Wisconsin,
in MhUIeSOta, 5% in Iowa, 4% in
South Dakota, 3% in New York and the remaining
14% in fifteen other states.

The Bank’s purchased

loans as follows:

and the remaining

$78,760,000

of total

states.

11 ‘Yo

7?’.

8 ‘Yo

greater

include

to be of somewhat

lle Company’s commercial

The Company originates and purchases commer-
cial real estate loans. These loans are considered by
management
risk of
due to the dependency on income
uncollectibility
real estate
production.
loans
and
of loans secured by nursing homes at
$7,430,000
The
September
remainder of the commercial
real estate portfolio is
diversified by industry. The Company’s policy for
requiring collateral
and guarantees varies with the
credirwortbkss

approximately

respectively.

and 1995,

$8,766,000

30, 1996

The amount

and related party
loans as of September 30, 1996 and 1995 were not
significant. The amount of non-accruing loans as of
and
September 30,1996
$?1 1,000,

and 1995 were $2,646,000

res&&vely.

of each borrower.
of restructured

Information regardirtg impaired loans is as follows for the year ended September 30,1996:

Average invesunent in impaired loans ........ ......................................................................................
Interest income recognized on impaired loans including interest income

reco@zed on cash basis ..............................................................................................................
Interest income recognized on impaired loans on cash basis ............................................................

Information regarding impaired loans at year end is as follows.

Balance of impaired loans ................................................................................... ...............................
Less portion for which no allowance for loan losses is allocated ......................................................
Portion of impaired loan balance for which an allowance for loan losses

is allocated ....................................................................................................................................

Portion of allowance for loan losses

aUocated to the impaired loan balance ....................................

405,000

78,000
78,000

$1,623,000
(1,623,000)

Nota 5- Foreclosed Real Estate

Foreclosed real estate as of September 30 is summarized as follows:

Foreclosed real estate ..................................... ...............................................................,.
Las: Allowance for foreclosed real estate loses ............................................. .......i.......

$91,818
(5,000)

$48,418

$86,818

A summary of the activity in the allowance for foreclosed real estate losses for the years ended September

30 is as follows:

19s

1995

1994

Balance, begkming of period ....................................................................
Provision for losses on foreclosed real estate ............................................
Less: Losses charged against aHowance....................................................

Balance, end of period ..............................................................................

$-$-

20,000
(15,000)

$5,000$-$:

$10,897

(10,89~)

@’

?lamtl-baasalvkhg

Mortgage

loans serviced for others are not

included in the accompanying

consolidated balance sheets.

The unpaid principal balances of these loans at September 30 is smmwixd

as follows:

Mortgage loan portfolios serviced for FNMA ........................................................

$1,748,000
—.

$1,630,000

Custodial escrow balances maintained in connection with the foregoing loan servicing were approximate-

ly $48,000

and $45,000

at September 30,1996

and 1995,

respectively.

Nuts 7- Pramisaa and Equipment Nat

Premises and equipment at September 30 are summarized as follows:

Land ........................................................................................................................
Buildings ..................................................................................................................
............................................................................
Furniture, fixtures and eqtipmat

Leas accumulated depreciation ................................................................................

1996

18s

.$ 535J33
3,979,312
2,078@8
6,592,803
(2,912,471)

$ 446,547
2,685,197
1,929,692
5,061,436
(3,084,789)

$1,976,647

Depreciation of premises and equipment,

for the years ended September 30,1996,1995

included in occupancy and equipment expense, was $214,201,
and 1994,

respectively.

$134,733

and $91,061

Nets 8- Depesits

The aggregate amount of short-term jumbo certificates of deposit in denomination of $100,000

or more

was approximately $12,463,000

and $6,957,500

at September 30, 1996 and 1995,

respectively,

At September 30, 1996,

the scheduled maturities of certificates of deposit were as follows for the years

ended September 30:

1997

1998

1999

2000

2001

... . . . .. .. .. . . ..m. .. .. . . .. .. . .. . .. . . . .. . . .. .. . . .. . . .. . . .. . . .. . . .. . . . . .. .. . . . .. . . .. . . . . .. .. .. . . .. . ... . . .. . . . . .. . .. . .. . . .. . .......................

.. . . . .. . .. . . . .. . . . . .. . .. . . . .. . . . .. . .. . . . .. . . . .. . .. . . . . .. . . .. . . .. . . .. . . . .. . .. . . . .. .. . . .. .. . . . . .. . . .. . . .. . . . .. . .. . . . .. . .. . ........................

. ..m. .. . .. . .. .. .. . ... .. . . . .. .. .. . . .. .. .. . ... . . . .. . . . .. . .. . . . . ... . .. . . .. . ... . . .. . . . .. . .. . . . . . .. .. . . .. . . . . .. . . .. . . .. . . .. . . . .......................

. . .. . . .. . . .. . . .. . . .. . . . . .. . . . .. . . .. . . .. . . .. . . . .. . .. . .. .. . .. .. . . .. . .. .. . . .. .. .. . . .. .. .. . . .. . . . . . ... .. . .. .. .. .. . . .. . . .. . . .........................
and thereab

........................................................................................................................

$126,312,353
38,701,778

11,158,153

1,580,664

841,389

$178,594,337

Nets 9- Advances Frem Federal Home Loan Bank

At September 30, 1996,

advances born the FHLB of Des Moines with fixed and variable rates ranging

from 4.59% to 7.82’% mature in the year ending September 30 as follows:

1997 ................................................................................................................................................
1998 ................................................................................................................................................
1999 ........................................................................................i.......................................................
2000 ................................................................................................................................................
2001 and thereafter .................... ....................................................................................................

$69,850,000

23,550,000
200,000
600,000
8,087,803

$102287,803

to the FHLB a security interest

The Bank has executed a blanket pledge whereby
the Bank assigns, transfers and pledges to the FHLB
in all
and grants
the
property now or hereafter owned. However,
Bank has the right
and dispose
it has assigned to the FHLB. Under
of the collateral
the agreement,
the Bank must maintain “eligible col-
lateral” that has a “lending value” at least equal to

to use, commingle

the “required collateral amount”,
the agreement.

all as defined by

the Bank pledged

costs of approximately

and 1995,

At September 30,1996
securities with amortized
$61,163,000
approximately
against specific FHLB advances.
fying mortgage loans of approximately
were pledged as collateral at September 30, 1996.

and $22,500,000
$60,605,000

and fair values of
and $22,468,000

In addition, quali-

$69,296,000

Note 10- Securities Sold Under Agreements to Repurchase

At September 30,1996

and 1995,

securities sold under agreements to repurchase totaled $2,789,918

and $1,149,918,

respectively,

An analysis of securities sold under agreements to repurchase is as follows:

Yeara endedSapternber30,

Highestmonth-endbalance ............................................................................................
Average balance ..............................................................................................................
Weighted average interest rate during the period ............................................................
Weighted average interest rate at end of period ..............................................................

