UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 31, 1995 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from__________ to
__________.
Commission file number 2-89283
IOWA FIRST BANCSHARES CORP.
(Exact name of registrant as specified in its charter)
An Iowa Corporation
42-1211285
(State or other jurisdiction of
(I.R.S Employer incorporation or organization)
Identification No.)
300 East Second Street, Muscatine, Iowa
52761
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (319) 263-4221
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 1996, was $21,602,547. As of February 29, 1996,
570,463 shares of the Registrant's common stock were outstanding.
Documents incorporated by reference:
Portions of the registrant's 1995Annual Report are incorporated in Parts I and
II of this Form 10-K. Portions of the registrant's Proxy Statement dated March
22, 1996 are incorporated in Part III of this Form 10-K.
The Exhibit Index is located on page .
<PAGE>
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
No.
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Table I. Executive Officers of the Registrant
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Signatures
Index of Exhibits
<PAGE>
ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS.
Iowa First Bancshares Corp. (the "Company"), is a bank holding company
headquartered in Muscatine, Iowa. The Company owns all the outstanding stock of
two national banks in Iowa, First National Bank of Muscatine and First National
Bank in Fairfield.
On a full-time equivalent basis, year-end employment for the Company and its
subsidiary banks totaled 113 employees.
First National Bank of Muscatine has a total of four locations in Muscatine,
Iowa. First National Bank in Fairfield has one location in Fairfield, Iowa. Each
bank is engaged in the general commercial banking business and provides full
service banking to individuals and businesses, including checking and savings
accounts, commercial loans, consumer loans, real estate loans, safe deposit
facilities, transmitting of funds, trust services, and such other banking
services as are usual and customary for commercial banks.
The commercial banking business is highly competitive. Subsidiary banks compete
with other commercial banks and with other financial institutions, including
savings and loan associations, savings banks, mortgage banking companies, credit
unions and mutual funds. In recent years, competition also has increased from
institutions not subject to the same regulatory restrictions as banks and bank
holding companies.
The operations of the Company and its subsidiary banks are affected by state and
federal legislative changes and by policies of various regulatory authorities.
The Company is a registered bank holding company under the Bank Holding Company
Act of 1956 (the "Act") and is subject to the supervision of, and regulation by,
the Board of Governors of the Federal Reserve System (the "Board"). Under the
Act, a bank holding company may engage in banking, managing or controlling
banks, furnishing or performing services for banks it controls, and conducting
activities that the Board has determined to be closely related to banking.
National banks are subject to the supervision of, and are examined by, the
Office of the Comptroller of the Currency. Both subsidiary banks of the Company
are members of the Federal Deposit Insurance Corporation, and as such, are
subject to examination thereby. In practice, the primary federal regulator makes
regular examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal regulators. Areas subject
to regulation by these authorities include capital levels, the allowance for
possible loan losses, investments, loans, mergers, issuance of securities,
payment of dividends, establishment of branches, and many other aspects of
operations.
Statistical information called for by this Item is contained in the Company's
1995 Annual Report to Shareholders which is incorporated by reference.
<PAGE>
ITEM 2. PROPERTIES.
Since the Company commenced business, its principal executive office has been
located at 300 East Second Street, Muscatine, Iowa, which is the principal
office of First National Bank of Muscatine, a national banking association and a
wholly owned subsidiary of the Company.
First National Bank of Muscatine conducts its operations from four
facilities located in Muscatine. The main bank is located at 300 East Second
Street and is a modern brick and steel building completed in 1979 containing
36,000 square feet of floor space on three floors. The bank owns both the
building and the underlying real estate. All administrative functions of the
bank are conducted at its main offices. Portions of the building are leased to
commercial tenants. The three-lane drive-up facility of the main bank is located
approximately one block north of the main bank at Third and Cedar Streets. The
bank owns the drive-up facility and the underlying real estate.
Two locations provide banking services outside the Muscatine downtown area. The
office at the Muscatine Mall is approximately two miles northeast of the main
bank. The facility contains 2,304 square feet of floor space in a one-story
concrete and steel building. The facility offers a walk-in lobby and night
depository. The three-lane drive-up facility of this branch is located
approximately 500 feet west of the branch at the parking lot of the mall. The
building, drive-up facilities, and real estate are leased from Aetna Life
Insurance Company. The terms of the lease provide for monthly payments of $2,304
during the current 5-year term of the lease. This lease expires on May 31, 1999.
The bank's southside office at 608 Grandview Avenue is located two miles
southwest of the main bank. The office contains 3,600 square feet of floor space
and is located in a one-story steel frame concrete block building. The facility
offers a walk-in lobby and three drive-up lanes as well as a night depository.
The building and underlying real estate are owned by the bank. Portions of the
building are leased to commercial tenants.
First National Bank in Fairfield conducts its operations from a modern brick and
steel building completed in 1968 containing 8,200 square feet of floor space on
two floors. The bank owns both the building and the underlying real estate.
Portions of the building are leased to commercial tenants. The three-lane
drive-up facility of the bank is located at the main bank.
The Company's facilities are well maintained and are suitable for the Company's
business operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company has no pending legal proceedings which are material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
Family Position Business Experience
Name Age Relationship Position Held Since During Past Five Years
- ---- --- ------------ -------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
George A. Shepley 73 None Chairman of the Board 1983 President of the Company,
President 1989 January 1989 to present;
Chief Executive Officer 1983 Chairman of the Board,
Director 1983 Chief Executive Officer of the Company, 1983 to
present; Chairman of the Board, 1987 to present;
President, 1963 to January 1989, First
National Bank of Muscatine; Chairman of
the Board, 1986 to present, First National
Bank in Fairfield
Kim K. Bartling 38 None Senior Vice President 1988 Senior Vice President,
Chief Financial Officer 1988 Chief Financial Officer
Treasurer 1988 and Treasurer of the
Director 1994 Company, April 1988
to Present; Director
First National Bank of Muscatine, to present;
Senior Vice President/Chief Financial Officer,
First National Bank of Muscatine, to present;
Vice President/Chief Financial Officer of the
Company, May to April 1988
Patricia R 48 None secretary 1986 Corporate Secretary of
Thirtyacre the Company, October 1986 to present .........
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
A market for the Company's common stock is made by the brokerage firms
of Piper Jaffray Inc., Howe Barnes Investments, Inc. and The Chicago
Corporation.
High and low common stock prices and dividends for the last two years
were:
<TABLE>
1995 by Dividend
Quarters High Low Per Share
- -------- --------- --------- ---------
<S> <C> <C> <C>
First ................................................. $ 41.50 $ 39.25 $ 0.70
Second ................................................ 43.00 41.50 0.37
Third ................................................. 46.50 43.00 0.39
Fourth ................................................ 50.00 45.50 0.41
Total Dividend
Paid .................................................. $ 1.87
1994 by
Quarters
- --------
First ................................................. $ 34.75 $ 34.00 $ 0.60
Second ................................................ 35.50 34.50 0.00
Third ................................................. 37.00 34.50 0.65
Fourth ................................................ 38.00 36.50 0.00
Total Dividend
Paid .................................................. $ 1.25
</TABLE>
The above quotations were furnished by Piper Jaffray Inc. The
quotations represent prices between dealers and do not include retail markup,
markdown, or
commissions.
Dividends were declared and paid semi-annually until quarterly
dividend declarations began in the first quarter of 1995 with the first
quarterly dividend payment in the second quarter of 1995.
Future dividends are dependent on future earnings, regulatory restrictions
(see Management's Discussion and Analysis of Financial Condition and Results of
Operations; and Note 7 to the Company's Consolidated Financial Statements in
the Company's 1995 Annual Report to Shareholders which is incorporated by
reference), capital requirements, and the Company's financial condition.
As of February 29, 1996, the Company had approximately 375 shareholders of
its outstanding class of common stock. The Iowa First Bancshares Corp. Employee
Stock Ownership Plan with 401(k) Provisions is considered one shareholder as all
shares owned by this plan are voted by the trustees of said plan unless the vote
in question encompasses approval or disapproval of any corporate merger,
consolidation, dissolution, or similar transaction.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item is contained in the Company's
1995 Annual Report to Shareholders which is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information called for by this Item is contained in the Company's
1995 Annual Report to Shareholders which is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is contained in the Company's
1995 Annual Report to Shareholders which is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IOWA FIRST BANCSHARES CORP.
DIRECTORS
<TABLE>
As of February 28, 1996
Common Stock
-----------------------
Amount and
Position(s) Nominated Nature of Percent
Held with Director For Term Beneficial of
Nominees the Company Age Since Expiring Ownership Class
- -------- ----------- --- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Foss Director 46 1994 1999 820 *
Donald R Heckman Director 57 1984 1999 6,020 1.06%
D. Scott Ingstad Director, President and CEO, First National
Bank of Muscatine 45 1990 1999 5,764 1.01%
Beverly J. White Director 56 1988 1999 6,008 1.05%
Continuing Term
Directors Expires
- ---------- -------
Kim K. Bartling Director. Senior Vice President, Chief Financial
Officer, and Treasurer 38 1994 1997 9,435 1.65%
Roy J. Carver, Jr. Director 52 1989 1998 7,468 1.31%
Larry L. Emmert Director 54 1993 1997 3,650 *
Dean H. Holst Director. President and CEO, First National
Bank in Fairfield 56 1985 1998 5,929 1.04%
Dr. Victor G. Director 52 1994 1998 1,050 *
McAvoy
George A. Shepley Chairman of the Board, President and CEO 73 1983 1997 34,639 6.07%
Carl J. Spaeth Director 78 1984 1997 57,630 10.10%
</TABLE>
* Less than 1 percent of the outstanding stock of the Company.
Shares listed as beneficially owned include vested, but unexercised, options to
purchase shares of the Company's stock and, for Directors who are also officers
of the Company, shares held in the Company's retirement plan for the benefit of
such individuals.
<PAGE>
Director Compensation
The annual retainer that each outside Director of the Company received
in 1995 was $4,800. During 1995, each Director of the Company served as Director
and member of committees for subsidiary boards and committees, with the
exception of Mr. Carver who served only as a Director of the Company. The annual
retainer fee paid to each outside subsidiary Director was $3,600. Fees paid for
attendance at committee meetings and special Board of Directors meetings range
from $50 to $100 per meeting. Executive officers who also serve on the Board of
Directors do not receive such retainer or committee fees.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is contained in the Company's
1995 Proxy Statement which is incorporated by reference.
ITEM 12. SECURITY OWNERHSIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item is contained in the Company's
1995 Proxy Statement which is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Officers and Directors of the Company and its subsidiaries have had,
and may have in the future, banking transactions in the ordinary course of
business of the Company's subsidiaries. All such transactions are on
substantially the same terms, including interest rates on loans and collateral,
as those prevailing at the time for comparable transactions with others, involve
no more than the normal risk of collectibility, and present no other unfavorable
features.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed with This Report:
(1) Financial Statements. The following consolidated financial
statements of the Company and its subsidiaries are incorporated by
reference from the 1995 Annual Report to Shareholders of the Company:
Page
Consolidated balance sheets -- dated December 31, 1995
and 1994.
Consolidated statements of income -- years ended
December 31, 1995, 1994, and 1993.
Consolidated statements of stockholders' equity --
years ended December 31, 1995, 1994, and 1993.
Consolidated statements of cash flows - years ended
December 31, 1995, 1994, and 1993.
Notes to consolidated financial statements.
Opinion of independent accountants.
(2) Financial Statement Schedules. All schedules are omitted
because they are not applicable, are not required, or because the
required information is included in the financial statements or the
notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
(c) Exhibits.
The following exhibits are attached pursuant to Item 601 of
Regulation S-K:
(10a) Employment Agreement
(10b) Change in Control Employment Agreement
(11) Statement re Computation of Per Share Earnings
(13) Registrant's 1995 Annual Report to Shareholders
(20) Registrant's Proxy Statement dated March 22, 1996
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
See Exhibit Index for a complete list of management contracts and
arrangements required by this item and all other Exhibits filed or incorporated
by reference as a part of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IOWA FIRST BANCSHARES CORP.
Date: March 15, 1996 /S/ George A. Shepley
-------------- ----------------------
George A. Shepley
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George A. Shepley Chairman of the Board, March 15,1996
- --------------------- President, Chief Executive
George A. Shepley Officer, and Director
(Principal Executive Officer)
/s/ Kim K. Bartling Senior Vice President, Chief Financial Officer March 15, 1996
- ---------------------- and Treasurer
Kim K. Bartling (Principal Financial and Accounting Officer)
/s/ Roy J. Carver, Jr. Director March 15, 1996
- ----------------------
Roy J. Carver, Jr.
/s/ Larry L. Emmert Director March 15, 1996
- -------------------
Larry L. Emmert
/s/ Craig R. Foss Director March 15, 1996
- -----------------
Craig R. Foss
/s/ Donald R. Heckman Director March 15, 1996
- ---------------------
Donald R. Heckman
/s/ Dean H. Holst Director March 15, 1996
- -----------------
Dean H. Holst
/s/ D. Scott Ingstad Director March 15, 1996
- --------------------
D. Scott Ingstad
/s/ Victor G. McAvoy Director March 15, 1996
- --------------------
/s/ Carl J. Spaeth Director March 15, 1996
- ------------------
Carl J. Spaeth
/s/ Beverly J. White Director March 15, 1996
- --------------------
Beverly J. White
</TABLE>
<PAGE>
ITEM 14 (a) (3) - INDEX OF EXHIBITS
Exhibit Page
(10a) Employment Agreement
(10b) Change in Control Employment Agreement
(10c) Incentive Stock Option and Nonstatutory
Stock Option Plan Incorporated by reference to
Exhibit 99 to the registrant's
Annual Report on Form 10-K
for the fiscal year ended
December 31, 1993.
(11) Statement re Computation of Per
Share Earnings
(13) Registrant's 1995 Annual Report to Shareholders
(20) Registrant's Proxy Statement Dated March 22, 1996
(21) Subsidiaries of Registrant
(27) Financial Data Schedule
This Agreement made and effective this day, January 1, 1996, (the "Effective
Date"), by and between IOWA FIRST BANCSHARES CORP., an Iowa corporation
("Employer"),and D. Scott Ingstad ("Executive").
W I T N E S S E T H:
WHEREAS, Employer and its subsidiaries and affiliates are engaged in the banking
and financial services business;
WHEREAS, Executive has expertise, experience and capability in the business of
Employer and its affiliates and the banking and financial services business in
general;
WHEREAS, Executive has been, and/or now is serving Employer as President & CEO
of First National Bank of Muscatine.
WHEREAS, an employment agreement would ensure Employer and Executive of a stable
employment arrangement and provide severance and other benefits comparable to
those provided by competing financial institutions for Executive and obtain
confidentiality and noncompetition agreements for Employer and its affiliates;
and
WHEREAS, Employer desires hereafter to continue to employ Executive in said
respective executive capacities, and Executive is willing to continue in such
employment, upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which consideration is mutually acknowledged by the parties, it
is hereby agreed as follows:
1. Recitals. The recitals hereinbefore set forth constitute an integral
part of this Agreement, evidencing the intent of the parties in executing this
Agreement, and describing the circumstances surrounding its execution. Said
recitals are by express reference made a part of the covenants hereof, and this
Agreement shall be construed in the light thereof.
2. Duties and Responsibilities.
(a) The duties and responsibilities of Executive are and shall
continue to be of an executive nature as shall be required by Employer in the
conduct of its business. Executive's powers and authority shall be as prescribed
by the by-laws of Employer, if applicable, and shall include all those presently
delegated to him, together with the performance of such other duties and
responsibilities as from time to time may be assigned to him by the Board of
Directors of Employer consistent with the position(s) of President & CEO of
First National Bank of Muscatine. Executive recognizes, that during the period
of his employment hereunder, he owes an undivided duty of loyalty to Employer,
and agrees to devote his entire business time and attention to the performance
of said duties and responsibilities and to use his best efforts to promote and
develop the business of Employer. Executive will not perform any duties for any
other business without the prior written consent of Employer. During the
employment term, Executive agrees to serve as a director on the Board of
Directors of Employer and/or any of its affiliates, as well as to serve as a
member of any committee of any said Board, to which he may be elected or
appointed.
(b) Notwithstanding that this Agreement provides for the
employment of Executive in his present capacity as Employer's President & CEO of
First National Bank of Muscatine, nothing herein contained shall assure
Executive, nor in any manner be construed to constitute an agreement by Employer
to continue the employment of Executive after the expiration of the Employment
Term or any Successive Employment Term (as hereinafter defined) in such capacity
or in any other capacity.
<PAGE>
3. Employment Term. For a period commencing on the Effective Date
hereof and ending on the second anniversary from the Effective Date hereof (the
"Employment Term"), Employer hereby agrees to continue to employ Executive in
the executive capacity(ies) of President & CEO of First National Bank of
Muscatine. Executive agrees, pursuant to the terms hereof, to continue to serve
in said executive capacity(ies) for the Employment Term.
This Agreement and the Employment Term shall be automatically extended for
consecutive two (2) year periods ("Successive Employment Term") unless not less
than ninety (90) days prior to the expiration of the Employment Term or any
Successive Employment Term a party, by written notice, notifies the other party
that there shall be no extension or further extension of this Agreement.
4. Compensation and Benefits.
(a) Base Annual Salary. Employer agrees to pay Executive, on the
15th and the last day of each month, a base salary at the rate of One Hundred
Thirty-Nine Thousand Nine Hundred Dollars ($139,900.00) per year ("Base Annual
Salary"). It is understood that Executive's performance will be reviewed
annually by Employer, which review shall be conducted in accordance with the
performance review policies and procedures of Employer, applicable to similarly
situated employees. At such time, Employer, may (but is not required to)
increase (but may not, without Executive's consent, decrease) the Base Annual
Salary in accordance with the standard performance review criteria, policies and
procedures of Employer, applicable to similarly situated employees. The
determination of whether to increase the Base Annual Salary shall include a
review of standard criteria, including without limitation, Executive's
performance, cost of living changes and comparability with other executives in
similar positions with financial institutions in the banking business.
(b) Expenses. Employer shall reimburse Executive's reasonable
expenses incurred in performing services hereunder, which are incurred and
accounted for in accordance with the policies and procedures of Employer.
(c) Vacations. Executive is entitled to 20 days of vacation with
pay during each calendar year of the term of this Agreement. Vacation in any
year shall be taken prior to the end of the calendar year, and any vacation time
not taken for such year shall be forfeited.
(d) Other Benefits. Executive shall be eligible to participate in
all stock option, employee incentive, medical, dental, life, sick pay, long-term
disability and qualified or non-qualified retirement and profit-sharing benefit
plans and all other employee benefit plans or arrangements of Employer, in
effect on the date hereof, or adopted during the Employment Term. Executive
shall be covered by any officers' and directors' liability insurance and/or
indemnification plans maintained or adopted by Employer.
5. Perquisites. Employer will furnish Executive with such other
perquisites as are in effect on the Effective Date hereof or which may from time
to time be provided by Employer and which are suitable to his position and
adequate for the performance of his duties hereunder and reasonable in the
circumstances.
6. Voluntary Resignation by Executive or Termination for Cause by
Employer.
(a) Voluntary Resignation by Executive. At any time during the
Employment Term or any Successive Employment Term, Executive has the right, by
written notice to Employer, to terminate his services hereunder ("Voluntary
Resignation"), effective as of thirty (30) days after such notice.
(b) Termination for Cause by Employer. At any time during the
Employment Term or any Successive Employment Term, Employer may terminate this
Agreement upon the occurrence of any of the following acts ("Termination for
Cause"):
<PAGE>
(i) The continued refusal by Executive after written notice
by Employer to make himself available for performance of Executive's duties
hereunder (other than as the result of physical or mental disability). The term
"continued" shall mean a period of not less than twenty (20) consecutive
business days (other than while Executive is taking his vacation) and the term
"available" shall mean the failure of Executive to be personally present at the
offices of Employer and to be immediately willing and able to perform his
duties.
(ii) Conviction of a felony for a matter related to or
affecting the business of Employer as reasonably determined by the Board of
Directors of Employer in its sole judgment.
For Termination for Cause, written notice of the termination of this Agreement
and Executive's employment hereunder by Employer shall be served upon Executive
and shall be effective as of the date of such service. Such notice given by
employer shall specify the act or acts of Executive underlying such termination.
