Pathward Financial
Annual Report 1998

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Financial Highlight= .“C 1997 1996 1995 1994 1993 Tod azse~ ............ .. ......... . ...... $.418,380 LQans receivable, net ............ . .... Tod deposits ........... .. ... ... Shareholders’ equiy .......... .. ... .. ...... . . Book due per common share(r).. To& rquiry to assets.., .. .... ....~..... 270,286 2s3,85s ~. 42,286 $ 16.56 Io.llwo $404>589 254,641 246,1 I 6 43,477 $ 16.11 10.75°A $38S,008 243,534 233,406 43>210 $ 14.81 11.14% $264,213 178,552 171,793 38,013 $ 14.13 14.39% $274,115 155,497 176,167 34,683 $ 12.46 12.65% $160,827 80,224 122,813 33,438 $ 11.21 20.79% For the FEca.1Yw ~W wTI:CVSANDSmm W S- DATA) 1998 1996 1995 1994 1993 Nec interm income ....... ...... .. Nc, .. .. income ....... ...................... ... Diuted eamin~ per shareIII ........ N= yield on inremc-raming assets lzeNm on averageasset ..... ......-. .-$ 12,829 $11,946 $10,359 2,7850) 1.03[3 $ $ 3.26% .68 Yof31 3,642 1.28 3.38% .98°h 8.41% 2>414(+ $ 0.90[41 3.47% .77yo(o 6.22%(* &on ave~ equity ............ 6.43Yo~) Total hS& Total DeposiS —nl—rT— $. m’” NetInterest m“ $ $ 9,405 3,544 1.33 3.63V0 1.31°% 9.86V0 $ $ 7,870 2,729 0.92 3.94% 1.29% 7.89% $ $ 5>077 1,352 0.44QI 3.21% .84% 7.lo% o Chair man~s Letter - To our Shareholders ,’~ , r ! L. Vision. Eveiycompmynecclsone. our September 30,1998, &e subsidiary reported net income vision informs you, a a shareholder, where of $355,000 con]p.wed to $168,000during he sm~e Ficsc Midwest Fmanciai is going. while a period the prmious year. Average monthly nex income . strong histov is imporwlt, how a concinm to rise, promising fiture gains. comparly performs in che future km jumped from $16 I nliflion on September is even more significant. F!rst 30, 1993, when the compmy became publicfy M]d~t is prcp~ing co&y for a traded, to ovm $418 million on September 30, 1998. profitable ton,orrow. what is OUI This incrwe repr~en~ a gain of more than 160 vMen? To build the b-t suPcr- pcrcellt. During the 1998 fiscal year, =ecs grew communi~ bank system in our $13 dion from $405 m~lon to $418 rni8ion. She. market area. holders’ equity at fid year md todcd $42.3 million, k you read the financial or $16.56 per CO~On shine our.sranding. ‘ section of this year’s annual Deposits incrmed $38 mioion during &e 1998 report, you will find First lid ya, from $246 million co $284 miUlon. This Midwest continues its proficablc deposit trend ~cprescnm a 15 percent gtin, much of ic growb. FOI Ae &ml year mld- in demand deposit accounts where the cost of money itlg September 30, 1998, the is lower. comp:my reported net income Timeless checkg, a packaged accounr tkar pro- of $3.7 n]illion. or $1.38 per nlotes cross-selling and relationship baking, hm shmc on a dduted b~is. Earn- had a crelnendous impact on our retail banking ings reflect a 7.8 pcrcenr per share inaae over he same OperatiOns sin~ i~ ~trOduc~On a year ago. Coupled the new phoro QUICKcard Cash & Check ad wifi period last w when net income improved money mxker accounts, dIc company has P w $3.6 mWlon or $1.28 per incremed its demand deposit nccounc bdancs over shin. The 1998 net income is prior 30 percenc Deposit account fcc income jumped 27 to a one-time prc-cu charge of $1.5 percent during the fisd yew. million for loaI~ refxted loss= taken Fist Wdwmc was rimed one of only meaty-eight during the second quarter. The one-time national findist.s in the Bank Wkcting hsociation’s I charge relates prinlaily co misnlwlage- Go[den Coil Awards for ics T[md= and QUICKcard menc and possible fraud by one loan introductions. The award w b=ed on tke followin~. lff, o Leer w 10 IS no longer with the conl- 1) industry innovations, 2) strategy dcvclopn~ent, 3) pany. The one-tinle charge incremes the cactid knplemcntation, md 4) r=uhs. We ae proud compm]yi raewe balmces, set mide for of this recognition. ! potential Iosscs portfofio. WI* in the company’s . . the olle-time &ge, loan “et Sic. initiating Ae firsr stock mpurchwe progmm in 1994, the company has tivcsted a tod of $11.2 income for f~c?l year 1998 is $2.8 milliol] or milkon for shares purchased at an average price $1.03 per diluted share. of $14.97 per share (adjusted for a sto& dividend), Etinings for the Security State Balk thereby cr~ring additiond value for shueholdas. subsidla~ =e parciculady noteworthy. The O. A.gust 24, 1998, &e company announced is bank achieved a 111 percent fi!crme b intentions to repurchase an addicioti 5 permnc of k earnings during the fiscal year. On ouc.smdlng shares. At fisd ymr end, the compay I ~ ~ had 77,835 sharm remaining co repurclI=e under the dedicated oficers and scfi co provide msential l~der- program. ship that will ~ide the company toward its vision. AS DemandDeposit BalanceGrowIh On November 23, 1998, First Midwest announced you r=d more about each bank division/subsidiary, -r-r”” an increase in &e company’s quarterly cash dividend you ~viOsee rhat madition, customer service, innova- from 12 cents per share to 13 cenu per share. The div. tion, and t-work GIe important concepts of our idcnd, which repr=en~ an increme of 8.33 percent, is super-communi~ stmcnue. Concepts we feel help lad payable on or about January 4, 1999 co shareholde~s of co resuk.s. record m of Decmba 15, 1998. We are plwed to pay hoking ahd, First Midwtit continua to seek this increased ~h dividend to you, our shareholder. QPPQ~nities to increase shareholder tiue, ~fi& International financial uncertain~ has contributed includm the acquisition of savings bmks, commercial toward erratic move in the U.S. madcem, particularly banks, and other related-service compani= in our geo”- *OSC with Asim mposue. First Midwest’s investment graphid area. Orher capid managemen~ strategies portfofio dom not have significant exposure TO the such as ~lvidends and stock repurch~es wi8 &o be &i markets. Comiscent with our business manage- mn.sidered. && opportunity is evaluared careMy. We ment, Fiic Midw~s Fleetad Fxrm 0. DALE bON own., LanoLlfvkulufa.,w~ Tim D. Harvey President 6m0ki”gs Federal Bank Dvision of Hrsi Federal Savings Bank of tie Midwest Economic Dafa Average Land Value as of Ii?bmary 1998 High-pmducb~ non-ir?igat- edcroplandin easf-cmkai Sofdk Dakti $944peracE Buikiimg Penn& 1997 Bronkiws Reskfmtid — $e38,6S0 CommerM — $16,W,500 T=ble R&ii SalES1997 Bmtings $149,490,6s1 Unemplowenf Rate as Of June Im Bmokings 7.4% -. Iowa Savings Bank Innovation. lowz~zvings ~m~~~~~ A new Tc!l-A-Friend Tiielw and QUICfiard A=d in technolo~, product offeri,]gs, and profitabil- promotion added a unique twim for cuscome~s and ity since becotilg pm of First Feded SaviWs Bank employem in all bd mwkeu. Each pc~on cotid of the Midwmt in 1995. The banks re.stths far exceed an a free @r if dtcy I&erred a ~Iend to the bank ad original goak and projections. The Mom Help all cus- a new account ww opened. The average checking tomers reach heir financial go&. The mission. Provide and QIJfCfiard accounm opened during that period a cukue focused on continuow improvement, de5 incr~ed si~lady. md perfor~ce, a&pcabJily, profitability, and pro- vidu]g customers dte bat ~ancid produm avaifable. Iowa Savings Bds h~torid fom on savings .md “Our mmpmy is prepued to tackle nw cbd- stated Troy. “We m in a competitive mmket a variery of leng~,” where customers we bombwded witi single-fmily inch,de the offcrillg.s of a fi~ semice financial loan producu home h expmded co promotions md advcrrisiig. Advertising is ~; it is imtim- salm that ~uira work.” Esrablishmg a proaaive de.s tion. “We knew there m gr=t I]larkcr potential in D= cuhure to mea cusromcrs’ needs k 2 priori~ for Iowa Moil)~,” stated Troy Moore, Prc.sident. “Branding into Savings Bank. the developing W~t D= Moines ~ea, adding new The compaly products, md inlproving existing ones have contrib- industry ti)ges is aware of cwrcnc and mpected and is positioning itself co capittilze uted towad &e bank’s dramatic growdl.” Bryce on these oppomnitim. New produa and servim, bring, VLce Pr=ident of Lending added, “WC hwe a dditiond raouce.s, experienced leadership, ad exmp. competent tm of employea who understand and tionzl customer servia prove 10 be a successful formda serve &e needs of existi]g customers. In fact, many nw for profidl. growth at Iowa Savings Bank and the accoun~ come from returning customers ad refcrrafs.” OA.W banks. Customers at 10wa Savings now have dle op~orl to -e all of *cir bmccs from one location dt~ Iowa Savings Bank 1998 kigkfighm to improved product and servim choim. TInld~ Check- Troy Moore succeeds Jcanrle Pardow, who retired ing wih ics packaged ben+lts, Cash & Geck, and tiered money m=ket the pho[o QUICKcard as President in June after 47 succt-.ssN yews in the accounm are fmancid indu.st~. J-c remains m active rhrm products with a signfialt impact 011 retail cw mmber of Fmt Midwest F[nmcifls Boacd of tomes. DiIeccoIs. “Iowa Savings Bank hm bulefited from he r~ourca stated LQIa white, pmvidcs,” a larger organization Operations md Brmch Mmag~. “We work as a C- and strive towzd continuous impcove~ncnr and CUS. tomcr sarisf~crion.” The mmpa.ny has devefoped .ni- form product mixes across the bank ORCW tb= m con- sistel]t with strategic objectives. Re&ment prducrs, Total deposi~ incrwe ow $47 mfllion, a 133 percent incrm horn&e previous fiscal year. Net &e&g account numbers jump 370 per~nt. Deposit balancm in checking and monq market accounts soar 4400 pe[cmt. S&s ad S&e – A Conlmitmmt a %ccfknce credit web, ready reserve, ACH origination, Ioms, and program, newly inrroduccd, providm sal~ mining other scmic~ have been improved tii pmt year. Action and ping- to support prozctiie sdm and Cm phns for additiol]d product at~dservice imovatiom and work that improvu customer servim. improvements are shted for the coming yw. Iowa Savings Bank md the other bmks achieved New Regismcd Rcprwentative offers cu.scomers alternative invsunent (Non-trditibml options. autonomy fiough new company-wide promotions and bankprodccti anprav~d through Awrim mars. A first annti Service Check promorion in Inue~mmt Cop. Thy are not FDIC-imured or February gave customers an opportunity to rtiw thtir ~rdnteedby First Fe&al or aq .@[&es.) fimcid situation and update products ~~d scrvicm. The r~ttfts were ducated employeu and customers, new aaounts, md a retitiormd message dtac &e b~~ i dedimted to i,~dividuafiied, hometown setice. Inae*ed community pmticipation improv~ bank’s image: Grand Opening in Wmt D= Moin~, Pork Feed for Chari~, To.chdo\m .scholuship, T=ch Children ro Save D2p and much more. I I Troy Moore President [owa Savings Bank Divisionof FirstFederal %vi.gs Bank of the Midwest Economic Data Average Land Valueas of Sepfmber 1990 Highqualily fann~di” cen&allow: $Z643per am Bui!di”gPermits 1% Metropolitan statistical hrea~ Rmaential — $7,239,700,000 &mmemal— 87,189,600,000 TaxableRehil Sales ?W DesMoines $3>935,W,815 Unemployment Rafe as of June, 1998 mk bun* 1.9% Security Stat- Sank Teamwork. ~ec.rity st~t~ ~~~, tit ~rned abour Ihe welfue of rheir clienrs. Securiry’s ~- company’s only stat~~rrered commercial bank, ciation wirh fin~ Midwesr offers he bellefirs of a krge exemplifi= -omer how working coge&er service and profirabili~. can help boost The visiom Grow safely, soundly, and profitably co become the finan- cial institution of choice in ow market place. The mission: Offer rhe best bank smite.s avaifable tic me= customers’ needs. The pa.sr ym we worked co improve o~ra~ionaI eficienci~, enhance &e loan portfolio, and srra- line respomibdicies,” scared Dana Hansen, Vice Pmident and Cuey Branch Manager, “Our efforts are showing with record profitability and improved communiution witiln OUI office, wkh customers, and with the other b& in our or~ization.” Security Stsce Bank employees have seen the benefim of t-work sinm becoming mociated with First M}dwest FinmciA in 1996. Adminiimtive SUP. pom fmm the fiance, mmketing, account setices, and data processing dep~enu allows the enrirc orgmi- zstion to operste mom Hltiendy and effectively. Ths =i.srance rcandatm into more sdned job rwpon- sib~lties md improved customer semie. Common go&, ~uw, and idea slr~ring help &c bank grow more profitable. “We are only as smong as our weakest fink,” noted Dick Colcmm, Presidmt. financial i~i~u~ion coupld with the personal setice you wpecr from a local bm~ Sscnrhy Stste Eanh 1998 kigfdighti Dick Coleman joins team in Ocrober as President. Securiry Stare Bdc contribute rard anings of $355,070 incrae to&e holding com~y a I I lpercent from the previous Sd year. Wmt Central hnomic Development group, serving Adair and Guthrie Countic.s, opens ifs ofice in rhe lower l-l of Securiry Srate Bank in Stuart and provides additiond oppomiry for new business. New Registered Represarative offers cuxomen dtcrnative invesr.menr options — a first in fhe Security State Bank market area. @on-fiuditihml bankproduc~ ,zwprouided through Amm>m Invetimz COT. Thy am not FDIC-iwred or gIuranteed ~ Semn”zyState Bank or any afl[iata.) SQlesad SWL-e — A Commitment to &ccIlence program, navly introduced, provide salm rraining and progr~ to supporf proacrive dm and ta work &at improves wtomer semice. “When you have srrong people workin~ toward the same goals, you ~e going to be succes- cogerher kaed ~mrnunity parritipation imprmti bank’s image Spring Fling, Pork Feed for Chariry sful.” This philosophy holds true as Chark.s Shafer, a Touchdown Scholmhlp, T~ch Childrm to Save customer and owner of Agri Drain Corp. commented, “I am impr~d wi& &e men and women ac SecBri~ Smte Bank. They a sincere and are genuinely con- Day Good ~ more. Days p-de sponsor, and much .. . DIRECTORS OF SECURITY STATE BANK J-S. HA.4HR CbairH of the Bo=d, Prcident & CEO f.. F,rs, Midwm Fi.m)tial, Inc., ,nd F,rstFeded SavingsBmk .f he Midwest. a,irnun Ward f., Semig SmreBd of the J-N. Bw Pm,”.,, Bump and Bmp Law Office, S,mm md Pmora, Iou.. G. U MICmON V,ce PDes Mohes, 1- 1- Gids’ Hi& School E. TH~ GASm Snce S.nawr Of Iowa, Di$micc8 Owner, GrtiII kming Operati.n &rw;Ih> row, 3 I S%”,i@SlateBm~ MainOiiice,61SSoti nivision$tree~ SW. low OFFICE LOCATIONS First Federa! Savings Bank Mamo. ofic, IowasatingsSank MainOmt%S448Weslo’,v”Patiay, WestDS Moin,,,[owa Securi& Sfsfe Bank Main O@ce 615 South Division RO. Box 606 Stuart, Iows 50250 515-523-2203 800-523-8003 515-523-2460 fm CawyOfice 101 &L08sn I?O. Box 97 CasW, ~0W2 50048 515-746-3366 800-74G3367 515-746-2828 fas Elmenth at Msin titbrook 425 22nd Avmue %.* Ofice Msnson, Iowa 50563 Brookings, Sourh Dakota 712469-3319 712469-2458 k 57006 605-692-2314 Odeboh Ofice Iowa Sati8s W 219 Sou& Msin Street Odebolt, IOW2 51458 Division Main O@ce 712-6684881 712-668-4882 b 3448 Wmown Pzky W=t Des MoiL~es, Iowa 50266 515-22G8474 515-226-8475 fax Higbknd Park 0~.e 3624 Surh Avenue Dm Moines, Iowa 50313 Menh Ofice 515-288-4866 515-288-3104 & 501 Sherman ?0. BOX 36 Menlo, IOWa 50164 515-5244521 sic Ciy Oficf 518 Audubon Street Sac Ciry, Iowa 50583 712-662-7L95 712-662-7196 k Broofcin8s Federal Bsnfc Dl+ion Main Ofice 600 Main Avenue PO. Box 98 Brookin8s, South D&m 57006 605-692-2314 800-842-7452 605-692-7059 fax StOm Lake Dtiion Main Bank Ofice Erie F&at I?O. Box 1307 Storm Lake, Iowa 50588 712-732-4117 800-792-6815 712-732-7105 f= Storm Lake Pb Ofict. 1415 Nofi MC Avmuc Iowa 50588 Storm Mc, 712-732-6655 712-732-7924 h Lake VI.W, Iowa 51450 712-657-2721 712-657-2896 5U Laurens Ofice 104 Nor& Ttird Street La.rens, 50554 Iow 712-845-2588 712-845-2029 fax First Midwest Financial. inc. and subsidiaries SELECTED CONSOLIDATED FINANCIAL INFORMATION September 30, m.T“Q”tiND,) SELECTED FINANCIAL CONDITION DATA 1998 1997 1996 1995 1994 Shareholders’.quiy . ... ... .. . . ... ......... .... ..... . . .42286. $404,589 $388,008 254,641 .115,985 4,863 246,116 112,126 43,477 243,534 109,492 5,091 233,4o6 10G,478 43,210 $264,213 178>552 70,232 — 1,690 171>793 52,248 38,013 $274,115 155,497 37,180 65,917 1,s15 176,167 61,218 34>683. ~ Yw Elded Septanber 30, (1NT“o”wD,, h~,, Pm S,- D.,d SELECTED OPERATIONS DATA Tod inreccscir.comc ............. .... .. ....... . .. ..... .. .......... ........ ..... Tod inrwm mpens .................. .. . ... .... ... .. Nec i,,rcmc income ................. ... .... ........ .. Provisionfoz1*x, losses.............._.__. ... ... Nm tit419 $ ~ ~. ~r” 4,110 1,696 1.08 1.03 1.08 1.03 $ $ .8 $ 1,34 1,28 1.34 128 $ $ $ .$ 0.95., 0.90., 0.95., 0.90., $ ~ ~ ~ $ $ $ $ 21,054 9,405 9,155 2,286 15,153 7,870 7,765 1,078 $ ~3 ~ ~ 5>865 2,321 3>905 1,433 . . 1.39 1.34 139 L34 $ $ $ $ 0.86 0.83 0.95 0.92 --- I ,..-.:: Y= Ended September 30, SELECTED FINANCIAL RATIOS AND 1998 OTIIER DATA 1997 1996 1995 1994 Per formarkcc Ratios Recur,,on -s (ratioof necit,come w avc,q. mm!m,ls)~ .. . . . .. . . .. . . 0.68% 0.98% 1.31% L29Y0 Rewrn on slweholders’equi~ (ratioof ncr timm. LO.Vmgc eqtify)~ ... ...—— . ...—. 6.43 Incmcstracespc=d informwiurz Ave~e cluing year End ofyw ................................ .... ... .. . .._ . . ............. . Net yield on ;L.cwe incec~~-mnhg sets ................ &tio of openting apense co2vera8erord -m ... .. . . .. . Quality Ratios Non-per fonnin~ asses co cord asseu aLend of ~,ar Aflowmcc for IOm low to non.pmfo”ti”g Iom .... Capi [cl Ratios ShAlolders’ equitycototalwets acend of pcciod Avera8eshuel,oldcrs’ ,qui~ to .Ww xscm ktio “r .Vmqe interes-eac,tig SSB ,0 .2.76 .2,76 3.26 2.00 1.94 41.15 10.11 10.51 8,41 2.80 2.75 3.38 2.00 .82 75.36 10.75 11.62 9.86 3.13 1.85 3.63 2.06 .29 227.27 14.39 13.28 7.89 3.25 2.96 3.94 2.30 .35 148.51 12.65 20.52 2.83 2.84 3.47 2.4o .75 83.49 11.14 12.44 avenge inrcrm!.bwi,,g Ii,tifiu ........................ 110.22% 113.72% 111.35% 119,04% Other Data Book Vd”e per comnon ,Iwe OUmmding(,, .. Dividends decfmd 1x, &t@]J .................................. . . . . . . .. . Dividendpayoutratio. .. . . .. .._ .. . . Numberof hdl-,ticc ofim .. . . . .... .. . . .. . $ 16.56 0.48 44.05% .13 $ 16.11 0.36 26.41% 13 $ $ 14.81 0.29 30.90?