$2,789,918
2,197,611

$1,312,411
1,139,431

5.56%
5.52~o

5.30~o
5.75%

At September 30, 1996,

securities sold under agreements to repurchase had maturities ranging from I to

11 months with a weighted average maturity of 5 months.

The Bank pledged securities with amortized costs of approximately

and fair
respectively, at September 30, 1996 and 1995 as col-

and $1,580,000

$3,045,000

values of approximately
lateral for securities sold under agreements to reptuchase.

and $1,603,000,

$3,117,000

Note 11- Other Borrowings

Other borrowings at September 30, 1996 consisted of $1,400,000

of advances from the Federal Reserve

Bank of Chicago with a 5.4% discount rate due October 1,1996.

Note 12- Enmlovee Bmmfii
Profit Sbari;g Pfun: The profit sharing plan covers
substantially all full-time employees and provides for
the Company, at its option and subject to a percent-
age of employee earnings limitation imposed by the
Internal Revenue Code,
to contribute to a trust cre-
ated by the plan. Related expense for years ended
and 1994 was $-O-,
1995
September
$106,188

and $113,343,

respectively.

1996,

30,

The interest

of 8 years.
rate for the loan is 8%.
Shares purchased by the ESOP are held in suspense
as the loan is
for allocation
among participants
and
$358,613
repaid. ESOP expense of $451,500,
was
$198,100
ended
September
respectively.
30, 1996,
Contributions of $200,000,$218,800
were made to the ESOP during the years ended
September 30,1996,1995

for
and 1994,

and $198,100

respectively.

the years

and 1994,

recorded

1995

for eligible

In con-
the Company
employees.

Employee Stock Ownership PLzn (ESOP):
junction with the stock conversion,
established
an ESOP
Employees with 1,000 hours of employment with
the Bank and who have attained age 21 are eligible
to participate.
shares of
from the Company to purchase
the Company’s
for the
loan is the unearned shares of common stock pur-
chased with the loan proceeds by the ESOP. The
loan will be repaid principally from the Bank’s dis-
to the ESOP over a period
cretionary contributions

common stock. Collateral

The ESOP borrowed

$1,534,100

153,410

Contributions

to the ESOP and shares released
to the
from suspense in an amount proportional
of the ESOP loan are allocated among
repayment
ESOP participants on the basis of compensation in
the year of allocation.
Benefits generally become
1009’. vested after seven years of credited service.
to the completion of seven years of credited
Prior
employment
service, a participant who terminates
for reasons other than death, normal
retirement, or
disability receives a reduced benefit based on the
ESOP’S vesting schedule. Forfeitures are reallocated
in the
among remaining participating
are
same proportion

as contributions,

employees,

Benefits

payable in the form of stock upon termination of
employment. The Bank’s contributions
to the ESOP
are not fixed, so benefits payable under the ESOP
cannot be estimated.

ESOP participants are entitled to receive distribu-
tions from their ESOP accounts only upon terrnina-

tion of seMce.

For

the years ended September

and 21,880

1995320,000
an average
share, respectively, were committed to be released.

fair value of $22.58

30,
and
shares, respectively, with
per

and $16.39

1996

The MOP shares as of September 30 me as follows:

19s

Allocatedshares ........................................................................................

Unemd

shares ........................................................................................

Total ESOP shares ....................................................................................

Fair value of unearned shaies at September 30 ........................................

76,690

76,720

153,410

——
$1,860,46~

56,690

96,720

153,410

34,810

118,600

153,410

$1,934,400

30,

1996,

options

and September 29, 2006,

Stock Optim and hcentive Plans: Certain officers
and directors of the Company
and the Bank have
been granted options to purchase common stock of
to the 1993 Stock Option
the Company pursuant
For the year
and Incentive Plan (the “1993 Plan”).
ended September
on 15,000
shares were granted at an exercise price of $22.50
per share and options on 500 shares were granted at
per share and expire
an exercise price of $23,63
respec-
January 22, 2006
tively.
1995,
shares were granted at an exercise
options on 3,509
per share and expire January 22,
price of $20.62
2005.
30, 1994,
For
options on 172,585
shares were granted at an exer-
cise price of $10.00 per share and expire September
common shares were
20, 2003. Options on 9,450
exercised at $10.00 per share during the year ended
September
No options were exercised
during the fiscal years ended September 30, 1995
As of September 30, 1996, no options
and 1994.
have expired under the 1993 Plan.

the year ended September

30, 1996,

For

30,

Certain officers and directors of the Bank have
been granted options to purchase common stock of
to the 1995 Stock Option
the Company pursuant

For
1,000

and Incentive Plan (the “1995 Plan” ).
the year
ended September 30, 1996, options on
shares
were granted at an exercise price of $22.13 per share
and options on 22,660
and expire July 25, 2006
shares were granted at an exercise price of $23.63
per share and expire September 29, 2006,
As of
September 30, 1996, no options have been exercised
or have expired under the 1995 Plan.

(2,876

and 70,952

common stock on May 23, 1994

respectively,
to a management

Management Recognition and Retention P&s:
The Company granted 4,794
of
which have been forfeited under terms of the Plan
due to termination of service) restricted shares of the
Company’s
and
to certain officers
September 20, 1993,
of the Bank pursuant
recognition
and retention plan (the “Plan” ). The holders of the
restricted shares have all of the rights of a sharehold-
sell, assign, pledge or
er except
transfer
shares during the
restricted period. The restricted shares vest at a rate
of 25’?”O
of the grant date.
and $381,897 was
Expense of $117,064,
recorded
ended
the years
September 30,1996,1995

on each anniversary
$208,159

for
and 1994,

any of the restricted

these plans

they cannot

respectively.

that

for

Note 13- Income Taxes

The Company has been allowed a deduction of 87. of taxable income or on a specified experience formu-
income method was used for tax returns filed for the years ended September
In future years

la. The percentage-of-taxable
30, 1995 and 1994
and is anticipated to be used for the year ended September 30, 1996.
only the specified experience formda method will be allowed due to recent tax law changes,
Income tax expense for the years ended September 30 is summa rized as follows:

FEDERAL

Current ................................................................................................
Deferred ..............................................................................................