Upon termination of this Agreement by either Voluntary Resignation or
Termination for Cause, Employer shall have no obligations and Executive shall
have no rights or obligations under this Agreement, other than Executive's
obligations under Sections 12 and 13 hereof.
7. Other Termination by Employer. If Employer terminates this Agreement
and Executive's employment during the Employment Term or any Successive
Employment Term, other than pursuant to Section 6 hereof or a change in control
as defined in the Change in Control Employment Agreement between Employer and
Executive, Executive shall, subject to the other provisions of this Section 7,
be entitled to the following:
(a) to continue to receive for a period of twelve (12) months
(the "Severance Period") compensation in the amount equal to his Base Annual
Salary;
(b) any vacation pay accrued by Executive in the calendar year of
termination for vacation not yet taken as of the date of termination of
employment; and
(c) a pro rata portion of Executive's award under the Performance
Incentive Plan, the amount of such pro rata portion to be determined as follows:
(i) the annual average received for the past three years.
(d) reimbursement of a portion of the premiums paid by Executive
for COBRA continuation coverage of group medical insurance benefits such that
Executive maintains such group medical insurance benefits on the same
"cost-sharing" basis provided at the date of termination of this Agreement
throughout the Severance Period.
Employer shall pay or cause to be paid the amounts payable under paragraph (a)
above in equal installments, on the 15th and last day of each month, the amount
payable under paragraphs (b) and (c) above in a lump sum within thirty (30) days
of termination (except that any amounts of any vacation pay paid to Executive
for vacation taken but not yet accrued as of the date of termination of
employment shall be deducted from the first, and if necessary, subsequent,
installments payable under paragraph (a) above), and the amounts payable under
paragraph (d) monthly at the time such premiums are otherwise payable by
Executive. All payments pursuant to this Section 7 shall be subject to
applicable federal and state income and other withholding taxes.
In the event Executive becomes employed during the Severance Period, the
reimbursement of a portion of the cost of the group medical insurance benefit
described in paragraph (d) above shall immediately cease, provided Executive
shall retain any rights to continue such coverage under the COBRA continuation
provisions of the group medical insurance plan by paying the applicable premium
therefor.
The payments and benefits provided for in this Section 7 shall be in addition to
all other sums then payable and owing to Executive hereunder and, except as
expressly provided herein, shall not be subject to reduction for any amounts
received by Executive for employment or services provided after termination of
employment hereunder, and shall be in full settlement and satisfaction of all of
Executive's claims and demands. Upon such termination of this Agreement,
Employer shall have no rights or obligations and, Executive shall have no rights
or obligations under this Agreement, other than Executive's obligations under
Sections 12 and 13 hereof.
In all events, Executive's right to receive severance benefits pursuant to this
Section 7 shall cease immediately in the event Executive performs services of
any type for a competing financial institution located within the Market Area
(as defined in Section 13 hereof) during the Non-Compete Period (as defined in
Section 13 hereof).
<PAGE>
8. Resignation Following Constructive Discharge. If at any time during
the Employment Term or any Successive Employment Term, except in connection with
a termination pursuant to Section 6 or 7, Executive is Constructively Discharged
(as hereinafter defined) then Executive shall have the right, by written notice
to Employer within sixty (60) days of such Constructive Discharge, to terminate
his services hereunder, effective as of thirty (30) days after such notice, and
Executive shall have no obligations under this Agreement other than as provided
in Section 12 hereof. Executive shall in such event be entitled to the
continuation of compensation and benefits as if such termination of his
employment was pursuant to Section 7 of this Agreement.
For purposes of this Agreement, the Executive shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(a) Executive is not re-elected or is removed from the positions
with Employer set forth in Section 2(a) hereof, other than as a result of
Executive's election or appointment to positions of equal or superior scope and
responsibility; or
(b) Executive shall fail to be vested by Employer with the powers
and authority of any of said offices; or
(c) Employer shall notify Executive that the Employment Term or
Successive Employment Term of Executive will not be extended or further
extended, as set forth in Section 3 hereof (provided, however, that the period
between the service of notice and termination of his employment shall constitute
a transitional period during which Employer may designate a person who will
succeed to the duties of Executive, and Executive shall cooperate with such
person in connection with the assumption of Executive's duties hereunder); or
(d) Employer changes Executive's primary employment location to a
place that is more than 100 miles from Executive's primary employment location
as of the Effective Date of this Agreement; or
(e) Employer otherwise commits a material breach of its
obligations under this Agreement.
9. Supplemental Compensation. If it is determined (in the reasonable
opinion of independent public accountants then regularly retained by Employer in
consultation with tax counsel acceptable to Executive), that any amount payable
to Executive by Employer under this Agreement or any other plan, program or
agreement under which Executive participates or is a party would constitute an
"Excess Parachute Payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), subject to the
excise tax imposed by Section 4999 of the Code, as amended from time to time
(the "Excise Tax"), Employer shall pay to Executive the amount of such Excise
Tax and all Excise Tax, federal and state income or other taxes with respect to
the payment of the amount of such Excise Tax including all such taxes with
respect to any such additional amount. If at a later date, the Internal Revenue
Service assesses a deficiency against Executive for the Excise Tax with respect
to any amount paid to Executive under this Agreement or any other plan, program,
or agreement under which Executive participates or is a party greater than that
which was determined at the time such amounts were paid, Employer shall pay to
Executive the amount of such Excise Tax plus any interest, penalties,
professional fees or expenses incurred by Executive as a result of such
assessment, together with all Excise Tax, federal and state income or other
taxes with respect to the payment of the amount of such Excise Tax, interest,
penalties, professional fees or expenses, including all such taxes with respect
to any such additional amount. The highest marginal tax rate applicable to
individuals at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
Employer shall withhold from any amounts paid under this Agreement the amount of
any Excise Tax withholding or other federal, state or local taxes then required
to be withheld. Computations of the amount of any supplemental compensation paid
under this Section 9 shall be made by the independent public accountants then
regularly retained by Employer in consultation with tax counsel acceptable to
Executive. Employer shall pay all accountants' and tax counsel's fees and
expenses.
<PAGE>
10. Dispute Resolution. In the event any dispute arises and the parties
after good faith efforts are unable to agree as to the calculation of the
amounts payable under this Agreement, it shall be settled in accordance with the
majority opinion of a Committee consisting of an accountant chosen by Employer,
an accountant chosen by Executive and an independent accountant acceptable to
both Executive and Employer, as the case may be. The Committee's determination
shall be binding and conclusive on the parties hereto. Employer shall pay all
fees and expenses of the dispute resolution.
11. Enforcement. In the event Employer shall fail to pay any amounts
due to Executive under this Agreement as they come due, Employer agrees to pay
interest on such amounts at a rate of prime as listed in the Wall Street Journal
per annum. Employer agrees that Executive and any successor shall be entitled to
recover all costs of enforcing any provision of this Agreement, including
reasonable attorney fees and costs of litigation.
12. Confidential Information. Executive shall not at any time during or
following his employment hereunder, directly or indirectly, disclose or use on
his behalf or another's behalf, publish or communicate, except in the course of
his employment and in the pursuit of the business of Employer or any of its
subsidiaries or affiliates, any proprietary information or data of Employer or
any of its subsidiaries or affiliates, which is not generally known in the
banking business and which Employer may reasonably regard as confidential and
proprietary. Executive recognizes and acknowledges that all knowledge and
information which he has or may acquire in the course of his employment, such
as, but not limited to the business, developments, procedures, techniques,
activities or services of Employer or the business affairs and activities of any
customer, prospective customer, individual firm or entity doing business with
Employer are its sole valuable property, and shall be held by Executive in
confidence and in trust for their sole benefit. All records of every nature and
description which come into Executive's possession, whether prepared by him, or
otherwise, shall remain the sole property of Employer and upon termination of
his employment for any reason, said records shall be left with Employer as part
of its property.
13. Non-Competition. Executive acknowledges that Employer and its
affiliates and subsidiaries by nature of their respective businesses have a
legitimate and protectable interest in their clients and customers, with whom
they have established significant relationships as a result of a substantial
investment of time and money, and but for his employment hereunder, he would not
have had contact with such customers. Executive agrees that during the period of
his employment with Employer and for a period of two (2) years after termination
of his employment for any reason (other than termination of employment under
Section 8 hereof) (the "Non-Compete Period"), he will not (except in his
capacity as an employee of Employer) directly or indirectly, either as an
individual, on his own account, or as an agent, employee, director, shareholder,
consultant, or otherwise, own, manage, operate, control, be or remain employed
or retained by, participate in, solicit business for, or otherwise, be connected
in any manner whatsoever with the ownership, management, operation or control of
any corporation, firm, partnership, joint venture, syndicate, sole
proprietorship or other entity which: (a) has a place of business (whether as a
principal, division, subsidiary, affiliate, related entity, or otherwise)
located within the Market Area (as hereinafter defined) and (b) whose business
and activities, in the reasonable opinion of the Board of Directors of Employer,
are the same or similar to and competitive with business and activities
conducted by Employer or any of its subsidiaries or affiliates at the time of
the termination of this Agreement for the purposes of:
(i) soliciting or inducing, or attempting to solicit or induce
any customer of Employer or any of its subsidiaries or affiliates not to do
business with Employer or any of its subsidiaries or affiliates; or
(ii) soliciting or inducing, or attempting to solicit or induce,
any employee or agent of Employer or any of its subsidiaries or affiliates to
terminate his or her relationship with Employer or any of its subsidiaries or
affiliates.
For purposes of this Agreement, "Market Area" shall be an area encompassed
within a fifty (50) mile radius surrounding any place of business of Employer or
of any of its subsidiaries or affiliates (existing or planned as of the date of
termination of employment).
<PAGE>
The foregoing provisions shall not be deemed to prohibit (i) Executive's
ownership, not to exceed ten percent (10%) of the outstanding shares, of capital
stock of any corporation whose securities are publicly traded on a national or
regional securities exchange or in the over-the-counter market or (ii) Executive
serving as a director of other corporations and entities to the extent these
directorships do not inhibit the performance of his duties hereunder or conflict
with the business of Employer.
14. Remedies. Executive acknowledges that the restraints and agreements
herein provided are fair and reasonable, that enforcement of the provisions of
Sections 12 and 13 will not cause him undue hardship and that said provisions
are reasonably necessary and commensurate with the need to protect Employer and
its legitimate and proprietary business interests and property from irreparable
harm. Executive acknowledges and agrees that (a) a breach of any of the
covenants and provisions contained in Sections 12 or 13 above, will result in
irreparable harm to the business of Employer, (b) a remedy at law in the form of
monetary damages for any breach by him of any of the covenants and provisions
contained in Sections 12 and 13 is inadequate, (c) in addition to any remedy at
law or equity for such breach, Employer shall be entitled to institute and
maintain appropriate proceedings in equity, including a suit for injunction to
enforce the specific performance by Executive of the obligations hereunder and
to enjoin Executive from engaging in any activity in violation hereof and (d)
the covenants on his part contained in Sections 12 and 13, shall be construed as
agreements independent of any other provisions in this Agreement, and the
existence of any claim, set off or cause of action by Executive against
Employer, whether predicated on this Agreement or otherwise, shall not
constitute a defense or bar to the specific enforcement by Employer of said
covenants. In the event of a breach or a violation by Executive of any of the
covenants and provisions of this Agreement, the running of the Non-Compete
Period (but not of Executive's obligation thereunder), shall be tolled during
the period of the continuance of any actual breach or violation.
15. Notices. Any notice or other communication required or permitted to
be given hereunder shall be determined to have been duly given to any party (a)
upon delivery to the address of such party specified below if delivered
personally or by courier; (b) within forty-eight (48) hours after deposit
thereof in the U. S. mail, postage prepaid, for delivery as certified mail,
return receipt requested, addressed, in any case to the party at the following
address(es):
If to Executive:
D. Scott Ingstad
1924 Wildwood Lane
Muscatine, Iowa 52761
If to Employer and/or Company:
Iowa First Bancshares Corp.
300 East Second Street
Muscatine, Iowa 52761
Attention: Chairman
or to such other address(es) as any party may designate by Written Notice in the
aforesaid manner.
16. Representations and Warranties of Employer. Employer represents and
warrants that the execution of this Agreement by it has been duly authorized by
the resolution of its Board of Directors.
17. Indemnification. In the event that legal action is instituted
against Executive during or after the term by a third party (or parties) based
on the performance or nonperformance by Executive of his duties hereunder,
Employer will assume the defense of such action by its attorneys or attorneys
selected by Executive reasonably satisfactory to Employer and advance the costs
and expenses thereof (including reasonable attorneys' fees) without prejudice to
or waiver by Employer of its rights and remedies against Executive. In the event
that there is a final judgment entered against Executive in any such litigation,
and Employer's Board of Directors determines that Executive should, in
accordance with its charter, By-Laws, or insurance reimburse such entities,
Executive shall be liable to Employer for all such costs and expenses paid or
incurred by them in the defense of any such litigation (the "Reimbursement
Amount"). The Reimbursement Amount shall be paid by Executive within thirty (30)
days after rendition of the final judgment. Employer shall be entitled to set
off the reimbursement amount against all sums which may be owed or payable by
Employer to Executive hereunder or otherwise.
The parties shall cooperate in the defense of any asserted claim, demand or
liability against Executive or Employer or its subsidiaries or affiliates.
<PAGE>
The term "final judgment" as used herein shall be defined to mean the decision
of a court of competent jurisdiction, and in the event of an appeal, then the
decision of the appellate court, after petition for rehearing has been denied,
or the time for filing the same (or the filing of further appeal) has expired.
The rights to indemnification under this Section 17 shall be in addition to any
rights which Executive may now or hereafter have under the charter or by-laws of
Employer, under any insurance contract maintained by Employer or any agreement
between Executive and Employer.
18. Entire Understanding. This Agreement constitutes the entire
understanding between the parties relating to Executive's employment hereunder
and supersedes and cancels all prior written and oral understandings and
agreements with respect to such matters, except to the extent to which Executive
may have entered into a Change in Control Employment Agreement, which agreement
shall remain in full force and effect, and except for the terms and provisions
of any employee benefit or other compensation plans (or any agreements or awards
thereunder), referred to in this Agreement, or as otherwise expressly
contemplated by this Agreement. In the event of a change in control as defined
in the Change in Control Employment Agreement, such Change in Control Employment
Agreement will be operative and will supersede this Employment Agreement.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Executive's executors, administrators, legal representatives,
heirs and legatees and the successors and assigns of Employer.
20. Partial Invalidity. The various provisions of this Agreement are
intended to be severable and to constitute independent and distinct binding
obligations. Should any provision of this Agreement be determined to be void and
unenforceable, in whole or in part, it shall not be deemed to affect or impair
the validity of any other provision or part thereof, and such provision or part
thereof shall be deemed modified to the extent required to permit enforcement.
Without limiting the generality of the foregoing, if the scope of any provision
contained in this Agreement is too broad to permit enforcement to its full
extent, but may be made enforceable by limitations thereon, such provision shall
be enforced to the maximum extent permitted by law, and Executive hereby agrees
that such scope may be judicially modified accordingly.
21. Payment in the Event of Death. In the event payment is due and
owing by Employer to Executive under this Agreement upon the death of Executive,
payment shall be made to such beneficiary as Executive may designate in writing,
or failing such designation, then the executor of his estate, in full settlement
and satisfaction of all claims and demands on behalf of Executive, shall be
entitled to receive all amounts owing to Executive at the time of death under
this Agreement. Such payments shall be in addition to any other death benefits
of Employer and in full settlement and satisfaction of all severance benefit
payments provided for in this Agreement.
22. Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by Employer and Executive to express their
mutual intent and no rule of strict construction shall be applied against any
person.
23. Waiver. The waiver of any party hereto or a breach of any provision
of this Agreement by any other party shall not operate or be construed as a
waiver of any subsequent breach.
24. Governing Law. This Agreement shall be governed by, and
interpreted, construed and enforced in accordance with, the laws of the State of
Iowa.
25. Gender and Number. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular or plural, and the pronouns stated in either the masculine, the
feminine or the neuter gender shall include the masculine, feminine or neuter.
<PAGE>
26. Headings. The headings of the Sections of this Agreement are for
reference purposes only and do not define or limit, and shall not be used to
interpret or construe the contents of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
at Muscatine, Iowa, on the date above set forth.
EXECUTIVE IOWA FIRST BANCSHARES CORP.
/s D. Scott Ingstad /s/ George A. Shepley
- ------------------------------ ------------------------------
Name: D. Scott Ingstad By: George A. Shepley
Title: President & CEO of Title: Chairman, President &
First National Bank of Muscatine CEO
ATTEST:
/s/ Patricia R. Thirtyacre
------------------------------
Patricia R. Thirtyacre
Corporate Secretary
CHANGE IN CONTROL
EMPLOYMENT AGREEMENT
BETWEEN
IOWA FIRST BANCSHARES CORP.
AND
D. SCOTT INGSTAD
January 1, 1996
<PAGE>
TABLE OF CONTENTS
CAPTIONS PAGE
1. Purpose
2. Operation of Agreement
3. Change in Control
4. Employment
5. Compensation
6. Termination
7. Company Obligations on Termination
8. Confidentiality
9. No Obligation to Mitigate Damages
10. Non-Exclusivity of Rights
11. Full Settlement
12. Notices
13. Non-Alienation
14. Governing Law
15. Amendment
16. Successor to the Company
17. Miscellaneous
<PAGE>
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
This Agreement is made on January 1, 1996, between Iowa First Bancshares Corp.,
an Iowa corporation (the "Company"), and D. Scott Ingstad (the "Executive").
1. Purpose. The Company wishes to attract and retain well-qualified executive
and key personnel. The Company and the Executive wish to assure continuity of
management in the event of any actual or threatened Change in Control (as
defined in Section 3) of the Company. This Agreement is made to accomplish these
purposes and in consideration for the mutual covenants contained in this
Agreement.
2. Operation of Agreement. The "effective date of this Agreement" shall be the
date on which a Change in Control occurs, and its terms and conditions shall
have no effect on the existing terms of the Executive's employment until the
effective date. This Agreement shall terminate if the Board of Directors of the
Company (the "Board") determines that the Executive is no longer a key executive
who should be covered by this Agreement and so notifies the Executive; provided,
however, that such a determination shall not be made, and if made shall have no
effect, (a) within three years after the Change of Control, or (b) during any
period of time when the Company has knowledge that any third person has taken
steps reasonably calculated to effect a Change of Control until, in the opinion
of the Board, the third person has abandoned or terminated such efforts to
effect a Change of Control. Any good faith decision by the Board that the third
person has abandoned or terminated efforts to effect a Change of Control shall
be conclusive and binding on the Executive.
3. Change in Control. For purposes of this Agreement, a "Change in Control"
means a change of control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); provided,
however, without limitation, that such a "Change of Control" shall be deemed to
have occurred if either:
a. A third person or entity, including a group as defined in Section
13(d)(3) of the Exchange Act, becomes the beneficial owner, directly or
indirectly, of shares of the Company having 35 percent or more of the total
number of votes that may be cast for the election of Directors of the Company;
or
b. The individuals who constitute the Board as of the date of this
Agreement (the "Incumbent Board") cease for any reason to constitute at least
two-thirds thereof, provided that any person who becomes a Director subsequent
to the date of this Agreement whose election or nomination for election by the
Company's shareholders was approved by a vote of at least 75 percent of the
Directors comprising the Incumbent Board (other than an election or nomination
in connection with an actual or threatened election contest relating to the
election of Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this clause, considered as though such person were a member of the Incumbent
Board.
4. Employment. The Company agrees to continue the Executive in its employ, and
the Executive agrees to remain in the employ of the Company for the period
commencing on the effective date of this Agreement and ending on the earlier to
occur of (1) the third anniversary of such date or (2) the Executive's assumed
retirement date, herein defined as attainment of age 65 or under such other
agreement as the Company may have made with the Executive. The period commencing
on the effective date of this Agreement and ending on the earlier to occur of
dates specified in clauses (1) and (2) is the "Employment Period". During the
Employment Period:
a. Position. The Executive's position (including titles), authority,
and responsibilities shall be at least commensurate with those held, exercised,
and assigned during the 90-day period immediately preceding the effective date
of this Agreement. Such services shall be performed at the location where the
Executive was employed immediately prior to the effective date of this
Agreement.