/” 12 $ 14.13 0.20 14.53°h 8 12.46 — — 8 Fist Midwest Financial, Inc. and Subsidiaries MA NAG EM ENT*S DISCUSSION AND ANALYSIS ~ General First Midwest Fiid, Inc (the “Company” or “First M,dwmc”) is a bti holding company whose primary of he Midw=c (“F,rst Hsets are First Federal Savings Bti Federd”) and Securky State Bank (“Securi~”). The Com- no”-divcrsifitd pmy was incorpomred in 1993 a.sa uniq savings and loan holding company and, on Septembtr 20, 1993, acqtired all of the ~piral stock of First Feded in to co”necuon wid, First Feder.d’s conversion from mud sto& form of ownership. On September 30, 1996, the Company became a bank holding compmy in conj.nc. co he cion wi& the acquisition of SecuriV. M refe.enca 1993, ~cepr where Company prior co September 20, eration of approximately $5.2 million. The acquisition was accounted for as a purchwe, and be accompanying consolkk,ted financial the combined statements resdw since the &ce of acqLisirion. The =cess of msr over the ~dmated fair value of tl]e ~se~ acquired ad liabiliti~ reflect assumed, totaling approximately $2.8 million, is beiog amortid the Consolidated Finmcid Srxcemeors). over a fifteen y= period (see Nor= I and 3 co On December 29, 1995, First M,dwmr compkred the acquisition of Iowa Bmcorp, wholly-owned subsidiay, Inc. (“Iowt Bmcorp”) and its Iowa Satigs Bank, a feded savings bmk (“Iowa Savings”) Io=ted k Des Moinm, Iowa Bancarp was merged into Iowa. Upon aq”isirion, ocherwi.se indicated, are co fimc Federal md is subsidiw the Company and Iowa Savings - merged into Firsr on a mnsoiidared bmis. The Gmpany focuses on -blishing and mainti”- Feded. The Iowa Savings office opemce.s x the Iowa Saving Bank Division of First Federd Savin& B& of the ing long-term rdationships with customers, and k com- mitted to serving the fi”mcial service needs of he com- m..i~es marktt in ics market ar= tbc area includes The Company’s prim~ following counries: Adai r, Buena Vlsra, Calhoun, Ida, Guthtie, Podonc~, Polk, and Iowa Bmcorp bad Midwat. At the &r. of acquisition, aers of approximately $25 million and equity of $7.2 million. The Company purchmed all of Iowa Bmcorp’s 379,98o to option for a cash payment of $20.39 per shwe les shwes and 36,537 shares subja oucs~ding Sac located in Iowa, and Bmokin~ county located in ~ centd retail deposirs from the gened public and mm those deposits, South Dakota. The Company attracts the aercise price of sbw subjecc co option. Tocd ner The acquisition was pluchme prim w $8.0 million. the accompanying accounted for as a purchase, ad togefier with other borrowed funds, to originate and consolidated finmcid smtemenrs reflect the combined reside”d to consumer loans, and to provide financing for agri- purch~c m~ cultural ad other mmmcrcid bwin~ and commercial mortgage loans, purposes. resuhs since the &tc of acqtition. The am of cosc over the estimated Kir >due of rhe ~sets acquired and liabil- is being irie.s asumed, approxim~cely $760,000, tod,ng The Gmpany’s basic m~lon is to mainttin and wortized over a ffteen year period (see Noces 1 and 3 to etice core ~ni”~ wh!le seining its prim~ market the Consoli&ced Financial Smtemencs). area. As su&, nas srrat~ the Boud of DKecTors has adopted z busi- the Compmy’s designd to (i) mainti Fil>ancial Condition requirement, K1) ~#ble mainwin the quaJiy of tie COmpmyi XSets, (iii) concrol in =C~S Of redatory ~pi~ oPe~ting ~ens=, the Company’s interest race spread, and (v) mm~e (iv) m~ntain and, a.spossibl~ incrme the The following d=cussion of&e Company’s consolidated finmcid condition shodd be r~d in conjunction wkh he Information and Consoli- Selected Consolidated Financti dated Fi”ancid Statements and che related noccs included Companyk exposure to &a”ge.s in interm races. elsewhere herein. Acqtrisirions On September 30, 1996, First Midwest completed the Complecrd Tbe Companyk total assets at September 30, 1998 were $418.4 mioion, m increase of $13.8 million, or 3.4V0, from $404.6 million at September 30, 1997. The ad acquisition of Cenrd West Bancorpomcion ~CentraI Security Smte Ww”) Bank, West was m~ed located in Stuam, Iowa, Upon zcq.isirio”, Cend into Fust Midw~t md Se~ity irs wholly-owned mbsidiq, became a wholly+wned, Sccurky opemtes ofFim in Smm, Medo md cas~, of First Midwe.sc. Iowa. stand-alone subsidi~ k &c date of acquisition, Cent~d Wm had =e= of aPPrO~mately $33 million and equity of $2.6 million. Central West shareholders received ah of $18.04 md shm of the mmmon stock of First Mldwac for 2.3528 each Central West share held, rotfing an aggregate consid- inmeme in ~ets w due primarily to &e incrwed origi- nation md purcbme of lores during the perid. The Company: pomfolio of sarirics ad~ble for sale, excluding morcg~ge-backed securici~, decre,xed $13.4 million, or 18.7Y0, to $58.2 million at Sepcen,ber 30, 1998 frol>] $71.6 million ar September 30, 1997. The for sale was the muk of dicr~e in securirim ;titble securities tit matured, were called or were sold during the period in an mount gr~rer dun new security purcb~es. During fiscal 1998, he Company sold securiti~ avdabk for de totting $18.3 mioion, consisting primarily of Ff. st Midwest Financial, inc. and Subsidiaries MANAGEMENTS D1SCUSS1ON AND ANALYSIS (Contiued) I common md preferred equity securitim tit had appreci. ated over purchase .COSC. The bbce in morrg~c-bti for-sale incracd by $18.1 mK~on, or 40.8%, sccwitim available. from Results The foIlowing discussion of the Co”~Pany’s raufm of oper- of Operations ations shoufd be red in conjunction with chc Selected and Comolidarcd Consoli&ted hformatio,l Finmcid $44.4 nlilfion at SepteInber 30, 1997, to $62.$ @ion at Seprelnber 30, 1998. The incrme muhed horn dle pur- Fmlcid WhCIC herein. Smrements ad dle related norm i“duded ds~ dmse of bed-rate morrgage-ba&cd mount greater than da sccuriri~ in aII and repayments on cxisdng The purch~e of mortgage. were generally funded by proceed mortgage-backed securities. bz~d seaities fmm the marurity, c3J.1,or sde of o~er securitim ati~le for sale ald incr~~ in cu.scomer deposi~. The Comlp.ny’s rcsuhs of opmtions me primarily dependent on net inccre.stincome, noninreresr income ad he Con,paly’s ability co manzge opemritlg mpemcs. Nec incolne is the dlfFe~nce, or sprmd, between the inter=t average yield on blcercst-earntilg am and the avenge mce The intere.scrflte spread pid on intewt-bwing Iitiitie. The Company’s porrfofio of ,Ier loans receivable k tifecced by regulatory, ewnoti~ ald con]pccitive fictors purcf use of conscruuio” 10XIS The Company’s noninteresr income consis~ primari- incraed Sql.mber by $15.7 mfion, or 6.2%, to $270.3 milfion at from $254.6 million ac September 30, 30,1998 1997. Tke incrme in net loans receivable is due to ~le incraed origitmtioil of conm,ercti busi”e.ss loans, the incrased IOUIS, and AC i?craed originacioll ad purchase of raidentid mon~ge on commercial and ]nufti-fm]ily propemiu. Conswncr Iom bda]m dcdh,ed ~ a ru~c and agricuhd-related of repaymenu in excm of new originations during ti)e period. The bda]ce of customer deposi~ inc.rwed by $37.8 fronx $246.1 miRion at Sepresnber 30, million, or 15.4%, 1997 to $283.9 m~lon at September 30, incrae The in deposits rcsuIced from management’s continued deposit produce design and marketing &or~ to cb]ce 1998. progmns. Deposit bdmce.s incrmed i,] intermr-bearing r~on of deposit accounts ald other rime cdlmtcs in d]e ~nou”t.s of $7.9 nlillion and $3o.4 milkon, rcsFc- tivefy. Noninter~r-beuing deciiiti by $601 >000. chc~ng acmunt bdulces Tbe Company’s borrowings from dIe Fedwd HOIIIC by $22.1 .f DCS Moinm ~FHLB’~ &aed Lo= Bd Iniffion, or 20.60A, from $107.4 million at September 30, 1997 co $85.3 milfion ~ Sepcembm 30, 1998. The reduc- tion in FHLB an incrae borrowings during the period. borrowings was primarify d]e result of in mcomcr deposits d,at were t~ed to repay Sh=cholders’ equity deemed $1.2 nlWlon, or 2.8%, to $42.3 million at September 30, 1998 from $43.5 mif- in share- 1997. Iion at .sepcember 30, The decrae holders’ equi[y is dle result of stock ~cpurchm~ mid d,e ill an paynlellt of casfl ditidends 01) comnlon stool amount greatm &m net innings for the period. chat influence intent me%, lom dem>d, flow. subject and deposit The Company, is to tilcerac race risk to the extent that ic incczesc. fiic ocher Enanciaf instimtions, earning asscw mature or reprice at ~creI1c differe”c bmis, ti] tim~, i~ interest-buring liabdiri~. or on a f~~ &aged on ummcrio,l ly of accounts md for he origination of Ioals, boh of whl~ hefp OFSCI the costs deposit ~otia.ced wick ficzblishlng income is and Iom accounts. tild mtitfing In addkion, nonintemt defived from dle activitiw of First Fededs wholly-owned subsidlarim, First Sewices Flnancid Llmi[cd and Brook- in the safe of ings Service Corporation. Both en&ge wious n“on-insured invmunent prdllcu. HistOricaOy, &c Compz,,y h= nor derived signi6~t inmme m a xault ofgaills o,> d]e sde ofsecuriti= and o&cr ~et.s. However, during dIc yews ended S.pCembeI 30, 1998, 1997, a]d 1996, gains were recorded in rbe mounu of $399,000, $217,000, of securitim av~ble a,d $79,000, for sale,. rqcctivel~ as a mufr of the tic On Scpt.mbm 30,1996, feded legis[acion was signed rcquiril]g dlat all thrift institutions pay a one-tinle into k malt Fund (SAfF) of co restore &e Savin@ Association I“sumce insured depositor to its statutop raerve Ievef of at Imt 1.25V0 The wsessmenc wm accounts. 0.657°A of Fimc Fede~s insured deposits m of Madl 3 I, 1995, As a rmuh of indudillg dlose held by IOW Savings at ti]at da~e. the special ass=smenc, [he Company recognized a pfim chwgc of $1.27 miflion, or $795,ooo I1et of related income cIxe.s, = of d)e September 30, 1996 effective date of he I+slation. I First Midwest Financial, lnG. and Subsidiaries T’he Following mble sets forth the weighted ave~e IiAilicim ar dIe end of acb of the yas praented. effetive intermc race on i,lter=t-sing XS.K ad int.rm-btig At September 30, 1998 1997 1996 WEIGHTED Lom remi&lc AVERAGE ............... . YIELD .... . . .... ON . ....... .. . ... ..............i. . .... ..._ . s.80% Mortg~e-ba&ed smitim ............... .. ....... ...............................~.. . Securici~ avdable for de Ofier inceresr-ming Nem ........ ..... . ................._..=_ ....A.. . .. .... ...... ... ... . ..a ........ ... .... .. ............. ~mbined weighted avemge yield on inccr=t-ezrni,]g as~ets..........- WEIGHTED AVERAGE RATE PAID ON 7.15 6.50 5.33 8.15 Demand, NOW deposi~ and Money Mach . ..... Savings deposits ......... ..... . ....~.~~ . . ............. .. .. ....... ................... ..... ......~...r . ... ........... Tn. . .......... FI337 1>107 $ *) $ 17 $ (6;) (153) .— d) &4 .- 118 (4) 1>336 707 1997 vs. 199 6 $ 3,866 (180) 929 –Q .= $ 154 104 1,959 $ 3.700 (115) 836 ~ W $ _ w 91 140 1>825 688 First Midwest Financia~, Inc. and Subsidiaries Y= E,,ded September 30, INTEREST-EARNING ASSETS INTEREST-BEARING LIABILITIES Dm.md md NOW dcposim Sav@s dcp.siu TImc deposirs FHLB advmm O&=I borrowed money Tod inruac-btig Notinlwc.bearjng ii~iiiues Deposiu Liab&tim T.d Iiabilitis Shti,oldtrs’ eqti~ T.d Iiabifiricsand eqtiy s~~oldtis $23,055 3,67S 4,952 > $= 8.99% 6.9s 6.29 6.78 8.15% $256,462 52,722 78,789 5514 - 18415 -. $411.922 $ 34,202 20,090 203,932 95,328 $ 933 502 11.99s 5>593 ~ ~. 357,025 W 2,73% 2.50 5.88 5.87 5.87 5.39% 5,ij41j 5956 - ~ $411922 a $249,076 $22,433. 32,618 6s,843 2,341 3.845 $ 30,398 20,538 1s0,088 80,685 $ 815 506 10,662 4,886 ~. $~ ~ ~ 315,252 5,617 329,191 9.01Ya 7.18 5,84 6.96 8.21% 2.68% 2.46 5.92 6.06 536 5.41% 2.80% - m. $207,983 $18,567 8.93% Y6213 51,494 2,521 2,y16 7.37 5.66 7.17 8.16% 1 661 402 8,703 4,087 2.47% 2.7o 5.83 5.9o 5.73 533% ~ $= $ > $= ~ m+ 298.3% 13417 $ 26,730 14,906 149,247 69,265 262,346 2,647 7969 272,962 ~ . ~ ~ m $10358 - — 2.83% - 3.47% - 110.22% 112.00% 113.72% @ I First Midwest Financial , In=. and Subsidiaries COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 GmeYal Net 1998 dccrmed $857,000, inmme for d,. p ended September 30, or 23.5%, to $2,785,000, hm The deaae in net income AFF for the sm)e period ended September 30, $3,642,000 1997. a one-time charge co provision for loan md foreclosed rd esmrc losses in&e p~-m mount of $1,500,000. The one-time chmgc taken co incr%e &c allowance for loan and fore. e.smre basses, related primaily co mismmage- - closed d ment and possible &ud by one Im officer hr longer wid, &e Cnmpany Net lnteresr income The Company’s net it]terest income for chc year ez,ded September 30, 1998 incraed by or 7.4V0, $883,000, $11,946,000 1997. Tbe inaae to $12,829,000 to for the same period ended Sepre~nber 30, in net interest income reflects m ovu- compared afl iname during he period. The net yield on average ~ning of average i“temc-mrn@ in rhe b&ce mem uses decr~ed 1998 fiolt] 3.38% for the same period in 1997. co 3.260/a for he period ended Septembm 30, Tbe decrme intere.s-earning ~ers in nec yield is d“e co a dcdi”c i“ rocd aveqe compared to tad zverage incecmc- bearing liabilities md an incrwe in the average bdmce of non-accmi”g low during dle 1998 period. er exrenr, co a higher average yield on rhc securities porc- In addition, fofio during fisul 1998 mmpared to 1997. income interest i“cremd due to a $622, ooo incrme in intcr~t earned o“ the loan portfolio as a result of a higl,- er average Iom porrfolio balance during fism[ 1998 com- pared to 1997. IzteEst@eruc Inceccst expense incrw,sed $2,171,000, or for the yew el~ded September 30, is no 12.7%, to $19,230,000 1998 from $17,059,000 for the me period in 1997. The in the incrmse in incer~c mpcLIse avenge outsTal)d,ng balance of dem~nd deposim, rime is due 10 incrwes deposits, ad FF[LB tdvmc~ d,tring &e yem ended Sep- tember 30, 1998, compwed to the same period in 1997. in the average bda,l~ of demnd ~d ~ime The inc~e deposits resufted &am inrernd grow~ of the deposit porc- foko. The aVeIagC bdmce of FHLB ~dmc= ~crwed due to borrowing activity rbrougho”c the period used co find grO~b of he Iom podolio pri~ily purchme of securities ztilable intere.sr expense >W pmifly a,ld the The increase in offi.er by lower inrcrest Htes for de. ptid on time deposiw mld FHLB borrowings during the ye= ended September 30, 1998, comp~ed co the previous inrermt rarcs generdy have trended down- yew, as muket During rece,]t yeus, &c Company ha i“crea.sed its wti. origination and purcb~ of nlufti-family and commercial esmce lores, rd including construction loans on such property typ=, and h= increaed its origination of con- businw sumer, commercial business, ad agricuhud Tbe Compmy ancicipares activity in d>is type of Iom. Iend,ng will conrinue in fumre y-. Net i’]reresc income is wpmed to continue a upward trend m a resufr of &is type of lending acrivi~. Interest mte fields we genedy higher on rbese loan products comp~ed to yiekk provid- ed by mnvenciond single-filnily residential rd mce Pravirionfor Loan Lo~sa The provisio~, for loan loss= for corn. che y=r ended September 30, 1998 was $1,663,000 oficer pared to $120,000 1998, the Company determined that m ~ricdn,d lo~ted in a subsidiay branch of for the sxme period in 1997. During [san ice h~d, rhro[lgh abuse of posir.ion and misrepresenmrion co ImnzGemenc, authorized the disbursement of funds on loans for whkb the possibility of collarer.d wm inadeq”ace. in he fraud exisrs related co sdf-dding by the Iotn oficcr In addition, lores. ThN lending acrivi~ is considered to ~~ disbursemenc of lom proceeds TOpersons a“d entities wiih m level of rkk due to the “amre of the coIkuerd ad the which the 10= oficer w affiliated. Thn mismmage- menc md possible fraud was discovered x a resuic of d,e si~ of individ(lal loam. As such, the Company mricipares internal audit procedures. The loan ComP~ny’s routiic in its dlowmce continued incr~es muft of dlis le”dmg activi~. involved is no longer with he Company. fo~ loan losses s x a high- oficer The I?zterefl ~ncome Seprelnber 30, 1998 increased $3,054,000, income Inrer=r for the year ended to or 10.5%, horn $29,005,000 $32,059,000 1997. The inaease retIects a $2,444,oOO i“crwc esc ear,~ed on che porrfcdio of securities avd~ble de, which increased to $s,630,000 for &e same period in in inccr- for for dIe yem e~ded The Seprember 30, 1998, incrae h interest income fro”, securiti~ zesd~ed from a higher avemge secuiri~ portfolio balance t“d, co a Iess- fiam $6,185,000 i“ 1997. Compzny has conracced authorities, and an invwtiga- revim was rion u in process ac his performed by the Company of the accounm in which the rime. A &oro,,gb loan oficer was il>volved. Man%emenc bclievm ir b ad iden&Ied dl loins for which material w~essm tit k d=ified those lores accordingly. B~ed on the rdring in da,stificd asse~, magemenr the dlow- ante for 10SSN &ough an additiond charge co the provi- considered it prudent COincrme incrwe sion for loan losses i“ rhe amount of $1.3 miULon md a First Midwest Financial, inc. and Subsidiaries COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (Contiued) charge to provision for 10ss on foreclosed rd =tatc in *e amount These amoun~ were c.hmged of $200,000. agimt income durij]g he quarter etlded March 31, 199B. Future recoverim = dependent on the ultimate ralution of weaknm= fou]d in the Iomls, which can not be deter- that lnay tinle, and any insurance procd milledat &s be received. Manqemenc believes char, b~ed on a deuil review of the lo~l portfolio, historic loan 1055e5,current emnomic conditions, and otker factors, he cusrenr level of p~ovision for for 10U 10SSU, and the resukillg level of tke dowce Ioanlossw, Iosscs Gom d,. loan portfolio. rctlec~ml adequate raemeagaimr potential Current economic c011dici0n5 in the ~ricukurd sector of w~]ess the Company’s mxket due to kiscoridlylow aea indicate pocencid coI]]modicypriccs.The agridmrd fluctuariol]s md is ge”cdly economy is accustomed to commod~~ priti able to handle such fluct~n- tionswichour period of low cojnmodky prices codd rcsuk in w~ess significant p~oblem. However, m~temded the Gmpmy’s of crate a need for he Company to inmea.seiu d[owance loan portfolio and could for agrictdtti 10.2Y0, co $1,875,000 from $1,701,000 for the me The in nonincermc income period in 1997. incrwe reflects an incrwe in loan few md deposit service ch~~ of$155,000forfisd in 1997 m a rc.sdr of incrwed inmaed activi~ on rmsztion Imding activiy accounts 199 Scomparedro rhe~epcriod subjmt ad co sewicc chwges. adable In addition, for sde incrmed hy $182,000 * 011 sda of securiti~ for the yea ended Swtcmber 1998 compaccd co 1997. No”incL’resc income was reduced for ffiml 1998 compared to 1997 d“e 30, to a de&lne in brokerage conunisions non-insured investment produces through First Fedetis {mm de.s of subsidlaxies and a a resulr of z) sal= of foreclosed rd acate. incrwe in net loss on Noninzerestfipeme Noninterut expemeincrmcd by $S70,000, Seprember 30, or 11.S%, to $8>252,000 for &e y~ 1998 compmd to $7,382,000 ended for the same period h 1997. Noninterest mpemc for employee compensation and bencome hy $795,000, necofincolllc taxes. Net Intecrt Jzcome The Company’s netinrcrest income Iioofloans mdsecuritim. inga.