STATE

Current ................................................................................................
Defemed ..............................................................................................

mCOMT~EW~SE

......................................................................

19s

1995

1994

$1,735,099

(282,756)
1,452,343

290,825
(46,845)
243,980
$1,696,32?

$1,946,687
46,000
1,992,687

324,000
4,000
328,000
$2,320,687
——

$1,348,519

(59,700)

1288,819

150,000

$1,433,519

Total income tax expense differed from amounts computed using the U.S. Federal income tax rate of 34’%

on income before income -es

as follows:

YearsoadsliSo@mnlwa

19M

1995

Income taxes at 34~0 Federal tax rate ......................................................
Increase (decrease) resuhng from

Bad debt deduction - net ......................................................................
State income uxes - net of federal bnefit ............................................
heess of cost over net assets acquired ................................................
ficess of fair value of MOP shares released over cost ........................
Other - nti ............................................................................................

$1,397,000

$1,995,000

$1,327,790

161,000
58,000
86,000
(5,677)

214,000
43,000
48,000
20,687

(34,000)
99,000
21279

19,450

Total income tax e~n*

................................................................

$1,696,323
——

$2,320,687

$1,433,519
—

The components of the net deferred tax asset (liability) recorded in the consolidated balance sheets as of

September 30, 1996 and 1995 are as follows:

DEFERRED TAX ASSETS:

Bad debts ............................................................................................................................
Deferred loan fees ..............................................................................................................
Management incentive program .......m...m...................................................................l........
..................................................................................................................
SAIF aHment
Other iterns ...............................m........................................................................................

DEFERRED TAX LIABIIJTLES:

Federal Home Loan Bank stcck dividend ..........................................................................
Accrual to cash basis ..................................................................................m.......................
Net um-caked appreciation on securities available for sale ..............................................
Other ..............................................l................m..................................................................

Valuation allowance .....................................m.............................................m...m...m....................

1996

173,000
140,000
68,000
472,000
63,000
916,000

(452,000)
(206,000)
(18,324)

J3x!2Y

(716422)

$ 228,000
104,000
83,000

33,000
448,000

(419,000)

(337,349)
(18,864)
(775,213)

Net deferred tax asset (liability) ..............................................................................................

199,778

$ (327~13)

Retained earnings at September 30, 1996 and 1995 includes approximately

$6,744,000

and $6~00,000,

for which no deferred federal

income tax liability has been recorded which represents bad
purposes only. Reduction of amounts so allocated for purposes other than tax bad

respectively,
debt deductions for -
debt
to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approxi-
mately $2,300,000

at September 30, 1996 and 1995,

only, which would be subject

losses would create

for tax purposes

and $2,100,000

respectively.

income

Nota 14- Capital Requiramonts and Restrictions on Ratained Earnings

The Company has two primary subsidiaries, First Federal and Security.

First Federal and Security are
Failure to meet minimum capital requirements can initi-
subject to various regulatory capital requirements.
if undertaken, could have a direct material
ate certain mandatory or discretionary actions by regulators that,
statements. Under capital adequacy guidelines and the regulatory framework for
effect on the fimncial
prompt corrective action, First Federal and Security must meet specific quantitative capital guidelines using
items as calculated under regulatory accounting prac-
their assets,
tices. The requirements are also subject to qualitative judgments by the regulators about components,
risk
weighings and other factors.

liabilities, and cefiin

off-balance-sheet

Regulations require First Federal

capital, leverage capital and risk-based capital. Management believes, as of September
Federal meets the capital adequacy reqtiements.

to maintain minimum amounts and ratios (set forth below) of tangible
that First

30, 1996,

The following is a reconciliation of First Federal’s capital under generally accepted accounting principles

(GAAP) to regtdatory capital at September 30,1996

and 199.5:

GAAPcapimlat September 30,1996
Additional capital items and capital adjustments:

......................................................

Net unrealized depreciation on securities available for sale ................
Intangible assets ..................................................................................
Investment in nonincludable subsidiaries ............................................
Less assets required to be dedued
. .. . .. . . . .. . . . . .. . . .. . . .. . . .. . . . .. . .. . . . . .. . .. . . .. .. . .
allowance for loan lW~ ....................................................
Includable

Regulatory capital at September 30,1996

................................................

GAAPcapital at September 30,1995
Additional capital items and capital adjustments

......................................................

Net unrealized appreciation on securities available for sale ................
Inwngible assets ..................................................................................
Investment in nonincludable subsidiaries ............................................
Less assets required to be deduded ......................................................
Includable aflowance for loan losses....................................................

Tangible
capital

Lavefalga
Cepihl
(Dollars i. thousands)

llii-Besed

capital

34,398

(2,2;)

(787)

(2,2;;)

(787)

(2,2;)

(787)
(51)

1,792

31,343

35,036

(539)
(1,690)
(734)

(539)
(1,690)
(734)
(74)

1,634

Regulatory capital at September 30,1995

................................................

32,073

33,633

First Federal’s actual capital and required capital amounts and ratios are presented below

Acfual

Amourrt

Ratio

Ret@ement
ForCapital
AdeauecvPurlresas
-
(Dokms in thousands)

Ratio

hnowrt-

Te Be Well

Cepilalizedunder
ProrI@ Cerracdve
ActionProvisions

Amount

Ratio

AS OF SEPTEMBER 30,1996

Tangible Capital
Leverage Capital
Risk-Based Capital

AS OF SEPTEMBER 30, 1995

Tangible Capitaf
Leverage Capital
Risk-Based Capital

$31,343
$31,343
$33,084

$32,073
$32,073
$33,633

9.04%
9.04~o
16.36%

12.37%
12.3i’~o

2P.42%
/

$5,198
$10,396
$16,176

$3,891
$7,781
$13,177

1.5070
3,00%
8.00%

1.50%
3.oo%
8.00%

$10,396
$20,792
$2030

$7,781
$15,562
$16,471

3.oo~o
6.00%
10.00%

3.00%
6.00%
10.00%

prior

approval

Regulations

of the Office of Thrift Supervision
limit the amount of dividends and other capital dk-
tributions that may be paid by a savings institution
without
of the Office of Thrift
Supervision. The regulatory restriction is based on a
three-tiered system with the greatest flexibility being
afforded to well-capitalized
First Federal
is currently
Accordingly, First Federal can make, without prior
regulatory approval, distributions during a calendar
year up to 100% of its net income to date during the
that would reduce by
calendar year plus an amount
one-half
ratio” (the excess over
its capital requirements) at the beginning of the cal-

(Tier 1 ) institutions.
1 institution.

its “surplus capital

a Tier

30, 1996,
at September
endar year. Accordingly,
approximately $8,000,000
of First Federal’s retained
earnings is potentially available for distribution to
the Company.