<PAGE>
b. Performance. The Executive shall devote such business time during
normal business hours exclusively to the business and affairs of the Company and
use his or her best efforts to perform faithfully and efficiently the
responsibilities assigned, in each case, to the extent necessary to discharge
the responsibilities assigned, except for services on corporate, civic, or
charitable boards or committees not significantly interfering with the
performance of such responsibilities and periods of vacation and sick leave to
which he or she is entitled. The Executive's continuing to serve on any boards
and committees with which he or she shall be connected, as a member or
otherwise, at the date of this Agreement shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. During the Employment Period:
A. Base Salary. The Executive shall receive a base salary ("Base
Salary") at a monthly rate at least equal to the highest monthly salary paid to
the Executive by the Company or any of its affiliated companies within one year
prior to the effective date of this Agreement. The Base Salary shall be reviewed
at least once each year and shall be increased at any time and from time to time
by action of the Board of the Company or any committee thereof or any individual
having authority to take such action in accordance with the Company's regular
practices. No increase in the Base Salary shall serve to limit or reduce any
other obligation of the Company hereunder, and, after any such increase, the
Base Salary shall not be reduced. As used in this Agreement, the term
"affiliated companies" means any company controlling, controlled by, or under
common control with the Company.
b. Annual Bonus. In addition to the Base Salary, the Executive shall be
awarded for each fiscal year an annual bonus pursuant to any bonus or incentive
plan or program of the Company or otherwise, in cash at least equal to the
highest bonus paid or payable to the Executive in respect of any of the fiscal
years during the three fiscal years immediately prior to the effective date of
this Agreement.
c. Incentive and Savings Plans. In addition to the Base Salary and any
annual bonus payable as provided in this Agreement, the Executive shall be
entitled to participate in all applicable incentive and savings plans and
programs (including, when applicable, the Incentive Stock Option and
Nonstatutory Stock Option Plan) and in all applicable retirement and pension
plans on a basis providing him or her with the opportunity to receive
compensation (without duplication of any annual bonus) and benefits equal to
those provided by the Company and its affiliated companies for the Executive
under such plans and programs as in effect any time during the 90-day period
immediately preceding the effective date of this Agreement or, if more favorable
to the Executive, as in effect at any time thereafter with respect to executives
with comparable responsibilities.
d. Benefit Plans. The Executive or his or her spouse, as the case may
be, shall be entitled to receive employee benefits (including, without
limitation, all amounts which the Executive or his or her spouse and family is
or would have been entitled to receive as benefits under all medical, dental,
disability, group life, accidental death and travel accident insurance plans and
programs of the Company and its affiliated companies) as in effect at any time
during the 90-day period immediately preceding the effective date of this
Agreement or, if more favorable to the Executive, as in effect at any time
thereafter with respect to executives with comparable responsibilities.
e. Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies and procedures of the Company as in effect during
the 90-day period immediately preceding the effective date of this Agreement or,
if more favorable to the Executive, as in effect at any time thereafter with
respect to executives with comparable responsibilities.
f. Vacation and Fringe Benefits. The Executive shall be entitled to
paid vacation and fringe benefits in accordance with the policies of the Company
as in effect during the 90-day period immediately preceding the effective date
of this Agreement or, if more favorable to the Executive, as in effect at any
time thereafter with respect to executives with comparable responsibilities.
6. Termination.
a. Death or Disability. This Agreement shall terminate automatically on
the Executive's death. The Company may terminate this Agreement, after having
established the Executive's Disability, by giving to the Executive written
notice of its intention to terminate his or her employment, and the Executive's
employment with the Company shall terminate effective on the 90th day after
receipt of such notice (the "Disability Effective Date") if within 90 days after
such receipt the Executive shall fail to return to full-time performance of
duties (and if the Executive's Disability has been established pursuant to the
definition of "Disability" set forth below). For purposes of this Agreement,
"Disability" means disability which, after the expiration of more than 26 weeks
after its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or his
or her legal representative (such agreement to acceptability shall not be
withheld unreasonably).
<PAGE>
b. Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, 'Cause' shall
mean (1) a material breach by the Executive of the Executive's obligations under
Section 4 (other than as a result of incapacity due to physical or mental
illness) which is: (A) demonstratively willful and deliberate on the Executive's
part, (B) committed in bad faith or without reasonable belief that such breach
is in the best interest of the Company, and (C) not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach, or (2) the conviction of the Executive of a felony involving moral
turpitude.
c. Good Reason. The Executive may terminate his or her employment for
Good Reason. For purposes of this Agreement, "Good Reason" means:
(1) Without the express written consent of the Executive, (a)
the assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority, or
responsibilities as contemplated by Section 3 of this Agreement, or (b)
any other substantial change in such position (including titles),
authority, or responsibilities;
(2) Any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
and inadvertent failure remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(3) The Company's requiring the Executive to be based at any
office or location other than that at which the Executive is based at
the effective date of this Agreement, except for travel reasonably
required in the performance of the Executive's responsibilities;
(4) Any purported termination by the Company of the
Executive's employment other than as permitted by this Agreement, it
being understood that any such purported termination shall not be
effective for any purpose of this Agreement; or
(5) Any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 16.
d. Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party given in accordance with Section 12. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (1) indicates
the specific termination provision in this Agreement which is applicable, (2)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (3) if the termination date is other than the date of receipt of
such notice, specifies the termination date of this Agreement (which date shall
be not more than 15 days after the giving of such notice).
e. Date of Termination. "Date of Termination" means the date of receipt
of the Notice of Termination or the date specified therein, as the case may be.
7. Company Obligations on Termination. During the Employment Period, if the
Executive's employment is terminated:
a. Death. By reason of the Executive's death, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement other than those obligations accrued or vested hereunder at
the date of the Executive's death.
b. Disability. By reason of the Executive's disability, the Executive
shall be entitled to receive disability and other benefits after the Disability
Effective Date at least equal to those provided in accordance with Section 5(d).
c. Cause. For Cause, the Company shall pay to the Executive his or her
full Base Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to the Executive under this Agreement, except that such termination
shall not modify or affect in any way any accrued right of the Executive to any
other compensation payable pursuant to Section 5 or to any vested or accrued
benefits payable in accordance with such Section.
<PAGE>
d. Good Reason: Other Than for Cause or Disability. During the
Employment Period:
(1) Termination Payments. Subject to clause (2) hereof, if the
Company terminates the Executive's employment other than for Cause or
disability, or if the Executive terminates his or her employment for
Good Reason, the Company shall pay to the Executive the following
amounts and provide the Executive with the following benefits:
(a) If not previously paid, the Executive shall be
paid his or her Base Salary through the Date of Termination at
the rate in effect (or, if greater, the rate required by
Section 5(a) at the time the Notice of Termination was given.
(b) During the remainder of the Employment Period,
the Company shall continue to pay to the Executive his or her
salary on a monthly basis at a rate in effect (or, if greater,
the rate required by section 5(a)) immediately prior to the
Date of Termination.
(c) During the remainder of the Employment Period,
the Executive shall continue to receive benefits under the
Company's employee benefit plans described in Sections 5(d)
and 5(f) hereof as if he or she remained employed by the
Company.
(d) The Executive shall be considered fully vested in
any compensation or benefit amounts accrued, accruable, or
payable by the Company to the Executive under any
Company-sponsored compensation or benefit plan, whether
qualified or unqualified, and such other plans as may have
been in effect for the Executive immediately prior to the
Effective Date of this Agreement or the Date of Termination.
(e) If, despite the provisions of Sections 7(d)(1)(c)
and (d) above, benefits or service credits under any such
employee benefit plan shall not be payable or provided under
any such plan to the Executive or the Executive's dependents,
beneficiaries, and estate, because he or she is no longer an
employee of the Company, the Company shall, to the extent
necessary, pay or provide for payment of such benefits and
service credits for such benefits to the Executive, his or her
dependents, beneficiaries, and estate.
(f) The Executive may elect, within 60 days after the
Date of Termination, to be paid a lump sum severance
allowance, in lieu of the payments payable pursuant to Section
7(d)(1)(b), (d), and (e) hereof, and in addition to the
benefits payable or provided pursuant to Sections 7(d)(1)(a)
and (c) hereof, in an amount which is equal to the sum of (i)
the total payments remaining pursuant to Section 7(d)(1)(b) of
this Agreement, and (ii) any other amounts payable to the
Executive under Sections 7(d)(1)(d) and (e) of this Agreement.
(2) Limitation. Notwithstanding anything in this Agreement to
the contrary, if it is determined that any payment or distribution by
the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would not be deductible by the
Company for federal income tax purposes because of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), the aggregate
present value of amounts payable or distributable to or for the benefit
of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not below zero) to the
Reduced Amount, as defined below.
(a) The "Reduced Amount" shall be an amount expressed
in present value which maximizes the aggregate present value
of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the
Code. Present value shall be determined in accordance with
Section 280G(d)(4) of the Code. The determination of the
Reduced Amount and the components thereof required to be made
hereunder shall be made by McGladrey & Pullen, LLP
("Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within ten
business days of the termination of employment of the
Executive or such earlier time as is requested by the Company.
Such determination by Accounting Firm shall be binding on the
Company and the Executive.
<PAGE>
(b) The Executive shall determine which and how much
of the Agreement Payments (or, at the election of the
Executive, other Payments) shall be eliminated or reduced
consistent with the determination of Reduced Amount by
Accounting Firm; provided that, if the Executive does not make
such determination within five business days of the receipt of
the calculations made by Accounting Firm, the Company shall
elect which and how much of the Agreement Payments shall be
eliminated or reduced consistent with the calculation of the
Reduced Amount and shall notify the Executive promptly of such
election.
(c) As promptly as practicable thereafter, the
Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive
under this Agreement and shall promptly pay to or distribute
for the benefit of the Executive in the future such amounts as
become due to the Executive under this Agreement.
(d) As a result of the uncertainty in the application
of Section 280G of the Code at the time of the initial
determination by Accounting Firm hereunder, it is possible
that Agreement Payments will have been made by the Company
which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by
the Company could have been made ("Underpayments"), in each
case, consistent with the calculation of the Reduced Amount
hereunder.
(e) If Accounting Firm determines that an Overpayment
has been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive which the Executive shall
repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the
Executive to the Company (or if paid by the Executive to the
Company shall be returned to the Executive) if and to the
extent such payment would not reduce the amount which is
subject to taxation under Section 4999 of the Code. If
Accounting Firm determines that an Underpayment has occurred,
any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive, together with interest at
the applicable Federal rate provided for in Section 7872(f)(2)
of the Code.
8. Confidentiality. The Executive shall hold in a fiduciary capacity for the
Company's benefit all secret or confidential information, knowledge, or data
relating to the Company or any of its affiliated companies and their respective
businesses which shall have been obtained by the Executive during his or her
employment by the Company or any of its affiliated companies and which shall not
be public knowledge. After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge, or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. No Obligation to Mitigate Damages. If the Executive's employment is
terminated, the Executive shall be under no obligation to mitigate damages by
seeking other employment. However, to the extent that the Executive receives
compensation from other employment, the payments to be made under the provisions
of Section 7(d)(1) of this Agreement (other than 7(d)(1)(f), if used), shall be
correspondingly reduced.
10. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive, or other plan or program provided by the Company or any of its
affiliated companies for which the Executive may qualify. Nothing in this
Agreement shall limit or otherwise affect such rights as the Executive may have
under other agreements with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan or program of the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable according
to such plan or program.
<PAGE>
11. Full Settlement. The Company's obligation to make the payments described in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including without limitation any set-off,
counterclaim, recoupment, defense, or other right which the Company may have
against the Executive or others. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof or as a
result of any contest by the Executive against the amount of any deduction
pursuant to Section 7(d)(2) hereof, plus, in each case, interest compounded
quarterly on the total unpaid amount determined to be payable under this
Agreement. Such interest shall be calculated on the basis of the prime
commercial lending rate as reported in the Wall Street Journal, in effect from
time to time during the period of such nonpayment.
If the Executive shall in good faith give a Notice of Termination for
Good Reason and it shall thereafter be determined that Good Reason did not
exist, unless the Company and the Executive shall otherwise mutually agree, the
employment of the Executive shall be deemed to have terminated at the date of
giving such purported Notice of Termination by mutual consent of the Company and
the Executive. Except as provided in the preceding sentence and except that such
termination shall not modify or in any way any accrued right of the Executive to
any compensation payable pursuant to Section 5 or to any vested or accrued
benefits payable in accordance with such Section, the Executive shall be
entitled to receive only those payments and benefits which he or she would have
been entitled to receive at such date otherwise than under this Agreement.
12. Notices. Any notices, requests, demands, and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he or she has
filed in writing with the Company or, in the case of the Company, at its
principal executive offices. Notice and communications shall be effective when
actually received by the addressee.
13. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate, or in any way create a lien on any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts or by operation
of law, except by will or the laws of descent and distribution.
14. Governing Law. The provisions of this Agreement shall be construed in
accordance with Iowa law, without reference to principles of conflicts of laws.
15. Amendment. This Agreement may be amended or canceled by mutual agreement of
the parties in writing without the consent of any other person, and, so long as
the Executive lives, no person, other than parties hereto, shall have any rights
under or interest in this Agreement or the subject matter hereof.
16. Successor to the Company. This Agreement shall inure to the benefit of and
be binding on the Company and its successors. The Company shall require any
successor to all or substantially all the business or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Company would be required to perform if no
such succession had taken place.
17. Miscellaneous.
a. If any provision or portion of this Agreement shall be determined to
be invalid or unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and effect.
b. The Company may withhold from any amounts payable under this
Agreement such federal, state, or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
c. This Agreement contains the entire understanding with the Executive
with respect to the subject matter hereof.
<PAGE>
The Executive has signed this Agreement and, pursuant to authorization by its
Board of Directors, the Company has caused this Agreement to be executed in its
name and attested by its Secretary, all as of the date stated in the
introductory paragraph.
/s/ D. Scott Ingstad
--------------------
D. Scott Ingstad
IOWA FIRST BANCSHARES CORP.
By: /s/ George A. Shepley
-------------------------
George A. Shepley
Chairman, President & CEO
ATTEST:
/s/
- -------------------------------
Secretary
IOWA FIRST BANCSHARES CORP.
EXHIBIT (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE 1995
- -------------------------- ----------
Net income for the year applicable to common stock ............... $3,050,000
==========
Average common shares outstanding ................................ 574,679
Add dilutive stock equivalents from stock options ................ 18,328
----------
Weighted average number of common and common equivalent shares
outstanding during the year .................................... 593,007
Earnings per share ............................................... $ 5.14
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Net income for the year applicable to common stock ............... $3,050,000
==========
Average common shares outstanding ................................ 574,679
Add dilutive stock equivalents from stock options ................ 21,962
----------
Weighted average number of common and common equivalent shares
outstanding during the year .................................... 596,641
Earnings per share ............................................... $ 5.11
<PAGE>
To the Stockholders
Iowa First Bancshares Corp.
Muscatine, Iowa
For the full year of 1995, net income reached record levels of $3,050,000 or
$5.11 per share. This represents a $175,000 or 6.1% increase over 1994 net
income. Consolidated net income for the quarter ended December 31, 1995, totaled
$750,000 compared to $670,000 during the same quarter last year.
Contributing to the record performance was an increase in net interest income
and management's success in their continuing efforts to control operating
expenses. Net interest income for 1995 was $9,891,000 which represents a
$188,000 (1.9%) increase over 1994. Operating expenses decreased $264,000 or
3.7% in 1995. During the third quarter, a refund was received from the FDIC for
overpayments of previously submitted deposit insurance premiums by the banking
industry, including our subsidiary banks, to the Bank Insurance Fund (BIF). The
refunds to our banks totaled over $130,000 before income tax consequences.
Additionally, future BIF premium rates were reduced approximately 80% for our
banks. FDIC insurance expense was $260,000 less than the prior year. Continuing
asset quality enhancement resulted in a modest provision for loan losses of only
$45,000 which was $20,000 lower than a year earlier. Further evidence of the
results of expense control is found in the efficiency ratio at year-end of 60.0%
versus 64.0% and 62.7% for 1993 and 1994, respectively. An explanation of what
constitutes the efficiency ratio can be found under key ratios on page three.
Nonperforming loans consisting of nonaccrual loans and loans 90 days past due
totaled $994,000, a decrease of $398,000 or 28.6% from a year earlier.
The improvement noted above resulted in return on average equity for the year of
14.0% contrasted to 14.8% for the prior year. Return on average assets was 1.18%
for 1995 compared to 1.12% in 1994. Please refer to the Management's Discussion
and Analysis section beginning on page of this report for a more detailed
analysis of important issues and trends.
Of particular significance was the higher volume of loans which reached a net of
$169,342,000 at year-end, an increase of $7,327,000 (4.5%) over the prior year.
Both subsidiaries enjoyed excellent loan growth despite intense competition for
all types of loans. Total deposits and repurchase agreements at December 31,
1995, were $242,767,000, $11,496,000 higher than the previous year total of
$231,271,000. Total shareholder equity at the end of 1995 was $23,033,000, an
increase of 11.4% over 1994.
There continues to be little trading activity in Iowa First Bancshares Corp.
stock. A recent independent appraisal of the Company valued the stock at $50 per
share, approximately 124% of book value at December 31, 1995. At year-end, the
employee stock ownership plan owned 25,428 shares or 4.4% of the Company. The
ongoing program of purchasing treasury shares continues; at December 31, 1995,
shares representing 4.7% of the Company's issued shares had been purchased.
Please refer to the following graph for a summary of the stock price performance
over the last few years. The Board of Directors approved cash dividend payouts
during 1995 of approximately $1,072,000, further evidence of the Director's
commitment to enhance the return to stockholders consistent with prudent
administration of the Company. The graph below summarizes the cash dividends
paid for the past several years.
The total annual investment return (change in stock price plus dividends) for
the past one, three, and five-year periods have been 32%, 34%, and 31%,
respectively.
While record financial results achieved during 1995 were partially a function of
continued favorable interest rates and reduction in FDIC insurance expense,
special recognition for the overall performance of the Banks is attributable to
the excellent management at the respective banking subsidiaries.
As we look to 1996, there is, as always, much uncertainty in forecasting the
future direction of interest rates. The 1996 budgets for the Company and its
subsidiaries project relatively stable market interest rates which will add
pressure to the net interest margin, and consequently, earnings.
Your continued support and confidence is appreciated.
/s/ George A. Shepley
George A. Shepley
Chairman & CEO
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
BALANCE SHEET (at year end) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loans $ 169,342,000 $ 162,015,000 $ 154,706,000
Allowance for loan losses 2,309,000 2,526,000 2,654,000
Deposits and securities sold under agreements
to repurchase 242,767,000 231,271,000 234,941,000
Total assets 272,830,000 253,800,000 257,403,000
Stockholders' equity 23,033,000 20,672,000 18,748,000
STATEMENT OF INCOME (for the year)
- ------------------------------------------------------------------------------------------------------------
Net interest income $ 9,891,000 9,703,000 $ 9,519,000
Provision for loan losses 45,000 65,000 56,000
Other income 1,576,000 1,682,000 1,699,000
Other operating expense 6,877,000 7,141,000 7,175,000
Income before income taxes and cumulative
effect of a change in accounting
principle 4,545,000 4,179,000 3,987,000
Income taxes 1,495,000 1,304,000 1,319,000
Income before cumulative effect of a change
in accounting principle 3,050,000 2,875,000 2,668,000
Cumulative effect of a change in accounting
principle 0 0 300,000
Net income 3,050,000 2,875,000 2,968,000
PER SHARE DATA
- ------------------------------------------------------------------------------------------------------------
Net income, primary $ 5.14 $ 4.90 $ 5.21 *
Net income, fully diluted 5.11 4.90 5.21 *
Book value at year-end 40.27 35.79 32.93
Stock price at year-end (greater of bid or
appraised price) 50.00 39.00 34.00
Cash dividends declared during the year 1.60 1.35 1.15
Cash dividends declared as a percentage of
net income 31% 28% 22%
KEY RATIOS
- ------------------------------------------------------------------------------------------------------------
Return on average assets 1.18% 1.12% 1.17% *
Return on average stockholders' equity 13.97 14.82 16.95 *
Net interest margin-tax equivalent 4.28 4.22 4.19
Average stockholders' equity to average assets 8.44 7.54 6.89
Total capital to risk-based assets 15.12 14.68 13.38
Efficiency ratio (all operating expenses,
excluding the provision for loan
losses, divided by the sum of net interest income
and other income) 59.97 62.72 63.96
<FN>
Cumulative effect of a change in accounting principle increased income per
share, return on average assets, and return on average stockholders' equity
$.53, .12% and 1.71%, respectively.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Iowa First Bancshares Corp.