%tsdemaedto cember 30, 1997 from 3.47% for&c-e Thenecyidd 3.3870 for&e period ended SeP- pwiod in 1996. onave~”e~n- First Midwest Financial, Inc. and Subsidiaries COMPARISON OF OPERATING FOR THE YEARS RESULTS AND SEPTEMBER 30, 1996 ENOEO (Continued) SEPTEMBER 30, 1997 The decrae net avaage inrerar-mning average balance of”on-accrui~ in net yield is due primarily to a de~lne in assers ad an increase in the 1997 loans during he Nonintmest Izcorne Noninter=t income for tie ya ended September 30, 1997 itlcccased $282,000, or 19.9%, to $1,701,000 from $1,419,000 for&e *1c peri- ended to period. Interest Income lnteresr income for the Y- September 30, 1997 increased $4,668,000, 0r19.2%, $29,005,000 1996. The incrw.se in inter~r from $24,337,000 forrb. ae period in increase is primarily due to a $3,866,000 euned on the loan podolio, to for the y-ended $22,433,000 fiom$18,567,000 income resuked fionl higher avenge Iom portfolio bd- in 1996. Tl>einmme September 30, inlominccr~c 1997, mces due to inrerd tbeacqtiltion a higher aveqe period. growth of of Central W=tand, and to yield o“ the lo= porrfolio during he the loan prchlio toalmerexrent, odin 1996. Thekcrwc incre=e $278,000 from loan fem ad for fiical 1997, compared to the we deposit servim cbtrges of period in tinotiacerest inmmer&ecrsm 1996, = a resulr ofincre=ed lending zccivity md incremed activity on nan~ction accounts subjcm to service chorges. awil~ble for szle In addition, the %in on sales ofsecuriria 30, increased $137,000 1997 compared co 1996. Nonticetm income was reduced for the ym endfd September for fiscal 1997 compared to 1996 due to a$223,000 decline in brokerage commissions as a muk ofa decline in des tbro”gh First Fedafls invcstrne”r producrs ofnon-hsured subsidiaries. Nonintmest&pcnse $186,000, or 2.5%, Noninterest mpensedecrea.sedby to $7,382,000 forcheymr ended Intemst+emc Incecat expense incrwed $3,080,000, September 30, 1997 compaed co $7,568,000 for the or 22.00A, September to $17,059,000 for rhe period 30, 1997 from $13,979,000 ended for rhe same period in 1996. Theincrease in the average outstanding bafance of rime to increasa deposiw and FFILB advances during the year ended ininterest mpenseisdue September 30, 1997, comparedco rhesame period in 1996. deposits The resufred increa-se in the average balance of from incernd growrh of portolio and die acquisition of Central West. time the deposit The average ourstandlng balance of FHLB advances increased due co borrowing the period used primmily co fund growth of the loan port. folio androfid activiry rhroughouc ofsmwicia. tiepurcke Toalesser =tent, interest dle illcreme in interest ~pense rates paid on interest-b~ring Ieflccts higher fiabffities during the year ended September 30, 1997, compared co dle previous year. Pro.tionfo~ for theyw compared co $100,000 Loun Losses Theprovkion ended Scpcaber forlou; lows 30, 1997 was $120,000 pe~iod in 1996. for rhe me same period in 1996. Thedecre%e 1996 pymenr reflects the fi~[ innoninterest of a one-umc cxpeme special -smencin recapitafiition themount of SAIF. of$l,266,000, pre-rax, forrbe Inadditio”, no”inrerescexpenst wasreduced xare.sdt deposit insurance premiums during &e y~r of federd legislation thar reduced ended SepreInber 30, 1997. Nonincer~t compcn%rion ~ld benetim, ad occupan~ md equip- expmseforelx]PIWec mencexpeme, che sme period in 1996, as a result of rhe acquisition of kcremed dllring fiscal 1997, comparedro &ntrd West at Seprember 30, 1996, and w a resuk of a new bmnch office opening in DesMoines, Iowa. Irzcome Tn+me Income campense inc~ed by $806,000, ro .$2,502,000 &ptember 30, 1997 from $1,696,000 or 47.5%, for they= ended for the same period in 1996. The increase in income raxcxpense reflects the inaease in the lmd of c~able i,]come for the pmiod ended period in September 30, 1997 compwed co &e sme 1996. ASSET/LIABILITY MANAGEMENT AND MARKET RISK ofMarket Ri~k ,4.ssmted above, the Qua[itnti.tA.gecrs in.tticutio”s, Company derives im income prinuriiy from he recess of w impamed by chang~ in interest rates and the interest intemc mlecced over interest paid. The races of ticerest &c mce sensitivi~ of its assets and liabilities. The risk socizc- Gmpany = earns on mew md pays on Iiabifitiw generally for ~ period of time. Market abflity in incer=t racm md fie Compmyi change-sis kno~vn m intere,scrate risk md ed with chmga to adapt to hue holding companies and fwcid established m“cra~y ficimcion interest rare.s change over time. Accordingly, pany’s resukt of operations, the Corn- lihe hose of many finmcial is the Compmy’s signifi-c market risk. I I First Midwest Financial, inc. and Subsidiaries ASSET/LIABILITY MANAGEMENT AND MARKET RISK (Conti,,ucd) Quntitativt Apect~ofM~rk.t Risk kmananprto to ~ket conditions, ccrtfiates mmage the Companyi exposure to dlm~cs k inter~t of six months duou~ five y-, of deposit with !namritiw princip~y frotn im pri- mmadcoll~piywi~ &c Company? ~pplicable regdations, we monitor inceresc ~arctisk. fn monicorillginte~t rate ri& we concindy aldyze and nmage mser.smd lia- biliriesbmedon Aetipaymetlt rata, he tinit~g of &&r m*Iuriti~, md heir scllsiriviry to accu- d or potenIial changes ill ~Ilwket irlcerwt raru. sTrwnsmd interat An user or liabdi~ is il]tere.st rdte se~~itive within a or ~eprice witiln that specific time period ifit will mati cimt period. If more r~pidyor the Compy$ toagr~rer mentd}al assets mature or reprice iwhabfitim, djen net pordolio value md net interest income wodd ccmd to incr=e during periods ofrisil]g inter~c mces md Jccrae Conversely ifrb. during periokoffflmg it]tcrmmtm. 01 reprice more S1OW1Yor c. a 1~ company’s Wets m.tue dlen net porfolio value and et extent dm im Iiibfititi, net interest incon]e wodd tend co decrease during pe~iob of rising intermt rates a]d inccae during periods of ~Jng itlteICSt ~t=. The Conl}mny currendy focusa lending efforts originating and purtiillg to-d adjustable-rare ad ~-rate Aortcms tomati~, competitively priced Iom produces wick relatively This generdly15ywso~1m. allows the Company to m3intin a podolio will be sensirivc to .htilg@ in the level ofintcresc whale providir]g a rwo”able of Iow &at races spre~d co the cost of Iitbilities used [0 fuud the Iom. The Compmy’s pris~ porfolio is to provide r.hc Iiquidky neces~ objmtive for its hvestmenc to nleet lea] finding needs. ~ehv~mmc rhe ongoing mmagen]entofdmlgcs msedliabilicy mix, whale contributing &o.gb portfolio isdso u.scdin m *e COmpmyk to profitablli~ policy generfly earnings flow. Theinv~enc calh for finds vmious ~rcgories of security types and n]acuritiu based upol] the Cotnpany’s to be invested song need for between n,inin,izing risk wltie mtinizing liq~tidi~, dmire to a&L@e a proper bdaI1m yield, the need marymarkeca=. co be l= susceptible co mpid chw]gw in intecac Iatc.s. a]d NOWamounts The=vings tend b n]magingi~=cdfiabfi~mk, &e Company, at tilnes, depending on the rdarionship bcmecn long- and sbon-term intecesc mtes, mmkct con$ltians, and col]sunler ~eatm emphasis on pceierence, may place sommhac mtimtilng ir.slxecintmest marzin tbm on suicclv matd,. of its ~cs ing &c interest race switi.ity and ~a~tlrim. Management believ= &e inmeascd nm income dIar may r=uk fion~ an acceptable mismatch in the acmd maturity or repricing of ics met ad fiiility periods of dcdiii”g or stable interest mtcs, provide s,fi. portfolios an, during cienc returns to justify d>e incrmcd expsure and unexpecccd inme to sudden in inreresr rates which may resuh from such a misma~~. limim, whlcb may cbatlge from time to tie, The ~m+my h= c.sublished 011 the [ad of acceptable titerac rate risk. There m be no ~urance, howeva, char in rhe event of :m tdverse change in intemt mtm,dle campmy~ cfforw to limit interest rate risk wil fx SUCCMM. Net Po@o[io Vulue Tbc Gmpany Value ~NPV”) * he prment due risk. This appzoach dcdate.s approach to &c qmcifi=tion the differel]ce bcmeen of expected wh fTows kom Nem and uses a Net Porfio!.io of i“ceresc the present d.. m well m ah of apected ~h flows ftom off-bbce-sheel flows from Iiab,litim, conmct.s. M.magemeltt of f.he Compmy’s =eu and ~ti,litics is per- formed witiln the context of &c marketplace, but ASO witiil of Directors an the amounr of chmge in NPV tb~c is acccpmble given ccrtin lii]im esrb]ished by dIc Boti intermc mte cbangcs. Pmet~ted bdow, ~ of Septcnlber 30, 1998, is m atldysis of rhe Cumpmyk interest mte risk m “~t~ured by and sustained chmga in NPV for m illsmtuleous parallel shfr in he yiefd curv~ h 100 bmk point incrc- to provide collztcrd for borrowtigs, company’s a.ssed!.iabfily mana~ment goak. and to filti &e menrs, up and down 300 bmi.spoints. As illwcmred in the mblc, che Compat~’s NPV is more smicive co i-isi”g mte The Compa]yh cost of funds r~ponds m &mgcs i,, interest mtm due to the relatively short-tanl nature ofiu deposit portfoho. Grucquendp wegenerdy ra~. tifluel~ced by fielevel ofshon-tam i,ltere.sc The Compmy offers a range of maruricia on its dz. rsdtsofoperztions deposit pduc~ maruriria on m o“goi~ b~is. zt competitive ca.cm md !!lonicors dlc The Comp~ny emphxiu and promocm ks savings, money ,narkcG delrlaI1dar\dNOW accounu aid, subjecc than declining dmges rarw. This because, m races rise, &e nlaket due dedk]es due both co dle race increae occurs primarily of fwed-rate loans and rke rekted slowing of prepayment on lores. When mtes decline, the rise i!] mwkcc Gmpmly does not experience a signfiar vakIe for the-selWIS b=%u.se borrowers prepay at refatitly deposim md bighm HCW. The due of tie COMpany’S borrowing &ge in [Nlng md ffllng mte smnarios. in appmtimately &e same proportion F~rs* Midwest Financial, Inc. and Subsidiaries AS SET/ Liability MANAGEMENT AND MARKET RISK (Conri,,ued) @ Change in Interest Rote (Basis PoiaIs) Board Limit 0/0Change ~DoLLA,$,:$co~,::,; ‘h Change ““ -At seprernber ~o> 199g +300 bp +200 bp +100 bp O bp -100bp -200 bp -300 bp (50)% (40) (25) (Ii) (15) (20) $(5,579) (2,957) (1,477) — 1,115 1,877 2,284 (13)% (7) (3) — 3 4 5 Cenain shortcomings ~e inherent i“ he method of uncerctin m [o when WIS evaluation may be completed. mdysis pre.scnred in tie foregoing cahlm. For _ple, Mmagernent reviews the OTS n]muraenrs ad I i dthougb mruricies different degrees to Ages cemin me~ or periods uld Iiabifiria may have simk ro repricing, in m-ket in tbV may r=ct inter=c m[es. ALso, the interest mces on certin W= of assem and liabtiti~ fluctuate in advmce of cfunges my in~er~ races, while inreresr rac~ on other wes may lag behind in market ckmgm in nwket m~es. Addkiondly, certin Nes x adjustable-rate mort%ge [strict such loans, bm fmcures which on a shore-rerm b=is md changm in illteresl IaI~ over the life of dle aser. Furcber, i“ the event of a dmge irI inTerm rates, prepayments and aly withdrad Iwek wodd likely deviare from those ~urned in cdcularing the ubles. Flnfly, debr may decrae the fillky of some borrowers to service their in the me”c of an interest mte increze. Tl]e Compmy mnsiders d of thee factors in monitoring ifs exposure to intere.scraw risk. The Office of Thrifi S“petiion i.ss.ed a regulation which uses a nm mmket value methodology to (“OTS”) mmure the interest mre risk exposure of thrift in,stimriom. Iwel of Und., OTS ~+tions, 200 bmis point i“rerest rate risk in he event of an aum.d an i~imtiods “no& &nge NPV in a mount in interest rara is a deaasc i“ the institution’s 110[ co exceed two p?rcC”C of d,e p,~~[ relzced peer repons on a quxtedy basis. monitoring selected muures of ~V, mm;~ement In addition to also monitors the etiecr.son ner interest income incrm~ or dewewes in inrt~esr races. This m-ire resuhing fronl is used in conjunccio” wi[h NPV mau.= intcrat rate risk. ro identify excessive Ara Qwby tion atiMl~ Iris mmagernenfs bJ1ti, b=ed on infornu- that he Compmyk historic level of ~et qutity k ever, the COmp711y experienced a Signfiunt been satifacto~. Dwing fid P 1998, how- h i“cme the level of im no[~-performing WeIS. At September 30, 1998, non-perfoming lams, resets, consisting of non-accruing smte owned and r~osessed consumer proper- Ial T, roded $8,132,000, to $3,313,000, ended 1997. or 1.94% of total msers, compared or 0.82% of tod a.sse~, for d)e fiscal year a.ssecsfor in non-pcfiormi,]g TF,e increae f~cal 1998 m compared to 1997 induda a $1,449,000 incrmc in non-accruing agricukurd operating Ioans, a $3,623,000 incr=~e in accruing lores more rkn 90 &Ys definquenr relared co a participation Iom on four ntusiag homes Iocared in ~nesom in foreclosed asseu due to he wq~iiition cbmush foreclosure md a $907,000 inclwe value of is mers. Thrift i“stimtiom with gr~(er than of m aparunent complex located in Madison, Wucon.sin. “no~ from their rod ~pi~d atiablc inrer~t mte risk expo.surc mUSI uIm ~ d~”cUon TOmeet their ri.sk-bmed inmaed of dut deduction is one ~Pi[4 req~rement. The ~ounc Mf of che differmce between (a) the in.stitutiont acd dculared incrwe or daae exposure to > 200 b~is point interes[ m[e (wh[cbcver r~ufcs ill the gr=cer pm form~ decrease in NPV) md (b) i= “nerd sure wh~ch k 2.000/0 of the pr~en[ due of im ~ers. Imel of expo- The r&aaOn, OTS etimtes hwever, will “nUI Jlc nor become tiective the procm by which tl~ift insrimrions n]ay aPP~ ~ ince~r mre risk deduccion decerntinacio”. It is The in non-performing wers incre~ an Ievef of delinquencim in rhe Compaly’s agricd. ~ the kIIm pomfolio due primfiy to w&=s refleas [ur.d underwriting process m a resuh of abwe of position ~nd misrepresenmtion to management by m @cufcud loan o&cer who is no longer widl dle Company. Severai lams officer wae nor “nderwrixeo tmdenvrinen by &is loa by the following the written guidelines mablished Compmy, and has resuked in hisber cb~] norrnd lmeLsof lom delinql,e”cy snd incrmed & of loss on Aese Iom. a dloro~~h review ofall Iom The Gmpz.yhx yformed First Midwest Financial, Inc. and Subsidiaries ASSET/LIABILITY MANAGEMENT AND MARKET RISK (Continued) undenvriccell by rbis Ioml officer a]d Im inc=d flwmcefor implemented loalosacodngly inter*d conrrol proced~ The ComF1r,yh designed to prevcnr this sicultion from recurring, im agement prngranl. in intermt-anilzg fices overnight deposits and otbcr liquidly is gc”emlly illvesred shorc- term government agency obligations. requirm &di the ConlpmY beyond its ab$lty co genesate them kuccN- If Theil]crm in non-pcrfortillg mc~dsorelats co a P=ticiPatiO1l SepteLnber30, ]om in the an]ouzkc of $3,858,000 at 1998 securcd by four nursing boIne.s Iomt- Iy, it hw tiditiolld Home Lou Bank of D~ Moines md k borrowing =pacity wi& the Federd collacerd eligible for use wih reverse repurck ~[ee.menn. ed in Mmcsoi.a This loaII w= dhq”ent nlore thu] The primq investing ativiri~ of d]e Compv]y .R 90&ysac borrower’smh Septelnber 30, 1998 duetOadismptiOn in the flow. Subscquenc to September 30,1998, the origination ald purchme of lox= md d,e pucchw of 30, 1998, securities. DuriW Ale yean ended Seprmber Iom - rwcmcmred ~vicha reduction of rhe 10m bd- tis xlce to $1,010,000 and ao accrued interest paid current. The new lure’ is s~used by O,ICIlursing hoxnc locared in M,nn=ota. Also during fisd 1998, the Compa~y 1997 u,d 1996, the Compa[]y origtitcd loins of $147.2 miflion, $135.7 million wld $90.6 million, Ic.spectivcl% PuIchum of loans totaled $36.9 million, $29.8 million and $25,0 million duril]g the YCW ended Septembm 30, a~~red pl~loar& dlrougb fOredOs~e 2 104 ~i[ ~r~nlenr ~Onl- hMa&mn, W~comh>. The Compmyb~a 1997 md 1996, respectively. During &e yas 1998, ended September 30, 1998, 1997 and 1996, dle Company 5896paticipacion Septcn]ber 30,1998, inrerest indtipropery. Subscquelltto z signed cotlcracr has heal received for purcb=cd mor~ge-backed for avafible sale in &e secuitim md other securitim of $89.9 million, amount the purchase of this proper~, subject LOdue tigence by $67.6 million a]d $121.0 million, re.spwtidy &e buyer, aranmdes Gmpaly’s ~~]g vduc at fisd year end. price approximately equal to Jle At September 30, 1998, &e Compz>y bd oucscand- of to originate and purcf use 10- ing con>miunencs $27.4 million. (See Not. 16 of Nocm to Comoli&ted Ligclidig and Sozs, aid competition. total $143.1 I]tillion. Bwed on ics bi.scorical experience, believes chat a signifimt mm~unent dcpasics wio ceMain tith h. Company, however, here a be ,,. =s.mce d,ar Ae Co,npany un reti portion of such such J deposis. M-gement mesxr and ohm sours believes, howevm, d~t Iom repay- of fuL]d.sw“ti be adequate to meet Fed~ regulation require First Fcderd ro mtinui~~ Lniniinum Imefs of liquid mseti. Currmdy, FmC Fedcrd is the Compa,ky’s forcsee~ble short- and lo~-term liquidl~ needs. c%uired co fi~~ age dtily bdmce fiqfid =se= Ofat l~t JIet with~wable of 40/.of dl~ aver- savhgs deposits On Sepcelnber 20, 1993, federally &artered mucud satins the Bank co,lverred from z to atld Ioall msotition ad borrowi,lbn pzyable o,] denltnd in O[lCyw or lH d“r- qmrter. L~qtLidassew for pur- ing he preceding dcild~ a federdy ch~tered stock s~vitlgs bd. liquidation accounc W= mmblished for At thar time, a the bcn~lc of poses of this r~tio il]clude ash, certir] time deposits, U.S. Governrnmc, govenunmtai %enq, cie.smd obli~riol)s, h and corpo~arc sec”ri- tim odIerwise pledged. First Ftdcrd hktorically n]airlvtined its liquidity ratio at Iwcfs i“ mcm of those required. First Fededs regLL~co~ liquidi~ mrios were 15.4°/0, 9.80/., and 5.40/o IC SeptenIbe~ 30, 1998, 1997 and 1996, respectively. Liquidity maagunent is bodl a Wy and long-term function of he Company’s management Qmpmy adj,s~ its i11v6u11enrs i,, The straccw. liquid mse~ bmcd upOn m~lagemtl]tk daald a~bilicy in dIe ConlPmyi of purchiud =s=sn)enc Of market (i) =pec~ed [OX1 the projected lom prod~lcm, ~li) expected xex, (ii) flows, deposit deposirs, ad (iv) yields avaifable on k]{ercst-ting (v) he objective of irs as=t)fiabili~ man- accout holders who continue co mtin&> their Jlgibie account with the BA &er rhe conversion. The liquida- tion acco”r,r is reduced m]udly r. he mtenc that eligible account holdes hxve rcduwd dleir qw~$ing deposi~. At Septen)ber 30, 1998, d $2.6 million. the liquidation account approximate- Under the Filran~ md Enfo~cenlent Act of h]scirution’s Reform, Recovery, md the (“FI W) 1989 Fcderd Deposit Ins(uance Act of 1991 CFDICN), d~e capital requiremcn~ applicable to d tillancial institutions, including F1rsc Federaf md Security, were substmtidly increased. Fusr Feded u]d Securi~ am.ill fdl compliat~cc with &c tily phased-in upitd requirunens. (See Note 15 of Notes to Consolidated Fi!lancid Statements.) ASSET/LIABILITY MANAGEMENT AND MARKET RISK (Continued) of In~ation The Impact Consolihced Finmcid Smtemmts md Note dlcreto pre. senred herein bve bten prepwed in accorhce %& gen- Changing Price, and SUraerIt No. 133 on derimtives will, in 2000, r~uire ~ defim~v= 10 be r=Orded ~c Fair vd.e balance sheet, iII & due ,vid, &W run tbro.gh in rhe erally accepred accounci~ ptincipla, whi~ requi~e the mauremenr of financial posirion and opemcing radts in inconle. If anceb by aII eq\ld chalge in dle h due of the hedged item. S1aremenr No. 134 on nlong~e bmking will, 1999, d[ow mongage &sified m reading, ?vailable for sde or, in cerrdn ciram- chat are securitid lams in co be srances, held to mat”ricy. Currendy rhese must be clmsi6ed as Tradl”g. Implemenmtion guidmce on Smceme”c No. 125 wifl co conrtin for lom pmitiparions cimify dIe requiemenc d)e right for tbe purcf]=er to r~ell tke pxricipation, co neWxiJy move in *C same duection, or to tie same avoid cl~i~lng the pmiciparion m a secured borrowitlg extent, m dle pric~ of goods and sei-vicm. insr=d of a ~dutioll of Ioms. hnpati of NW Acco,[nting Stundai-dc Durin$ the nac few yean, nm ~ountig kave been issued WD r&e eEecr and obers we t.xpected. These are sumi2Kd pro,>ouncements below. tit In the hare, swd new accounting pronouncements Proposals wiU r~uire that purch~d Ioms, indudi”g those acquired in the pctrchae of an enrire bank, be xcord- ed net of mfizced d~t no dlowmce for loan loss~ will c?r~ over or be .mordcd uncollectible lores. This m-s except rhrnugh subsequent expmse, ddlough s[Ibscquent loss= eq”d co rbc amount estitmted at pumhme wifl noc be shown x ch:wge.offs. instinltions in to current will hc implemented. comprchc”sive income” Smcement No. 130 requires “od,er ~“d “comprehensive income” TO The MCPA guidonce for Iiucid be d~phyed along wi~ net income. Other comprehen- in u,lldized gtins ad loss- sive income inciudm ch~~ on atiable liabilities foreign curency relation include deferr.