(as defined in the regulations)

Quantitative measures established by regulation
to ensure capital adequacy require Security to main-
tain minimum amounts and ratios (set forth in the
risk-based capital and Tier I
table below) of total
to risk-weight-
capital
ed assets (as defined), and a leverage ratio consisting
of Tier I capital
to average assets (as
defined). Management believes, as of September 30,
1996,
that Security meets
requirements to which it is subject.

(as defined)

all capital

adequacy

The following is a reconciliation of Security’s capital under GMP to regulatory capital at September 30,

1996:

I
Tii
capital

(DOILZTSin thousands)

Tdal
nii-Basad

CapiIal

GAAP capital at September 30,1996
Additional capital items and capital adjustments

......................................................

hmmgible assets ..................................................................................
....................................................
Includable allowance for loan lo*s

5,860

(2,811)

(2,811)
274

Regulatory capital at September 30, 1996 ................................................

3,049

3,323

the

date,

the most recent notifi-
Deposit

As of December 31, 1995,
Federal

cation
Corporation categorized Security as well capitalized
under the regulatory framework for prompt correc- Mieves have changed the institution’s category.
as well capitalized
tive action.
Security must maintain minimum, Tier I risk-based,

amounts and ratios are presented below

To be categorized

and required

Tier I leverage and total risk-based capital ratios as
set forth in the table below. There are no conditions
or events since that notification that management

Insurance

Security’s

capital

actual

Actual

Flequiramant
Forcapital
AdaquacyPurpoaas

To Ba Well
CapitalizedUndar
PmlnplCotmctiva
Action Proviaiona

Ratio

Amount

Ratio

Amount

Ratio

(DolLars in tbousunds)

AS OF SEPTEMBER 30>1996
Tier I Capital (to risk
weighted assets)

Leverage Capi~l

(to average assets)
Toed Risk-Based Capital

$3,049

(to risk weighted assets)

$3,323

15.4~o

$1,729

14.l~o

$865

4.()%

$1497

10.0’70

$1,220

4.0%

8.0%

$1,525

$2,161

6.0%

5.0%

10.0%

Nota 15- Commitmanis and Contingencies

In the normal

course of business,

makes various commitments
are not reflected in the accompanying
financial statements.

the Company
to extend credit which
consolidated

At September 30, 1996

and 1995,

loan commit-

rates

and $12,818,000,

totaling $314,000,

Loan commitments

included commitments

ments approximated $20,671,000
respectively, excluding undisbursed portions of loans
30,
in process.
at September
to originate fixed-rate
1996
ranging
loans with interest
from 8.5% to
9.2570
adjustable-rate loan com-
mitments with interest rates ranging from 8.13 0/0 to
11.0070
with
purchase
interest rates ranging from 9,25 ‘Yo
Loan
commitments
at September 30, 1995 included com-
mitments to originate fixed-rate loans with interest
rates
$551,000,
interest rates ranging from 7,75 ‘7’0
ing $9,059,000

loan commitments with
total-
to 10.7570
rate purchase loan

totaling $14,723,000
loan commitments

from 7.75°/0
adjustable-rate

and adjustable-rate

and adjustable

of $5,634,000

to 9.50°A.

to 11 .75

ranging

totaling

°/0

to 9.380/0.

commitments of $3,208,000 with interest rates rang-
ing from 8.75 0/0
Commitments, which
are disbursed subject
extend
over various periods of time. Generally, unused
are canceled upon expiration of the
commitments
commitment
term as outlined in each individual con-
tract.

to certain limitations,

by other parties

The exposure to credit

performance
ments for comminnents
ed by the contractual
The same credit policies and collateral
are used in making commitments
obligations as are used for on-balance-sheet
ments.

loss in the event of non-
instru-
to financial
to extend credit is represent-
amount of those instruments,
requirements
and conditional
instru-

Since certain commitments

to make loans and to
fund lines of credit and loans in process expire with-
out being used, the amount does not necessarily rep-
In addition, com-
resent future cash comrnianents.
mitments used to extend credit are agreements
to
lend to a customer as long as there is no violation of
any condition established in the contract.

Securities with amortized costs of approximately

and $6,465,000

$9,711,000
approximately
September
pledged as collateral for public funds on deposit.

and fair values of
at
respectively, were

and $6,412,000

and 1995,

$9,633,000

30, 1996

and $999,000

Securities with amortized costs of approximately
and fak values of approx-
at September
and $1,006,000
respectively, were pledged as

$2,404,000
imately $2,456,000
30, 1996
collateral for individual, trust and estate deposits.

and 1995,

Under employment agreements with certain exec-

utive officers,
from the Company or the Bank could red
payments
totaling approximately
September 30,1996.

certain events leading to separation
in cash
as of

$2,500,000

The Company and its subsidiaries are subject to
certain claims and legal actions arising in the ordi-
In the opinion of manage-
nary course of business.
the ulti-
ment, after consultation with legal counsel,
mate disposition of these matters is not expected to
have a material adverse effect on the consolidated
financial position of the Company.

Nota 16- Parant Comnanv financial Statement

Presented below &e c~ndensed financial statements for the parent company, First Midwest Financial, Inc.

Con&madBahnaa Shaat8

SaommbarW 1= and 1X

ASSETS
Cash and cash eqtivalen@ ................................................................................................
%mu-itiesavailable for sale ..............................................................................................
Investment in subsidiary banks ........................................................................................
Loan remivable from ESOP ............................................................................................
Other =m ......................................................................................................................