Muscatine, Iowa
We have audited the accompanying consolidated balance sheets of Iowa First
Bancshares Corp. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1995, 1994, and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Iowa First
Bancshares Corp. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995, 1994, and 1993, in conformity with generally accepted accounting
principles.
Davenport, Iowa
January 31, 1996
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 10,963,000 $ 11,720,000
Investment securities held to maturity (Note 2) 0 53,659,000
Investment securities available for sale (Note 2) 60,728,000 15,791,000
Federal funds sold and other overnight investments 24,700,000 3,337,000
Loans, net (Note 3) 169,342,000 162,015,000
Bank premises and equipment, net (Note 4) 4,342,000 4,545,000
Accrued interest receivable 2,283,000 2,038,000
Other assets 472,000 695,000
-----------------------------------
Total assets $ 272,830,000 $ 253,800,000
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 35,076,000 $ 35,336,000
Interest-bearing 200,877,000 193,687,000
-----------------------------------
Total deposits (Note 5) 235,953,000 229,023,000
Securities sold under agreements to repurchase (Note 6) 6,814,000 2,248,000
Federal Home Loan Bank advances (Note 6) 3,398,000
Dividends payable 246,000 401,000
Treasury tax and loan open note (Note 6) 1,525,000
Other liabilities 1,861,000 1,456,000
-----------------------------------
Total liabilities 249,797,000 233,128,000
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, stated value of $1.00 per share; shares authorized 1995 and
1994, 500,000; shares issued 1995 and 1994 none 0 0
Common stock, no par value; shares authorized 1995 and 1994,
2,000,000; shares issued 1995 and 1994, 600,000 200,000 200,000
Additional paid-in capital 3,800,000 3,800,000
Retained earnings 19,326,000 17,193,000
-----------------------------------
23,326,000 21,193,000
Unrealized gains (losses) on securities available for sale, net 229,000 (233,000)
Less cost of common shares acquired for the treasury, 1995,
28,079 and 1994, 22,399 522,000 288,000
-----------------------------------
Total stockholders' equity 23,033,000 20,672,000
-----------------------------------
Total liabilities and stockholders' equity $ 272,830,000 $ 253,800,000
===================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans:
Taxable $ 14,322,000 $ 12,499,000 $ 12,050,000
Nontaxable 322,000 372,000 439,000
Interest on investment securities:
Taxable 3,189,000 3,619,000 4,064,000
Nontaxable 520,000 350,000 227,000
Interest on federal funds sold and other overnight
investments 588,000 297,000 389,000
Interest on deposits at financial institutions
and other interest income 1,000 18,000 31,000
-----------------------------------------------------
Total interest income 18,942,000 17,155,000 17,200,000
-----------------------------------------------------
Interest expense:
Interest on deposits 8,727,000 7,264,000 7,414,000
Interest on securities sold under agreements
to repurchase and other interest expense 324,000 139,000 114,000
Interest on note payable 0 49,000 153,000
-----------------------------------------------------
Total interest expense 9,051,000 7,452,000 7,681,000
-----------------------------------------------------
Net interest income 9,891,000 9,703,000 9,519,000
Provision for loan losses (Note 3) 45,000 65,000 56,000
-----------------------------------------------------
Net interest income after provision
for loan losses 9,846,000 9,638,000 9,463,000
-----------------------------------------------------
Other income:
Trust department 308,000 273,000 269,000
Service fees 941,000 970,000 968,000
Investment securities gains, net 3,000 9,000 0
Other 324,000 430,000 462,000
-----------------------------------------------------
Total other income 1,576,000 1,682,000 1,699,000
-----------------------------------------------------
Operating expenses:
Salaries and employee benefits 4,012,000 3,995,000 3,822,000
Occupancy expenses, net 526,000 548,000 521,000
Equipment expenses 422,000 410,000 437,000
Office supplies and postage 371,000 342,000 369,000
Computer costs 340,000 382,000 383,000
FDIC insurance 265,000 525,000 556,000
Legal fees 21,000 26,000 28,000
Other operating expenses 920,000 913,000 1,059,000
-----------------------------------------------------
Total operating expenses $ 6,877,000 $ 7,141,000 $ 7,175,000
-----------------------------------------------------
Income before income taxes
and cumulative effect of a change
in accounting principle $ 4,545,000 $ 4,179,000 $ 3,987,000
Income taxes (Note 9) 1,495,000 1,304,000 1,319,000
-----------------------------------------------------
Income before cumulative effect of a change in
accounting principle 3,050,000 2,875,000 2,668,000
Cumulative effect of a change in accounting
principle 0 0 300,000
-----------------------------------------------------
Net income $ 3,050,000 $ 2,875,000 $ 2,968,000
=====================================================
Weighted average common and common equivalent
shares 593,007 586,735* 570,085*
Weighted average common and common equivalent
shares, assuming full dilution 596,641 586,735* 570,085*
Earnings per common and common equivalent
share:
Primary:
Income before cumulative effect of change in
accounting principle $ 5.14 $ 4.90* $ 4.68*
Cumulative effect on prior years of change in
accounting for income taxes 0 0 0.53*
-----------------------------------------------------
Net income $ 5.14 $ 4.90* $ 5.21*
=====================================================
<PAGE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fully diluted:
Income before cumulative effect of change in
accounting principle $ 5.11 $ 4.90* $ 4.68*
Cumulative effect on prior years of change in
accounting for income taxes 0 0 0.53*
-----------------------------------------------------
Net income $ 5.11 $ 4.90* $ 5.21*
=====================================================
Dividends declared per share $ 1.60 $ 1.35 $ 1.15
<FN>
*Excludes the effects of common stock equivalents as resulting dilution was
less than 3%.
</FN>
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
Unrealized
Gain
(Loss) on
Securities
Common Stock Additional Treasury Stock Available
----------------- Paid-In Retained ------------------ For Sale,
Number Amount Capital Earnings Number Amount Net Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 600,000 $ 200,000 $ 3,800,000 $ 12,779,000 27,362 $ 500,000 $ 0 $16,279,000
Net income 0 0 0 2,968,000 0 0 0 2,968,000
Cash dividends declared, $1.15
per share 0 0 0 (655,000) 0 0 0 (655,000)
Purchase of common stock for the
treasury 0 0 0 0 8,265 227,000 0 (227,000)
Sale of common stock from the
treasury to the ESOP 0 0 0 0 (5,000) (135,000) 0 135,000
Unrealized gain on securities
available for sale, net 0 0 0 0 0 0 248,000 248,000
-----------------------------------------------------------------------------------------------
Balance, December 31, 1993 600,000 200,000 3,800,000 15,092,000 30,627 592,000 248,000 18,748,000
Net income 0 0 0 2,875,000 0 0 0 2,875,000
Cash dividends declared, $1.35
per share 0 0 0 (774,000) 0 0 0 (774,000)
Purchase of common stock for the
treasury 0 0 0 0 900 32,000 0 (32,000)
Sale of common stock from the
treasury to the ESOP 0 0 0 0 (9,128) (336,000) 0 336,000
Change in unrealized (loss)
on securities available for
sale, net 0 0 0 0 0 0 (481,000) (481,000)
------------------------------------------------------------------------------------------------
Balance, December 31, 1994 600,000 200,000 3,800,000 17,193,000 22,399 288,000 (233,000) 20,672,000
Net income 0 0 0 3,050,000 0 0 0 3,050,000
Cash dividends declared, $1.60
per share 0 0 0 (917,000) 0 0 0 (917,000)
Purchase of common stock for the
treasury 0 0 0 0 6,680 261,000 0 (261,000)
Issuance of 1,000 shares of
treasury stock upon exercise
of stock options 0 0 0 0 (1,000) (27,000) 0 27,000
Change in unrealized gain on
securities available for
sale, net 0 0 0 0 0 0 462,000 462,000
--------------------------------------------------------------------------------------------------
Balance, December 31, 1995 600,000 $ 200,000 $ 3,800,000 $ 19,326,000 28,079 $ 522,000 $ 229,000 $ 23,033,000
==================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,050,000 $ 2,875,000 $ 2,968,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from loans sold to FHLMC 2,972,000 2,932,000 6,010,000
Loans underwritten for FHLMC (2,962,000) (2,901,000) (5,954,000)
Gains on loans sold to FHLMC (10,000) (31,000) (56,000)
Provision for loan losses 45,000 65,000 56,000
Investment securities gains, net (3,000) (9,000) 0
Depreciation 371,000 407,000 462,000
Deferred income taxes 2,000 (5,000) 207,000
Amortization of premiums and accretion of
discounts on loans and investment
securities, net 251,000 426,000 350,000
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (245,000) (20,000) 118,000
Net (increase) decrease in other assets (37,000) (177,000) 226,000
(Decrease) in other liabilities (250,000) (477,000) (425,000)
-----------------------------------------------------
Net cash provided by operating
activities 3,184,000 3,085,000 3,962,000
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold and
other overnight deposits (21,363,000) 9,093,000 3,020,000
Proceeds from maturities and paydowns of
investment securities 0 0 33,199,000
Proceeds from sales of investment securities 0 0 1,026,000
Purchases of investment securities 0 0 (32,576,000)
Proceeds from maturities and paydowns of held
to maturity securities 13,464,000 12,295,000 0
Proceeds from sales, maturities, and paydowns
of available for sale securities 11,946,000 16,586,000 0
Purchase of held to maturity securities (1,860,000) (11,922,000) 0
Purchase of available for sale securities (13,961,000) (13,684,000) 0
Proceeds from sale of other real estate owned 260,000 114,000 75,000
Net (increase) in loans (7,372,000) (7,374,000) (15,527,000)
Purchases of bank premises and equipment (168,000) (193,000) (267,000)
-----------------------------------------------------
Net cash provided by (used in)
investing activities $ (19,054,000)$ 4,915,000 $ (11,050,000)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits $ (260,000)$ 690,000 $ 3,833,000
Net increase (decrease) in interest-bearing
deposits 7,190,000 (5,080,000) 2,034,000
Net increase (decrease) in securities sold under
agreements to repurchase 4,566,000 720,000 (168,000)
Proceeds from TT&L borrowings 1,525,000 0 0
Proceeds from FHLB advances 3,398,000 0 0
Principal payments on note payable (1,300,000) (1,700,000)
Cash dividends paid (1,072,000) (714,000) (600,000)
Reissuance of treasury stock 27,000 336,000 135,000
Purchases of common stock for the treasury (261,000) (32,000) (227,000)
-----------------------------------------------------
Net cash provided by (used in)
financing activities 15,113,000 (5,380,000) 3,307,000
-----------------------------------------------------
Net increase (decrease) in cash and
due from banks (757,000) 2,620,000 (3,781,000)
Cash and due from banks:
Beginning 11,720,000 9,100,000 12,881,000
-----------------------------------------------------
Ending $ 10,963,000 $ 11,720,000 $ 9,100,000
=====================================================
<PAGE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 8,890,000 7,371,000 $ 7,831,000
Income taxes 1,147,000 870,000 1,216,000
Supplemental Schedule of Noncash Investing and
Financing Activities:
Securities available for sale adjustment, net 462,000 (481,000) 248,000
Investment securities transferred from held to
maturity portfolio to available for sale portfolio,
at fair value 41,603,000 0 0
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business, Accounting Estimates, and
Significant Accounting Policies
Nature of business:
Iowa First Bancshares Corp. is a bank holding company providing bank and bank
related services through its subsidiaries.
Accounting estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant accounting policies:
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, First National Bank of Muscatine and First National Bank in
Fairfield (Banks). All material intercompany accounts and transactions have
been eliminated in consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and
due from banks include cash on-hand and amounts due from banks. Cash flows
from demand deposits, NOW accounts, savings accounts, and federal funds sold
are reported net, since their original maturities are less than three months.
Cash flows are also reported net for securities sold under agreements to
repurchase, Federal Home Loan Bank advances, TT&L open note, certificates of
deposits, and loans.
Cash and due from banks: The Banks are required by federal banking
regulations to maintain certain cash and due from bank reserves. The reserve
requirement was approximately $1,750,000 at December 31, 1995.
Investment securities: Prior to January 1, 1994, all debt securities were
carried at amortized cost. Effective January 1, 1994, the Company adopted
FASB Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" and classified investments as held to maturity or available for
sale. Investment securities held to maturity are those debt securities that
the Banks have the ability and intent to hold until maturity regardless of
changes in market conditions, liquidity needs or changes in general economic
conditions. Such securities are carried at cost adjusted for amortization of
premiums and accretion of discounts computed by the interest method over
their contractual lives. If the ability or intent to hold to maturity is not
present for certain specified securities, such securities are considered
available for sale as the Banks intend to hold them for an indefinite period
of time but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Banks' assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses are reported as increases
or decreases in stockholders' equity, net of the related deferred tax effect.
There were no investments held for trading purposes as of December 31, 1995
or 1994. Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Pursuant to a FASB Special Report "A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities" the
Company transferred at fair value all investment securities from held to
maturity to available for sale prior to December 31, 1995.
Loans and direct lease financing: Loans are stated at the amount of unpaid
principal, reduced by unearned discount and an allowance for loan losses. The
Bank records impaired loans at the present value of expected future cash
flows discounted at the loan's effective interest rate, or as an expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is impaired when it is probable the
creditor will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
The allowance for loan losses is maintained at the level considered adequate
by management of the Banks to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to operating
expense and reduced by net charge-offs. In determining the adequacy of the
allowance balance the Banks make continuous evaluations of the loan portfolio
and related off-balance sheet commitments, consider current economic
conditions, historical loan loss experience, review of specific problem loans
and other factors.
<PAGE>
Unearned interest on discounted loans is amortized to income over the life of
the loans, using the interest method. For all other loans, interest is
accrued daily on the outstanding balances. Accrual of interest is
discontinued on a loan when management believes, after considering collection
efforts and other factors, that the borrower's financial condition is such
that collection of interest is doubtful. Generally this occurs when the
collection of interest or principal has become 90 days past due.
The leasing operations consist principally of the leasing of various types of
transportation equipment. All of the leases are classified and accounted for
as direct financing leases.
Under the direct financing method of accounting for leases, the total net
rentals receivable under the lease contracts and the estimated unguaranteed
residual value of the leased equipment, net of unearned income, are recorded
as a net investment in direct financing leases and the unearned income is
recognized each month as it is earned so as to provide a constant periodic
rate of return on the unrecovered investment.
Direct loan and lease origination fees and costs are generally being deferred
and the net amount amortized as an adjustment of the related loan's or
lease's yield. The Banks generally amortize these amounts over the
contractual life. Commitment fees based upon a percentage of customers'
unused lines of credit and fees related to standby letters of credit are not
significant.
Bank premises and equipment: Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed primarily by the
straight-line method based on the estimated useful lives.
Other assets: Other real estate (ORE), which is included in other assets,
represents properties acquired through foreclosure, in-substance foreclosure
or other proceedings. ORE is recorded at the lower of the amount of the loan
or fair value of the properties. Any write-down to fair value at the time of
transfer to ORE is charged to the allowance for loan losses. Property is
evaluated regularly to ensure that the recorded amount is supported by the
current fair value.
Income taxes: The Company files its tax return on a consolidated basis with
its subsidiary banks. The entities follow the direct reimbursement method of
accounting for income taxes under which income taxes or credits which result
from the subsidiary banks' inclusion in the consolidated tax return are paid
to or received from the parent company.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and
tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Effective January 1, 1993, the Company adopted FAS 109. The cumulative effect
of that change in the method of accounting for income taxes at January 1,
1993 was $300,000 and is included in the statement of income.
Deferred income taxes have not been provided on the equity in undistributed
net income of the subsidiaries as the entities file a consolidated income tax
return.
Trust assets: Trust assets (other than cash deposits) held by the Banks in
fiduciary or agency capacities for its customers are not included in the
accompanying consolidated balance sheets since such items are not assets of
the Banks.
<PAGE>
Earnings per share: Primary earnings per share are arrived at by dividing net
income by the weighted average number of shares of common stock and common
stock equivalents outstanding for the respective period. The computations
prior to December 31, 1994 were based on weighted average common stock
outstanding only because the dilutive effect of the common stock equivalents
was not material.
Current accounting developments: The Financial Accounting Standards Board has
issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" which becomes effective for
years beginning after December 15, 1995. The Statement generally requires
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset, an impairment is recognized. Management believes that adoption
of this Statement will not have a material effect on the Company's
consolidated financial statements.
The Financial Accounting Standards Board has issued Statement No. 122
"Accounting for Mortgage Servicing Rights" which becomes effective for years
beginning after December 15, 1995. This Statement amends FASB Statement No.
65 "Accounting for Certain Mortgage Banking Activities" to require that an
entity recognize as separate assets rights to service mortgage loans for
others, however those rights are acquired. An entity that acquires mortgage
servicing rights through either the purchase or origination of mortgage loans
and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on their
relative fair values. If it is not practicable to estimate the fair values
separately, the entire cost of purchasing or originating the loans should be
allocated to the mortgage loans (without the mortgage servicing rights) and
no cost should be allocated to the mortgage servicing rights. This Statement
also requires that an entity assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. Neither the Company
nor the Banks have addressed the potential future impact of this Statement on
the consolidated financial statements.
Note 2. Investment Securities
The amortized cost and fair value of investment securities as of December 31,
1995 are summarized as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities $ 20,081,000 $ 196,000 $ (20,000) $ 20,257,000
U.S. government agencies 16,914,000 144,000 (59,000) 16,999,000
Mortgage-backed securities 7,562,000 6,000 (27,000) 7,541,000
State and political subdivisions 11,364,000 113,000 (1,000) 11,476,000
Corporate obligations 4,443,000 12,000 0 4,455,000
---------------------------------------------------------------
$ 60,364,000 $ 471,000 $ (107,000) $ 60,728,000
===============================================================
</TABLE>
<PAGE>
The amortized cost and fair value of investment securities as of December 31,
1994 are summarized as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities $ 20,190,000 $ 0 $ (612,000) $ 19,578,000
U.S. government agencies 13,221,000 20,000 (359,000) 12,882,000
Mortgage-backed securities 5,941,000 0 (289,000) 5,652,000
State and political subdivisions 9,323,000 2,000 (314,000) 9,011,000
Corporate obligations 4,984,000 0 (85,000) 4,899,000
---------------------------------------------------------------
$ 53,659,000 $ 22,000 $ (1,659,000) $ 52,022,000
===============================================================
Securities available for sale:
U.S. Treasury securities $ 11,457,000 $ 11,000 $ (281,000) $ 11,187,000
U.S. government agencies 4,201,000 0 (67,000) 4,134,000
Mortgage-backed securities 502,000 0 (32,000) 470,000
---------------------------------------------------------------
$ 16,160,000 $ 11,000 $ (380,000) $ 15,791,000
===============================================================
</TABLE>
The amortized cost and fair value of investment securities as of December 31,
1995, by contractual maturity, are shown below. Most mortgage-backed securities
are included in the one year through five year maturity category.
Amortized Fair
Cost Value
-------------------------------
Securities available for sale:
Due in one year or less $ 17,922,000 $ 17,964,000
Due after one year through five years 35,548,000 35,844,000
Due after five years through ten years 5,739,000 5,765,000
Due after ten years 1,155,000 1,155,000
------------------------------
$ 60,364,000 $ 60,728,000
==============================
Investment securities with a carrying value of $31,963,000 as of December 31,
1995 are pledged on public deposits, trust deposits and for other purposes as
required by law.
Investment securities with a carrying value of $9,917,000 as of December 31,
1995 are pledged as collateral for securities sold under agreements to
repurchase.