~ he~lng gtis for sde securitim, *e offset of sonle pnsion rcduaions in equi~, in che fumm, wiLi dso and losses, Comprehel]si.e currently cecorded s ad, its amounting guide wilf be rmked to confornl literature, n,dges till be co disclose Ioms pir dcle 90 &ys or more that %e ‘redic union md finmcc still 011 accrllal ~qd TO&dose .Je policy for dugillg-off income is net income plm other comprehensive inwme. lores. Smceme”c No. 131 fur public compmies rcpoming TO folfow how each company’s fi,ef redefines segment OPem[~g decisiOn m~cr ge~ infomrion s%men= 10 m~ Oper~ling decisions. zbout buines Tbe FASB contium co study seveml tiua, recording dl finacid instruments zt fair vduc including and abolishing pooling of likely that APB 2Ss measurement ir is for stock option plms Afso, inrer=~ accounting. Statement No. 132 increasa and revises pension plan wifl be Iilniced 10 employees and not to nonemployees such disclosures for public compmia, and siipfifia such disclosur= for nonpublic compznies. as direcroIs, stock options co directors. thereby =using compensation expense for The Company is aware of&e pro~amrning code in existing ‘omputer the systems as the issum ~ociated wifi ym 2000 The issue k whether computer systems will properly recognize date sensitive informa- apprmch=. tion when &e ym &mg* properly recognize such ro 2000. information Systems tit do “of could gene~are YEAR 2000 ISSUES Campmy computer fmm unforeseen problems in the Company’s system and from third panics whom chc Compmy twesco process information. Such failur~ of he Company’s comptIcer sysce”I andlor dlird pties corIIpuc. er Ttems mdd have a rnarerid in,pact on he Compmy’s abdiry to conducr its bu.sinas. euoneom &ta or cause a sysrern to Fail. The Compmy is havily dependent on comp”cer p~ocming in its btrsines~ “mue creatm risk for &e amiviti= and &e Y- 2000 The C.mpz”y’s prirna~ dam procain~ k provided by a mzjor third pzrty vendor. This providw IIU advised dIe Compy dr~r it ha completed the rmmtion of its I I I First Midwest Finanoia I , ln~. and Subsidiaries YEAR 2000 ISSUES (Co.tinued) system to be YW 2000 rd~ profiting memofdle~stem ald is curr.ndy ill pr-s totcsr theopponuni~ of tit ~cenxforrmdine.ss. The CompalLy plmscopcrformim hirid twOf&e&ta 2000 r~dine.ss by Dccembcr 31, 1998. promshg prOviderk~cafOr Y~ The Company has performed XI ~wmmr and soke, 01”ics ald lM decetmi[}ed comptrrer krdwwe chose systems tit SucfI up~d= completed by December upgrlde to be YW 2000 ready have eifier bcell completed or wilJ be the h, addition, rcqtie 1998. 31, adtid by such parties thar they do nor Imve pla(~ in place 10 add~ 2000 probla; ~ld mrrect the ~“m ~otitcd a bowwer, no ass=- ~i& dle Ym to be given s the adequacy of such plms or CO&e timelin~ of their implemelltacion. & P=C of dxe curcenr credit approv.d new ad renewed Ioms xe evaluated as co d]e prows, borrower’s Ya 2000 rm{lnms, Bwd on die Compaly’s review of its mn~putcr sys- tems, mm~ement ef60rt to m~ believes the cost of &e mm~tion is systems Y= 2000 ready wilI be appmxi- Company h= reviewed oher excernd dtird p.w~ vendors fi~t provide scmicw to &e Company (i.e. ufl~cy compa. nie.s, dectxonic tiulds trmsfer providers, danl inraance lom p=ritiparion providers, compulies, companies, and mortgdge ~uested lom secon~ agencies), md hw or drmdy received certhi=cion Iittms froln dime ]nwket mtely $60,000. it is estimated rh~t 1,500 man hours will & ti]curred by Compmy pemonnd relzred to Yea 2000 imua at m approximate cost of $40,000. hl additio(l, SUch COS6 Wti be chmged [0 CXp~K w dl~y ~e incurred. XIe Company has developed x Yw 2000 contin- critical gency plm disc addr=sm, among other tiues, vendors that their ~tems will be YW 2000 rmdy on a three sewi~ timely bmis. T~ting wil[ be performed titil Ope~ciOm md pOtentid WU= concin”ation. bmina dImoE md stmtegies for to dmennine heir Y= 2000 Afdlough mwgeme~ll believa file Compmy’s com- providers, where pmsible, readinw. The Comp*ny coufd incm !ox~ if lom payments ae ddayed due to Year 2000 probl- affecting si@,cant borrowers. The Colnpmy is communicating wib S.A to a ptia thtir progrcx i,, mduating ~]d ilnpl+ menting any corrective nlmure.s required by them to be not been YW 2000 mdy the Compaly To date, h FORWARD-LOOKING STATEMENTS ptlrer W[WS ad service providers wio be Year2000 rdy, there WI be no WWmW char these ~tems, ~stems of orh~ compani~ on which the Gmpany’s or those sys- telns rely, will be My f~ctiod coidd have a sigficant Mwe in the Y= 2000. Such adverse imptct on the fmlcial Company. wndition and results of operations of he ‘1 the lod economia ill which AC Colnpti\y md rhe Banks conducr operations; the effects 0[ md change in, tmde, rate policim of dle Feded &ewe and fisd polici% and laws, includil]g incerc.st inter- inflation, ,Eoud; ,. The Compmy Fed~ ward-looking and Secwiy, my fronl statements,” ald im wholly-owned subsiditiies Hrsr time to time m&e “for- including sratemetlm cOn- mone~, ctined in he Compmy’s filings with the Securicic ad hdmge shareholders md in od)cr communi~uom hy che Com- COmInissiOn (the “SEC”), in its reports t<, pan~ whi& are made h] good && by d]e Compmy and *C B~dm purswlt he Privztc .securici~ Licigatio[l Reform Act of 1995. ro &e “de harbor provisions of Thue forwad-looking sracemellrs tidudc starmnellcs with rwpect to the Comp:{my’s and the BmlW beli&, ~Pccca~OnS, =t~ac-, co signifia]c md intentions, dlar xc risks md w]certainti~, and we subject .subjecr to (some of ~vbicb me change breed on variow hcrors beyond the Company; and &e Balks’ mntrol). The fol- lowing faaors, among orflers, codd cause the Compmy’s and he BaIN fiI1m~ from tfle apccmtions, in such foward-looking performance to di[fer maceridy and inrelltions aprmed etimat=, est race, mkm, the timely development of al]d acmptance of LIeWproducts and ser- and monetary fluctuations; vices of he &, products and services by users; the hpacr and the perceived overall value of three ill of *c< finmcid laws and re+tiow cha)ges; acquisitiol]s dlanges in consumer spmding and technologid semiccs’ saving bbiw, Bmks a~ Inwging and the success of cbe Compmy and the kc risks involved in r.he foregoing. ~e foregoing Iiit of Factors is not exclwive. Addi- tioild discussion of &ctom affecting the Company’s busi- in the Compmy’s is conrtined n~s and prospects periodic Mig.s wifi ul]dercdcc, ad expressly disdtims any incel,c or obli~- to upckmteany forward-looking statement, wheticr rion, the SEC. The Coalpany do= not Unid Smtm ecol~omy in gened and he smngth of or on bchti of the Company or the Bmks. statetnen~ the strength of the written or od, that my be mzde from time to time by Firs% Midwest Fiman=(ai , Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, 1998 ad 1997 1998 ASSETS &h md due fion, bmk .... .... .... .... ... ... .. . .... ... .... .... .. . .... . . .. . . ... .... ... $ ~08,g84 In~est-bwii]g deposi= in other financial instkutions - shon-term ........ Federd fi)ds sold ....... .... . . ...... . .... Tod uh md cash equivalents ........ ...... . ...... ............... .. .... .... ................. .......... . ................... : ... . 5,818,460 6,727,444 fnceret-bwing (cost approximates m~kei deposi~ UXofier finmckd instim94s 1,063,317 .~,170,56z ... $ 875,169 10,709,907 1,267,350 12,852,426 200,000 115,985>045 254,640>971 5,629,300 5,366,109 4,176,311 156,300 5,582,116 Tord assets .......... ................... .. . .. ............ ... ... ........ ....... ...... ..._ :. $418,380,395 $404,588>578 LIABILITIES Liabilities AND SEIAREHOLDERS> EQUITY Noticermt-beari~]g ......... Savings, NOW and mo,]cy mwkcc demand deposits .............. . deposi~ . ....... ....... ...... ... .. de~-d ........... . ....... ...- $ ‘4,971,562 57>755,615 Orher time @Icaccs ofdeposir ................ . .. .......... ...... ... ...... . . ..a... ~. ZZI,130,975 Tord deposits .... ................ ................. ..... . . . ...... .... ... . ... .... ... ... Adt.mm from FHLB ............... . ............. ..... . .... ...... .... ..... ....~...~~ .... .....A.._. securities sold under wectIIenu to mpurchwe ............._.-..- 283,858,I52 . 85,263,562 4,074,567 ._., Orker borrowings Advanca Son, borrowers for CUH and i“s~~lce ... ... ..... . .... . ..... .. ... ..... .... . .....J . . . . ..... .... ... ... .. .. .... .. ~~~ ......... ........ .. .. . . .. , Accrued iIICeImC papble ......... . Accrued exynw and od]er Labiiitim ............ . ... . .... ..... .. ....... ....~..... ..... .......... .... .. ..........._ - .... .. ... . .. . .............. ...... ...... .... ....... .............. ... Total ltibfliria ..................... ... . . Shareholders’ Equity Preferred stock, 800,000 hcs Common stock, $.01 px tiU~ 2,957,999 ac Septcn]bcr 30, 1998; 2,957,999 shara is”cd and 2,553,245 a“rhorized; none tiucd ... ......_ ....._ ....k shwes authoriid; 5,200,000 shau outswnding shxcs isued md 2,6983904 shines oursmlding at Sepccn]ber 30, 1997 ......... ..... ............ .........._ ~dicio~~d paid-in ~pid .... ................... ... ............ . .. ..... .......i. ........_ Retained wnin~ Net unrdid substa]riiy restricted .............. .......... ....... .............. appreciation on securiti~ atilable for sale, na ofw of$474 ,346 i“ 1998 and $568,o13 in 1997 ................ Unearned En]ployee Stock Ownmbip Plan shar~ ............. .. .... ......... . ...- Traury stock, 404,754 and 259,095 comnlon shares, at cost, at September 30, 1998 and 1997, KCSPeCrIVdY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tod shwch.ldem’ eqtity ......................... ........... .. ... .... ... . ....... Total [iabditim a]d shaeho[dcri equity .................................... $418.380,395 $404,588,578 The accompanying notes are an integralpart of these consolidatedfinancialstatements $ 5,572,296 49,838,735 190,704,667 246,115,698 107,426,225 1,800,000 2,900,000 449,487 I >065>746 1>354,418... 361,111,574 20,984,754 26>427>657 960,371 (567,200) “: (4,358,158) 43,477,004 550,000 405,218 834,741 1,108,592 .376,’094,832 ~... . 29,58o 21,330,075 27,985,8I4 798,82o (367,200) (7,491,52GI 42,285,563 ( I I First Midwest FfnanGiaI, Inc. and Subsidiaries CONSOLIDATE STATEMENTS OF INCOME Years ended September 30, 1998,1997 and 1996 1998 1797 1996 Interest md dividend income receivable, including fms ....... ... ........... .... ................. ............................. ............ bms Saritim available for de ..... .. Dividend on FHLB sco& ..... .. .. ...........................~............ ‘~ Incermr apense Deposirs FHLB adwces .......... ............ ... .....................+................ ... .. .... .. and ofier borrowings ............. ................... Nonincer~c income I.om fm and deposit service charges ............... .. ...... .......... Gin on sdcs ofsecuririm available for sale, nm ......... . ...-. Gain (lm) on de.s of foreclosed rd .SCII., II.: .... Broke% commissions ...................... ........... ............. ........ ..... ...... Other income ... ... .... .... .... ... ...z. ... ..... . . .... .... ... .... .. . ... ... ....2...... Noninrerest expense Employee mmpel)sation and benefits ............. Occupanv md ~tipm,nt SAIF deposit insurance special wsasmenr.., ......... ....... .. ..................................... ... ... ... ............. ~pense SAIF deposit bum.. plemium . .... .. .... .... . . .... ... .... .. .. ... ... . . expense ,.................- ................._.L ......... .. -. Data proc~ng Provision for losses on foreclosed r~ estate ........ ................ . ... . . .. ........ .......................= . .... ........4.fi Otker apmse . $23,054,813 ‘ 8:629,761 ‘ “’ 374,220 32,058,794 13,432,454 5,797>499 19,229,953 $22,432,826 6,185,385 386,462 29,004>675 11;982,913 5,076,144 17,059,057 $18,567,097 5,437,734 332.634 24,337,465 9,766,586 4212024 13.978.610 - 11,945,618 10,358,855 120,000 100,000 11,825,618 10,258,855 1>263,367 398,903 (33>034) 52,479 “’* 193.158 . . . . 1,874.873 . 4,644,S09 1,133,187 ~~ . ]43,199 339>385 299,532 1,692,728 8>252,84o 1,108,233 216>614 .(6>7.~) 69,379 313.168 1,700,672 4,341,038 1,006,190 220,849 “321,369 1,492,819 7.3 82,265 830,256 79,317 (8,630) 292,I89 226,163 1,419,295 3,732,839 668,784 1,265,996 433,367 289,390 “20,000 1,157.886 7.5 68,262 Income before income raxe.s .,.., ........................... ......----- 4,788,402 6,144,025 4,109,888 Income cm tipe.se ..................=...x ....... ..x ...............j ............. - ‘ 2:003,520 2.502,069 1,696.323 Earning per common md common equivalent sba~ Bmic ear”in~ per common she Dilutd ml~ings per common shwe ... ......_ ... ..............Z.._.= ........... .......... ................ . “$ .$ 1.08 1.03 $ $ 1.34 1.28 $ $~o .95 $3,641,956 $2,413,565 The accompanying notes are an integralpati of these consolidated financialsfatemenfs. First Midwest Fiman=ia, , [nc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS, EQUITY 3 Years ended Sepcembm 30, 1998, 1997 and 1996 COn,mOn Srock Ad&tional Paid-i,, Capital Retained Eunings Net Un,cdized Aep,ecia~iOn (Dcpreciarion) 0. Sewicies Atilabk For Sale, Net of T= Unc.med hployee S,embe, 30>1995 .. ... ..............–— $ 19,915 $19310,045 $22>080,579 $ 571,564 $ (967,200) $ (~,oo2,~o~ $ 3~,0~2>~9~ Pur&aseof41,91 Ocomon ... Seek .......................... shwmof rreasv .... .... . .. ......_ htirunmt 30,000 conunon Sk .f958 commond,- commitccd r. b, .,lwsd underh, ~OP ............................ AmOrtiti.n of recog,ici.n md cerenti.’t pk aIrmIIOIIkm md tax benefit of mimed S,OCI,under &e ~[~ W dividc,,& dedared .,, commorz sto& (Ii) 10 303,524 168,120 ($.29PC,d13,e)................ .... .. ......... ......... . . (745>761) - Iswce of 171,158 common shars fmm mwsu~ stack in CO,.,ection Wih acquisitior~.f Qnd Wat BanmrporauoI, fss.ante of 9,450 comon sh~ [rem ~ ~~.~ d.. ~ m.rcise of sto& opti.m N.c dwge i. unrti apprcciati.n (depretition) o. securitiesavtile for sal., IICCof taxof($321 ,860 ..................... .._.._. 1,192,990 (112,138) (542,866) Net i,,cornehr d,. ~ endedSeptcmk 30,1996 - - 2,413,56z - - - (630,710) (G3O,71O) 200,000 503>524 168,120 (745,761) 2,743,644 3,936,634 206,638 94,500 (34228G@ 2,413,565 Bdma ., September 30, 1996 .. . .. ... . ...... .. ..... 19,905 10,862,55 I 23,748,383 28,698 !767,200) (682,635) 43,209,702 Pur&e of 248,419 como” shara of -w =.~ ....................... Retirement of 3,474 com.n . . ... . . shua ... 30,000 common&m canuni~edcob. refmcd undc, he F.SOP . ....... ..... .... .... ... . AMoticion of rem~ition md rex.ti.an (35) 35 (4,268,777) (4,268,~ 295>740 200,000 495,740 pk co-on ,b- rauicced SCockmder the plm . M dividendsd,chcd on ammo. a,d m hcnedcof . . . .. . .. swck ... 93,401 ($.36 WCSkC) ...................... ... .... ... km.. uf 970,978 conunonsharu 6. sco& divida,d declard on conur,onsco&, net ofcuh ptid u, fieuof &ctio,& sbw~ shwa upon Purchae .f 7,263 comon (961>849) 9,710 (9>710) (833) 93,401 (961>849) (833) GWk ofscock oprio”s .................. ...... .- . (175,445) (175,445) k-e of 41,347 come. dwcs f,.m ueas”q stock due co exerciseof std options Ner dwgc h uncdtid appccciati.n.,, securiri~availablefor safq necof taxof S549,689 _.......___.... . .. .. .. ........ .... . Net inmmefor theP endedSeptember30, 1997 _ (257,263) - 768,699 511,436 — .3,641 ,956 — -_ - 931,673 931,673 3,641,956 Mm.. ac Scp,e”,kr 30, 1997 .. .... .. .. . ......- 29,580 20,984>754 26,~U7,657 960,371 (567,200) (4,358,158) 43,477,oo4 CO NSOLIDATEIJ STATEMENTS OF CHANGES IN SHAREHOLDERS, EQUITY (CONTINUED) First Midwest Financial, Inc. and Subsidiaries Years ended September 30, 1998,1997 .L,d 1996 Common stock Addiciond P,id.in Capiral Rm5ned Ea~ings Net Unrealized Aper=i~ci~m (Depxeciati.n) on see”.irim Avtilable For Sale, N., oFT= Un~r.ed Employee Sc.ck Ownecsbip Plan Shze~ T,muv sco& Tocal S1,~eholders, EquiT Bdmm .[ Seprember30>1997 ...............–.– .._.- .$ 29.580 $20,984,754 $26,427,637 $ 960,371 $ (567,200) $ (4,358 >158) $43,477,W hrduse m“ry of 152.226 common sk Srd ......... ...__.=..” .... . of .. .... ... . .- 30,000 conun.. hxa cammined [. be relaed under d>. HOP ................. . . . . &h dtiidcndsdecfmed on comma. scocb ... ($.48 Pm ske) ...... ..— .. ........—-------- Pur&, of 1,033 common he up” mcruse of scocb oprions ....................._.-....=.. I.n-um- of 7,600 ammo. sha &m -UT xo& due co mrtie Nec change h unrdti ofsrodi options . apprcaarion on ,eauines avtihblc for de, ncc of m of $(93,G671 ........ ................. . . .. ... .. .._ -. -- . - [3271.203) (3,271,203) 454>460 200>000 654,460 “’‘- ““ (1,226,725) (109,I39) - - . - (1,226>725) (21,972) (21,!372) 159,807 50,668 ,Y,t income for me y= ended Sepraber 30, 1998 - - 2>784,882 Oalmce a, Sqcember 30, 1998 .............. ........... $ —. 29,580 $21,330.075 $27,985,814 —. (161,551) - $ 798,820 - $ . - - (16,551) 2,784.882 (367>200) $ (7,491,526) $42,285>563 . — I G I I r 1 The accompanying notes are an integralpad of these consolidatedITnancia,statements. First Midwest Financial, inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS 3 Years .I,dcd Septenlber 30, 1998, 1997 and 1996 1998 1997 1996 Cash flows from operaring acrivicies income ..................... ............ ........... .. ... . . N.t Adjusu~lencs to recontile ner inconle to net CX1, from operating activitie5 .. .............. $ 2,784,882 $ 3,641,956 $ 2,413>565 ,,et .. .. Depreciariorl, an,ortization and accretion, .. .................. .... Provision for loan loSm .......................... Provision for loss= on fordoscd red es~ate . . ... . . -.. Izet ........ .... . tian on sties ot sccurIcia Procce& fro~n A. safm ofloms hefd for safe ...... ............ Originations of ioms held for sale................ .............. .. . ... . . tor tie, avtible .. . . . . . 973,454 . ..1.662,472 299.532 (398,903) 5,613,115 =(5>613>115) I >092,782 120,000 (216,61;) 3,592,055 (3,592,055) Stock dividends fio,,l FHLB sto& . (Gak,) loss on da of office property, rlct........................ . .. .. . .. . .. .... (GaiL,) loss on Sd~ of foreclosed red e.svace,,,et Net chmge in . . . . 33,034 6,722 Accrued inc.rst Other wsem ........................................... receivable ... .......... . ........................ .................... Acmued interw payable .. . . ... .... .. .. .. ... Accrued expcnsa md od,er hab,bu~ Net mh from opcmting acciviti= . . . .. . . . .... . . . . 397,502 46>622 . (231,005) (152,159) 5,415,431 (337,062) 223>344 (205,719) (2,348,712) 1,976,697 907,721 100,000 20,000 (79,31n 1>064,000 (1,064,000) (78,900) (24,739) 8,63o (1,406,034) (399,200) 348,940 1,689>497 3,500,163 Cash flows !rcm irlvcsring acri.icies Net hge in intere.st-bearillg deposits in other fi=mcid insticu:ions ............................... ............... ............ ... Purch=e of securities .vaiMle Proceeds from sdm of securities .\,tiable for sale ..... ....... ..... .. ...... ... ...... . for de . . 200,000 (89,877,6361 ..18,280>412 100,000 (67,569,57@ 804,067 (300,000) (120>994,759) 366,829 Proceeds froln maturities md principal rcpay]nent of p,,rclrmed ......y ..... ........ ... . securlu= amdable for de ............................ ........... ...... ........ .................. ............. .... ... ... .... ........... of focedosed rd amt . ..................... ......... . ............ Loa Net change i~~low ................. .......... .... ........ . Proceeds from da Purd,~ of FHLB stock ................. . . . ..... ........ 67,062,074 (36>947,582) .....18.415.456 440,401 (447,700) 61,943,630 (29,819,316) ...18.519,590 93>453 (104,600) Procee& from redelnpcioll of FHLB stock . . . .. . 