$1,383,318

$1,161,376

1,433~85
40~58,011
767,200
61,431

694,950
35,036,350
967~00
172,190

Total a~

..................................................................................................................

$43,903J45

$38,032$16J

LIABILITIES
Aarued expenses and other habfities ..............................................................................

693,543

19,370

SHAREHOLDERS’EQUITY
Common stock ................................................................................................................
Additioml paid-in capital ................................................................................................
RetakIed earnings - substantially mstimed ......................................................................
Net unrealized appreciation on securities available for sale,

net of m.x of $18,324 in 1996 and $340,190

in 1995 ..................................................
Unearned Employee Stock Ownership Plan shines ..........................................................
....................................................................................................
Treasury stdq at cost
Total shareholders’ equity ..........................................................................................

19,905
20,862,551
23,748,383

28,698
(767@O)
(682,635)

43,209,702

19,915
19,310,045
22,080,579

571,564
(967,200)
(3,002~07)
38,012,696

Total liabilities and shareholders’ equity ..............................................................

.$43,903J45

$38,032,066

Dividendincomefrom subsidiarybanks ..................................................
~Er*timme
..........................................................................................
-
on wles of securities available for sale, net ......................................

Operating expenses ..................................................................................

$9,500,000
219,546
51J37
9,770,783
182,743

$1,800,000
177,901
51250
2,029,151
132,175

$4,500,000
238,357
46,342
4.784,699
175;586

INCOME BEFORE INCOME TAXES AND EQUITY IN

UNDISTRIBUTED NET INCOME OF SUBSIDIARIES ................................

9,588,040

1,896,976

4,609,113

Income wxexpense ................................l.................................................

53.000

50.000

70,482

tNCOME BEFORE EQUIIT IN UNDISTRIBUTED NET INCOME

OF SUBSIDIARIES .......................................................................................-

9,535,040

1,846,976

4,538,631

(Distributions in excess of) equity in undistributed

net income of subsidiary banks ...................................... ........................

(7,121,475)

1,697,376

(1,809,720)

NET ~COME

............. ................................... ......... ...................... ..... ........

$2,413,565

!$3,544,352

$2,728,911

CondaslaedStatematlta d CeehHowe

Yeera endedSeptember30,1896,1S5 end 1994

CASH FLOWS FROM OPERATING AC3TVITIES

Netincome ..........................................................................................
Adjustmentsto reconcifenet income to net cash from operating activities:

Distribution in excess of (equity in undistributed) net income

of subsidiary banks ....................................................................
Amortization of recognition and retention plan ............................
Gain on sales of securities available for sale, net ............................
Change in other assets ....................................................................
Change in accrued expenses and other liabilities............................
Netcash from operating activities ..................................................

CASH FLOWS FROM INVESTINGACTIVITIES

Purchase of securities available for sAe ................................................
Proceeds from sales of wcurities available for sale ..............................
Purchase of Community Financial Systems, Inc. ..................................
Purchase of Iowa Bancorporation, hc . ................................................
Purchase of Central West Bancorporation ..........................................
Repayments on loan receivable from ESOP ..................... ...................
Net cash from investment activities .......... ......................................

CASHFLOWS FROM FINANCING ACTIVITIES

Cash dividends paid ............................................................................
Proceeds from exercise of stock options ..............................................
Purchase of treasury stink ....................................................................
Net cash from financing activities ........... .......................................

18M

1985

1994

$2,413,565

$3,544,352

$2,728,911

7,121,475
117,064
(51237)
110,759
721,109
10,432,735

(1,014,438)
338,750

(6,529,615)
(1,923,519)
200,000
(8,928,822)

(745,761)
94,500
(630,710)

(1,697,376)
208,159
(51,250)
291,107
54,984
2,349,976

(617,562]
241,875

1,809,720
381,897
(46,342)
(463,297)
(82,764)

4,328,125

(333,550)
162,378
(9,929,443)

218,800
(156,887)

198,100
(9,902,515)

(515,095]

(932,030]

(2,070,177)

l!@!_zl)

J!@@)

IU!zQzz)

Net change in cash and cash equivalents ..................................................

221,942

745,964

(7,644,567)

Cash andcash equivalents at beginning of year .... ....................................

1,161,376

415,412

8,059,979

CASH AND CASHEQUIVALENTSAT END OF YEAR ................................

$1,383,318

$1,161,376

$ 415,412

Supplemental schedule of noncash investing and financing activities;

Issuance of common stock for purchase of Central West Bancorporation

$3.936.634

The extent

to which the Company may pay cash dividends to shareholders will depend on the cash cur-
as well as the ability of the subsidiary banks to pay dividends to the

rently available at the Company,
Company (see Note 14).

Note 17- Selected Quarterly Finnncial Data (Unaudited]

FISCAL YEAR 1996:

Total

interest

income ...................... ..............

Total

interest expense .. ............ ................. .....

Net

interest

income ..... ........ ..... .... ... ..... ........ ..

Provision for loan losses ...... ..........................

Net income

.............. ............ ....................

Earnings per share (fully diluted)

Decerrsber31

March 31

June ~

SqsWnbar=

QuarterEnded

$S,363,332
2,960,194
2,403,138
30,000
776,845

$5,962,258
3,407,485
2,S54,773
30,000
726,806

$6,499,056
3,735,106
2,763,950
30,000
892,181

$6,512,819
3,875,825
2,636,994
10,000
17,733

Netincome

..............................................

.43

.41

.50

.01

FISCAL YEAR 1995:

Totil

interest

income

.. .......... ............ .... ........

Total

interest expense ........ ............................

Net

interest

income ........................... .............

Provision for loan losses .......... ............ ..........

Netincome

................ ........ ......... ... ..... .....

Earnings per share (fully diluted)

$5,202,586
2,815,729
2,386,8S7
30,000
776,494

$5,558,039
3,154,619
2,403,420
30,000
774~20

$5,162,491
2,897,007
2,26S,484
130,000
1~62,075

$5,130,354
2,781,369
2,348,985
60,000
731,563

Net income ..............................................

.43

.44

.72

.41

FISCAL YEAR 1994:

Total

interest

income

....... ........ .... .................

Total

interest expense .. .. .... .......... .... ........ ......

interest

Net
income .................. ............ ..........
Provision for loan losses ................................
Income before cumulative

effects of changes in
accounting principles ..................................