Proceeds from the sale of securities were $5,507,000 during 1995, $11,775,000
during 1994, and $1,026,000 during 1993. All 1995, 1994, and 1993 sales were
from securities identified as available for sale. Securities called by the
issuer totaled $356,000, $1,188,000, and $6,000,000 for 1995, 1994, and 1993,
respectively. Gross gains and losses realized on sales in 1995 were $30,000 and
$27,000, respectively. Gross gains and losses realized on sales in 1994 were
$67,000 and $58,000, respectively. Gross gains and losses realized on sales in
1993 were none.
The Company transferred securities with an amortized cost of $41,391,000 and an
unrealized gain of $212,000 from the held to maturity portfolio to the available
for sale portfolio prior to December 31, 1995, based on management's
reassessment of their previous designations of securities giving consideration
to liquidity needs, management of interest rate risk and other factors.
<PAGE>
Note 3. Loans
The composition of loans is summarized as follows:
December 31,
----------------------------------
1995 1994
----------------------------------
Commercial $ 62,399,000 $ 55,948,000
Agricultural 16,792,000 15,264,000
Real estate:
Construction 1,187,000 1,192,000
Mortgage 56,475,000 53,447,000
Tax exempt, mortgage 3,735,000 4,201,000
Installment 32,972,000 36,634,000
Lease financing, net 369,000 919,000
Other 335,000 74,000
----------------------------------
Total loans 174,264,000 167,679,000
Less:
Allowance for loan losses 2,309,000 2,526,000
Unearned discount 2,613,000 3,138,000
----------------------------------
$ 169,342,000 $ 162,015,000
==================================
Loans considered to be impaired under the provisions of FAS No. 114 as of
December 31, 1995 are as follows:
Impaired loans for which an allowance has been provided $ 368,000
Impaired loans for which no allowance has been provided 515,000
------------
Total loans determined to be impaired $ 883,000
============
Allowance provided for impaired loans, included in the
allowance for loan losses $ 47,000
============
The average recorded investment in impaired loans during the year ended December
31, 1995 was $985,000 with interest income recognized on those loans of $26,000.
The cash basis interest income recognized from impaired loans was $26,000 during
the year ended December 31, 1995.
Nonaccruing loans totaled $883,000 and $1,201,000 at December 31, 1995 and 1994,
respectively. Interest income in the amount of $74,000, $109,000, and $133,000
would have been earned on the nonaccrual loans had they been performing loans in
accordance with their original terms during the years ended December 31, 1995,
1994, and 1993, respectively. The interest collected on loans designated as
nonaccrual loans and included in income for the years ended December 31, 1995,
1994, and 1993 totaled $26,000, none, and none, respectively.
Changes in the allowance for loan losses are summarized as follows:
Year Ended December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
Beginning balance $ 2,526,000 $ 2,654,000 $ 2,734,000
Provisions charged to expense 45,000 65,000 56,000
Recoveries 176,000 225,000 136,000
---------------------------------------
2,747,000 2,944,000 2,926,000
Loans charged off 438,000 418,000 272,000
---------------------------------------
Ending balance $ 2,309,000 $ 2,526,000 $ 2,654,000
=======================================
The allowance for loan losses for income tax purposes is $1,841,000 and
$2,013,000 as of December 31, 1995 and 1994, respectively. The amounts that were
deducted for income tax purposes for the years ended December 31, 1995, 1994,
and 1993 were $92,000, $151,000, and $5,000, respectively, which were the
maximum allowable deductions as computed by the experience method.
<PAGE>
The Company retains mortgage loan servicing on loans sold into the secondary
market which are not included in the accompanying consolidated balance sheets.
The unpaid principal balance on these loans was $11,044,000 as of December 31,
1995 and $9,097,000 as of December 31, 1994. Custodial escrow balances
maintained in connection with these loans were approximately $61,000 and $51,000
at December 31, 1995 and 1994, respectively. All loans sold are without
recourse.
Note 4. Bank Premises and Equipment
Bank premises and equipment are summarized as follows:
<TABLE>
Years of December 31,
Useful ------------------------------
Lives 1995 1994
------------------------------------------
<S> <C> <C> <C>
Bank premises (including land of $537,000) 10-40 $ 6,232,000 $ 6,232,000
Leasehold improvements 5-15 80,000 80,000
Furniture and equipment 5-15 1,576,000 1,434,000
------------------------------
7,888,000 7,746,000
Accumulated depreciation 3,546,000 3,201,000
------------------------------
$ 4,342,000 $ 4,545,000
==============================
</TABLE>
Note 5. Deposits
The composition of deposits is summarized as follows:
December 31,
-----------------------------
1995 1994
-----------------------------
Demand ...........................................$ 70,877,000 $ 72,087,000
NOW accounts ..................................... 32,502,000 33,523,000
Savings .......................................... 22,494,000 24,087,000
Time certificates ................................ 110,080,000 99,326,000
-----------------------------
$ 235,953,000 $ 229,023,000
=============================
Included in interest-bearing deposits as of December 31, 1995 are certificates
of deposit totaling $22,445,000 that are $100,000 or greater. Maturities of
these certificates are as follows:
One to three months $ 10,023,000
Three to six months 3,687,000
Six to twelve months 4,894,000
Over twelve months 3,841,000
---------------
$ 22,445,000
===============
Note 6. Other Borrowings
Company borrowings consist of the following:
Securities sold under agreements to repurchase $ 6,814,000
Federal Home Loan Bank advances 3,398,000
Treasury tax and loan open note 1,525,000
Securities sold under agreements to repurchase totaled $6,814,000 at December
31, 1995. The average and maximum amount outstanding along with the rates of
interest related to securities sold under agreements to repurchase (dollar
amounts in thousands) at December 31, 1995 are as follows:
Daily average amount outstanding during the year $ 3,451
Maximum outstanding as of any month end 6,814
Weighted average interest rate during the year 5.81%
Weighted average interest rate at the end of the year 5.26
<PAGE>
Advances from the Federal Home Loan Bank as of December 31, 1995 bear interest
and are due as follows:
Interest Rate Balance Due
----------------------------------
Year ending December 31:
1998 5.8% $ 300,000
2000 6.15% to 6.52% 1,900,000
2002 6.43% 150,000
2005 6.50% to 6.65% 500,000
Amortizing through 2015 6.79% 548,000
-----------------
$ 3,398,000
=================
First mortgage loans of approximately $38,500,000 and investment securities of
$2,000,000 as of December 31, 1995 are pledged as collateral on these advances.
Note 7. Regulatory Capital Requirements
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a more consistent system for
comparing capital positions of financial institutions and to take into account
the different risks among financial institutions' assets and off-balance-sheet
items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.
A comparison of the Company's capital as of December 31, 1995 with the minimum
requirements is presented below.
Minimum
Actual Requirements
---------------------------
Tier 1 risk-based capital 13.75% 4.00%
Total risk-based capital 15.12 8.00
Tier 1 leverage ratio 8.53 3.00
According to FDIC capital guidelines, the Company is considered to be well
capitalized.
Current banking law limits the amount of dividends banks can pay. As of December
31, 1995, amounts available for payment of dividends were $2,179,000 and
$713,000 for First National Bank of Muscatine and First National Bank in
Fairfield, respectively. Regardless of formal regulatory restrictions the Banks
may not pay dividends which would result in their capital levels being reduced
below the minimum requirements shown above.
Note 8. Employee Benefits
The Company and bank subsidiaries sponsor an Employee Stock Ownership Plan with
401(k) provisions. This plan covers substantially all full-time employees who
have completed a six month period of employment. The Company and subsidiary
banks match 50% of the amount an employee contributes to the plan up to a
maximum of 6% of the employee's pay. Additionally the Company and subsidiary
banks may make optional contributions to the plan which are allocated to the
accounts of participants in the plan on the basis of total relative
compensation. The amounts expensed for the years ended December 31, 1995, 1994,
and 1993 were $262,000, $303,000, and $289,000, respectively.
The Company has an Incentive Stock Option and Nonstatutory Stock Option Plan
(hereinafter "Plan") for directors and senior officers. The purpose of the Plan
is to promote the interests of the Company and its stockholders by strengthening
its ability to attract and retain key officers and directors by furnishing
additional incentives whereby such officers and directors may be encouraged to
acquire, or to increase their acquisition of, the Company's common stock, thus
maintaining their personal and proprietary interest in the Company's continued
success and progress. The Plan is administered by the Human Resource Committee
of the Company. The Company granted options covering 50,250 shares on January 1,
1993. Since inception of the plan, options covering 1,000 shares have been
exercised and options covering 1,500 shares have been forfeited. Options
exercisable at December 31, 1995 cover 28,250 shares. Options granted for 47,750
shares are outstanding as of December 31, 1995. The option price is 100% of the
fair market value of the common stock ($27 per share) of the Company at the
grant date. All options granted under the Plan vest ratably over five years and
must be exercised within five years of the grant date. The Company retains Right
of First Refusal on all shares issued pursuant to the Plan.
<PAGE>
Note 9. Income Taxes
The components of income tax expense are as follows:
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------------------------------------
Currently paid or payable ....... $ 1,493,000 $ 1,309,000 $ 1,112,000
Deferred income taxes ........... 2,000 (5,000) 207,000
-----------------------------------------
$ 1,495,000 $ 1,304,000 $ 1,319,000
=========================================
Income tax expense differs from the amount computed by applying the federal
income tax rate to income before income taxes. The reasons for this difference
are as follows:
<TABLE>
Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993
---------------------------------------------------------------------
% Of % Of % Of
Dollar Pretax Dollar Pretax Dollar Pretax
Amount Income Amount Income Amount Income
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
income tax expense $ 1,591,000 35.0% $ 1,463,000 35.0% $ 1,395,000 35.0%
Effect of graduated tax rate (45,000) (1.0) (42,000) (1.0) (40,000) (1.0)
Tax exempt interest
income, net (260,000) (5.7) (230,000) (5.5) (233,000) (5.8)
State income taxes, net 150,000 3.3 137,000 3.3 129,000 3.2
Other 59,000 1.3 (24,000) (0.6) 68,000 1.7
---------------------------------------------------------------------
$ 1,495,000 32.9% $ 1,304,000 31.2% $ 1,319,000 33.1%
=====================================================================
</TABLE>
Net deferred taxes, included in other assets or other liabilities on the
consolidated balance sheets, consist of the following components as of December
31:
1995 1994
-------------------------------
Deferred tax assets:
Allowance for loan losses $ 174,000 $ 191,000
Securities available for sale 0 136,000
Net deferred loan origination fees 0 7,000
-------------------------------
174,000 334,000
-------------------------------
Deferred tax liabilities:
Direct lease financing (243,000) (283,000)
Securities available for sale (136,000) 0
Bank premises and equipment (13,000) (26,000)
Unrealized bond accretion (21,000) (5,000)
Net deferred loan origination fees (11,000) 0
-------------------------------
(424,000) (314,000)
-------------------------------
Net deferred tax assets (liabilities) $ (250,000) $ 20,000
===============================
The net change in 1995 and 1994 deferred income taxes includes $272,000 and
$277,000, respectively, which is reflected in stockholders' equity.
Note 10. Commitments and Contingencies
Financial instruments with off-balance sheet risk: The Banks are parties to
financial instruments with off-balance sheet risk made in the normal course of
business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets.
<PAGE>
The Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amounts of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet instruments.
Contract
Amount
-----------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit ........................... $18,157,000
Standby letters of credit .............................. 517,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon and source of the commitments will be sold to other
financial intermediaries if drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's credit worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements and extend
for no more than one year. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
Concentration of credit risk: The Banks grant commercial, real estate,
installment, and agricultural loans to customers in the Banks' primary market
area which includes Muscatine and Jefferson Counties in Iowa. The Banks have
diversified loan portfolios, as set forth in Note 3. The Banks' policies for
requiring collateral are consistent with prudent lending practices and
anticipate the potential for economic fluctuations. Collateral varies but may
include accounts receivable, inventory, property and equipment, residential real
estate properties and income producing commercial properties. It is the Banks'
policies to file financing statements and mortgages covering collateral pledged.
Contingencies: In the normal course of business, the Banks are involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the Company's
financial statements.
Note 11. Related Party Matters
Senior officers and directors of the Company and the Banks, principal holders of
equity securities of the Company and their associates were indebted to the Banks
for loans made in the ordinary course of business. As of December 31, 1995, none
of these loans are classified as nonaccrual, past due, restricted or considered
potential problems.
The activity in such loans during the years ended December 31 are as follows:
1995 1994
-----------------------------
Balance, beginning .............. $ 6,256,000 $ 6,108,000
Additions .................... 7,521,000 6,790,000
Deductions (payments) ........ (6,804,000) (6,642,000)
-----------------------------
Balance, ending ................. $ 6,973,000 $ 6,256,000
=============================
<PAGE>
Note 12. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments in the table below:
Cash and due from banks: The carrying amounts reported in the balance sheets
for cash and due from banks approximate their fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Federal funds sold and other overnight investments: The carrying amounts
reported in the balance sheets for federal funds sold and other overnight
investments approximate their fair value.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (i.e., one-to-four family
residential) are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in
loan characteristics. The fair values for other loans (i.e., commercial real
estate and rental property mortgage loans, commercial and industrial loans,
and agricultural loans) are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposit liabilities: The fair values disclosed for demand deposits (i.e.,
interest and noninterest checking, passbook savings, and certain types of
money market accounts ) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities of time
deposits.
Securities sold under agreements to repurchase and treasury tax and loan open
note: For such short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Federal Home Loan Bank advances: The fair value is estimated using discounted
cash flow analysis, employing interest rates currently being quoted by the
Federal Home Loan Bank.
Commitments to extend credit and standby letters of credit: The fair value of
commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of letters of
credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date. As of December 31,1995, these items are
immaterial in nature.
<PAGE>
The carrying amounts and fair values of financial instruments at December 31,
1995 and 1994 are summarized as follows:
<TABLE>
Carrying Amounts Fair Values
-------------------------------------------------------------------
1995 1994 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 10,963,000 $ 11,720,000 $ 10,963,000 $ 11,720,000
Investment securities 60,728,000 69,450,000 60,728,000 67,813,000
Federal funds sold 24,700,000 3,337,000 24,700,000 3,337,000
Loans receivable 171,651,000 164,541,000 171,724,000 164,393,000
Less allowance for loan losses 2,309,000 2,526,000 2,309,000 2,526,000
Loans, net of allowance 169,342,000 162,015,000 169,415,000 161,867,000
Financial Liabilities:
Deposits $ 235,953,000 $ 229,023,000 $ 233,519,000 $ 228,187,000
Securities sold under
agreements to repurchase 6,814,000 2,248,000 6,814,000 2,248,000
Federal Home Loan Bank
advances 3,398,000 0 3,418,000 0
Treasury tax and loan open
note 1,525,000 0 1,525,000 0
</TABLE>
<PAGE>
Note 13. Parent Company Only Condensed Financial
Information
The following is condensed financial information of Iowa First Bancshares Corp.
(parent company only):
BALANCE SHEETS
(Parent Company Only)
<TABLE>
December 31,
--------------------------------
1995 1994
--------------------------------
<S> <C> <C>
ASSETS
Cash $ 1,287,000 $ 1,034,000
Investment in subsidiaries 22,405,000 20,421,000
Other assets 23,000 28,000
-------------------------------
Total assets $ 23,715,000 $ 21,483,000
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES, other liabilities $ 682,000 $ 811,000
--------------------------------
STOCKHOLDERS' EQUITY
Common stock 200,000 200,000
Additional paid-in capital 3,800,000 3,800,000
Retained earnings 19,326,000 17,193,000
------------------------------
23,326,000 21,193,000
Unrealized gains (losses) on securities
available for sale, net 229,000 (233,000)
Less net cost of common shares acquired
for the treasury 522,000 288,000
-----------------------------
Total stockholders' equity 23,033,000 20,672,000
-----------------------------
Total liabilities and
stockholders' equity $ 23,715,000 $ 21,483,000
=============================
</TABLE>
STATEMENTS OF INCOME
(Parent Company Only)
<TABLE>
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Operating revenue:
Dividends received from subsidiaries $ 1,750,000 $ 2,250,000 $ 2,750,000
Management fees and other income 321,000 294,000 258,000
------------------------------------------
Total operating revenue 2,071,000 2,544,000 3,008,000
Operating expenses 639,000 652,000 755,000
------------------------------------------
Income before income tax (credits),
equity in subsidiaries' undistributed net
income, and cumulative effect of a change
in accounting principle 1,432,000 1,892,000 2,253,000
Applicable income tax (credits) (96,000) (156,000) (160,000)
----------------------------------------
1,528,000 2,048,000 2,413,000
Equity in subsidiaries' undistributed net income 1,522,000 827,000 385,000
----------------------------------------
Income before cumulative effect of a
change in accounting principle 3,050,000 2,875,000 2,798,000
Cumulative effect of a change in accounting
principle 0 0 170,000
---------------------------------------
Net income $ 3,050,000 $ 2,875,000 $ 2,968,000
=======================================
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS
(Parent Company Only)
<TABLE>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,050,000 $ 2,875,000 $ 2,968,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in subsidiaries' undistributed net
(income) (1,522,000) (827,000) (385,000)
Amortization and depreciation 8,000 8,000 8,000
Change in assets and liabilities:
Decrease in other assets 0 0 10,000
Increase (decrease) in other liabilities 26,000 167,000 (151,000)
-----------------------------------------------
Net cash provided by operating
activities 1,562,000 2,223,000 2,450,000
-----------------------------------------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES,
purchases of other assets (3,000) 0 0
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable 0 (1,300,000) (1,700,000)
Cash dividends paid (1,072,000) (714,000) (600,000)
Reissuance of treasury stock 27,000 336,000 135,000
Purchases of common stock for the treasury (261,000) (32,000) (227,000)
-----------------------------------------------
Net cash (used in) financing
activities (1,306,000) (1,710,000) (2,392,000)
-----------------------------------------------
Net increase in cash 253,000 513,000 58,000
Cash:
Beginning 1,034,000 521,000 463,000
-----------------------------------------------
Ending $ 1,287,000 $ 1,034,000 $ 521,000
===============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash payments for:
Interest $ 0 $ 66,000 $ 168,000
Income taxes (118,000) (329,000) (212,000)
</TABLE>
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities * $ 0 $ 0 $ 0 $ 75,644,000 $ 56,158,000
Investment securities held to maturity * 0 53,659,000 54,371,000 0 0
Investment securities available for sale * 60,728,000 15,791,000 19,522,000 0 0
Loans, net 169,342,000 162,015,000 154,706,000 139,234,000 135,680,000
Total assets 272,830,000 253,800,000 257,403,000 251,097,000 235,072,000
Deposits 235,953,000 229,023,000 233,413,000 227,546,000 213,333,000
Note payable 0 0 1,300,000 3,000,000 3,742,000
Other borrowings 11,737,000 2,248,000 0 0 0
Stockholders' equity 23,033,000 20,672,000 18,748,000 16,279,000 14,641,000
Interest income 18,942,000 17,155,000 17,200,000 18,271,000 20,557,000
Interest expense 9,051,000 7,452,000 7,681,000 9,286,000 12,293,000
Net interest income 9,891,000 9,703,000 9,519,000 8,985,000 8,264,000
Provision for loan losses 45,000 65,000 56,000 278,000 503,000
Investment securities gains (losses), net 3,000 9,000 0 148,000 (405,000)
Other income 1,573,000 1,673,000 1,699,000 1,534,000 1,424,000
Operating expenses 6,877,000 7,141,000 7,175,000 6,998,000 6,968,000
Income before income taxes (credits) and cumulative
effect of a change in accounting principle 4,545,000 4,179,000 3,987,000 3,391,000 1,812,000
Income taxes (credits) 1,495,000 1,304,000 1,319,000 1,141,000 (242,000)
Income before cumulative effect of a change in
accounting principle 3,050,000 2,875,000 2,668,000 2,250,000 2,054,000
Cumulative effect of a change in accounting principle 0 0 300,000 0 0
Net income 3,050,000 2,875,000 2,968,000 2,250,000 2,054,000
Per common share:
Income before cumulative effect of a change in
accounting principle:
Primary $ 5.14 $ 4.90 $ 4.68 $ 3.92 $ 3.52
Fully dilutive 5.11 4.90 4.68 3.92 3.52
Cumulative effect of a change in accounting
principle 0 0 0.53 0 0
Net income:
Primary 5.14 4.90 5.21 3.92 3.52
Fully dilutive 5.11 4.90 5.21 3.92 3.52
Cash dividends declared 1.60 1.35 1.15 0.85 0.42
Cash dividends declared as a percentage of net
income 31% 28% 22% 22% 12%
Weighted average common and common equivalent shares 593,007 586,597 569,812 574,353 584,149
Weighted average number of shares of common stock and
common stock equivalents outstanding during the year 596,641 586,597 569,812 574,353 584,149
<FN>
* Reflects adoption of FASB Statement No. 115 in 1993, see notes to
consolidated financial statements for further explanation.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Iowa First Bancshares Corp. (Company) is a bank holding company providing bank
and bank related services through its wholly-owned subsidiaries, First National
Bank of Muscatine (Muscatine) and First National Bank in Fairfield (Fairfield).