571,200 Purcl>a.seof Iowa BancoT, Purchase of Centi Wwc Bmwcporation, ......... ....... .. ... .......... .. . . .. .. re~ved net of cash . ..... .......................... In.., net of at, ~cceived . Purchae of premises md ~quipme”c, ner Proce& from Sda Ofasseu ................ . .. ... ... . ................................ (227,893 (842,423) 95,068,472 (24>975,540) (3.599,754) 132,842 (1>355>100) (5>217>265) (229,430) (845,38o) .,72,925 Net u.sh fioln invating activitim .......... .................... ..... (22,531,27;) (16,875,175) (61,876,160) First Midwest CONSOLIDATE Financial, STATEMENTS Inc. and subsidi=rie~ OF CASH FLOWS (C ON TIN UEO] Yews ended Sepzember 30, 1998, 1997 and 1996 1998 1997 1996 Cash flows from financing activities Net chge in noninterest-bearing den)md, aavmgs, NOW, and money mmkec d-d .... . Net cbmge in other time dePosiu ........ ......- .......... .....~........... depos,m Premed.s from adwcm from FHLB ................ .... ....... .... Wpaymenu of advance from firLB ...... ....... ....... .................... ... Net change in sectitiw sold under agreemenw to xepurdxae .. ........ .... . ..........& ... . .. ......... ...... ... ................~ Net chngc in odIer borrowings ......... Nec change in admcm from borrowe~s for wes and lnSUImcc ................ .. ..~........ ...<....... ... ... .............................. . ...........?.. .... ... Cwh dividends paid ........................ ..... .......L . ... Proceeds from exercise of stock options .......... ......................... Purclwe Ofmmury stO& ......... ........ ..... ............ .. ...... . . ........... ... Net ah from financing a.ti,918) 1,500,000 + (44,269) (1,226,725) 28,696 (3,271,203) 10,gg0,857 (40,75@ (962,682) 335,991. (4,268,777) 13,422,252 Net change in cash md A equivalents ............... ..... .. .......... .... ~~(6,124,982) (I,476,22@ Cash and mb equitients at begiuning ofya ..........-_ .... .......~. 12,852,426 ~2 $ (295,265) 18,54 S,037 210,000,000 (160,510,5s5) 1,640>000 (11,279) (745>761) 94,500 (630,710) 6S,088,937 9>712,940 4,615,712 Cash and wh equivd.nts ar end ofyex ....... . ..... ....... ......... ...... $ 6,j’27,444 $ 12,852,426 $ 14,328,652 Supplement disclosure of ah flow information Cash paid during the y- Interest ....... ... ... . for: ...~ . ......ti... .... ...... . ................. $ 19,4io>958 $ ,17,264,776.. $ Income u= ......... ... ..&.....G....<.= .. ....... .........L. .. ........... lr95,805 2,415,042 13,629,670 1,736,192 Supplwend s&edule of “o,]-ab investing a“d Iinmcing ocrivid~ LO~S ~msferred EOforeclmed d Isuance of common sto& for purchase of =mw ........... ....... .. ... ..... $ 1,679,984 $ 169,6S7 $ 220,474 Cen[rd We.sr Ba”’orpomrion .......... .......... ...... ... .. .... .... ... ~~~. 3,936,634 The accompanying notes are an integralpafi of these consolidated financialstatements First Midwest Financial, [nc. and Subsidiaries NOTES TO CONSOLIDATED FINANcIAL STATEMENTS SEPTEMBER 30, 1998,1997 ANO 1996 3 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING ?OLICIES f?rincipl= statments of Consolidation: include the accoun~ of First Msdwcsc Financial, The consolidated fmand fnc., a bank holding mmpany Iouted in Srorm Iake, Iowa, (&e “Compw,y”) and im wholly-owned subsidiwies which include First Feded Savinss Bu& of d]e Mldwcsc (die “Bmk” or “Fm Fcde~al”), Securi~ SBte Bank (“Swi- V’>), Hnc Sti.= age semicm and non-insured invfiml~c Fimmcid timiced, which oKets broktI. products ~Id Brooti]gs Smite Corporzcion. AU significant intercom- pany bbc~ ~ld ~actions h~ve been etitnarcd. Nanue of Business, Colxcentration of Credir Nds and The prknary source of Indusmy Segn,cnt izlconle for dle Conxpany is d>c purd,me or ori8il,acion of Itiorrmaxion consumer, commcrcid, commertil rd esute, and r~i- dentid rd sate anuarions from mtomers loans. Sec Nore 5 for a d~cu.ssion of con- risk. TI]e Company accepts deposits course of bu.sinas prin]wily the normal ill of crctIt in northwmt md central IoTva and emcern Soucb D&,ou The Con]pany operacm prin=ily which mounts for nlore b) in the banki~lg indusq 90% ofics revaucs, opemc- ing income and mets. Assets held in crust or fiduc@ capaci~ are no[ asses of&e Compal~y md, accordklgly, are not il]cfuded in the sczternenu. At Sep- accompmying consolidated fiL~lCd tooled approti- ren]ber 30, 1998 ~,d 1997, marely $14,165,000 ~ld $12,392,000, r~ectively, sts -C Use of fitimar~ prepmtion of fimti]cid srataenu in Pcep~ing Fiim’iai Statemenw The iII cotiormi~ with gcn- erdy acmpced accounting principl~ reqtira m-merit to m~ dle reported amowlc.s of rose=, Iiablliries ad disclmurc of contingent cstimatw m]d ~umptions rhar flea =CE and Liabilities at &e dare of tbe fmmcid statelnenm of revenue and expenses during mld &e reported mounu che reporting period. Acrual rmtd~ codd Mer fionl dIosc e$timarc.s. Certill Sia~ificmc S, and sco&-b.wed colnpcl~arion expense, involve ceti fair vducs of securities ~ld odIer financd instwenu, The allowance hr lom los- htin,ates sig- nifi~t ~tilnat- Inade by rnan~enlenr. Th6e mtimatm are reviewed by mm-cut possible that circum.swm dlat &I routineIy nd it is r~onably at September 30, 1998 nlay chmge ill &e nem-terin f“mre ~]d chat the effect codd be mzterid to che mnsoli&tcd flnmckd suce- mmm. Certain Vkembfity M~ement d)ac nuke d~e~mpany Due TO Certin Co.cenmcions: is of &e opinion rfmr no concellwcions m’sc vufner~le to the Fik ofna-term SeVex impact. Cash ad Call ~ui$dcnts flows, dl F.rpurposes of reporting mh cquivafenm is defined ro include the and ah Compmly’s ush on bald and due ~o,n fwd insticu- tiom ad fimtial short-term inte~-bwillg insritutio,~. The Company report.s net A deposits it~ o&er flows for customer lom tmsacrions, deposit -actions, csc-bwi”g short-term borrowings wkh maturities of 90 days or less. inter- institutiol>s, and deposim in o&er fitmcid Securitiw The bmpmy maturity, available for sa[e and mding categorim. n]arurity cl=fim securitim iIIto held to f-fefd to securirim aIc tkose which the Comptny has dIe positive incenc md abii!~ to hold to maturity, and we repomed at arnortied cost. Available for sde securities ae chose II,. Com~)y may decide to seJl if nwded for liquid- iw, ~~-fiab~lv m%enlcllt for sde securities mc reported at fti value, wi& unrbcd gtim and Iossm incfuded as 2 sepmte mnlpo”ent ofsbe- or ohm raom. Available equi(y, net of U. h.ld.rs’ Trading securities ~e bought pril,cipdly for de in the ne~ term, ad are reported at F& value with unrdized @ and Iowa included in earning... Gains md Iossw on de de of securici= am detc~- ~nincd usi~lg &e spccfic idcnrfi~tion method bwed on morcized cost md aIe reflected in resuks of ope~ations at ofsde. fnrerest md dividend income, adjusted by the tie amortition of purcfwse premium or dncounc over che esrimared life of tile security using d~e Imel yield method, is incfuded in anif~gs. Lores Held for Sde Momgage Iwm originated md nlarket ate wricd at rhe intexldcd for sale in the secon~ lowm of cost or estinared m=kec due Net unrealized lossa are recognimd in u, the s_~e~cr. a vafuation dowance by cfwgcs to income. Ngkw EKecrive Octobw 1, 1996, Ae LoaII Sewicing adopted Statement of Finmtid bmp.my ~SFAS7 No. 122, Xccoumrzg fir Morcgagt Smlh& Smuing fighti. v This Smcenler)r changed cbe accounting for mortgage sewicing rights rewincd by a lW otiginaror. if he originator seffs or securities Under this sr~ldard, mortgage Io- teal COS[oftbe n~orrb~e lam is dlomted betwa the rdared servicing righm, the ald retiv tiounting the la First Mitiwe=t Financial, [“G. and Subsidiaries NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Conrinu.d) the servicing righrs) and A. (wicho.t b=d on their relariw fir values. Under prior practim, such coscs were ~igmed co he loan. The costs allocared co righ~ are now recorded as a separate mom~e seticing seticing rights, d] Net and are monkd of, the net servicing inmme. i“ proportion ~o, ad ~vcr The mrying due the w of &e momg~e semicing rigbs me periodically duatcd for imp.tirment. The effea ofadoprfilg the statement was not material. loan simciorls, loan charge. ofi the whole allowance is a.nillble tbac occur. for a“y Loans are con.sidercd impaired if fidl prklcipd or I loan xerms. not mricipated in accortice wick Impaied Ioms are carried ar inter~t payments = he canmmal of mpeaed &wre mh flows &counted the presen[ tiuc at rhe loan$ effective interest r~rcor at &e Gr ~lue of&e collated if he loan k collateral dependent. A portion of the allowance for Iom Iosse.sis aJlomted m impaired loans LOUS Receivable h- receimble &t management h &e intenr and ability co hold for ~},c fo-=ble &nIre or until macuri~ or pay-oK ~ reported at theti our.scandi{lg ~p~d balance If three fl~~Ons loan loses co require an ins-, ~we he aflowmce for such incrme is reported as a componenr of rhe provision for lom loses. if the value of such Iom k deemed ~o be less d~m the balanca zdjusred for my chmge-offs, principal rhe allowance for loan losses, ad any def..rred f~ or coscs on originated loans md Honked on purcbxd premiums or discounm loans. Premiums or disco””rs on pur&zed loans xc ainor- to income using dle leveI yield method over &e tid remaining period to conmcmd mamri~, anric.ipacedprepayments. adjt,sred for Interest income on [am is a~ed over &e Term of breed upon the amomt of principal o“rstandi”g &. 10- except when serious doubt &ts as to &e colletibiIi~ of a loan, in which me dle accrual of inter~c is discontinued. Sm&er-bdance impairmen~ in cod. mo~ge =identil homogcneom lores are eva.luacedfor Su& Iom include cesidentid fmc re.side”ces, loans secured by one-to-four kily consrn,ction Ioa”s, md automobile, n]mhc- cured homes, home equity and second mo~ge Commercial propcnies low and mort~e are ~“ated individudy 10=s secured by ocher impairment. for loans. of borrower opemting r=d~ and finmdd When mdysis condition indi~te.s rhac underlying cash flws of he bor. rower’s business m noc adequate co meet i~ debt service requirements, dle [oan is evaluated for impairment. Often this is ~ociated with a delay or shofi~ in payments of90 Interest excenc &t income is subsequently remgniti cash payments we remi”ed wtil, only 10 rhe in “~mage- &ys oc more. Nonaccmd Ioans we often dso considered Impaired Ioa”s, or portions dIereof ae chtrged imptired. ment’s j“dgmenr, &e borrower hu &e abili~ co m~ m.- tracmd inrerest and principal payments, in which w dle loan is rmurncd 10 accmal sticw. and Wlated f.om Origination Fees, Commitment Cosw Loan fees and cesttin direct lom origination cosw Fw, are deferred, ad &e ner fm or COSLis recogntied as m adjustment inmmc using he inccrest m~od. to inrerat Allowance for Lou LOSSW Because some loans may not be reptid in fi~, m allowance for Iom losses is recorded. The &owance for loan lossa is incraed by a prov~,on for lom 1.ss= cb~ed co expense and decreased by cb~ofi offwhep deemecl uncollectible. Foreclosed Wd Gti:e: W esrare properti~ ~qlured through, or in lieu 06 Ioa” foreclmure ~e iniTtiIy record- aab~ih~ng a new ed at&I due at the &re ofquisicion, cost b~is. Any reduction to fti due due of accouncd dlomce the related lom at d>e dme of acquisition is du fo~ Iom Iossw, VabIItiOns are periodically per. for a.s a loan low and hged from d,e ~iog a~nsc formed by mmagement md vduacion a~owanca adjusted through ~ hge co income for changes in fir arc value or estimated selling costs. (net of recowria). &timating the risk of loss and the Income T= The Compmy recor& income cm =pense aounr agemenis periodic duation dlomce of Ios on my Iom is necessmily subjeaive. Mm- the lom loss experi- is bmcd on he Compmy’s put adeqm~ of &c of enm, known md inhaent risks in he portfolio, adverse sit- Lutions that may affect che borrows’s abilky to repay the estimated d“e of any underlying cofl~ceraf, and currel,c economic condirio”s. While mamgemenr may periodical. ly alloute portions of the flowance for specific problem bwed on che amount of taxa due on irs w remrn plus computed bd deferred - on &e mpected furure tax conseq~lenm of ~mpomiy differences beiww~ the cany- and ta bw~ of ~em md liabilities, using ing aounts enacted QX rate. Avduation allowance, ifneeded, redum deferred w ~seu 10 dle .axnouncexpected 10 be realized. I 3 First Midwest FInan=ial, Ino. and Subsidiaries NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Premises a]d Equipmenu b]d at cost. Buifd- ings, furniture, fixtures md equipment arc w~ied at cost, computtd lW zcnunulated depreciation and ionization is ~ied principally by ming &e maigbt-line method over the e.sti- USd =ed ~V@ of the assem ranging fronl 3 [“ 40 }WS. These assem arc reviewed for impairment under SFAS No. 121 when events ind~mre he wryiog amount may not be recoverable. EnlploFc Stock Ownership Plm The Company accouncs Stock Dlvida)ds: Commo,l share amo”ncs rclaced co &c MOP plm, sro& comp~ation dividends per tie and are r=tared for stock splits and stock plms md ew.ings dividends, including d~e rkree-for-mo stock splir effected in the form of a 500/ostock diiidcnd which }va paid o“ Ja,~ 2, 1997. <ings Per Gmlnon S&C Basic md diluted eunings per comn)on share are computd under a new accounting ended scmdard effective beginning with the quarter I for i~ employee std ownmship plan (“ESOP”) in accor- Dealber31, 1997. All prior =ilings per colnmol] shwe dance with AfCPA St.te,nent of Position f“SOP”) 93-6. Under SOP 93-6, the cost of skm i,5SUd to dle ~OI\ but nor yet domted to pxticipants, Xe pr=nted in the con- solidate bdmce sheem as a reduction of shweholdem’ equi~. Gmpensarion on the marker prim of he shars m alley ae commimed to be expcme is recorded b=d reiaed for Aocation to pxcicipanr accounts. The differ- ence betwtil~ d~e mmkec price and the cost of shaes com- atnoun~ bzve been restated co he mmpmble. Bmic eun. ings per common shze is bmd 01] be net income divided o“c- by dle weighted average Ilurnber of common shes are mn.sidered sranding during the period. F.SOP sbaa outsmding for earnings per common sb~e calcdations ~ hey =e commin.d to be refereed; un-ned MOP sh~ a recognition and rcrention plan skwes we considered outstanding for not comidcred ou=randing. M-merit mined to be rdeased is recorded x an adjusu]]enc to addiciond ptid-in capital. Dividends on aliocatcd ESOP shares we recorded x a rcductio~~of retained wnin~ div- calculacio”s w ihcy basic eanings per common sh~e become ve.seed Dduted wnings per common share shows conlmon shw~ he diJutive Wecc of additiond potenti idends =e !lot paid on unearned F.SOP slwm. isuabk under sto& options and nonvcsted shwes issued Fi:lmcid Inscrume”n wirh Ofl-Bdmcc-SI,eec ~k The Gmpany, in the normal course of business, m&m conl- miunen~ to make loans whIdI are not reflccced in tie con- solidated filmcid comlirments is {Isclosed in Note 16. sratemenm. A summ~ of the.se h,ra”gible &sew Goodwiff arising from tie acquisiio,l of banks is anorcid suhsidi~ straigkt-line method. &of unamorci~d goodw”ti rorafcd approtin]ately $4,497,815 using dlc September 30, 1998 ald 1997, over 15 y- and $4,862,747, respectively. Amorbriotl expense wm $364,932, September 30, 1998.1997 $363,923 znd 1996. and $170,070 for the yeas ended Securiia Sold Under Agrecmet,cs co Repurchase The Company encem into sd~. of securitim under agreelne”cs alders only which provide for to repurchme wirh ptia~ &e rcpurchme of the san,e secusity. Securitim sold under agreemen~ to purcbme identical securitim m collatedi~d by assets wh,& a. held in s&&cePing in the m,le of &e Batdr by &c ddcm who wranged d~e trauacriol]. Securi- ties sold under agreemcnu w repmchm m xeztcd as fin~]cings and&e obligariom to ~cpurchase such sccuritim a. The securici~ undedyfi~g A. tiI the asset accouns of &e Comp3ny. agrecmenm retin retlected ~ a liabili~. under mmagemenc recognition and recentio~] plans. RecI~iIi=tiotls Cur,,. amou!~ts in &e 1997 u,d 1996 cOnsOli&ted fulat,cid smten>en= were retilfi~ form wirh cbc 1998 prese~lcation. to co”- Stock Compcmario,l: tion understock option plans is based o:) Accounting Prin- for employee compe”~- Epensc (’mB”) opinion 25, ~vicb expense mponcd UPJCS Bead only if optiom =e granted below mwket prim at gmnc If appficabk, disdosm of net klcome md earnk]gs date. per shre ae provided as if the fair due merhod of SFAS No. 123 we used for stock-b~ed compensation. Ncw Accounting Pronounmnlellx During the nmc few YWS, new accounting pro,) ouncemen= that have been issued wifl take effect and orkers are expected. These m summwizcd below. In the future, several new accounting prO”ounct- mcnts will be implemented. Statement No. 130 requires income” Wd “compref]en.sivc ‘other [let income. O&w income” to he displayed along wifi comprehc”sive comp~eha]sive income includ= ckang= in unre~zed gains md Iossm on avail~le for sdc securiria, he ofiec of ccducciom in some paion foreigtl currency cransfation, md in the future will Iiabilici- Wendy recodeds equi~, &o include deferred hedging ~ins and Iossm. Compre- First Midwest Finan-~al. Inc. and Subsidiaries NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Con,inucd) hen.sive income is n= income plw oher income, co”tpreh.nsive insce~d of a m+uction of loans. Propomk will require thar purchased Iomsj Smremenr No. 13 I for pubkc companies ~ed&lne &ose acquired i,] he purck ofm entire bti indudlng be record- s%ment mpOfing tO fOUow ~O~V A cornpmy~ chief OPe~tW decisiOn mkr ~enc.s to mahe opemting decisiom. gets information abour business Smtcment No. 132 i,]meases and revkes pcmion ph ed net ofestin]aced uncollectible loans. ms nl~”s d,ar no for Imn Iossm will cu~ over or be recorded allomce exmp[ through subsequent exp”se, dthougb subquer,t 10S estimated ac purchase will not equal to che mou”c dKclosum for pt,blic companies, and sfinphfin such dis- be shown m charge-ofi. CIOSUS for nonpublic companies, No. Sracaent in 2000, in che ba- require d] deriwcives [O be recorded at fir due lancesheer, wirh chmges in Fti value run thro~,gh income, 133 on deriv.rivm will, Jf derivative arc dommenred md effective w hedges, rbe cbmge in the derimtive ftir due will be offsa by an cqud &ange in the M tiue of che hedged item. The AfCPA guidanm for finm~ instirucions in i~ accomting guide will be revised ro conform co current iit- eranue, make ~e and combine few changm, a banbing/savings guide, credit union, and fmnce comp,ny g,,ides, changes will be to disclose lores ~t .Iiminacing some differenm Aerein. Some due 90 days or more &at are sdil on accrual and to disclose the policy fot charg- Smtemenc No. 154 0. mortgage banbing will, in ingoff loans. 1999, allow mortg%e Iom that w semitimd to be cfa- sified as trad~g, for sale, or in certain circum- sranc= held to rnamiy. Cmendy rhe.semust be cfmsified as mdmg. sable Implemcntario” guidance on Stacemenc No, 125 will claii+ the quiremenr for lom pticipations to contin the right avoid &!@ing for the p.r~er to r~e~ the p=iciption, to the pmicipation as a secured borrowi~ The FASB collcinum m study W4 isum, including recording dl financial tismenr.s ar fir value and abol. ishing poahng of interm accounting. APB 25’s maurm.enc ired TOemployees and not co nonemployes it is likely chat fro, for stock option pkns will be Iim- duec- su&s cors, hereby ~using options to directors. comp~tion mpen.se for stock NOTE 2. F.ARNINGS PER COMMON SHARE A reconciliation of the numerar.m and denominators used in &e computation of bwic wnings per common sh~re and &lured mni”gs per mmmon share is prmented below. YW ended September 30, 1998 1997 1996 Basic Earnings Per Common Share: Numerator Net income ............... ..........U .. ... ........d. ...................... “ $2,784,882 — $3,641,956 $2413,565 - Denominator Weighted aver~e common sh=m ouomdlng ........ ........ . .....ti ... .......... .........=... ...... 2>646,105 2,822,021 2,682,650 Lw. Weighrd avmge unflo=ced ESOP harw ............ ..... . ..... . ...A ................i ... . . ..L.. .. V1;327) (101 375) - (130,662) Weighted aver~e common shares oucswdmg br basic sings per common shm .............. .. .......... . ...... .... ...... ...i ......~ .......‘““ 2:9-4,n8 — 2,720,646 2,551,988 Bmic mni”~ per common s~re ......... . ......... ........... ... .......... . . $ 1,08 $ 1.34 $ .95 First Midwest Finan=ia I, Inc. amd Subsidiaries NOTE 2- EARNINGS PER COMMON S13ARE (Continu.d) Yea ended September 30, 1998 1997 1996 Diluted Earnings Numerator Per Common Share Na income ......................ti................... .................... ............. .$2,784,882 $3,641,956 w Denominator Weighted average mnnon sharm oursmding for bwic ‘ni!i$ Pcr cOnlmOn sh:ue ...-....-..-...- ...... .. ...... . ... ...... ~-2574,778 2:720,646 2,551>988 Add: Dilutive &-wcs of munled exerase.s of stock Opao[l$ ............_ .........__..= . ......-_._.. 127,862 130,638 .136,81.1 Weighred ave~e common and dilutive potential common share on~ran&ng ...... ... ........... ... .. . . ................ 2,702.640 2,851,284 2.688,799 Diluted anings pcr common ske .......... . ........... ... .......... $ 1.03 $ 1.28 u I fncenrive stock OptiOIls for 55,500 sbm of conunon During &e yeaI a]ded September 30, 1998, tf~e stock, Wanted during dle year ended September 30, 1997, were nor considered in computing diluted earnings pm common shwe for dle year a]ded Seprcmber 30, 1997 because alley were mtiddutive. AddiuonaOB on Sepcen]bvr 30, 1998 the Compsl,y granred stock opcio,]s for 13,418 shaes of common stock whi& may atFcct de compucatio” of d~utcd earnings per comnon share in ficure periods. NOTE 3 ACQUISITIONS On December 29, 1995, die con,nlctn stool< of Iowa Bancorp, hc. the Company aqutied 100% of (“Iowa Bm- COT~), ~d Bak, IOWa Savings z federd savings bank, in a purd]ase uansactioll with i~ ~vhOlly-Own~dsubsidiaw, Company redeemed approfitely 5.6% of its begimi”g year out.sranllt~ common shm (I 52,226 shares) under its conlmon stock sepurcf=t wdl .Mcct &e ~mpmy’s program. T& repurchx future stings cOm*non PI shtie compumtiom by reducing mounu available for investment ad weighted avuage sbzes oucsmlding. mon stock was mchanged for $20.39 in cash. ~Ie ~n]- pany paid approxknacdy $8 miUlon. Ioxva BmcoT:s rcsuks of opcmrions w included ii] &e consolidated b@nning m of &c pur- ticome statement of &c ~mpmy $25 m~ion i], =sers. && share of Iowa Ba,cQrp’s cm. &a5e are Pre.smred below ~e dle cousofidated proforma I&B of operations of d,. Compmy for he year ended September 30, 1996, ~uming the Iowa Bancorp acquisition W occurred a.sof Ae beginning of che fisd yew. Nec interest ilicome Net income hlGngs per comn]oll and mmtno,x equitienr shae Basic anings per colnrnon share Dilured wnings pcr common he $10,467,578 2,268>794 $.89 $,84 First Midwest FinanCial, Inc. and Subsidiaries On Scpcember 30, 1996, rhe Company zcquired 100% of &e common stock of ~d Wmt Bancorpomtion aPPrOximarely $1.3 m~iOn and isued 256,737 common shara valued at $15.33 per share, u re.smcedfor the time. NOTE 3 - ACQUISITIONS (Concinu.d) ( rCencral West”), &curiry Sac. B* miU1Onii ~ec.s. and its wholly-owned subsidia~, with $33 fich bare of Centi Wsz’s common in a purchase _tion for-two stock split paid on January 2, 1997, for a toral of $3,936,634. due of operations are inc[tied in he consolidated income sracemti>t of the Central Wmt’s ralr.s StOCkw daged for $18.04 in cash and 2.352s shares Compmy ~ginning m of the pmcba.se d=te. of the Compnyi common stock. The Company paid Presented below ue the consolidated pmforma rmlt.s of opemrions of the Compzny for the ya ended September 30, 1996, ~nting &e Central W~c acquisition hd occurred m of rbe beginning of tile fisd y~r. Net interesr income Nm income Earnings per common md mmon qtil,denc sk Basic earnings per mrnrnon share DJuced anings pr mnmon shm YW end securities available for sak were m fol[ow $11>326,730 2,410,218 $.86 $.82 NOTE. 4 - SECURITIES Amortized Cosr Gross Unrealized Gains G,oss Unrealized Losses Fair value $27,638,030 $ 61,333 $ (443,567) $27,255,796 1,307,076 26,985,523 61,767,555 117,698,184 1,638,181 34,588 786,407 778,96I 1,661>289 315,815 (711) (n (92>073) (536,428) (167,510) 1,340,953 27,771,853 62,454,443 118>823,045 1,786,486 $119,336,365 $ 1,977,104 ~ $120,609,531 1998 Debt sectiri~ Trust preferred...............- ...............a?... . .. Obli~ciom of stare and pobr[d subdivi,sions........... . ...... ........ US. Govemmenr md fcded agencies . ... Morrgage-backed xcuritiw ........................ ~kerable equity s-ities ..... ........ .. .......... 1997 Debt securities Obligation of smtes and . ., pohrlcd subditiio,u..., .....~.......... ..~... $ U.S. Government md federal ~encies Morr~e-backed ..... securiti~ ............... ......... kkerable equi~ smtities ............ .. .. ......... ],367,42I 68,129,132 43,644,377 113,140,930 1,315,731 $ 26,299 543,889 882,930 1,453,118 369,652 (3,7751 (188,059) (293,996J $ ~ ~ $ 1,389,945 68.484,962 44;425;145 114,300,052 1,684,993 $114,456,661 $ 1,822,770 $ (294,386) $115,985,045 First Midwest Financial, Inc. and Subsidiaries NOTE 4 SECURITIES (Conri,,ued) The amortized cost mld ftir value of deb[ securici= by collw.cd differ from contracc.d maturiti~ because borro,ve= nmy have he ri~t IIlaturiry we shown below. Expected maturities may or prepayment pemdties. co call or prepay obli~tions wifi or wirhout dl Septernher 30, 1998 Amortized cost Fair Value $ 1,558,889 11,373,772 15>359,937 27>638,031 55,930,629 61,767,555 $ 1,567,466 11,609,81 I 15,935,529 27,255,79G. ~ 56,368,602 62,454,443 $117,698,184 $118.823>045 Activiti= related to &c sde ofsecuriti~ available for sde ad mo~cmw-bzcked securitiu atiahle fo~ sale WCsuai~ a5 foflows: PrOWds from dcs Gross gains on dc.s ........... ... ....... .......... .......... ........za ................... ............................. ......t.... .... $ 18,280,412 . ..398.903 $ 804,067 216,614 $ 366,829 79,317 Y- Ended Se”cembcr 30, 1998 1997 1996 NOTE 5 - LOANS RECEIVABLE, NET Y- end loans receivable were m follows One ro four family rc.sidential mort~e lo= ................. ... .... ...._ Insured by F~ Convmtiond ................................ ........................... .. ................ .... .... ........ by VA ......................... or gu~teed Corlsu”ctioll ............................. ...... ...... ................................... .... ...... . . . .. Comlercid Agridturai &nunercid rd rotate lam ad Inldti-Fdy .._ rd estate lom .................................................. ... ............. . . . . ... . . .. .. businm loms ........... ........ . .................... . .. ... .... ... ....... ...... . ... . .. . . . Agriculcur.d bu.sin~ 10=w ................... .. .. ..... . ...... .......... ..... .............. .... ... ... Iom .................. .... ...... .. ....... .. . . ............ ........... ...... .....=....... ... .. consumer k: Allowance for loan lossc.s ................................. ... .. .. .. ..... ... Undisuibuted portion of Ioms i,, pm’ess .. .......... Net de6emed Iom origk.cio,, ........................... . ... ....... ... ......... ... ... .......... .. ....... ....... ..._ fem ... 1998 1997 $ 299,454 85,499,468 32,989,982 66,845,149 . 10,536,857 21,587,249 ..37,233,902 26,238>825 281,230,886 .(2,908,902) (7,738,379) (297>41Q $ 388,589 73,514,864 21,263,847 74,869,777 11,732,395 18,456,004 38,650,322 27,397,629 266,273,427 (2,379,091: (8>700,40Q (552,965ti. $270,286> 189 $254,640,971 I First Midwest Fina”~ia[, Inc. and Subsidiaries A@vity in tie dlow~ce for Iom Josje.s for dIe y- ended Seprember 30 ww x follows NOTE 5 - LOANS RECEIVABLE, NET (Continued) 1998 1997 1996 $ 2,379,091 1,662,472 $ 2>356,113 -. 120,000 $ 1,649,520 100,000 “33,635 25,638 -, 132,500 563,310 (89,217) Beginning balmce ....... . .............. ... ...... .... ........~........... ... PrOvlslon for loan Imes ........... ............ ......L .. ....L.iZ. .... ...... ...... . ................... ......~ ... ... ........ ........... ............. Reco,vries at acqtti,rion date ............. ........... Iow Bmcorp dlowce Central West dowm.e at acquisition d31e ... ..................... . . .- ~ .,. ,. Cha~.oEs ....... ......... . .. ......... ....u..z.L.x ................Y....... . ‘“” (1.166,299 ~ Ending hafmce .......... ....... ..............................I.2 . .. .....k... “ $ 2,908,902 $ 2379,091 VuNdly dl of cbe Compmy’s originated Ioa are to Iowa in swenteen odter states. md South D&om-bwd The Companyk purked i“dividuak md orgmizations. loam totaled approximrdy $93,482,000 properci= 10c3ted, x a percenmge of cod IOUE, 3.sfolfom .C Sepcem&r 30, 1998 and were secured by 4% in Minnesota, 5% in Wsco,lsin, 10% in Wtihington, 2% in Nmv .Mtim, 2% i~ Nor& D&om, 2% in Sou& D&om, and&e remaining 8% i“ sixteen other stares. The approximately loans Company’s purchmed totalled $75,851,000 propeni~ lo~ted, ~ a percen~e at Sep~mbm 30, 1997 ad were secured by afcotal Ioms, as follows; 6% in Wscomin, 5% in Wa.shingron, 3% in Minncsora, 2% in Iowa, 2% in North Dakota md AC remaining 10% The Company origti.tm and purchxes commercd =mte IoaI]s. Thwe loans arc mnsidered by manage d menc to be of somewhat grater risk of uncolfecribtity due to the dependency on income prodution. commercti real estate loans The Company’s inchrde approximately $8,100,000 md $10,776,000 of Ioms secured hy nursing homes at Sepre,nber 30, 1998 ind 1997, re.speccively The retinder fied by indus~. of the commerdd rd esracc portfolio is diversi- The Compmy3 policy for requiring ml. and guar..t~ bt~ each bomower. mi~ with the crcdimrthiness of The mount of rwumrcd md related parry Ioms w of September 30,1998 of non-accruing 10.w m of September 50, 1998 and 1997 were $3,164,000 and 1997 were not signi6mt. rmpecrively and $2,875,000, The mount Impaired loans weIe as follows: ( I I First Midwest Financial, lnC. and Subsidiaries NOTE 6 - FORECLOSED REAL ESTATE Ym end foreclosed rd esute wa m follows: 1998 1997 Foreclosed rcd estate ...................... .......... ....... ..... .. ...... . ..... . .................. ..$ 1,362,849 k AoOwan@ for fo,ecfosed Id amt. 10sse.s............... .. .. ....... ... ... . . ....... (299>532) $ 1,063,317 Activi~ in &e flowance for foreclosed rd mcate 10SSGfor &e yms el]dcd Septenlber 30 m m folfows: Balmc, begin”i!~g of period ........... ........ ... . ....................- Provision for Iossm on forecfoscd rd rotate ............. .. ........ $ ks: bss= &=ed ~ainst aflowance ......... .... .. ... ...... ... 1998 -299,532 Balance, end of period ............................ . ... .. . .................. ~.$ 299,532 1997 5,W0 $ ~ $ I $ $ $ ~ $ 156,300 156>300 1996 20,000 5,000 NOTE 7 LOAN SERVICING Mort~e were as follows loans sewiced for orhers as. not reported a.sassets. The unptid printipd bdmcm of ticse Iom at ycu end Tod .............. ... ..... ................. ...... ..............e ....... ........... . ....... . ...... .. .. ....... . ~$ 10,964,000 $ 5,884,000 Cu.stodid escrow bafances mtintiled in conl,eccio,] wicfl he foregoing loan setictig wme approtirately $111,000 and $19,000 at September 30, 1998 and 1997, respectively. NOTE 8 . rREMISES AND EQUIPMENT, NET Ym end prti= and equipment were m follow hd ............ . ...... .... . . ..... ............. ........ .... . . .... . .. . ..... ................. Buil&gs Furnimre, 6xturcs and eq”ipmcnc ......... .... ....... .... ... .... .................. ... ... .... ....... .. ........ ...... .. ...... .......... .... ..... ........................... . . ...... ............. .....~.. ... . ....$ : 1998 1997 535,233 4,674,g69 2,451J,5z6 7,660,728 $ 535,233 4,607,698 2.292,29S 7,435,226 k accumufatcd depreciation ...................... .... . . .. ... . ..... ................. ... ... ...A (3>611,783) (3,258>9 15) $ 4,-5 $ 4>17&311 Depreciation of premis= and equipment included in occ.pan~ and equipment expense w $355,261,$346,444 md $214,201 for &e yeas ended September 30, 1998, 1997 and 1996. ~irs~ ~idw==* Financial, inc. and Subsidiaries Jumbo ~fiute.s of deposit ill de,;ominacions of $100,000 or more w approximately $14,183,000 and $19,265,000 at y= end 1998 md 1997. AL ScpIembcr 30, 1998, the scheduled maruriri= of certificate of deposi~ were u follows for&e years el]ded September 30: NOTE 9 DBPOs ITS @ $221.130,975 NOTE 10 - ADVANCES FROM FEDERAL HOME LOAN BANK At Sepcerz~ber30, 1998, admcw from the FHLB of D= Moinm wirh fixed and varhble mre.sringing from S.0570 to 7.82% mature in che yw ending Septemkr 30 as fo[lo~m. “.. I I I pldge The Bank and Se&T agreemenm wherehy he Bmk md Security assign, transfer TOthe FHLB and grant to she FHLB a securicy and pl~e have aemred blkt incer=t HOIWW, cbe Bmk and Security in all proper~ now 01 hereher (it have he owned. TO use, commingle and dispose of rhe collateral d,ey have =siglled to the FHLB. Under the Weemenu, and Securi~ must mtirain the Bank “eligibfe collateral” chat has a “lendlng vd.e” zr Iwt c~ud m the “required c0113r~ $85,263,562 amount,” ao % defined by he a~eemenrs. At y~r end 1998 and 1997, the Bank and Security pledged securiti~ with amomitid costs of approximately ad Ltir vdum of approti- specific a@nst In addition, qutifing mom~ge Ioms $41,980,000 mtely FHLB adm]ces. and $84,261,000 and $83,544,000 $42,636,000 of approximarefy $82,165,OOO and $65,305,000 were pledged as cokrerd at year end 1998 and 1997. First Midwest Financial, Inc. and Subsidiaries 3 NOTE 11 . SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Ymr end sccurici~ sold under agmemenm to repurchwe totaled $4,074,567 and $1,800,000 for 1998 ad 1997. An analysis of secwicim sold under agreemelRs ro rep~lrch~e is w foflom Highac mo,,th-end balance ............................ Aver~c hafance ........... ... ...........~ ........ ........... ... ..... Wei@ted average inccrmc rate during che period ........ ..._ ......- ...._..— ..... ...... .. ....... . ............_ :$ ... . ~” ... ....... ............... . . ... ..... ..... .... Weighted average interest r~ce at e~]dof period ................. ........ .... . .... ..... Y~s ended 1998 1997 4,07.4,567 2,915,614 $ 2,789,918 234,590 5.80% 5.71V0 5.620/o 5.79% I At y= repurchme had mturitim mging end 1998, from I to 20 n]onh widI a weighted aveWe maturity of 6 mandls. The Com- appIOximaCely $4>439,000 Ie.spcccivdY, ar yeaI end 1998 ad 1997 u colfaterd for securities sold ~d $2,380,000, securitim sold under agmmcnu co macdy $4,285,000 and $2,267,oOO and fair tium of pany p[edg+ sccwitia with amoriid costs of appmxi- under agreements to rep(ucfwze. NOTE 12 OTHER BORROWINGS OrheI bomowings ar yw ald 1998 and 1997 mmisced of amortizd coscs of approximately $1,499,000 and of advanca from tie Federal $550,000 md $2,900,000 of Chicago, The advmm Oumrandmg at Rmerve Bd y- rate and were due October 2, 1998. The Company pledged securities with end 1998 N a 5.45% inter=t NOTE 13 - EMPLOYEE BENEFITS $3,491,000 and $3,507,000 o&m borroti”~. and fair vdum of approximatdy $1,512,000 at ya end 1998 and 1997 w colfa.red for Employee Srocb Ownership Plan (MOP): maintains an ~OP The Compmy for efi8ib]e employem who have 1,000 hours of cn]ployment with the B~ attilled age 21. The MOP borrowed $1,534,100 md who have from of seven yeaIs credited service. Prior 10 dIc compltion of credird service, a participant who terminatm ernploy- menc for reasons other than deztb, normaf retirement, or disabili~ receivw a reduced benefit b=ed on the MOP’Z the CompaI]ytopurbe230,115 shu~ of the Comp,. ny’s common SEOCL Collated ezned sIwe.s of common lom proceeds by de ~01 sto& purtied for dle loan is he UII- wifi &c Tbe loan wifl be repaid principfly from the BaWs &crerion~ mnuibutions to The i“ter~c rate for the MOP ova a period of 8 yws. &c lom is 80A. Sbc.s p.rcbmed by cbe ESOP m held in suspense fo~ affocation among participants 3.5the Iozn is repaid. ESOP mpense of $654,460, $49s,740 ad $451,500 was recorded for the years ended September 30, 1998, znd 1996. Contributions $200,000 ~ld $200,000 were made to *. ESOP d“ri”g of $200,000, 1997 the y- ended September 30, 1998, 1997 md 1996. Contributions suzpense in a to the ~OP md sh=~ released fion~ to the repayment proportional aount of the MOP lom Ue zflo~wd among ESOP pticipzn~ on *C basis of conlpensation i“ the ya Bencfi~ generally become 100% vested &eI seven y-of of aoocarion. Forfeicurm ate pwcicipacing employees, reallocated among vesting schedde. in dIe same prOpOr- rmaini”g tioll as contributions. Benefits ze payable in tile form of sto& upon termination of employmel]t. The Compa1y3 conuibutiom to dle ESOP ze not payable under the ESOP cannoc be cstimared. freed, so benefits ESOP participants we entitled to receive &uibu- tions from theti MOP accouns ordy upon termination of servim. For &e years ended September 30, 1998, 1997 and 30,000 and 30,000 sh- 1996, 30,000, hiI due of $21.82,.$16.52 rivdy, were commitred co be rdaed. ended September 30, 1998, wirb an aVeI~e and $15.05 per share, rcspec- Afso, for he pm 1997 and 1996, alfoared and cod ESOP Sb~S ShI~ and 2,858 shwes wirhdmwn fronl the ESOP by pwticipant.s lefleCtS 8,617, 4,517 who arc no longer with the ~mpmy, net of sbes pur- tied for divideIld reinvestment. F*.S* Midwest Financial, inc. and subsitiiaries NOTE 13 - EMPLOYEE BE NEFITs (con~inucd) 1 Y-r end ~OP shares ~e as follows: 1998 1997 A80cated shar~ ....... .... ........ ...................... .........<...... . 157,128 135,745 1996 110,262 Unmned shtres ............ .. . . ......... ..L... .... ........ ......... .. ... ~ ~ ~~~ 55,080. S5,0S0 115,080 Tad HOP shar~ .......... ....... ... ... ........... ..................... ..- 212,208 220,825 225,342 M1r value of unearned sha~ ...._._ ....... ..- .... ....... ..._..+___ $ “950,130 $ 1,690>965 $ 1,860,460 Stock Options md Inmncive PkUIS Grrain OFIWIS and directors of the Company have been granted oprions to purcke srock option plans. common stock of the &mpmy pursuant 10 SFAS No. 123, ,vhich became effective for sto&- kd dIe fir vdlle mechcd been used [o m-e compen. satio” cosc for stock option plms. The mercisc price of options granted is equivalent to the marker due of under- compensation lying sro& ar &e grant date. Acofllngly, for cost actually recognized for stool options w= $-O- bmed compensation during &cal yews beginning &er 1998, 1997 ad 1996. December compania 15, 1995, that do not adopt reqti method for stod<-based employee proforma disclosures for accounting its ti,r due for compensation The fir due ofoprions granted during 1998, 1997 and 1996 is estimated uting tbe following weighced-~ver- age information risk-free interest mte of 4.49%, 6.44% awards granred in the fmt 6=1 Y= begining afier December 15, 1994. Accordingly, tbe foUowing profo~ma information p%en~ net income md etings per sbre and 6.18%, of 2.69%, expeaed life of 7.o yms, expecced dividcuds 2.02V. and 1.911% per year ad expected stock price volatifi~ of 20V0, 18% and 18% per ya Net income as rcponed Profonna n= incOme .............. .... ... ..A.........A....... ... . ... .. ... .. .. ... .. . .... . . ..... ... .. . .... . ... ... . . 