Cumulative effects of changes

in accounting principles ..............................
..............................................

Netincome

Nota 18- Fair Values of Financial Instruments

WAS No. 107,

It is management’s belief that

“Disclosures About Fair Value of
Fitumcial Instruments, ” requires that
the Company
disclose estimated fair value amounts of its financial
the fair
instruments.
values presented below are reasonable based on the
to the
valuation
Company as of September 30, 1996
as
It should be noted that
more fully described below.
the operations of the Company are managed from a

techniques

and 1995,

and data

available

$2,741,732
1,355,277
1,386,455

$2,894,417
1,211,200
1,683,217
25,000

$4,506,061
2,169,440
2,336,621

$5,010,481
2,546,577
2,463,904
80,000

382,994

601,972

844,765

642,017

257,163
640,157

601,972

844,765

642,017

going concern basis and not a liquidation basis. As
a resilt,
the ultimate value realized for the financial
instruments presented could be substantially differ-
ent when actually recognized over time through the
a sub-
normal
stantial portion of the Company’s
inherent value is
the Bank’s
value.
Neither of these components have been given con-
sideration in the presentation of fair values below.

course of operations.

and franchise

capitalization

Additionally,

The following presents the carrying amount and estimated fair value of the financial ins~urnents held by
This information is presented solely for compliance with

the Company at September 30, 1996 and 1995.
SFAS No. 107 and is subject to change over tie

based on a variety of factors.

SELECTED ASSETS:

Cash and cash equivalents ............................................
Interest-bearing deposits in

other financial institutions ..........................................
Securities available for sale................................ ............
Loans receivable, net ....................................................
FHLB Stock ..................................................................
Accrued interest r~eivable ............................................

$14,328,652

$14,329,000

$4,615,712

$4,616,000

300,000
109,491,558
243,533,519
5,524,700
5,029,047

300,000
109,492,000
243,654,000
5,525,000
5,029,000

70~32,092
178,551,501
3,915,300
2,745,747

70J32,000
181,148,000
3,915,000
2,746,000

SELECTED LIABILITIES:

Noninterest bearing demand

deposits ......................................................................

(5,452,911)

(5,452,000)

(2,076,671)

(2,077,000)

Savirsgs,NOW and money
market demand deposits ............................................

Other time certificates of

(49,358,478)

(49,358,000)

(40,407,661)

(40,408,000)

deposit ........................................................................
Total deposits ..........................................................

(178,594,337)
(233,405,726)

(178,762,000)
(233,572,000)

(129,308,665)
(171,792,997)

(130,292,000)
(172,777,000)

Advances from FHLB ..................................................
Securities sold under

agreements to repuAse

............................................
Other borroti% ..........................................................
Advances from borrowers

(102,287,803)

(102,185,000)

(51,098,388)

(51,123,000)

(2,789,918)
(1,400,000)

(2,790,000)
(1,400,000)

(1,149,918)

(1,148,000)

for iaxes and insurance ..............................................
Accrued interest payable ..............................................

(490243)
(1,271,465)

(490,000)
(1,271,000)

(501,522)
(788,008)

(501,000)
(788,000)

OFF-BALANCE SHEET INSTRUMENTS:

Loancommitmen~

................... ............. .... .......... ........

$(20,671,000)

$(12#18,000)

The following sets forth the methods and assumpt-
ions used in determining the fair value estimates for
the Company’s
at September
30, 1996 and 1995.

instruments

financial

Cash and Cash Eqs4zvuk?nt: The carrying amount
of cash and short-term investment
is assumed to
approximate the fair value.

In Other Financial
Interest-bearing Deposits
Institutions: The carrying amount of interest-bear-
ing deposits in other financial institutions is assumed
to approximate

the fair value.

Securities Available For Sale: Quoted market prices
or dealer quotes were used to determine
the fair
value of securities available for sale.

net was estimated by discounting

Loans Receivable, Net: The fair value of loans
receivable,
the
future cash flows using the current
rates at which
similar loans would be made to borrowers with simi-
lar credit ratings and for similar remaining maturi-

rate at which similar

ties. When using the discounting method to deter-
mine fair value,
loans were gathered by homoge-
neous groups with similar terms and conditions and
discounted at a target
loans
as of September 30,
would be made to borrowers
1996 and 1995. The fair value of loans held for sale
commitments
is determined by outstanding
from
investor yield requirements
investments or current
calculated on an aggregate loan basis.
In addition,
fair value for all
the estimated
when computing
loans, allowances for loan losses have been subtract-
ed from the calculated fair value for consideration of
credit issues.

FHZB Stock: The fait value of such stock approxi-
mates book value since the Bank is able to redeem
this stock with the Federal Home Loan Bank at par
value.

Accrued Interest Rem”vable: The carrying amount
of accrued interest receivable is assumed to approxi-
mate the fair value.

Deposits: The fair value of deposits were determined
as follows:
(i) for noninterest bearing deposits, sav-
ings, NOW and money market demand deposits,
since such deposits are immediately withdrawable,
the carrying
fair value is determined to approximate
value (the amount payable on demand);
(ii) for other
time certificates of deposit,
the fair value has been
estimated by discounting expected future cash flows
by the current
30,
1996 and 1995 on certificates of deposit with similar
remaining maturities.
In accordance with SFAS No.
107, no value has been assigned to the Bank’s long-
term relationships with its deposit customers
(core
value of deposits intangible) since such intangible is
not a financial
as defined under SFAS
No. 107.

rates offered as of September

instrument

from FHLB:

Advances
The fair value of such
advances was estimated by discounting the expected
rates as of
future cash flows using current
interest
September 30, 1996
for advances with
and 1995,
similar terms and remaining maturities.

Securities Sold Under Agreements to Repurchase
The fair value of securities
and Other B~“ngs:
sold under agreements to repurchase and other bor-
rowings was estimated by discounting the expected
future cash flows using derived interest rates approx’
imating market as of September 30, 1996 and 1995
over the contractual maturity of such borrowings.

Advanas Fmm Bomnuexs for Trees and Insurance:
from borrowers
The carrying amount of advances
for taxes and insurance is assumed to approximate
the fair value.

Note 19- Suppiementel Cash Flow Disclosures

Amwd
Interest Payable:
accrued interest payable is
the fair value.