Total average assets of the Company increased .6% in 1995, increased 1.2% in
1994, and increased 5.3% in 1993. The distribution of average assets,
liabilities and stockholders' equity and interest rates, and interest
differential was as follows (dollar amounts in thousands and income and rates on
a fully taxable equivalent basis using statutory tax rates in effect for the
year presented):
<TABLE>
1995 1994 1993
----------------------------- -------------------------- -------------------------------
Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable loans, net $ 162,432 $ 14,322 8.82% $153,547 $ 12,499 8.14% $139,292 $ 12,050 8.65%
Taxable investment securities
held to maturity 36,475 2,103 5.77 45,516 2,531 5.56 73,067 4,087 5.59
Taxable investment securities
available for sale 17,331 1,086 6.27 20,045 1,088 5.43 149 8 5.37
Nontaxable investment
securities and loans 14,878 1,276 8.58 12,220 1,094 8.95 10,000 1,009 10.09
Federal funds sold and
other overnight investments 10,072 589 5.85 7,610 315 4.14 13,071 389 2.98
-------------------- ------------------ --------------------
Total interest-earning
assets 241,188 19,376 8.03 238,938 17,527 7.34 235,579 17,543 7.45
--------- -------- ---------
Cash and due from banks 10,336 10,855 10,910
Bank premises and equipment, net 4,447 4,677 4,848
Other assets 2,695 2,739 2,869
--------- -------- --------
Total $ 258,666 $257,209 $254,206
========= ======== ========
LIABILITIES
Deposits:
Interest-bearing demand $ 93,534 $ 2,951 3.16 $101,614 2,741 2.70 $100,147 2,745 2.74
Time 104,657 5,776 5.52 100,319 4,523 4.51 101,543 4,670 4.60
Other borrowings 5,685 324 5.70 2,829 139 4.91 2,578 114 4.42
Note payable 0 0 0 723 49 6.78 2,511 152 6.05
-------------------- ------------------ -------------------
Total interest-bearing
liabilities 203,876 9,051 4.44 205,485 7,452 3.63 206,779 7,681 3.71
-------- -------- --------
Noninterest-bearing deposits 31,290 30,829 28,111
Other liabilities 1,664 1,496 1,804
--------- -------- --------
Total liabilities 236,830 237,810 236,694
STOCKHOLDERS' EQUITY 21,836 19,399 17,512
--------- -------- --------
Total $ 258,666 $257,209 $254,206
========= ======== ========
Net interest earnings $ 10,325 $ 10,075 $ 9,862
========== ======== ========
Net yield (net
interest earnings
divided by total
interest-earning
assets) 4.28% 4.22% 4.19%
====== ====== ======
</TABLE>
<PAGE>
The net interest margin increased in 1995 (from 4.22% in 1994 to 4.28% in 1995).
The return on average interest-earning assets increased 69 basis points (from
7.34% in 1994 to 8.03% in 1995) and interest paid on average interest-bearing
liabilities increased 81 basis points (from 3.63% in 1994 to 4.44% in 1995).
Average interest earning assets to total average assets increased to 93.2%
during 1995 compared to 92.9% the previous year.
The net interest margin increased slightly in 1994 (4.19% in 1993 and 4.22% in
1994). The return on average interest-bearing assets decreased 11 basis points
(from 7.45% in 1993 to 7.34% in 1994) while interest paid on average
interest-bearing liabilities decreased 8 basis points (from 3.71% in 1993 to
3.63% in 1994). Overall market interest rates rose considerably during 1994 as
evidenced by the prime lending rate increasing from 6% at the beginning of 1994
to 8.5% by December 31, 1994. The 1994 difference of 3 basis points less decline
in rates on average interest-bearing liabilities than return on average
interest-bearing assets compares to a 1993 difference of 4 basis points more
decline in rates on average interest-bearing liabilities than return on average
interest-bearing assets.
FINANCIAL CONDITION:
Investment Securities
Investment securities at December 31, 1995 were 33% U.S. Treasury securities,
28% U.S. government agency securities, 13% mortgage-backed securities, 19%
states and political subdivisions, and 7% corporate obligations. This
emphasis on U.S. Treasury and U.S. government agency securities resulted from
management's emphasis on high credit quality security purchases. The 1995
increase in the portfolio percentage devoted to states and political
subdivisions reflects the higher yields, on a tax equivalent basis, which
were available on this type of investment as compared to treasuries and
agencies.
The mix of investment securities at year-end 1994 was U.S. Treasury
securities 45% of total investments, U.S. government agency securities 25%,
mortgage-backed securities 9%, states and political subdivisions 14%, and
corporate obligations 7%.
The amortized cost of investment securities held to maturity and fair value
of investment securities available for sale at the date indicated are
summarized as follows (dollar amounts in thousands):
December 31,
-----------------------------
1995 1994 1993
-----------------------------
Securities held to maturity:
U.S. Treasury $ 0 $ 20,190 $ 27,261
U.S. government agencies 0 13,221 11,595
Mortgage-backed securities 0 5,941 7,782
States and political subdivisions 0 9,323 5,482
Corporate obligations 0 4,984 2,251
----------------------------
$ 0 $ 53,659 $ 54,371
============================
Securities available for sale:
U.S. Treasury $ 20,257 $ 11,187 $ 13,448
U.S. government agencies 16,999 4,134 5,587
Mortgage-backed securities 7,541 470 487
State and political subdivisions 11,476 0 0
Corporate obligations 4,455 0 0
----------------------------
$ 60,728 $ 15,791 $ 19,522
============================
<PAGE>
The following table shows the maturities of investment securities available for
sale at December 31, 1995 and the weighted average yields of such securities
(dollar amounts in thousands):
<TABLE>
After One, But After Five, But
Within One Year Within Five Years Within Ten Years After Ten Years
------------------ ----------------- ----------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury $ 7,053 6.28% $ 13,204 5.92% $ 0 0% $ 0 0%
U.S. government agencies 7,198 6.08 7,084 6.22 1,768 6.53 949 6.97
Mortgage-backed securities 209 8.19 6,825 5.94 507 6.83 0 0
States and political subdivisions 715 7.12 7,075 7.53 3,490 7.04 196 6.96
Corporate obligations 2,789 5.69 1,656 6.06 0 0 10 0
-------- --------- -------- --------
$ 17,964 $ 35,844 $ 5,765 $ 1,155
======== ========= ======== ========
</TABLE>
The weighted average yields in the previous tables are calculated on the basis
of the carrying value and effective yields weighted for the scheduled maturity
of each security. Weighted average yields on tax exempt securities have been
computed on a fully taxable equivalent basis using the federal statutory tax
rate of 34%, the rate in effect for the year ended December 31, 1995, and
excluding the interest expense allocated to carry certain tax-exempt securities.
In 1995, the yield on nontaxable investment securities and loans decreased 37
basis points largely as a result of normal maturation of relatively high yield
nontaxable loans with reinvestment in obligations of states and political
subdivisions at rates higher than other comparable investment securities but
appreciably lower than the amortizing nontaxable loans.
In 1993, approximately $1,000,000 of securities designated as available for sale
were sold with no gain or loss recognized. At December 31, 1993 securities with
an amortized cost of $19,140,000 and net unrealized gains of $382,000 were
designated available for sale. At December 31, 1994, securities with an
amortized cost of $16,160,000 and net unrealized losses of $369,000 were
designated available for sale. During December 1995, all securities that had
previously been classified as held to maturity were reclassified as available
for sale in response to a one-time opportunity to do so offered by the Financial
Accounting Standards Board to all organizations utilizing FAS 115. This change
in classification affords management more flexibility managing the portfolio in
the future. At December 31, 1995, no state or political subdivision securities
amortized cost or market value exceeded 10% of stockholders' equity.
Loans
Loans outstanding at December 31, 1995 increased 4.3% from December 31, 1994.
The amounts of loans outstanding, net of unearned discount, at the indicated
dates is shown in the following table according to the type of loans (dollar
amounts in thousands):
<TABLE>
December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 62,399 $ 55,948 $ 54,994 $ 48,675 $ 48,584
Agricultural 16,792 15,264 14,139 13,774 14,522
Real estate, construction 1,187 1,192 2,341 2,026 2,243
Real estate, mortgage 56,475 53,447 46,306 46,562 45,861
Tax exempt, real estate
mortgage 3,735 4,201 5,013 5,377 6,000
Installment, net of
unearned discount 30,359 33,496 32,770 24,144 19,346
Lease financing, net 369 919 1,718 1,293 1,518
Other 335 74 79 117 197
------------------------------------------------------------------------------
$ 171,651 $ 164,541 $ 157,360 $ 141,968 $ 138,271
------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following loan categories outstanding at December 31, 1995 mature as
follows (dollar amounts in thousands):
<TABLE>
After One
Year, But
Amount One Year Within After
Of Loans Or Less Five Years Five Years
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 62,399 $ 37,228 $ 19,371 $ 5,800
Agricultural 16,792 11,251 5,193 348
Real estate, construction 1,187 1,164 23 0
---------------------------------------------------------------
$ 80,378 $ 49,643 $ 24,587 $ 6,148
===============================================================
</TABLE>
The interest rates on the amount due after one year are fixed or adjustable
as follows (dollar amounts in thousands):
Fixed Adjustable
------------------------------
Commercial $ 19,926 $ 5,245
Agricultural 5,014 527
Real estate, construction 23 0
------------------------------
$ 24,963 $ 5,772
==============================
During 1995, commercial loans increased by $6,451,000, construction real
estate loans decreased by $5,000, mortgage real estate loans increased by
$3,028,000 (after approximately $3,000,000 were sold to the secondary market)
and net installment loans decreased by $3,137,000. Management continues to
search for quality growth in all loan categories. The Company's focus on, and
expertise in, the secondary market for real estate loans increased
substantially over the past three years and is expected to continue as a
profitable, expanding line of business in the future.
We believe that some competitors are extending loans that exceed prudent
loan-to-value ratios and are offering terms, rates, and conditions that are
imprudent this late in the current economic cycle. Asset quality, however,
remains a priority for the Company as management believes that strong asset
quality is the foundation for strength in any financial institution and
future growth and profitability is dependent upon the ability to maintain and
enhance that quality.
<PAGE>
Loan Risk Elements Nonaccrual, Past Due and Restructured Loans
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans comprise (a) loans accounted for on
a nonaccrual basis; (b) accruing loans contractually past due 90 days or more
as to interest or principal payments (but not included in the nonaccrual
loans in (a) above; and (c) other loans whose terms have been renegotiated to
provide a reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower (exclusive of loans
in (a) or (b) above) (dollar amounts in thousands):
<TABLE>
December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis $ 883 $ 1,201 $ 1,705 $ 1,623 $ 2,004
Accrual loans
contractually past due
90 days or more 111 191 133 94 435
Loans whose terms have
been renegotiated to
provide a reduction
or deferral of
interest or principal
because of a
deterioration in the
financial position of
the borrower 0 0 0 0 650
</TABLE>
Total nonaccrual loans were $883,000 at December 31, 1995, a decrease of
$318,000 or 26% from December 31, 1994. Total nonaccrual and accrual loans
contractually past due 90 days or more were $994,000 at December 31, 1995, a
decrease of $398,000 or 29% from a year earlier.
When the full collectibility of principal or interest on any loan is
considered doubtful, previously accrued but uncollected interest remains as
accrued if the principal and interest is protected by sound collateral value
based upon a current independent, qualified appraisal. In practice, in the
vast majority of cases, the interest accrued but uncollected on loans
transferred to nonaccrual status is charged-off at the time of transfer.
Interest income in the amount of $74,000 would have been earned on the
nonaccrual loans had they been performing loans in accordance with their
original terms during 1995. The interest collected on loans designated as
nonaccrual loans and included in income for the years ended December 31, 1995
and 1994 was $26,000 and none, respectively.
As of December 31, 1995, the Company had loans totaling $4,674,000 in
addition to those listed as nonaccrual, past due or renegotiated that were
identified by the Banks' internal asset rating systems as classified assets.
This represents a $1,343,000 or 40% increase from 1994. The Company is not
aware of any single loan or group of loans, other than these and those
reflected above, of which full collectibility cannot reasonably be expected.
The Company has $16,792,000 in total agricultural loans outstanding. The
Company does not have any other substantial portion of its loans concentrated
in one or a few industries nor does it have any foreign loans outstanding as
of December 31, 1995. The Company's loans are heavily concentrated
geographically in the Iowa counties of Muscatine and Jefferson.
<PAGE>
In general, the agricultural loan portfolio risk is dependent on factors such
as governmental policies, weather conditions, agricultural commodities prices
and the mix of grain and livestock raised. Despite severe, and much
publicized, flooding during 1993 in and around the market areas served by the
Banks the agricultural loan portfolio has not experienced significant quality
deterioration. Commercial loan risk can also vary widely from period to
period and is particularly sensitive to changing business and economic
conditions as well as governmental policies. Consumer loan risk is
substantially influenced by employment opportunities in the markets served by
the Company.
Other real estate owned was $106,000, $187,000, and $30,000 at December 31,
1995, 1994, and 1993, respectively.
Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings in
the form of provisions for loan losses. Loan losses or recoveries are charged
or credited directly to the allowance for loan losses. The provision for loan
losses is determined based upon an evaluation of a number of factors by
management of the Banks including (i) loss experience in relation to
outstanding loans and the existing level of the allowance for loan losses,
(ii) a continuing review of problem loans and overall portfolio quality,
(iii) regular examinations and appraisals of loan portfolios conducted by
federal supervisory authorities, and (iv) current and expected economic
conditions. The allowance for loan losses decreased $659,000 during 1991
largely due to charging off specific problem loans which were reserved for in
1990. In 1992 the allowance for loan losses increased $143,000 as provisions
for loan losses and recoveries exceeded charge-offs. The allowance for loan
losses decreased $80,000, $128,000 and $217,000 in 1993, 1994, and 1995,
respectively, as net charge-offs exceeded provisions for loan losses.
Management of the Banks continues to review the loan portfolios and believes
the allowance for loan losses is adequate to absorb losses of existing loans
which may become uncollectible.
The Banks allocate the allowance for loan losses according to the amount
deemed to be necessary to provide for possible losses being incurred within
the categories of loans set forth in the table below. The amount of such
components of the allowance for loan losses and the ratio of loans in such
categories to total loans outstanding are as follows (dollar amounts in
thousands):
<TABLE>
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
Allowance Ratio Allowance Ratio Allowance Ratio AlLowance Ratio Allowance Ratio
For To For To For To For To For To
Loan Loans Loan Loans Loan Loans Loan Loans Loans Loans
Losses Total Losses Total Losses Total Losses Total Losses Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Mortgage $ 124 32.90% $ 141 32.49% $ 161 29.43% $ 259 32.74% $ 155 33.17%
Construction 0 0.69 0 0.72 0 1.49 0 1.42 0 1.62
Commercial 1,342 36.35 1,714 34.05 1,873 34.95 1,935 34.46 1,913 35.28
Agricultural 133 9.78 282 9.28 308 8.99 306 10.08 313 10.50
Installment 710 17.69 389 20.36 312 20.82 234 16.61 210 13.99
Lease financing and other 0 0.41 0 0.56 0 1.13 0 0.91 0 1.10
Tax exempt, real estate mortgage 0 2.18 0 2.55 0 3.19 0 3.78 0 4.34
----------------------------------------------------------------------------------------
$ 2,309 100.00% $ 2,526 100.00% $ 2,654 100.00% $ 2,734 100.00% $ 2,591 100.00%
=========================================================================================
</TABLE>
<PAGE>
Deposits
Total average deposits decreased 1.4% in 1995, increased 1.3% in 1994, and
increased 5.1% in 1993. The average deposits are summarized below (dollar
amounts in thousands):
<TABLE>
1995 1994 1993
-------------------------------------------------------------------------
Average Average Average
Interest Interest Interest
Expense Expense Expense
Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand $ 31,290 - % $ 30,829 - % $ 28,111 - %
Savings 23,501 2.6 24,550 2.4 24,209 2.6
Interest-bearing
demand 70,033 3.3 77,064 2.8 75,938 2.8
Time 104,657 5.5 100,319 4.5 101,543 4.6
---------- ----------- ----------------
Total deposits $ 229,481 $ 232,762 $ 229,801
========== =========== ----------------
</TABLE>
The maturity of time certificates of deposit of $100,000 or more outstanding at
December 31, 1995 is as follows (dollar amounts in thousands):
Maturing In
- ---------------------------------------------------------------------------
Total Less Than 3 to 6 6 to 12 Over 12
Outstanding 3 Months Months Months Months
- ---------------------------------------------------------------------------
$ 22,445 $ 10,023 $ 3,687 $ 4,894 $ 3,841
===========================================================================
Note Payable - Bank Stock Debt
The note payable, bank stock debt, was incurred in mid 1984 to acquire all of
the stock in the Fairfield subsidiary bank. The maximum outstanding balance is
as follows (dollar amounts in thousands):
<TABLE>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Maximum outstanding during the year $ 0 $ 1,300 $ 3,000
Weighted average interest rate at the end
of the year 0 % 0 % 6.0%
</TABLE>
At December 31, 1995, the Company has no outstanding note payable. The Company
maintains a line-of-credit totaling $1,000,000 at Marshall & Ilsley Bank,
Milwaukee, Wisconsin collateralized by the outstanding stock of First National
Bank of Muscatine and First National Bank in Fairfield.
<PAGE>
RESULTS OF OPERATIONS:
Changes in Fully Diluted Earnings Per Share
The increase in fully diluted earnings per share between 1995 and 1994 amounted
to $.21. The major sources of change are presented in the following table:
<TABLE>
1995 1994
--------------------------------
<S> <C> <C>
Net income per share, prior year $ 4.90 $ 5.21
--------------------------------
Increase (decrease) attributable to:
Net interest income 0.32 0.31
Provision for loan losses 0.03 (0.02)
Investment securities gains and losses, net (0.01) 0.02
Other income (0.17) (0.04)
Salaries and employee benefits (0.03) (0.29)
FDIC insurance 0.44 0.05
Other operating expenses 0.04 0.30
Income taxes (0.32) 0.03
Change in average common shares outstanding (0.09) (0.16)
Cumulative effect of a change in accounting principle 0 (0.51)
--------------------------------
Net change 0.21 (0.31)
--------------------------------
Net income per share, current year $ 5.11 $ 4.90
================================
</TABLE>
<PAGE>
Net Interest Income
The following table sets forth a summary of the changes in interest earned and
paid resulting from changes in volume and rates. Changes attributable to both
rate and volume which cannot be segregated have been allocated proportionately
to the change due to volume and the change due to rate (dollar amounts in
thousands and income on a fully taxable equivalent basis using statutory rates
in effect for year presented):
<TABLE>
Year Ended December 31, 1995 Year Ended December 31, 1994
---------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
--------------------- --------------------
Average Average Total Average Average Total
Balance Rate Change Balance Rate Change
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable loans $ 718 $ 1,105 $ 1,823 $ 1,232 $ (783) $ 449
Taxable investment
securities held to
maturity (505) 77 (428) (1,542) (14) (1,556)
Taxable investment
securities available for
sale (148) 146 (2) 1,068 12 1,080
Nontaxable investment
securities and loans 237 (55) 182 224 (139) 85
Federal funds sold 102 172 274 (162) 88 (74)
---------------------------------------------------------------------
Total interest
income 404 1,445 1,849 820 (836) (16)
---------------------------------------------------------------------
Interest expense:
Interest-bearing deposits (24) 1,487 1,463 11 (162) (151)
Other borrowings 140 45 185 11 14 25
Note payable (49) 0 (49) (108) 5 (103)
---------------------------------------------------------------------
Total interest
expense 67 1,532 1,599 (86) (143) (229)
---------------------------------------------------------------------
Change in net
interest earnings $ 337 $ (87) $ 250 906 $ (693) $ 213
=====================================================================
</TABLE>
Nonaccruing loans are included in the average balance. Loan fees are not
material.