1998 1997 1996 ~$ ~~~~$ 2,784>882 2>689,596 $ $ 3,641,956 3>531,215 $ $ 2,413,565 2,266,238 +rced mings per common and common equitient share Btic ................... ... .. ..~.............t .... ...z .. ........ ............... DJuld ................. . . . ......__ --.. - .... .... ... ..... ..... . ““-’ . ... ... $1.08 ““” “’”:”’$1.03 Pm forma earnings per common ad Comlnon eqtialen[ she Mlc. Difuted .... . .. ........... ........... .......... ......... . .. ... .......... ........ .... ............2...+ . .... ... ......... ... .. ...>...... $1.04 $i :00 $1.34 $1.28 $1.30 $1.24 $.95 $.90 .8.89 $.84 In ficme y=s, &e profom e~cc of not applying this standard is expaed to incme as dditiond options are grmred. 1’ First Midwest Financial, Inc. and Subsidiaries NOTE 13 - EMPLOYEE BENEFITS (Co.rinuccl) Srock optio,l plms are mcd c. reward employees and provide &a wid] an additio!]al equity intermt. Options m issued for 10 year perio&, wi& 100% vesting zendlv 48 monrhs after grmt dare. At &d ycu .Ild 1998, 151,117 occurti sham werea.thorized for future ~~~ InforI~ation ab~ut option grmts f~!lows. Number of options Wcighced-avernge exe~cise price 264,141 58,740 (14,175) 308,706 69>930 (51,838) .(1,500) .325,298 .. 13,418 (7>600) 331,116 $6.80 15.44 6.67 . 8.45 17.91 9.87 1475 10.23 17.88 6.67 $IoGi- and $3.52. At The weighted-a-e Y= end 1998, options outswding fti value per option for optiom granred in 1998, 1997 and 1996 was $2.01,$4.15 Imd a weighted-avcmge raaining life of 6.29 Y- and a rmlge of =ercise price h“, $6.67 to $20.13. Wagement Compmy Recog,]ition and Rcte”cio*~ PlmS ‘rhe (8,986 of which gmted 7,191 ~~d 106,428 have heell forfeited under terms of the PI~l due co termi- nation of sewice) rmtricced shares of dle Gmpanyi c<,m- mon srock on May 23, 1994 and September 20, 1993, respectively, to certi mmagtment offiwrs of he Bank pursuant TOa recognition and rertncion plm (he “Plan”). a shueholder, except that they culnot sell, a.ss~n, pledge or tmsfm any of che mtricred stock during &e resuicrcd petiod The r=cricced stock vats at a rate of 250/non ~ch date. Expense of $-O-, $41,947 annivc~ of A. ~C and $117,064 was recorded for fiae pbs for the years ended 1998, 1997 and 1996. There w no remaining unaortimd untuned compcmation value of the plans at The holders of the rmuicted stock have fl of dle rights of Sepcen]ber 30, 1998 or 1997. First Midwest Financi=I, In=. and Subsidiaries The Company rl~eBank md its subsidimia ad Secuity file a comolidatcd federd income u return on ?. fsd y= basis. Prior to fiscal ya met in determining treble if ~tin 1997, conditions were income x reported on the con- legislation pined in Augusr 1996 now cequir~ the Bmk to dduct a provision for bad debts for tm purposu breed OKI aad 10SS expedience md re=pture the exws bad debt r-e accumdated in w ym beginning after Sep{embcr NOTE 14 - IN COhi E TAXES solidated federal income u return, cbe Bank was Mowed a special bad debt deducrion breed on a percentage of W- able income (8% far 1990 or on specifid experience for. of tuable income m~. me Bank used the percen~e method for &e u year e“dcd SepCetnbex 30, 1996. Tax The provfion for income taxes mmisr.s OE Federal 30, 1987. which mu.sr be recaptured is approtiarely is papble over a sk ymr period be@ning The related amount of deferred w liabiity and no ktec thm &e $554,000 ~ Y~ en~ng September 30, 1999. 1998 1997 1996 ...... . ........... .............& ..... ... ................... .......~.. Curenc D&mred . ........... ... ......~.... .. .......... ..................1............. $ “’2,012,841 - “ (23.0,8s7) 1,781,954 $ 1,599,255 $ 569>133, 2,168,388 state Cunent ...... ... ... .............. .. ... .. ............. ..... ..... ..... ....... .......... .......=...... ........ D.femd ........... ..... .... .......~~~.~ ““ 304,679 ~ (83,1 13) 221,566 ... 314,712 18,969 333,681 1,735,099 (282,756) 1,452,343 290,825 (46>845) 243,980 hcome tax expense .............. ... . ... ....tiX .... . . .... ... .. . ..>. .....>. “. $“ 2,003,520 $ 2>502:069 $ 1,696,323 Tod income w expem. differs from the sramto~ feded income w rate m follows Income We fncrease (demease) ddng at 34% Federal mY Hte .................. fiorn. Years ended Ser)temher 30. 1998 1997 1996 .................... $ 1,6287000 $ 2>089,000 $ 1,397,000 Srace income taxm - “cc of federaI be”&t ....... .................... &c~ of cost over net wsers acqtied .. ............................. .. 146,000 124,000 fic~ of fti due of ESOP bm reiaed over msc .......... ..e .... ...............e.......... .... ................ .. ..... ... ... Odler - net .................... . . .....=.. .. .. ....... ..a. . ................. . . . 155,0(?0 .. ~~~~~ ~~‘ (49>4jo) “ 220,000 124,000 101,000 (31,931) 161,000 58,000 66,000 (5,67~ Tod income tax mpe”se ................b ... ..- ....- ...... ...~..~. ...$ 2,003,520 $ 2,502,069 $ 1,696,323 1 1 I First Midwest Financia[, InC. and Subsidiaries NOTE 14 INCOME TAXES (C.,,tit,.ed) Defer& tax wets: Bad debts ....... ....... ...... ....................... .. ........................ ... ...... ... 1998 ..$ ....... . .. ~~ 375,ooo -111,000 $ Deferred lom fem ............ . Management incentive progra .......... ............. .... . .....................x.+ .... .... .... ............ ...... . ............... ...= .. ......%z.,. Alfow.~lm for foreclosed rd estate Ioss@ ................................... ....... . .... . . . Odler ircnu .......................... ..... . ....Z....= ....... .... ..... .. ...... . .... .. ... Deferred @ liabifiti~ Federal Home ban B~ Accruai co cash b~k ............ Net un~dzed ........................ . ....... ..... ............... ... ... . ....... ,Pprcriation OrIsecurities avdabk Eorsde ........... ........ ........ stock divide,,d .................. .................. ..... .. . . Odlw ............. ......... .. ........ ......&..a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 S,ooo 46,000 650,000 . . (452,000) (178,000) (474,346) (76,000) (1,180,340 I 128,000 140,000 27,000 101,000 396,000 (452,000) (258,000) (568,013) (5 G,000) (1,334,013) Vdutio,l flowmce ............ ....... .. .................. .. ................... .......... ...... ..... .. Nm deferred w asset (liab~i~) ............. . ... ... ...... ................................. .......- $ (530,34~) $ (938,01~) Fcded addiriond bad debt deductio,~s tiugb 1987, i,,come c= laws provide savings bak wirh Septenlbcr 30, Accounting for the Bh $6,744,000 toti,ng do nor I~Uk= a deferred tax liabili~ to be SW&d5 recorded on chii amount, whi~ L~bilicy ochcrwise woufd COU[$2,300,000 Bd were Iiquikd at September 30, 1998 and 1997. co be a bti oc otherwise -m ffthe or if t= laws were to change, the $2,300,000 woufd be record- ed m ~p~ll~e. NOTE 15 CAPITAL REQUIREMENTS AND REs TRACTIONS ON RETAINED EARNINGS The ~mp~ny km two pri!n~ subsiti,~, First Fedcrd ad Swuri~. First Feded md Securiry ~e s,ubject to W- capid 8uid&@ off-baku) m-sheet using rbek a.ssecs,Iitiicia, itms m dcdated under and mrtain regdatory ious re~acory ~pical requiren]ellts. Faifurc to meet nlin. certain manda- im.m capid if under- tory or discretion~ coufd have a di~c matefial @ect on tbc financial den, actions by regulators tic, requirement initite a staremenm. Under capid adequacy guidefincs and the regldato~ framework for proulpl corrective aaion, Fint Federd md Securiry must meet specific q.atitative accounting practica. T1le reqtiemen~ ~e also subject co qualimcive judgments by the re~co~ risk weighings and ocher kctors. about components, Re@ations require First Federal to mainti] mini- mun] =piti amowt.s md ratios as set forfi bdow. MaJI- ag~nent befim~, u Of Septembm 30, Federal meer.s the capird adequacy requirements. 1998, thar First First Midwest Financial, Inc. and Subsidiaries NOTE 15 - CAPITAL REQUIREMENTS AND RESTR1CTIONS ON RETAINED EARNINGS ( (Contin”td) Minimum Rcq,u,emcnc TO Be Well Capitttzed Under Promnt Comecti,.e Action Provisions boll., Iblcio Minimum Requirement For Capital & of Sepcembcc 30, 1998 Tad ~,d Te, I (Co,.) Capiral (co=k weighred m,~) $33>520 13.2V0 $20>396 8.0% $25,495 10.0% (m rii wei~~d =) ?ier 1 (Cnre) Capid .....________ $ 31s13 12,2% $10,198 (r. adjmred tord mets) ....-._.–.–._ $31,113 Tangible &pi[d (r. adjwed tod =.s) ,....-–-– ..... $31>113 mm 1 (care) C,p;d (c. awe mer.s) ......-............._-*= $31,113 8.3% 8.3% 8.8% 4.0% 3.0% $11>219 $ 5>610 1.59k $15,297 6.o% N/A NtA NIA NIA $14>108 4.0% $17,635 5.09k As of September 30, 1997 Toni Gpid (r. riskw~hted assers) licr 1 (Ore) Capid $31,239 i4. IY. $17,780 8.0’% 10.0% (to riskwei3h,edNets)..._....._ ...._z. .-$29,465 13.3% $ 8,890 4.0% $13,335 6.0% Ta 1 (~re) Capid (10 adimed coed=er.s) ...... ............ . $29>465 8,2aA $10,791 3.0% Tm&ble Cz},ital (r. adjured COCdmers) ...... . ...... ....... $29,465 8.?% $ 5,396 ‘Iier I (~re) Ctpird (10 .Vm%e me~) ....--.......--....~_A- -$29,465 8.8Y0’ $13,383 1.5% 4.0% N/A N/A N/A NIA $16,728 5.0% Re~tions of&e Office of Tbrifi Supervision fimit mum mou”u md mrios (set forth in the cable below) of dle arnounr of dividends and odIer ca.pitd dktrib~ltions that may be paid by a savin~ i“stimcion wi&our prior rod risk-breed capid and Tier 1 capiml (U defined in fie to risk-weighted msers (as defined), md a WUti.ns) aPPrO~ 0$ *e OffICe OfThrifi Supervision. The ~a- rory resuicrion is baed on a three-riered system with the gr-resr (?ier flexibili~ beulg tibrded to ~-capidued First Fcded is currently a lier 1 imticu- 1) instimtiens. leverage ratio consisting-of ~er I upical average mem (as defit~ed). Mmagemmt (= d&:,ed) to b~le,,es, m of September 30, 1998, quacy requirements to which it is subjem that Security meers d capid ade- tion. Accordingly, FIrsc Fcdeml a m&e, wifilour prior As of the most retit nocifiation dare, the Feded I 1 I r@tOV zppmmI, diitributiOns during a caJendw ym up to 1000A of iIs nm income co &re dting dIe cdendw year phLS an amount &c ~vodd reduce by one-klf iu “surplus capital ratio” (the excess over ir.s capid require- men~) at &e b~inning of die cakndti y=. Accordingly, of ar September .$6,500,000 for FLrstFederals retained earnings was pote,~rifly atilable approtimccly 1998, 30, distribution co the Company. Quanrimtive mm.res Deposit fnsumce Gqoration mtegorized Securi~ m well capidized under cbe re~aro~ corretive Securiy mu.sc ntitin action. Earnework for prompt To be cuegorized m well capidid minimum, Tier I rkk-based, TIU I [evewe md rod risk-breed apiti mrios *S set forck in below. There m no conditions or evmts since the ~le rhat nocficacion that mmgemenr bdieves have chmged &c inscimrionk mtego~. At September 30, 1998, approx- ensure mpical adequa~ require security to tintain mini- daliy avtilable for dtilbution to d)e Compmy. escabhshed by re~cion to imately $24,oOO of Smuriry’s remined mings wes poten- First Midwest Financial, Inc. and Subsidiaries 3 NOTE 15 . CAPITAL REQUIREMENTS AND REsTRICTIONS ON RETAINED EARNINGS (continued) Security’s act.d capital aid required capird amounts ad ratios are presented below As of S.pten~ber 30, 1998 Tod Capiul (TOriskweighted assccs) ~cr 1 C.Pid (LOtik weisk~ed mcs) Xer 1 &pid (i. avc~c mm) As of .scpcember 30, 1997 Tod Gpid (coCMweighted=CG) T,y 1 Capital(to risk wci8hted-E) lier 1 Gpird (co.v*. assem) Amount $ 3,751 $ 3,469 $ 3,469 Acruai Ratio 16.7v0 15.5% 8.8% $ 3>744 $ 3,4o6 $ 3,406 13.9% 12.7% 9.9% . . Action Pco.%.ns Amount Ratio $ 2242 $ 1,345 $ 1,981 10.0% 6.0% 5.0% $ 2,685 $ 1>611 $ 1,724 11209& 6.o% 5.00, $ 1,794 $ 897 $ 1,585 $ 2,148 $ 1>074 $ 1,379 8.0% 4.0% 4.0% 8.OY. 4.0% 4.0% NOTE 16 - COMMITMENTS AND CONTINGENCIES In*. nor,nd come of busin=, the Compa,y’s s.bsidi~ The mposure to cmtiLc IOS in the event of non- tie b~ commitments =e not reflected in the accompanying consolidated fm- [o ~tend .redic wbi& wious cial scatemencs. At September 30, 1998 and 1997, loan conunitmencs apprO*aIed =cluding un&bumed pOtdOns of loa~ in p~o~. and $15,782,000, $27,353,000 r~pectivcly, ban commitnlenw at Septem&[ menm to origin?tc freed-race loans with intermt nrm mng- 30, 1998 included comit- ing from 6.5V0 co 12.50% todng :md *djustabl&race lo~l commic”lenrs with inrcra racesrang- ing from 8.3% TO10.25% rod”g pany dso had corrunitmenm to pwchase The um. adjustable $6,142,000 $9,277,000. rate loans of $9,934,000 from 7.75% to 9.75%, $2,000,000 u, f~ed me loans at 7.45% as of y~ 1998. Loan conuniments with incerec and comiunents race ac September 30, 1997 inclu- ranging co purchase end to originate fmcd-rate Iom with inter- dedcommitments est mce.s ranging pwformance by other paics to fmancid instruments for commitmmu rractuaf amount of those insuuments. to acend credit is represented by the mn- The same crcdic politi= and collateral requirements are d obligations and condition commimmts in mahing arc used s for on-balance-diem insalenrs. %,nce cenain .omtimcnL? to make low md c. &d Iinm of reedit and loans in procm mpice without beklg used, dlc amount do= not ncce.ssztiy repre.sent h-4 commiunen~. credit are agrccmen~ co lend co a customer as long as &~ commiuncnts wed to extend In tidirion, is no viotion of any condition established in the conuact. Sec.ricia with an]omized cosm of approximately $7,663,000 matdy $7,859,000 and $5,835,000 and $5,710,000 and F& vdum of approti- at September 30, 1998 and 1997, r=pectivdy, were pledged a.scolfatcrd for public finds on &posit. from 7.37% to 11.509’0 toting Securitim with amortized com of approximtdy $4,876,000 titemt and adjustable-mre loan mmmitments widl races rmlging from 7.9% to 12.0% cot&lng The Company also had commitments co pur- $5,523,000. chase adjustabl~race loans of $5,343,oOO with interst mccs ranging from 8.3950/. co 10.OOO/O,and commim]e,~ts co pllrhme end 1997. in fied rate Iom at 9.OVO~ of year $40,000 Commiunen~, which ae disbursed subjcc~ ro cercaiu Iizx]imcions, wtend over variom perio& of tile. Generally unv.scd commicmcrlts uc canceled upon mpiration of the commitment indlvidud conrracc. rerm as oudiied UI each and $2>077,000 and Fdir tium of approxi- $6,557,000 mately $6,827,000 md $2,149,000 at Sepmnlbcr 30, 1998 md 1997, rmpectively, were pledged m colfaced for indi- vidual, trust, md ~mte deposits. Under employment agreemen= with&n executive ments be lading officers, cdn Company mdd rest.drin wh payments todlng approxi- mately $2,794,000 as of September 30, 1998. to separation hnl The Compmy daim.s ad subject m actions a~ising in *C ordinaty cati course of busuless. h tie opinion of ma>aganenc, after and ifs subsidiary= ae led First Midwest Finan Ci=I, Inc. and Subsidiaries NOTE 16 COMMITMENTS AND CONTINGENCIES (C.mtin,,ed) consdtation wifi Ie@ mumcl, fie.se mamas is “or mpected to hzve a mcerid tbe dtimatc disposition of adverse Opemtiom of &e ConlPmF efict on he consolidated f~wci.d position or r~dts of Praented below ue condensed fillmcid smremcnts for &e pmnt compmy, Firsr Midwmt Finmcid, Inc NOTE 17 . PARENT CO btPANY FINANCIAL STA1’EMEN~S CO ND ENSEO BALANCE Seprember 30,1998 ad 1997 SHEETS 1 ASSETS 1998 1997 ‘ 367,200 131,945 567,200 306,656 $45,504,896 $43>603.940 $“ 3,050,000 $- i69,333 3,219>333 .126,936 126,936 29,58”o 21,330,075 27>985,814 “n8;820 ~3@>200) (7! 4~i.526j: 42,2~5,563 $ 4L504,B96 29,580 20,984,754 26,427,657 960,371 (567,200) (4,358,158) 43,477,004 First Midwest Finan=ia,, Inc. and Subsidiaries 3 NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS (Co,,tinu,d) CO ND ENSEO STATEMENTS Y~s ended September 30, 1998, 1997 and 1996 OF INCOME D,vidend income fro”, subsi~ry b~ . . ............ ......... ... ... $ Interest income ... ... ..... .. .... .... ... .... .. . .... .... ... . . ... .... .... .... ... .... .... . Gain on d= ofsecuritim avdable for sale, llct .. . ................... 1998 1997 1996 2,000,000 Z72J60 317,960 2,590,220 .72,581 3.%4,945 427,526 $ 6,000,000 145,339 216,614. 63361,953 $ 9,500,000 219.546 51,237 9>770,783 132,014 348> 162 480,176 182,743 182,743 Income before income taxes and equity in undlstr: buted Llet Income of subsldlarles .... .............. . 2,162,694 5,881,777 9,588,040 Income w expcme (benefit) .............. ...... ....... ... .... ............- ~ (55, 000) 53, 000 Ixco.ze before eqxi:y ifi undistributed XC: income of subsldl~rles ..................... . .... ... .... ............. .... 2,112,694 5,936,n7 9,535,040- (Distributions in excess of) equity ill ulldistrib”ted net income of subsidiary b~ .............. . . . ......... . .... ......... 672,188 (2,294,821) (7,121 ,475) Net incol,)e ............................. .............................. ............. $ 2,784,882 $ 3,641,956 ~ 2>413,565 First Midwest Financial , [ne. and Subsidiaries NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS (Conr;nut.d) STATEMENTS OF CASH FLOWS CONDENSED Yas ended September 30, 1998, 1997 and 1996 Cash flows from operating activities Ner income ..... .. Adjustments to reconcile na income zo ......... ...A..L ...............i.... ... ...... .......z..... 1998 1997 1996 $ 2,784,882 $ 3,641,956 $ 2,413,765 net -h horn opemcing ativiti~ Distribution in_ of (equi~ in undsmibuted) net Income ofsubs~ch~ banb . ......- .. .......~ .......... (672,188) 2,294,821 7.121.475 1 of recognition and ~ertntio” plan .... ...._ Amortition tin on sales ofsecuriries avtilable for sale, net ..... ....... Change in ether assets......... ... ... ... . . ..... ............ .. .... and ofier habd,u~ ............ Chg. kom operating actititiu ............................ in acaued ~pns~ Net ah Cash flows from investing activities PuIcha.seof securiri~ available for sale........... ....... ........... .._. from sde.s of securiti~ avajlable for de Prod Pu,chase of Imm BaIImWraUOn, IrIc. Purchase of Cenual West Bancopmtio” ................ ................ .. .. .. ......... ......... ... ... ..... ...... Mpaymen~ on loan receimble from ESOP ..................... ... . ..... Net cad, from i“vmmenc ativiciej ........__. . .. .... . Cash flows from financing activities Proceeds from loan pa.~ble m subsidi~ W .............. .. dividen& ptid ....................... .......... Wpaymenm on Iom payable co subsidiW bank ...... ......... ...... ... .... ..... ...... Gh Proceeds from tir~ ........ .... Purcba.se of amury Stoch ............. .... .... ............. .... .. ... . ... of stoch options .......... ....... Net ush from finanting activities ......................... ........ (317,960) ~~ > 174,711 142,705 ..- ‘“ 41,947 (216>614) (245,225) (611,711) . 2,112,150 4,905,174 ‘117;OG4 (51 >237) 110,759 721,109 10,432>735 (5,150,000) 2,195,509 200,000 (2>754,491) 4>550,000 (1,500,000) (1,226,725) 28,696 (3,271,203) (1,419,232) (231,000) (1,014,438) 804,067 . 200,000 773,067 338,750 (6,529,615) (1,923,519) 200,000 (8,928,822) (962,68;) 335>991 (4,268,77~ (4,895,468) (745,76;) 94,500 (630,710) (1,281,971) Net change in cash and cash eguitienm ..................... ............ (2,061,573) 782,773 221,942 &h and ah equivalen~ ar beginning of y= ......... ............ 2,16G,091 1>383,318 .._. 1,161,376 CaSII and cash equivalents ac end of year ...................... . Supplemental disdosure ofcasb flow i“focmtian Cwh paid during the Y= for interest ........... .................... $ $ 104,518 $ 2,166>091 $ I,383,3I8 72,581 $ 132,014 $ . Supplement schedde of noncash investing and fi”a.nbg activities: Issuance of common stock for purchw of Cend West Bmcoprarion ... ...._ ... .......... . ................ ~~ ~. $- $ 3,936,634 The extent to which the Compmy m~y pay d rhe Comp,ny x well m *. abdi~ of A, subsidiary banb to pay dividen& to dIe Comptny (se. Note 15). dividends ro shar&olders wilJ depend o~~the wh mrmntLy atilablc at First Midwest Financial, lnc. and Subsidiaries NO TE’18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Fiscal ym 1998: Tod intcrat Totaf i,ltcr~t mpe”se income .......... .................. . . . . . Net inccrest income ................................ Provision for lom 105sc.s. . .. Net income ......................... ............ Farnings per common and share common equinlent B=ic ........ .... ....... ... ........ ...... Diluted .................. ... ...................... .... Fiid ym 1997: Tocal interest income . . .. . Total interet apense . ....... Net inter=r income .............................. .. ........... ...... Provision for loan low ............ ............ . Nm income . . . . . . hnin~ per mmrno,] md Comon Cquidmt B~ic .................. Share .......... .......... ....... Dduted .................. ....... ................. Fiscal ym 1996: i“cera Total income . . . .. .. Toral interest expense . ... .... ...... ........... .. Net interest income ........................ ........ Provision for loan Iosscs .. Net income .................. . .................. . .. .. December 31 March 31 June 30 September 30 QMer Ended $ 7,894,734 .4,712,639 3,182,095 35,000 989,055 .% 7,839,781 4,622,771 3,217;010 1,345,000 46,316 $ $ $ $ ,$ $ .38 .36 7,305,929 .4,288,793 3,017,13 30,000 953,216 .34 .33 5,363,332 2,960,194 2,’403,138 30,000 776,845 $ $ $ $ $ $ .02 .02 6,882,095 3,973,985 2,908,110 30,000 849,539 .31 .29 5,962,258 3,407,485 2,554,773 30,000 726,806 $ $ $ $ $ $ $ 7,996,291 4,815,319 3>180,972 55,000 893,056 .35 .33 7>331,501 4,356,367 2,975,134 30,000 912,504 .34 .33 6>499,056 3,735,106 2,763,950 30,000 892,181 $ $ $ $ $ $ $ 8,327,988 5,079,224 3,248,764 227,472 856,455 .34 32 “’ 7,485,150 4,4393912 3.045,238 ‘“ 30,000 926,697 .35 .33 6,512,819 3,875,825 2,636,994 10,000 17,733 krlin~ p,l CO~Otl and common equident share Basic .. .. . . Ddud . .. .. .. ... .. .. ..... ....... ............. i .31 .29 $ $. .28 .27 $ $ .35 .33 $ $ .01 .01 First Midwest Financial, Inc. and Subsidiaries NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS “Dti.lomreJAbozt F~i~ Vdzti of Finaiztia~ SFAS No. 107, Imti000 120,609,531 . ..270.286,18g 5,505,800 4,968,607 120,610,000 273,096,000 5>506,000 4,969,000 200,000 115,985,045 254,640,971 5>629,300 5,366,109 200,000 115,9s5,000 254,455,000 5>629>000 5,366,000 deposits ............._ ...... ...... ......... . .. ....i . .. (4,971,562) (4,972;000) (5,572,2961 (5>572>000) Savings, NOW md money maket dared deposits ..,. ............ ..... Odler rime cdficate.s ofdepotit Tod dcpasiw ............ .. .... ... ... .......... .... Advances from FHLB ........ ....... ..... ...... Securitim sold under agreem.”cs co repurchase ........ .... . ... . Other borrowings .,.....- ........a ..........-. Adwces for ~ from borrowes and insurance ...... ...... . ... . .. . . Accrued interest payable .. ............ OFF-BALANCE-SHEET INSTRUMENTS (57>755,615) (221,130>975) (283,858,152) (57>756,000) (222,807,000) (285,535,000) (49,838,735) (190>704,667) (246,1 15,698) (49,839,000) (190,190,000) (245,601,000) (85,263,562) (87,360,000) (107,426,225) (107,247,000) (4,074>567) (550>000) (4,095,000) (550,000) (1,800,000) (2,900>000) . .. (405,218) (834,741) (405>000) (835,000) (449,487) (1,065,740 (1,806,000) (2,900,000) (449,000) (1>066,000) Loancommitmtncs ....... . .... . .............. . . .. . . (27,353,000) (15,782,000) First Midwest Financial, Inc. and Subsidiaries ~ NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) The following ses used in decermilling the h pan~s financial forth Ae nlerhock and assumptions value C.SUMCS for the ~m- inscrumen~ at September 30, 1998 and 1997. SFAS No. 107, no vafue has been =sigl]ed to the Gmpz- its deposit cuscomcm ny’s long-term rdatiomkips wifi (tom value of deposi~ intangible) since such int~ible is not a finalcid instrument as defined under SFAS No. 107. Gb and Gh Equival.n& The m~i.g ao.,)t of cash and shon-renn invesr.nlent is assumed to approximate the fair value. AdwcG from FHLB: The fair value of such tivancc.s w mtimatcd by &counting flom using current interest races x of September 30, 1998 and the expected future ah Intcr~-beuing The carrying amount of inreresr-bcui,lg deposi~ in ocher In Other Financial Imtimti<~ns Dcposis financial value. institutions is assmed to approtiate the fair WIties Available For Sale Q.oIed mxkct prices or alder quotes were used to determine the fair value ofsccu. rities adable for sale. 1997, for ad-cm with simifw terms and rm~afiii matu- rities. Securicie.s Sold Under Agreemen~ :. Repucchme md The fir value of securicim sold under Other Bomowin~ ad odler Iwmowing was esti- agreemmn co repurcke mated by discounth~g &e expected future ah flows using derived interest HI= approximating mwker as of Septem- ber 30, 1998 and 1997 over che concraaaf maturity of such borrowings. hm net was estimated by discounting &c finlre Receivable, Nec The fair value of lom receivable, cash flows Advances From Borrowers for Tax- and Ins”rmcc The using &e c-r made co borrowers widI sitiar rates at whi& sinlilw low woufd be credit ratings and for sim- wrying amount of adwcc.s inswance k assumed co approximate tie F.r value. froln borrowers for uxcs ad ilar maining maturicie When wing he method co determine Fair value, loans were gathered by diwou.tig homogeneous groups with tix and discounted at a uget Em and conditions race at which simiim loans woufd Accrued Intcrcsc Payable: The ~ing intaw papble is assumed to approximate tie fair vd”c. amount of accrued and 1997. be made to borrowers x of September 30,1998 In addition, when computing the ~cimated Fair due for all loans, aUowanm for loan loss= have been subtracted Commitment The commim>enw co originate and h purch= Ioms have terms rhac xc consistent with current market terms. Accordingly, he Company =timacm &w from &e cdcufated h value for consideration of credk the ftir dues of that comnfimencs we not significant. issues. Ff-ILB SCock: Tbe fair wdue of SUdl stock ~pp~Oti~t~ book ml.. since the Company k able co redeem a stock Lilnitations It must be noted that% vd”e mtiat~ me made xc a sptific point in ttine, breed on dwat market information &our the finmdd instnunellc. Additionfly, with the Feded Home Lea” Bmk at p= vai”c. h due timac= w based on existing on- and off.bal- Accrued klterar Receivable accrued intaest amount of The wing receivable is assumed to approximate the FairvaJue. Deposiw The fair value of deposits wme determined as fol- lows (i) for noninteresc bming daand NOW and moncy wket deposits we immediately wihdra~le, deposits, savings, demand deposim, since such value is deter- (the amount due h mined co approximate &c wryi”g payable on demand); deposit, &e h of value bas been csci,nated by discounci”g tiunc certifiata for other (ii) expected future A tlows by he currenr rata offered m of September 30, 1998 and 1997 on cerrificatm of deposit In accordance wkh wick similw rc”,aining maturities. finmcid insrrumen= without accempcing to ante-sheet estimate &e value of anricipatd future bwitl=. customw relationships and the value of ~ers and IiabJ!ties that uc not mmidered finand not reflect any praiunl offering the Company’s mcire holdings of a partidw in.scrumenrs. Th6e mtitcs do or di.scaunt that codd resuh Gom insuutnent for SJICat one time. Furchmmore, financial since no muket Gt.s for certain of the Campaoy’s fman. ciai insuurnerits, fir value e.stimata may be b~d on judg- men~ r+ng furure mpeued 10S mperience, current economic condiciolls, risk chaacteristic.s of wious cial inmeim, finan- and o“&erfactors. Th&, UUrnat= are sub- jective in nature and involve uncerraintim and maccms of significant judgment md rhereforc mot be detamined with a high lmd of pcectilon. Chang6 in =umptiom m First Mirlwest Financial, lnc. and Subsidiaries NOTE 19 . FAIR VALUES OF FINANCIAL INSTRUMENTS (Conti”,,.d) @ we!.1as w considemtiom could signifimdy &em the @ti- mates. Accordingly, b~ed on the limitations described e.stimacesae Ilot intended co above, rhe a~regate ftir due r~rm~nt *e ~d~lfing going concern or a liquidation btiis. due OFAe Company, on eirker a NOTE 20 - SUPPLEMENTAL CAS1i FLOW DISCLOSURES Ou Decaber 29, 1995, the Company purcbd dl of Ihe conimon stock of Iowa BmCOEP fal $8,000,000 in cash. I“ conjunction wick the aquisiio~, Iiabiliti~ were resumed x foJlows Fair due of mm acquired Cash paid Uabfiries ~~~ $25>429,434 (8>000>000) $ 17>429,434 On September 30, 1996,&e bmpmy purc~d dl of &e common stock of Centd We.sr for $1,312,474 in ah md i.smed 256,737 ed in the form of a 500/ostock Wldend paid on Jmu~ ac a mmket value of $15.33 per skme, m mrared for the thme-for-wo stock split effect- liabilities were In conj”ntion with the acquisition, common &es 2, 1997. assumed m follmvs: Fair tiue of assers acquired Cah ptid Common stock issued Li&&tia m~ $35>577,247 (1,312,474) (3,936,634 $30,328>139 NOTE 21 FEDERAL DEPOSIT INSURANCE PREMIUM The deposim of savings asswiaciom such w the Bank arc insured by he Savings Association Insumnce find 31, 1995. Breed on the Btnk’s deposim w OFti!s dare, a one-time asswment of $1,265,996 was paid a]d recorded (“SAIF”). A rempitization plm signed into law on Sep. rember 30, 1996 provided for z one-time ass~smenr of m federd deposit insurance premium expense for &e Y= ended Sepcen]ber 30, 1996. 65.7 bwis poin~ applied to W SAfF deposits w of March Directors of First Midwest Financial, inc. Jama S. Haahr — Clrtirmm of the Bored, Praidenc Savings Bank of the M,dwmt, and Security State Bank. and Chief Executive Officer for F[rsc Midwest FInm- Mr. Gukifl has owned and operated a grain farming cid, Inc. and FLrst Federaf Savings Bank of the MidwesV Chairman of the Bod for Securi~ SUte BtiL Mr. Opcra~On 10~tcd n~r CO~idl, Iowa, since 1958. He has served z a commissioner wifi he Iowa Dcparunenc H~~ is a mcmher of the Bored of Trustem of Bt!cna Vlsca University. He lrw served in various capacities sil,ce of Eonoulic Development and also as a commissioner with the Iowa Department of Natural Resources. beginning his seer with First Federd in 1961. He is a membe~ of the Board of Directors of Atnerimk Com- Mr. Ga.skill is d~e pwt president of IOW COILLGrowers Association, pmc chairn]al of the United States Feed muniry Bankers and a member of &e S~vings Associa- Grains Council, and has served in numcrom od)er tion Insumcc Fund Industry Adviso~ Committee. Mr. H&lr is forrncr Vice Chairman of the Baud of agri~lcure pOsiEiOns. He W= elecccd co *e 10wa state Senare in 1998 and represents District 8. Board com- Directors of the Federd Home Loan Bank of Dgs Moiues, mittea: Chairmm of the Flrsc Federal Trust ComInit- former Chaicman of the Iowa L=gu. of Savings cee and member of the Audit-CompemationlPersonuel Inscicucions,.md a for[ner diiector of the U.S. League of COll]micree. Savi,,gs Institutions. Bo=d committee First Federal Trust Committee. Jmes S. HAI is the father ofJ. Tyler H&r. G. Mark Directors for Fmsc Midwest Finmcid, ~l~son — Member of the Board of Inc., First Federd Savings Bmk of the M,dwmt, and Securi~ S[.[. Bank. J. Tyler HA — Senior Vice President, Sec~etacy and Mr. Mlckelsoxl is VICC President of AcquKlcions for Chief Opera[ing Officer for F,rst Midw=c Fina,lcial, Northwestern Growth Corporation in Sioux Falls, Inc.; Executive Vice President, Secretary, Chief South Dakota. Northwestern Growth Corpomtion is Operating Officer, and Divklon Praident for First the unregulated tivestmcnt subsidii~ of Northwestern Federd Savin~ Bank of the Midwmq Chief fiecutive Public Semite. Mr. Mickclson graduated with h,gh Oficer of Security Stare Bank ad TIC. Praident and honors from Harvad hw School and is a Certified Secrerq of First Sewicm Fin~lciaf Ltited. First Public Accountant. Board commitce~ First Feded Midwest u]d its affiliates have employed Mr. Hti Au&t-ColnpensationlPemonnel Commitcce and Stock since March 1997. Previously Mr. HadIr was a partner Option Committee. with the law firm of Lewis and Rocz LLR Phoenix, Arizona. Board committe~ First Federal Trust Rodney G. Muilenburg — Member of the Bead of Committee. J. Tyler Haahr is the son ofJan]~ S. HA. Directors for Fiic ~ldwmr Financial, Inc., First Fcderd Savings Bank of the Midwest, and Security State B.* E. Wayne ~ol~ — Member of &e Board of Mr. Muilcnburg is employed as a dtiry specialist with Directors for First Midwmt Financial, Inc., First Federal Purina Mdk, Inc. and supervisw the sde of agricukurd Savin& Bank of dlc Midwest, and Security State Bmk. products in a region encomp%sing northwest lo}va, Dr. COOIV h= served * F.xccuuve Secret~ of dle Iowa souchea.srern South Dakota, and souchwesr Minnesota. Girls’ High School Athletic Union in Des Moines, Bo=d commitrem Chairman of the Stock Oprion Iowa, since 1954. He is Excc”cive Vice Pre.sidc”c of the Committee and member of the Audit-Conlpen.sationf Iowa High School Speech &sociatiolt, a member of Personnel Committee. the Buena Vista University Board of Trustees, a men!bc~ of the Dr&e Relays Fxccutive Comn>icrce, and on the Jeanne Partlow — Member of the Board of D,recrors Board of Directors of the Women’s College Ba,sketbdl for First Mldwesr Financial, Inc. Mrs. Pardow retired Association HafI of Fame. Dr. ~oley hm served w Chair- in June 1998 as Pr-ident of &e Iowa Savings Bmk man of the Iowa Heart Association and as Vice Division of First Federal, located in Des Moines, Iowa. Chairmm of he Iowa Gmes. Board committe~ She was President, Chief Execurive OffIccr and Chairn,a of the Au&t-Compensation/Pe~sonnel Commircee and member of the Stock Option Chairperson of he Bo~d of Iowa Savings Bmk, F.S.B., 1995, when Iowa from 1987 untif che end of Demmbcr Comnliccee. Savings Bank w= acquired by and be=lne a division of First Federal Savings Bank of *C Mldwesc. Mrs. E. Thurman Gaskifl — Member of the Board of Pardow is a past member of the Board of Directors of the DIrecrors for First Midwest Financial, Inc., First Federd Federd Home Lom Bank of Des Moines. Executive Officers J. TYLER HAAHR Senior Ece Prtn”&t, Stcreta~ and Cbi~fOper~zing ~cmfir FintMidwest Financii~ Ins.; Extmtiue Wce fimidmc Semekzq Chiefoperating Oficm, and Division Prni&tfir FiM FederaiS.uings Bank of the Midwes% and Chief &mtic O@cwfir S.mriy State B.nk J. WINCHELL, CPA DON&D Smior Vi’e Presi&g Twasurn for and ChiefFinanci21 ~cer First Midwest Finunti~ InC. =nd Fiti Fe&d SavingsBank of tht Midwext; andSecretaqfir Sea,n”p Smte Bank JAMES S. HAAHR Chairman of th~Board Presi&nt and Chief&mtivt. O@cerfor First MidwEst Finun&l Inc. ondFira Fehe[ Bank of rhe Midwnt; and tin~ ~m”rman of tht.Boardfi, Semn”q StateBank ELLEN E. H. MOO~ Rce Prea”&r, Marktting and Snbsfir Fiti MiduJot Fimncial Inc.; and Senior Elf fiesidmr Marketin~ axd Sa[a+r FirstFederal saving Bank of the MiduJext TIM D. HARVEY fisidmtfir Bank Diukion offirxc Fe&l Brookinp Federal Sau~ngsBank of the Midwest TROY MooRE Presidentfor Iowa Savi.@ Bank Divtiion ofFarst Fe&[ Sauinp Bank oftie Midwest RICnARD Pra&tfir H. C05.EMAN St.curityState Bezk SUSAN C. Smior Vice PreIidpnt@r JESSE Fim Federa[Sauinp Bank of tht FRED A. STEVENS $miorEc. b~idmtfir Fe&al Saving Bank of the Fint Midwest - M&est corporate Information Corporate Hadqwers First Mldwmt Fulancid, Inc First Feded Building Ffi PO. Box 1307 ar Etie Storln Lake, Iowa 50588 Annd Meeting of Shareholders The Annti Meeting of Skeholda ,til convene ar 1 p.m. on Monda} be held in the Bowd Room of First Feded Savings BA 25, 1999. The meeting will Jm~ Auditors J.ndependat Crowe, Ch~ek and Company LLP 33o ~t Jderson Boufevmd I?O. Box 7 South Bend, Indiana 46624 Shar~older S-i- and Invesmr Refations Shzeholders desiring to change the name, addrc.ss,or own- ertiip of stock; co repon lost certifi=cm OJ co cOmOhdate accounm, should contact be co~oracion’s uansfer agent P.egiscm & Tmsfer Con)pany of the Midwest, Fifth at Erie, Storm M, Iowa. Further 10 Commerce Drive co this meeting can be found in Cranford, New Jcmey 07016 Telephone: 1-800-368-5948 information widl r+ the proxy staten]enc. Gend Gunsel Mack, Hansen, Gadd, Armsrong & Brown, f?C. Sixd] SUmc 316 &t f?O. Box 278 Storm me, Iowa 50588 COunsd Sped Silver, Freedman & Tti, LLP 1100 New York Avenue, NW W~hLngcon, DC 20005-3934 Stock Market Information Annuaf Report on Form 1O-K tiysts, invesrors, and others seeking a copy of he Form 1O-K or ocher pubfic fwtial the followin~ information should mnmct Invaror Relariom Fmt Midwest Finan&, Inc. Fi~t Feded Bti&IIs Fii at Efie PO. Box 1307 Storm Lake, Iowa 50588 712-7324117 Tefephone . Fimt Midwest Financiaf, 1...’s mmmon stock uad= on he Nasdaq Nauonal Market under rhe ~mbol “CASH.” The Wnfl S*et Joamal publishe in &e National Market Listing. The ptice range of &e common stock m reported on Ae Nas&q each qwer System for of f~d 1997 and 1998, after giving retroactive effect for&e three-for-two stock splk paid by&e Company daily trad,ng information for the stock under the abbreviation, “FstMidwFnf,” in the form of a fifty percent stock dividend on Januw 2, 1997, ~ M fOIlO~. 1997 1998 Dividend Dividend Paid Ptid Fis.A Year I 997 Fiscal Year 1998 Low High Low nigh Fmt Qumer ............. ................... .......- Second Quancr ..... .......... ............ Third Qume Fourth Qmcer ... . . ............ ........ .............-..-. .................... ................ $.09 $.09 $.09 $.09 $.12 $.12 $.12 $.12 .$15.00 $15.25 $15.00 $16.25 $16.67 $17.88 $18.00 $20.88 $19.50 $21.88 $21.38 $17.13 $22.63 $23.25 $25.25 $24.00 The prim reflect inter-dealer quotations wirhouc retail made-up, mark-down or commissions, and do [lot nec~arily rcpre5mt acrual transamions. Dividend paymenr decK1ons are made wi& comideracion of a vmie~ of fictors including =nin%, finmcial con- dition, nw.rkcc considerations, and regulatory re.sccictions. Restrictions on dividend payrnen= arc descsibed in Note 14 of&e Not= to Consolidated Fiaancid Statements included in tils Annual Report. &of September 30, 1998, Fmt Midwest had 2,553,245 shaes ofcornmon stock outstanding, which were held by 321 shareholdfls of record. The shweholders of record number does not reflect approximately 608 persons or entiti= who hold d]eir stock in nominee or “street” name. The follotving securities fmms i.di=ted they were acting as market mkers for First Midw=t Fmancia.1, 1... as of Seprelnbcr 30, 1998: Everen Securities, Inc.; Hemog, Heine, Gcdufd, fnc.; FIowe B~m Inv=unenrs, Jfiray Compim, Inc.; Sandlcr ONeill & Mm.m and Tucker hthony fnmrporaced. stock Inc.; Y[per

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