The carrying amount of
assumed to approximate

Loan Commitments The commitments
to originate
and purchase loans have terms that are consistent
with current market
the
Accordingly,
the face amounts of these
Company estimates that
commitments are not significant.

terms.

about

customer

information

instruments.

Additionally,

future business,

fair value estimates

from offering the Company’s
financial instrument

Limitations:
It must be noted that fak value esti-
mates are made at a specific point in time, based on
the financial
relevant market
instrument.
are
based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value
of anticipated
relation-
ships and the value of assets and liabilities that are
These esti-
not considered financial
that
mates do not reflect any premium or discount
entire
could result
holdings of a particular
for sale
since no market exists for
at one time. Furthermore,
certain of the Company’s
fair
financial
value estimates may be based on judgments regard-
ing future expected loss experience, current econom-
risk characteristics of various financial
ic conditions,
and other factors. These estimates are
instruments,
and
subjective in nature and involve uncertainties
matters of significant judgment and therefore camot
be determined
with a high level of precision.
Changes
tions
described
Accordingly,
fair value estimates
are not
above,
the aggregate
intended to represent
the underlying value of the
Company, on either a going concern or a liquidation
basis.

in assumptions
could significantly

based on the limitations

as well as tax considera-

the estimates.

instruments,

affect

On Dec~rnber

29,

$8,000,000

in cash.

1995,

purchased
In conjunction with the acquisition,

the Company

all of the common
liabilities were assumed as follows:

stock of Iowa Bancorp

for

Fair value of assets acquired ......................................................................................................................
Cash paid ..................................................................................................................................................

$25,429,434

(8,000,000)

Liabilities assmed . .... ........ ..... ... ........ ........................... .. ... ....... .. ....... ... ............ ............ ..... ....... ............

$17,429,434

On September

30,

1996,
in cash and issued 171,158

$1,312,474
with the acquisition,

liabilities were assumed as follows:

the Company,

purchased

all of the common

stock of Central West

common shares at a market value of $23 per share.

for
In conjunction

Fair value of assets acqtired ... ....................... ...... ...... ............ .... ........ ............ .... ........ ..................... ...........

Cash paid ............... ............... ............ ........ ........ ........ .... ........ ........ .... ..................... ...................................

Common stock issued . .. ..... ............... .... ........ ............ ............ ............ ............ ............. ........... ..... ................

Liabilities assumed .. ..... ....... ..... .... ....... ..... .............................. ........ .... ........ ............ .... ............. ..............

$35,577,247

(1,312,474)

(3,936,634)

$30,328,139

Directors of

First Midwest
Financial, Inc.

JAMES S. HAAHR - Chtin
of the Board, President
and
Chief Executive Officer for First
Midwest Financial
Inc. and
First Federal Savings Bank of
the Midwest; President of First
Services Financial Limited, a
wholly-owned
subsidiary of
First Federal; Chairman of the
Board for Security State Bank.
served in
has
Mr. Haahr
numerous
since beginning his
career with First Federal in 1961. He was recently elected
to the Board of Directors
Bankers and is currently a committee member of the
Savings Association Insurance Fund Industry Advisory
Committee. Mr. Haahr is a former Vice Chairman of the
Board of Directors of the FHLB of Des Moines, former
Chairman of the Iowa League of Savings Institutions and a
former director of the U.S. League of Savings Institutions.
Board committees: Fkst FederalTrust Committee. James S.
Haahr is the father of J, Tyler Haahr, a director.
...

of America’s Community

industry organizations

.. .

...

RODNEY G. MUILENBURG -
Member of the hard of Direc-
tors for First Midwest Financial,
Inc., First Federal Savings Bank
of the Midwest, and Security
State Bank. Mr. Muilenburg is
employed as a dairy specialist
with Purina Mills,
Inc., and
supervises the sale of agricul-
tural products in a region which
encompasses northwest Iowa,
northeast Nebraska, eastern South Dakota and south-
west Minnesota. Board committees: Chairman of the
and member of the Audit-
Stock Option Committee
Compensatioflersomel Committee.

E. THURMAN GASKILL
-
Member of the Board of Direc-
tors for First Midwest Financial,
Inc., First Federal Savings Bank
of the Midwest,
and Security
State Bank. Mr. Gaskill has
owned and operated a grain
farming operation located near
Corwith,
Board committees: Audit-Com-
pensatioflersonnel Committee

Iowa since 1958.

and First Federal Trust Committee Chairman.

J. TYLER HAAHR - Member
for
of the Board of Directors
First Midwest Financial,
Inc.,
First Federal Savings Bank of
the Midwest, and Security State
Bank. Mr. Haahr is a partner
with the law firm of Lewis and
Rota LLP, Phoenix, Arizona,
and has been with the firm
since 1989, Board committees
Stock Option Committee and
J. Tyler Haahr is the son

First Federal Trust Committee.
of James S. Haahr, Chairman of the Board of Directors.

... ...

...

. .

COOLEY - Member
E. W=
of the Board of Directors for
First Midwest Financial,
Inc.,
First Federal Savings Bank of
the Midwest, and Security State
Bank. Dr. Cooley has served
as Executive Secretary of the
Iowa Girls’ High School Athle-
tic Union in Des Moines, Iowa
since 1954. Board committees:
Chairman of the Audit-Com-
Committee; member of the Stock

pensatioflersonnel
Option Committee.

..,,...,.,,,,

,,,.,

JEANNE PARTLow - Member
of the Board of Directors for
First Midwest Financial,
Inc.
Mrs, Partlow is President of
the Iowa Savings Bank Division
of First Federal, Des Moines,
Iowa. She was President, Chief
Executive Officer and Chair
of the Board of Iowa Savings
Bank, F.S.B.
from 1987 until
the end of December 1995 when
Iowa Savings Bank was acquired by and became a Divis-
ion of First Federal Savings Bank of the Midwest.

t xecutive

Office rs

JAMES S. ~
Chairman of the Board, President
and CEO for First Midwest
Finuncial, Inc., and First Federal
Savings Bank of the Midwest

FREDA. STEVENS
VicePresident,
Secreta~
Chief Operating Officzr

and

for First

Inc., and

Midwest Financial,
Executive VicePresident,Secret&y,
Chief OperatingOfficer,and
Trust Officer for First Federal
Savings Bank of the Midwest

DONALD J. WINCHELL, CPA
Vice President, Treasurer and
Chief Financial Officer for First
Midwest Financial, kc,, and
Senior Vice President, Treasurer
and Chief Financial Of~cer for
First Federal Savings Bank of the
Midwest

SUSAN C. JESSE
Senior Vice President

- Branch
and Compliance

Administration
Officer, First Federal Savings
Bank of the Midwest

RICHARDA. WEHDE
Vice President - Commercial/
Agricultural Loans, First Federal
SavingsBank of the Midwest

KIUSTIL. FREY
Senior VicePresident
and Sales, First Federal Savings
Bank of the Midwest

- Marketing

A. BUCKENDAHL

hODY
Vice President - Savings
First Federal Savings Bank
of the Midwest

Addir.