<PAGE>
Provision for Loan Losses
The following table summarizes loan balances at the end of each year; changes in
the allowance for loan losses arising from loans charged off and recoveries on
loans previously charged off by loan category; and the provisions for loan
losses which have been charged to operating expense (dollar amounts in
thousands):
<TABLE>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance of allowance for loan
losses at beginning of year $ 2,526 $ 2,654 $ 2,734 $ 2,591 $ 3,250
-------------------------------------------------------------
Loans charged off:
Commercial and agricultural 240 189 130 241 1,274
Mortgage 27 2 25 22 114
Installment 171 227 117 129 90
-------------------------------------------------------------
Total loans charged
off 438 418 272 392 1,478
-------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial and agricultural 120 188 95 240 276
Mortgage 23 15 22 4 19
Installment 33 22 19 32 21
-------------------------------------------------------------
Total recoveries 176 225 136 276 316
-------------------------------------------------------------
Net loans charged off 262 193 136 116 1,162
-------------------------------------------------------------
Less adjustments 0 0 0 19 0
-------------------------------------------------------------
Provisions for loan losses charged
to operating expense 45 65 56 278 503
-------------------------------------------------------------
Balance at end of year $ 2,309 $ 2,526 $ 2,654 $ 2,734 $ 2,591
=============================================================
Average taxable loans outstanding $ 162,432 $ 153,547 $ 139,292 $ 132,214 $ 132,915
=============================================================
Ratio of net loan charge-offs to
average taxable loans out-
standing 0.16% 0.13% 0.10% 0.09% 0.87%
Allowance for loan losses as a
percentage of average taxable
loans outstanding 1.42 1.65 1.91 2.07 1.95
Coverage of net charge-offs by
year-end allowance for loan
losses 8.81 13.09 19.51 23.57 2.23
</TABLE>
Operating Expenses
A continuing objective of the Company's management is to contain overhead costs
while maintaining optimal productivity, efficiency, and quality service.
Operating expenses decreased $264,000 or 3.7% from 1994 to 1995 after decreasing
$34,000 the previous year. Salaries and employee benefits increased only $17,000
or .4% in 1995. Occupancy and equipment expenses decreased $10,000 or 1.0%,
computer costs decreased $42,000 or 11% due in part to a refund from prior
years, FDIC insurance costs dropped $260,000 or 50% due to refunds of previously
paid premiums coupled with an 80% reduction in premiums instituted by the FDIC
during 1995, and legal fees declined $5,000 or 19.2%. Other operating expenses
increased $7,000 or .8% due to management's emphasis on controlling expenses.
Most expense categories were also reduced or held to modest increases in 1994
and 1993.
<PAGE>
Net Income
The Company's consolidated net income for the three years is as follows (dollar
amounts in thousands):
Year Ended December 31,
------------------------------------
1995 1994 1993
------------------------------------
Net income $ 3,050 $ 2,875 $ 2,968
====================================
As shown above, net income increased $175,000 or 6.1% in 1995. This increase
resulted from improvement in net interest income of $188,000 or 1.9%,
reduction of $20,000 or 30.8% in provisions for loan losses, a reduction in
other income totaling $106,000 or 6.3% despite an increase in trust income of
$35,000 or 12.8%, a decrease of $264,000 or 3.7% in operating expenses, and
an increase of $191,000 or 14.6% in income taxes.
As shown above, net income decreased $93,000 in 1994. This decrease resulted
primarily from improvement in 1994 net interest income of $184,000 or 1.9%,
and the $300,000 cumulative effect of a change in accounting principle
recognized in 1993. Most other income and expense categories were quite
similar to the prior year or discussed in the preceding section of this
report.
Selected Consolidated Ratios
<TABLE>
Year Ended December 31,
--------------------------------------
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Percentage of net income to:
Average stockholders' equity 13.97% 14.82% 16.95%
Average total assets 1.18 1.12 1.17
Percentage of average stockholders' equity to average total assets 8.44 7.54 6.89
Percentage of note payable to equity at year-end 6.93
Dividends declared as a percentage of net income 31.31 27.55 22.07
</TABLE>
Before the cumulative effect of a change in accounting principle the percentage
of net income to average stockholders' equity and average total assets for 1993
were 15.24% and 1.05%, respectively.
Interest Rate Sensitivity and Risk Management
The Company manages its balance sheet to minimize the impact of interest rate
movements on its earnings. The term "rate sensitivity" refers to those assets
and liabilities which are "sensitive" to fluctuations in rates and yields. When
interest rates move, earnings may be affected in many ways. Interest rates on
assets and liabilities may change at different times or by different amounts.
Maintaining a proper balance between rate sensitive earning assets and rate
sensitive liabilities is the principal function of asset and liability
management of a banking organization.
<PAGE>
The following table shows the interest rate sensitivity position at several
repricing intervals (dollar amounts in thousands):
<TABLE>
Repricing Maturities at December 31, 1995
------------------------------------------------------------------------------------
Less Than 3-12 1-5 More Than Noninterest
3 Months Months Years 5 Years Bearing Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 53,947 $ 30,846 $ 71,040 $ 14,935 $ 883 $ 171,651
Investment
securities 6,976 10,988 35,844 5,950 970 60,728
Other earnings
assets 24,700 0 0 0 0 24,700
Nonearning
assets 0 0 0 0 15,751 15,751
------------------------------------------------------------------------------------
Total
assets $ 85,623 $ 41,834 $ 106,884 $ 20,885 $ 17,604 $ 272,830
------------------------------------------------------------------------------------
Liabilities and
Equity:
Deposits $ 46,284 $ 92,155 $ 62,431 $ 0 $ 35,083 $ 235,953
Securities
sold
under
agreements
to 5,309 938 567 0 0 6,814
repurchase
Other
purchased
funds 1,525 0 2,200 1,198 0 4,923
Other 0 0 0 0 2,107 2,107
liabilities
Equity 0 0 0 0 23,033 23,033
------------------------------------------------------------------------------------
Total
liabilities
and equity $ 53,118 $ 93,093 $ 65,198 $ 1,198 $ 60,223 $ 272,830
------------------------------------------------------------------------------------
Repricing gap $ 32,505 $ (51,259) $ 41,686 $ 19,687 $ (42,619) $ 0
Cumulative
repricing gap 32,505 (18,754) 22,932 42,619 0 0
</TABLE>
The data in this table incorporates the contractual repricing characteristics as
well as an estimate of the actual repricing characteristics of the Company's
assets and liabilities. Based on the estimate, twenty percent of the savings and
NOW accounts are reflected in the less than 3 months category, thirty percent in
the 3-12 months category, with the remainder in the 1-5 year category. Also,
twenty-five percent of the money market accounts are reflected in the less than
3 months category with the remainder in the 3-12 months category.
A positive repricing gap for a given period exists when total interest-earning
assets exceed total interest-bearing liabilities and a negative repricing gap
exists when total interest-bearing liabilities are in excess of interest-earning
assets. Generally a positive repricing gap will result in increased net interest
income in a rising rate environment and decreased net interest income in a
falling rate environment. A negative repricing gap tends to produce increased
net interest income in a falling rate environment and decreased net interest
income in a rising rate environment. At December 31, 1995, using the estimates
discussed above, rate sensitive liabilities exceeded rate sensitive assets
within a one year period by $18,754,000 and, thus, the Company is positioned to
benefit from a fall in interest rates within the next year.
<PAGE>
The Company's repricing gap position is useful for measuring general relative
risk levels. However, even with perfectly matched repricing of assets and
liabilities, interest rate risk cannot be avoided entirely. Interest rate risk
remains in the form of prepayment risk of assets and liabilities, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates, and basis risk. Basis risk refers to the possibility that
the repricing behavior of variable-rate assets could differ from the repricing
characteristics of liabilities which reprice in the same time period. Even
though these assets are match-funded, the spread between asset yields and
funding costs could change.
Because the repricing gap position does not capture these risks, management
utilizes simulation modeling to measure and manage the rate sensitivity exposure
of earnings. The Company's simulation model provides a projection of the effect
on net interest income of various interest rate scenarios and balance sheet
strategies.
Liquidity
For banks, liquidity represents ability to meet both loan commitments and
deposit withdrawals. Factors which influence the need for liquidity are varied,
but include general economic conditions, asset/liability mix, bank reputation,
future FDIC funding needs, changes in regulatory environment, and credit
standing. Assets which provide liquidity consist principally of loans, cash and
due from banks, investment securities, and short-term investments such as
federal funds. Maturities of securities held for investment purposes and loan
payments provide a constant flow of funds available for cash needs. Liquidity
also can be gained by the sale of loans or securities, which were previously
designated as available for sale, prior to maturity. Interest rates, relative to
the rate paid by the security or loan sold, along with the maturity of the
security or loan, are the major determinates of the price which can be realized
upon sale.
The stability of the Comapny's funding, and thus its ability to manage
liquidity, is greatly enhanced by its consumer deposit base. Consumer deposits
tend to be small in size, diversified across a large base of individuals, and
are government insured to the extent permitted by law. Total deposits under
$100,000 at December 31, 1995 were $213,508,000 or 90% of total deposits and 78%
of total liabilities and equity.
The Company's note payable was completely paid off during 1994. Equity has
increased in significance as a funding source, increasing $2,361,000 during
1995. At year-end total federal funds sold and securities maturing within one
year were $42,664,000 or 15.6% of total assets. Both short-term and long-term
liquidity are actively reviewed and managed.
At December 31, 1995, securities available for sale totaling $60,728,000
included $471,000 of gross unrealized gains and $107,000 of gross unrealized
losses. These securities may be sold in whole or part to increase liquid assets,
reposition the investment portfolio, or for other purposes as defined by
management.
Capital
Stockholders' equity increased $2,361,000 (11.4%) in 1995. Dividends to
stockholders were declared at a rate of $1.60, $1.35, and $1.15 per share during
the years ended December 31, 1995, 1994, and 1993, respectively.
<PAGE>
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a more consistent system for
comparing capital positions of financial institutions and to take into account
the different risks among financial institutions' assets and off-balance-sheet
items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a Financial Institution to maintain capital at higher levels.
A comparison of the Company's capital as of December 31, 1995 with the minimum
requirements is presented below.
Minimum
Require-
Actual ments
-------------------------
Tier 1 risk-based capital 13.75% 4.00%
Total risk-based capital 15.12 8.00
Tier 1 leverage ratio 8.53 3.00
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services. In the current interest rate environment, liquidity and the maturity
structure of the Company's assets and liabilities are critical to the
maintenance of acceptable performance levels.
Effect of FASB Statements
The Financial Accounting Standards Board has issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" which becomes effective for years beginning after December 15,
1995. The Statement generally requires long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment is recognized. Management
believes that adoption of this Statement will not have a material effect on the
Company's consolidated financial statements.
<PAGE>
The Financial Accounting Standards Board has issued Statement No. 122
"Accounting for Mortgage Servicing Rights" which becomes effective for years
beginning after December 15, 1995. This Statement amends FASB Statement No. 65
"Accounting for Certain Mortgage Banking Activities" to require that an entity
recognize as separate assets rights to service mortgage loans for others,
however those rights are acquired. An entity that acquires mortgage servicing
rights retained should allocate the total cost of the mortgage loans to the
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. If it is not practicable to estimate the fair values separately,
the entire cost of purchasing or originating the loans should be allocated to
the mortgage loans (without the mortgage servicing rights) and no cost should be
allocated to the mortgage servicing rights. This Statement also requires that an
entity assess its capitalized mortgage servicing rights for impairment based on
the fair value of those rights. Neither the Company nor the Banks have addressed
the potential future impact of this Statement on the consolidated financial
statements.
Fourth Quarter Results
In the fourth quarter of 1995, net income was $750,000, compared with $670,000
in the same period of 1994. The net interest income during the fourth quarter of
1995 was $2,539,000 compared with $2,458,000 for the fourth quarter of 1994. The
provision for possible loan losses was $15,000 in the fourth quarter of 1995
versus $20,000 in 1994. Other income totaled $444,000 and $352,000 during the
fourth quarter of 1995 and 1994, respectively. Other operating expenses of
$1,769,000 in the last quarter of 1995 compare with $1,788,000 for the last
quarter of 1994. Income tax expense increased to $449,000 for the final quarter
of 1995 versus $332,000 for the last quarter of 1994.
<PAGE>
IOWA FIRST BANCSHARES CORP.
DIRECTORS AS OF DECEMBER 31, 1995
George A. Shepley Donald R. Heckman
Chairman of the Board, President and Factory Manager - Retired
CEO H.J. Heinz Co.
Iowa First Bancshares Corp.
Chairman of the Board Dean H. Holst
First National Bank of Muscatine Director
Chairman of the Board Iowa First Bancshares Corp.
First National Bank in Fairfield Director, President and CEO
First National Bank in Fairfield
Kim K. Bartling
Director, Senior Vice President, CFO and D. Scott Ingstad
Treasurer, Iowa First Bancshares Corp. Director
Director, Senior Vice President and CFO Iowa First Bancshares Corp.
First National Bank of Muscatine Director, President and CEO
Director First National Bank of Muscatine
First National Bank in Fairfield
Victor G. McAvoy
Roy J. Carver, Jr. President
Chairman of the Board Muscatine Community College
Carver Pump Company
Carl J. Spaeth
Larry L. Emmert President
President Cabe Corporation
Hoffmann, Inc.
Beverly J. White
Craig R. Foss Director and Vice President
President Quality Foundry Co.
Foss, Kuiken, and Gookin, P.C.
OFFICERS AS OF DECEMBER 31, 1995
George A. Shepley Patricia R. Thirtyacre
Chairman of the Board Corporate Secretary
President
CEO Sandra K. Roenfeldt
Internal Audit Manager
Kim K. Bartling
Senior Vice President Teresa A. Carter
Chief Financial Officer Assistant Auditor
Treasurer
<PAGE>
<TABLE>
IOWA FIRST BANCSHARES CORP.
Subsidiary Bank Directors as of December 31, 1995
FIRST NATIONAL BANK OF MUSCATINE FIRST NATIONAL BANK IN FAIRFIELD
<S> <C>
George A. Shepley George A. Shepley
Chairman of the Board, President and CEO Chairman of the Board, President and CEO
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Chairman of the Board Chairman of the Board
First National Bank of Muscatine First National Bank of Muscatine
Chairman of the Board Chairman of the Board
First National Bank in Fairfield First National Bank in Fairfield
D. Scott Ingstad Dean H. Holst
Director Director
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Director, President and CEO Director, President and CEO
First National Bank of Muscatine First National Bank in Fairfield
Kim K. Bartling Kim K. Bartling
Director, Senior Vice President, CFO Director, Senior Vice President,
and Treasurer CFO and Treasurer
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Director, Senior Vice President & CFO Director, Senior Vice President & CFO
First National Bank of Muscatine First National Bank of Muscatine
Director Director
First National Bank in Fairfield First National Bank in Fairfield
Larry L. Emmert Stephen R. Cracker
President Director, Executive Vice President
HOFFMANN, Inc. First National Bank in Fairfield
Donald R. Heckman Craig R. Foss
Factory Manager - Retired Attorney at Law
H.J. Heinz Co. Foss, Kuiken & Gookin PC
Victor G. McAvoy Thomas S. Gamrath
President Vice President & Treasurer
Muscatine Community College Gamrath-Doyle & Associates, Inc.
Carl J. Spaeth Charles A. Handy, DDS
President
Cabe Corporation Donald L. Johnson
Farmer
Beverly J. White
Director and Vice President H. Roy Lamansky
Quality Foundry Co. Jefferson County Board of Supervisors
Marvin L. Nelson
President
The Nelson Company, Inc.
</TABLE>
IOWA FIRST BANCSHARES CORP.
300 East Second Street
Muscatine, Iowa 52761
PHONE (319) 263-4221
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Iowa First Bancshares Corp., an Iowa
corporation, will be held at the corporate offices of the Company and its
subsidiary, First National Bank of Muscatine, Muscatine, Iowa, on Thursday,
April 18, 1996, beginning at 2:00 p.m. in order to:
1. Elect four Directors for terms of three years each.
2. Transact any other business which may be properly brought before the
meeting or any adjournment of the meeting.
Common stockholders of record as of the close of business on March 15, 1996, are
entitled to vote at the meeting.
Even if you plan to attend the meeting, we encourage you to sign and return the
enclosed proxy. If you are unable to attend the meeting because of illness or
any other reason, your vote will still be cast. If you do attend the meeting,
your proxy will automatically be suspended if you elect to vote in person.
We encourage your attendance at this meeting. The Officers and Directors want to
keep you, one of the owners of the Company, informed of its activities and
progress.
/s/ George A. Shepley
-------------------------
March 22, 1996 George A. Shepley
Chairman of the Board,
President, and
Chief Executive Officer
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE, AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. IT IS IMPORTANT THAT
PROXIES BE RETURNED PROMPTLY.
PROXY STATEMENT
General Information Concerning the Solicitation of Proxies
This proxy statement is furnished on March 22, 1996, in connection with the
solicitation by the Board of Directors of the proxies in the accompanying form.
A shareholder who gives a proxy may revoke it at any time prior to its exercise
by filing with the Corporate Secretary a written revocation or a duly executed
proxy bearing a later date. The proxy will be suspended if the shareholder is
present at the meeting and elects to vote in person.
As of March 15, 1996, 570,463 shares of common stock were outstanding, each of
which is entitled to one vote at the meeting. Only shareholders of record as of
the close of business on March 15, 1996 will be entitled to notice of and to
vote at the meeting.
The affirmative vote of the holders of a majority of the outstanding shares
entitled to vote is required for adoption of motions and resolutions, except
that changes in voting rights, removal of Directors, amendments to the Articles
of Incorporation, and approval of mergers, consolidations, or partial
liquidations require the affirmative vote of the holders of two-thirds of the
outstanding shares entitled to vote.
<PAGE>
Beneficial Owners of Common Stock
The following table sets forth information as of February 29, 1996, with respect
to any person who is known to the Company to be the beneficial owner of more
than 5 percent of the Company's common stock.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- --------------------- ---------
Carl J. Spaeth 57,630 (*) 10.10%
1630 Fifth Avenue
Moline, Illinois
George A. Shepley 34,639 (**) 6.07%
34 Colony Drive
Muscatine, Iowa
(*) Includes 31,350 shares as beneficially owned by Mr. Spaeth because the
Company's management believes he has the power to exercise investment decisions
with respect to such shares.
(**) Includes 34,279 shares as beneficially owned by Mr. Shepley because the
Company's management believes he has the power to exercise investment decisions
with respect to such shares.
The beneficial ownership, including exercisable but not yet exercised stock
options, of current, continuing and nominated Directors is set out in the table
on the following page. All current Directors and Executive Officers as a group
own beneficially 138,413 shares, which constitutes 24.3 percent of the class.
Election of Directors
At the annual meeting, shareholders will be asked to elect four Directors to
hold office for terms of three years each.
The Board of Directors and management recommend the election of the four
nominees listed herein. The named proxies intend to vote for the election of the
nominees. If, at the time of the meeting, any of such nominees is unable or
declines to serve, the discretionary authority provided in the proxy will be
exercised to vote for a substitute or substitutes, unless otherwise directed.
The Board of Directors has no reason to believe that any substitute nominee or
nominees will be required.
Information Concerning Nominees for Election as Directors
The Board of Directors presently consists of eleven Directors divided into three
classes, with four Directors in two classes and three Directors in one class.
Directors of one class are elected each year to hold office for a three-year
term, until their successors are duly elected and qualified, or until their
earlier resignation or removal. The terms of office of the current Class II
Directors will expire on the election of the Directors at the 1996 annual
meeting of shareholders.
The shareholders will be asked to elect each of the four Class II nominees
listed herein for terms of three years or until a successor is elected and
qualified or until his or her earlier resignation or removal. If all nominees
are elected they will fill all but one of the current twelve Directorships with
the intent that the vacancy be filled by the Board of Directors as provided in
the By-laws when the Board deems such action advisable. The Board of Directors
has not selected a nominee for the vacancy, and will not present a candidate for
the vacancy at the annual meeting.
Certain information is set out below and on the following page with respect to
the four persons nominated by the Board of Directors to serve as Directors and
with respect to the Directors continuing in office for terms expiring in 1997
and 1998. All nominees are currently Directors of the Company.
<PAGE>
IOWA FIRST BANCSHARES CORP.
DIRECTORS
<TABLE>
As of February 28, 1996
Common Stock
-----------------------
Amount and
Position(s) Nominated Nature of Percent
Held with Director For Term Beneficial of
Nominees the Company Age Since Expiring Ownership Class
- -------- ----------- --- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Foss Director 46 1994 1999 820 *
Donald R Heckman Director 57 1984 1999 6,020 1.06%
D. Scott Ingstad Director, President and CEO, First National
Bank of Muscatine 45 1990 1999 5,764 1.01%
Beverly J. White Director 56 1988 1999 6,008 1.05%
Continuing Term
Directors Expires
- ---------- -------
Kim K. Bartling Director. Senior Vice President, Chief Financial
Officer, and Treasurer 38 1994 1997 9,435 1.65%
Roy J. Carver, Jr. Director 52 1989 1998 7,468 1.31%
Larry L. Emmert Director 54 1993 1997 3,650 *
Dean H. Holst Director. President and CEO, First National
Bank in Fairfield 56 1985 1998 5,929 1.04%
Dr. Victor G. Director 52 1994 1998 1,050 *
McAvoy
George A. Shepley Chairman of the Board, President and CEO 73 1983 1997 34,639 6.07%
Carl J. Spaeth Director 78 1984 1997 57,630 10.10%
</TABLE>
* Less than 1 percent of the outstanding stock of the Company.
Shares listed as beneficially owned include vested, but unexercised, options to
purchase shares of the Company's stock and, for Directors who are also officers
of the Company, shares held in the Company's retirement plan for the benefit of
such individuals.
The business experience of each nominated and continuing Director is set forth
in the following section. All Directors have held their present position for at
least five years unless otherwise indicated.
Craig R. Foss. Mr. Foss has been President and a shareholder of the law firm of
Foss, Kuiken, and Gookin, P.C., Fairfield, Iowa, since 1979.
Donald R. Heckman. Mr. Heckman is currently retired. Mr. Heckman had been
Factory Manager of the H. J. Heinz Co. plant located in Muscatine, Iowa, 1973 to
February 1995. This plant produces and warehouses various consumer products
including ketchup, gravy and various sauces.
D. Scott Ingstad. Mr. Ingstad has served as President and CEO of First National
Bank of Muscatine since 1990. Prior to joining the Company, Mr. Ingstad was
Senior Vice President/ Senior Loan Officer, First National Bank and Trust
Company, Columbia, Missouri, 1989 to 1990 and President and CEO, Commerce Bank
of Harrisonville, NA, Harrisonville, Missouri, 1986 to 1989. Mr. Ingstad is also
a Director of the Company.
Beverly J. White. Mrs. White has served as a Director of Quality Foundry Co.
since 1993 as well as Vice President beginning in 1996. Quality Foundry Co. is a
grey iron foundry specializing in semi-steel castings. Mrs. White also served as
Executive Vice President of Muscatine Development Corporation and Muscatine
Chamber of Commerce from 1990 to 1991 and as a Director of Muscatine Development
Corporation from 1989 to 1990.
<PAGE>
Kim K. Bartling. Mr. Bartling has served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company since 1988 as well as serving the
lead subsidiary bank in similar capacities. Prior to serving in these positions.
Mr. Bartling served as Vice President/Finance of the Company and First National
Bank of Muscatine since 1987. Mr. Bartling joined the Company in 1985 as
Internal Auditor after three years of experience in public accounting. Mr.
Bartling is also a Director of the Company.
Roy J. Carver, Jr. Mr. Carver has been Chairman of Carver Pump Company, a
manufacturer of industrial pumps used in military and civilian applications,
since 1981. Mr. Carver is also a Director of Bandag, Incorporated, and Met Coil
Systems, Inc. which have classes of securities registered with the Securities
and Exchange Commission.
Larry L. Emmert. Mr. Emmert has been President of Hoffman, Inc., a general
building contractor located in Muscatine, Iowa, since 1981.
Dean H. Holst. Mr. Holst has served as President and CEO of First National Bank
in Fairfield since 1985, prior to which he served as Vice President from 1973 to
1985. Mr. Holst is also a Director of the Company.
Victor G. McAvoy. Dr. McAvoy has served as President of Muscatine Community
College and Vice-Chancellor of the Eastern Iowa Community College District since
1986.
George A. Shepley. Mr. Shepley has been President of the Company since 1989 as
well as Chairman of the Board and CEO of the Company since 1983. He has served
as Chairman of the Board, 1987 to present, President, 1963 to 1989, First
National Bank of Muscatine and Chairman of the Board, 1986 to present, First
National Bank in Fairfield.
Carl J. Spaeth. Mr. Spaeth has been President of Cabe Corporation, an investment
company located in Moline, Illinois, since 1964.
Officers and Directors of the Company and its subsidiaries have had, and may
have in the future, banking transactions in the ordinary course of business of
the Company's subsidiaries. All such transactions are on substantially the same
terms, including interest rates on loans and collateral, as those prevailing at
the time for comparable transactions with others, involve no more than the
normal risk of collectibility, and present no other unfavorable features.
Meetings and Committees of the Board of Directors
The Board of Directors held twelve regular meetings and no special meetings
during the last fiscal year. All incumbent Directors attended at least 75% of
the Board of Directors meetings held after each Director was duly elected and
qualified. The annual retainer that each outside Director received in 1995 was
$4,800 plus $100 for each committee meeting attended. Executive officers who
also serve on the Board of Directors do not receive such retainer or committee
fees.
The Company has committees of the Board of Directors, which meet on and "as
needed" basis, to deal with strategic planning, human resource and retirement
plan issues, audit matters, and nominations to the Board. Most of the duties and
responsibilities with which these committees are charged were assumed by the
full Board of Directors in 1995. In future years the Company may utilize the
established committees to a larger extent.
The committee charged with administering the Iowa First Bancshares Corp.
Employee Stock Ownership Plan met three times during 1995. This committee
consisted of Mr. Spaeth (Chairperson), Mr. Bartling, Mr. Emmert, and Mrs. White.
Compensation Committee Report
The Human Resource Committee serves as the Company's compensation committee. The
Committee policy is to seek to provide fair and competitive compensation,
encourage the retention of highly qualified individuals and enhance shareholder
value by encouraging increased profitability of the Company. This policy is
intended to align the financial interest of the Company's and subsidiary banks'
officers (including executive officers) with those of the shareholders, as well
as to create an atmosphere which recognizes the contribution and performance of
each officer. In addition to merit-based promotions, the essential components of
the compensation policy for the Company's executive officers are base
compensation, bonuses and stock option awards.
<PAGE>
The Committee considers many factors when determining compensation levels for
executive officers. These factors include the extent to which each executive
officer contributes to enhancement of shareholder value and comparisons of the
Company's compensation of executive officers to the compensation paid to
executive officers by other companies in the banking industry, including peer
groups. The Committee also considers the extent to which each executive officer
contributes to attainment of earnings targets for the Company and each
subsidiary. Other factors include the executive officer's contribution to return
on average assets and return on average equity, contribution to the profitable
growth of the Company, and contribution to improvements in quality of assets
and, thus, quality of earnings.
In determining the base compensation of the executive officers for 1995, the
Committee considered all of the aforementioned factors, including the Company's
strong earnings performance and an average salary increase at the subsidiary
banks of approximately 3%-4%.
In determining the compensation level for the Chief Executive Officer, the
Committee specifically reviews trends in the Company's return on average assets
and equity. It looks at the overall return to shareholders, including dividends
paid and changes in the fair market value of the Company's stock. The Committee
also assesses the CEO's effectiveness in leadership and communication skills, as
demonstrated by the level at which the subsidiary banks attain their targets for
earnings and asset quality, and the effectiveness of the strategic and operating
planning process, which the CEO leads. During 1994, the Company's earnings
before the cumulative effect of a change in accounting principle, increased
approximately 7.8%, earnings per share increased 4.7%, total shareholder return
was over 18.5%, and Company debt was reduced $1.3 million. Additionally, asset
quality, as measured by nonaccrual loans and loans past due 90 days or more,
improved with a decrease of $446,000 (24%) in these categories. This report
submitted by the Human Resource Committee: Beverly J. White, Chairperson
Larry L. Emmert
Carl J. Spaeth
Management Compensation
The following table sets forth the remuneration paid or accrued for the past
three years by the Company and its subsidiaries to the highest paid executive
officers whose 1995 cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
------------------------------- ---------------------------- -------
Name and Principal Other Annual Restricted Stock Options or LTIP All Other
Position Year Salary Bonus Compensation Awards SARs Payouts Compensation
$ $ $ $ # $ $ (1)
- ------------------ ---- ------- ------ ------------ ---------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George A. Shepley ................ 1995 190,009 28,026 -- -- -- -- 12,677
Chairman, President and .......... 1994 184,475 24,443 -- -- -- -- 16,727
CEO .............................. 1993 178,005 24,295 -- -- -- -- 18,747
D. Scott Ingstad ................. 1995 134,380 17,469 -- -- -- -- 12,432
Director of the Company; ........ 1994 130,380 12,712 -- -- -- -- 14,979
President and CEO, First ......... 1993 117,028 15,948 -- -- -- -- 14,584
National Bank of Muscatine
Dean H. Holst .................... 1995 106,912 13,765 -- -- -- -- 10,256
Director of the Company; ........ 1994 105,113 12,876 -- -- -- -- 13,126
President and CEO, First ......... 1993 97,850 12,598 -- -- -- -- 10,855
National Bank in Fairfield
Kim K. Bartling (2) .............. 1995 90,045 12,494 -- -- -- -- 8,594
Director of the Company;
Senior Vice President,
Chief Financial Officer and
Treasurer of the Company
<FN>
(1) Includes contributions to the employee stock ownership plan with 401(k)
provisions.
(2) Mr. Bartling's cash compensation did not exceed $100,000 during 1994 or
1993, thus detailed compensation data is not supplied for those years.
</FN>
</TABLE>
<PAGE>
The salary figures above reflect a change in policy whereby prior to July 1,
1993, executive officers received fees for serving on the Company's and
subsidiaries' Boards of Directors and committees thereof. Beginning July 1,
1993, executive officers of the Company serving on these Boards of Directors and
committees thereof no longer received such fees. Each of the executive officers'
salaries were increased on July 1, 1993 by an amount equivalent to such fees.
Employee Stock Ownership Plan with 401(k) Provisions
The Company sponsors an employee stock ownership plan with 401(k) provisions. An
employee becomes a participant upon completing a minimum period of employment.
Employee contributions up to 6% of total compensation per employee are matched
by the employer at a rate of 50% of the employee contributed amount.
Additionally, the employer may make discretionary contributions to the plan;
total annual contributions cannot exceed the amount that can be deducted for
federal income tax purposes. Participants may direct investment of the funds
they have contributed to their individual accounts under the plan utilizing
several fixed income and equity investment options, one of these options being
common shares of Iowa First Bancshares Corp. All matching and discretionary
contributions made by the Company or its subsidiaries for the participants are
directed for investment in common shares of the Company. Participant (but not
Company) contributions are included in salary in the Summary Compensation Table.
The Company and its subsidiaries contributed a cash total of $261,550 to this
plan for 1995.
Performance Incentive Plans
In addition to base compensation, each executive officer of the Company and the
subsidiaries has specific annual weighted goals which, if attained, will result
in year-end cash performance incentive pay equal to 10% of base pay. The maximum
annual payment under this incentive plan is 15% of base pay for substantially
exceeding the goals established. For the year ended December 31, 1995, amounts
paid or accrued under this incentive plan totaled $116,145 which included
$71,754 for executive officers of the Company as a group. Also, the Company and
subsidiaries have discretionary performance incentive plans covering a majority
of employees. These plans encourage improved efficiency and effectiveness of
employees by increasing remuneration as a direct result of individual and
organizational goal attainment. Payments made or accrued under all performance
incentive plans, including the executive officer plan discussed above, totaled
$234,886 for 1995.
Executive Employment Agreements
In order to advance the interests of the Company by enabling the Company to
attract and retain the services of key executives upon which the successful
operations of the Company are largely dependent, during 1995, the Board of
Directors tendered, effective January 1, 1996, Employment and Change in Control
Agreements to D. Scott Ingstad, Dean H. Holst and Kim K. Bartling.
The Employment Agreements are for a base term of two years and automatically
renew unless 90 days notice of non-renewal is provided to the other party. If an
executive's employment is terminated prior to the expiration of the Agreement or
by the providing of notice of non-renewal, or if the executive is constructively
discharged (for example, as a result of a reduction in responsibilities or
compensation, or other breach of the Agreement by the Company), the executive is
entitled to a severance benefit of : (1) twelve months base pay; (2) any
vacation pay accrued but not yet taken; (3) an amount equal to the annual
average past three years payment under the Performance Incentive Plan; (4)
reimbursement of a portion of medical premiums paid by the executive such that
the same "cost-sharing" basis provided at the date of termination is maintained.
Upon a change in control, as defined, the Change in Control Agreements become
effective. The executive will, under the Agreement, remain employed by the
Company for three years after the effective date or until executive's normal
retirement date (the Employment Term), whichever is earlier. An executive who is
terminated or constructively discharged after a change in control is entitled to
the following for the remainder of the Employment Term: (1) base pay; (2)
payments under the Performance Incentive Plan; (3) perquisites to which the
executive was entitled on the date of the change in control; and (4)
contributions for benefits expected to be made to the Company's retirement
plans.
Supplemental Compensation will also be provided to mitigate the effects of any
excise taxes applicable to executive employment payments. Each executive is
subject to a confidentiality agreement, and if the executive voluntarily
terminates employment prior to a change in control or if executive's employment
is terminated for cause, the executive will be subject to noncompetition and
nonsolicitation agreements.
<PAGE>
Incentive Stock Option and Nonstatutory Stock Option Plan
The Company has an Incentive Stock Option and Nonstatutory Stock Option Plan
(hereinafter "Plan") for senior officers and directors. The purpose of the Plan
is to promote the interests of the Company and its shareholders by strengthening
its ability to attract and retain key officers and directors by furnishing
additional incentives whereby such officers and directors may be encouraged to
acquire, or to increase their acquisition of, the Company's common stock, thus
maintaining their personal and proprietary interest in the Company's continued
success and progress. The Plan is administered by the Human Resource Committee
of the Company. The option price is 100 percent of the fair market value of the
common stock ($27.00 per share) of the Company at the grant date, January 1,
1993. All options granted under the Plan vest ratably over five years and must
be exercised within five years of the grant date. The Company retains Right of
First Refusal on all shares issued pursuant to the Plan.
The following table provides information regarding the number and value of
options granted to the named executive officers. No options were exercised by
such individuals during 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FR-End ($)(1)
Shares Acquired --------------------------- ---------------------------
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George A. Shepley .................. -- $------ 3,600 2,400 $82,800 $55,200
D. Scott Ingstad ................... -- $------ 3,600 2,400 $82,800 $55,200
Dean H. Holst ...................... -- $------ 1,800 1,200 $41,400 $27,600
Kim K. Bartling .................... -- $------ 3,600 2,400 $82,800 $55,200
<FN>
(1) Represents the aggregate market value (market price of the common stock less
the exercise price) of the options granted based upon the appraised price of
$50.00 per share of the common stock on December 31, 1995.
</FN>
</TABLE>
<PAGE>
Comparative Performance By The Company
The following chart compares the performance of the Company's common stock with
(i) the Media General Financial Services, Inc. (MGFS) Index for NASDAQ Stock
Market (U.S. Companies), and (ii) the MGFS Index for the stocks of banks and
bank holding companies located in the West North Central United States which are
listed on the New York Stock Exchange or NASDAQ (representing approximately
thirty-five companies). Most of these companies are considerably larger than
Iowa First Bancshares Corp. The chart assumes an investment of $100 on January
1, 1991, in each of the Company's common stock, the NASDAQ National Market Index
and the stocks in the bank peer group. Each year's performance is for the twelve
months ended December 31. The index level for all series was set to 100.00 on
January 1, 1991. The overall performance assumes dividend reinvestment
throughout the period. The Company's common stock is not listed on any stock
market exchange thus the price used for the Company's common stock in the chart
was the bid price at each year-end as supplied by one of the brokerage firms
which acts a market maker for the Company. Beginning with the year ended
December 31, 1993, the price used for the Company's common stock in the chart is
the greater of the year-end price supplied by one of the Company's market makers
or the appraisal price supplied by an independent appraiser.
The following data points were utilized in preparation of the omitted graph.
<TABLE>
1990 1991 1992 1993 1994 1995
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Iowa First Bancshares Corp. 100 101.38 151.11 227.81 269.68 358.68
Peer Group Index 100 171.08 216.40 241.23 246.24 364.81
Nasdaq Market Index 100 128.38 129.64 155.50 163.26 211.77
</TABLE>
Assumes $100 invested on January 1, 1991. Assumes dividends reinvested
Independent Auditors
Representatives of McGladrey & Pullen, LLP, independent auditors for the
Company, will be present at the annual meeting, will have an opportunity to make
any statement they desire, and will be available to respond to appropriate
questions.
Deadline for Shareholder Proposals for 1997 Annual Meeting
Proposals by shareholders intended to be presented at the 1997 annual meeting
must be received at the Company's executive offices no later than November 23,
1996, to be included in the proxy statement and proxy form.
Deadline for Shareholder Nominations of Directors for 1997 Annual Meeting
Proposals by shareholders for vacant directorships intended to be presented at
the 1997 annual meeting must be received at the Company's executive offices no
later than November 23, 1996, to be included in the proxy statement and proxy
form.
General
The entire cost of soliciting proxies for the annual meeting is paid by the
Company. No solicitation other than by mail is contemplated.
The Board of Directors knows of no other matters which will be brought before
the meeting, but, if other matters properly come before the meeting, the persons
named in the proxy intend to vote the proxy according to their best judgment.
On written request to the undersigned at 300 East Second Street, Muscatine, Iowa
52761, the Company will provide, without charge to the shareholder, a copy of
its Annual Report on Form 10-K, including financial statements and schedules,
filed with the Securities and Exchange Commission for its most recent fiscal
year.
Information set forth in this proxy statement is as of March 15, 1996, unless
otherwise dated.
/s/ George A. Shepley
------------------------------------
March 22, 1996 George A. Shepley
Chairman of the Board, President and
Chief Executive Officer
EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT
First National Bank of Muscatine, a National Banking Association
First National Bank in Fairfield, a National Banking Association
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE DECEMBER
31, 1995 FORM 10-K OF IOWA FIRST BANCSHARES CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,963
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,728
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 171,651
<ALLOWANCE> 2,309
<TOTAL-ASSETS> 272,830
<DEPOSITS> 235,953
<SHORT-TERM> 8,339
<LIABILITIES-OTHER> 2,107
<LONG-TERM> 3,398
0
0
<COMMON> 200
<OTHER-SE> 22,833
<TOTAL-LIABILITIES-AND-EQUITY> 272,830
<INTEREST-LOAN> 14,644
<INTEREST-INVEST> 3,709
<INTEREST-OTHER> 589
<INTEREST-TOTAL> 18,942
<INTEREST-DEPOSIT> 8,727
<INTEREST-EXPENSE> 9,051
<INTEREST-INCOME-NET> 9,891
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 6,877
<INCOME-PRETAX> 4,545
<INCOME-PRE-EXTRAORDINARY> 3,050
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,050
<EPS-PRIMARY> 5.14
<EPS-DILUTED> 5.11
<YIELD-ACTUAL> 4.28
<LOANS-NON> 883
<LOANS-PAST> 111
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,526
<CHARGE-OFFS> 438
<RECOVERIES> 176
<ALLOWANCE-CLOSE> 2,309
<ALLOWANCE-DOMESTIC> 2,309
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