Ional

~lrst Federa
Savinas Ban

~ OFFICERS AND
MANAGEMENT

IOWA SAVIMS BANK
DMSION

Jeanne Partlow
President
Iowa Savings Bank

James E. Peters
Vice President/
Consumer Loans
Iowa Savings Bank

Bryca Loring
Vice President/
Mortgage Loans
Iowa Savings Bank

Lora D. White
Secretary/Treasurer
Iowa Savings Bank

MAIN BANK OFFICS —
STORM UKB, IOWA
Barbara A. Kestal
Executive Secretary

Brad A. Lenharl
Assistant Treasurer
and Controller

Dan B. Berglund
Assistant Secretary

Nyla Bartram
Assistant Secretary-
Savings

Vicki D. Page
Account Services
Supervisor

Cindy J. Pudanz
Retirement Plans
Administrator

Carol J. Seavey
Internal Auditor

Duetin G. Williams
Credit Analyst

~BANKOFFWBs
Carol A. Pierce
Regional Vice
President
Laurens Office

Virginia M. Thayer
Regional Vice
President
LakeView Office

Karan Wailer
Regional Vice
President
Manson Office

Renae Babcock
Branch Manager
Odebolt Office

Marilyn C. VVirrkel
Branch Manager
Sac City Office

Kate Ellis
Office Supervisor
Laurens Office

Charlene M. Pickhinke
Office Supervisor
Sac City Office

Marlene M. Nimke
Office Supervisor
Manson Office

Lynn Pranschke
Office Supervisor
Storm Lake Plaza
Office

BKOOKIM DIVISION
James C. Winterboer
President
Brookings Federal

Robert L Brooks
Vice President/
Senior Loan Officer
Brookings Federal

Jay M. Johnson
Assistant Vice
President
Brookings Federal

Steve C. Almos
Assistant Vice
President
Agricultural Loans
Brookings Federal

John D. Heylens
Loan Officer
Brookings Federal

Cheryl A. Engal
Customer Service
Supervisor
Brookings Federal

Susan E. Schutt
Director of Marketing
and Sales
Brookings Federal

Security
State

Bank

OFFICERS AND MANAGEMENT

MAIN BANK OFFiCIE-
S1’URT, IOWA
Clauda F. Havick
President
Security State Bank

lva Mae Howard
Vice President and
Cashier

Robart C. Duff
Vice President

Curtis D. Petersen
Vice President

omBRBAmoFFlcBs
Dana L Hansen
Vice President and
Branch Manager
Casey Office

Steven FLKroeger
Ag Loan Officer
and Branch Manager
Menlo Office

Corporate

Information

Corporate Headquarters
First Midwest Financial, Inc.
First Federal Building
Fifth at Erie
P.O. Box 1307
Storm Lake, Iowa 50588

Annual Meeting of Stockholders
The Annual Meeting of Stockholders will convene at
1 p.m. on Monday, January 27, 1997. The meeting
will be held in the Board Room of First Federal
Savings Bank of the Midwest, Fifth at Erie, Storm
Lake, Iowa. Further information with regard to this
meeting can be found in the proxy statement.

General Counsel
Mack, Hansen, Gadd, Armstrong
& schiller, P.C.
316 East Sixth Street
Storm Lake, Iowa 50588

Spatial Counsel
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, NW
Washington, DC 20005-3934

Stock Market

Information

Independent Auditore
Crowe, Chizek and Company LLP
330 East Jefferson Blvd.
P,O. Box 7
South Bend, Indiana 46624

Stockholder Services and Investor Relations
Stockholders desiringto change the name, address or
ownership of stock, to report lost certificates or to
consolidate accounts should contact
transfer agent:

the corporation’s

Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
1-800-368-5948

Analysts, investors and others seeking a copy of the
Form 1O-KSB or other public financial information
should contact:

Investor Relations - Attention: Kristi L. Frey,
First Midwest Financial, Inc.,
First Federal Building, Fifth at Erie,
P.O. Box 1307,
Storm Lake, Iowa 50588
Telephone 712-732-4117

First Midwest Financial, Inc.’s common stock trades on the Nasdaq National Market under the symbol
“CASH”. The Wall Street Journal publishes daily trading information for our stock under the abbreviation
“FstMidwFnl” in the National Market Listing.

1995
Dividand
Paid

Iw
Dividend
Paid

First quarter

. . . . . . . . . . . . . . . .

Second quarter
Third quarter
Fourth quarter.

. . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . .

!$.075

$.075
$.075
$.075

$,11

$.11

$.11
$.11

FistdYsor1995

FiscalYsor1W6

low

High

Low

High

$14.25

$14.25
$14.25
$17.38

$16.00

$16.25
$17.50
$21.75

$19.75

$22.00
$21.75
$21.75

$23.50

$23.50
$24.25
$24.75

Dividend payment decisions are made with consideration of a variety of factors including earnings, finan-
cial condition, market considerations and regulatory restrictions. Restrictions on dividend payments are
described in Note 14 of the Notes to Consolidated Financial Statements included in this Annual Report.

shares of common stock outstanding which were held by
As of September 30, 1996,
shares subject to outstanding options. The stockholders of record
338 stockholders of record, and 205,804
number does not reflect approximately 620 persons or entities who hold their stock in nominee or “street”
name.

there were 1,945,735

As of September 30, 1996,
First Midwest Financial, Inc., stock:

the following securities firms indicated they were acting as market makers for

Everen Securities, Inc.
Herzog, Heine, Geduld, Inc.

Howe, Barnes & Johnson, Inc.

,’