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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-24630
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MAHASKA INVESTMENT COMPANY
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42-1003699
Incorporated in Iowa I.R.S. Employer Identification No.
222 FIRST AVENUE EAST, OSKALOOSA, IOWA 52577
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Registrant's telephone number, including area code: 515-673-8448
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5 par value
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. Yes X 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 the 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 7, 1997, was $28,917,925.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the most recent practicable date, March 7, 1997.
2,230,539 shares Common Stock, $5 par value
DOCUMENTS INCORPORATED BY REFERENCE
The Annual Report to Shareholders for the 1996 calendar year is
incorporated by reference into Part I and Part II hereof to the extent indicated
in such Parts.
The definitive proxy statement of Mahaska Investment Company is
incorporated by reference into Part III hereof to the extent indicated in such
Part.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
A. General Description...................................... 1
B. Subsidiaries............................................. 1
C. Loan Pool Participations................................. 2
D. Competition.............................................. 5
E. Supervision and Regulation............................... 5
F. Employees................................................ 7
G. Statistical Disclosure................................... 8
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 8. Financial Statements and Supplementary Data................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 17
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 17
Item 13. Certain Relationships and Related Transactions.............. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 18
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PART I
ITEM 1. BUSINESS
A. GENERAL DESCRIPTION
Mahaska Investment Company (the "Company") is a financial services holding
company headquartered in Oskaloosa, Mahaska County, Iowa. The Company was
incorporated in Iowa in 1973 and is a bank holding company registered under the
Bank Holding Company Act of 1956 and a savings and loan holding company under
the Savings and Loan Holding Company Act. The Company owns 100% of the stock of
Mahaska State Bank (the "Bank"), Central Valley Bank ("the Thrift"), and MIC
Leasing Co. ("Leasing").
The Bank and the Thrift engage in retail and commercial banking and related
financial services, providing the usual products and services such as deposits,
commercial, real estate, and consumer loans, and trust services. The Bank also
provides data processing services to affiliated and non-affiliated banks.
Leasing provides equipment leasing and accounts receivable financing.
Since 1988, the Company, either directly or through the Bank or the Thrift,
has invested in loan pool participations that have been purchased by certain
non-affiliated independent service corporations (collectively, the "Servicer")
from the Federal Deposit Insurance Corporation ("FDIC"), the Resolution Trust
Corporation ("RTC"), or from other sources. These loan pool investments
generally consist of distressed or nonperforming loans, that have been sold at
prices reflecting varying discounts from the aggregate outstanding principal
amount of the underlying loans depending on the credit quality of the portfolio.
The Servicer then proceeds to collect these loans from the borrowers.
The Company provides services to the Bank and the Thrift including
management assistance, auditing services, preparation of tax returns, assistance
with respect to accounting and operating systems and procedures, and loan
review. Charges for these services are based on the nature and extent of these
services.
B. SUBSIDIARIES
Mahaska State Bank -- The Bank is a full-service, commercial bank which was
chartered as an Iowa state bank in 1931. The Bank operates in south central Iowa
and serves all of Mahaska county from its main bank and two branch offices in
Oskaloosa and serves portions of Keokuk and Iowa counties from its branch office
in North English. The Bank also maintains one drive-up automated teller machine
located in Oskaloosa. The Bank provides a wide array of retail and commercial
banking services, including demand, savings and time deposits, loans, trust
services, and data processing services to the Thrift and to three non-affiliated
banks. The Bank also provides full-service brokerage services to its customers
through an affiliation with an independent broker.
Central Valley Bank -- The Thrift is a full-service, federally-chartered
savings bank which was formed as a de novo institution by the Company in June
1994. The Thrift also operates in south central Iowa from its main office in
Ottumwa, which serves Wapello County, and from its two branches located in
Fairfield and one branch in Sigourney, which serve Jefferson and Keokuk
counties, respectively. On June 21, 1996, the Thrift assumed the deposits and
purchased the loans of the Boatmen's Bank Iowa, N.A. ("Boatmen's) office in
Sigourney, Iowa. This transaction effectively doubled the size of the
subsidiary. The Thrift provides retail deposit services including demand,
savings, and time deposit products and offers commercial, agricultural, real
estate, and consumer loans.
MIC Leasing Co. -- Leasing is an Iowa corporation which was formed by the
Company in 1974 and is currently doing business under the name of On-Site
Commercial Services. Leasing originates and services machinery and equipment
leases to small businesses and farmers. The funding of these leases is either
provided by the Bank, with Leasing receiving a broker fee, or by Leasing
directly. Leasing also provides accounts receivable financing and factoring
services to small businesses in and around the Oskaloosa area.
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C. LOAN POOL PARTICIPATIONS
The Company, directly and through the Bank and the Thrift, has
participation interests in pools currently held and serviced by three separate
independent servicing corporations (referred to collectively as the "Servicer").
The three independent servicing corporations are Central States Resources
Corporation, Midstates Resources Corporation, and All States Resources
Corporation. The Company does not have any ownership interest in or control over
these servicing corporations. The independent servicing corporations are owned
by Randal Vardaman and Nyle Johnson. Mr. Vardaman has been engaged in credit
analysis and loan portfolio management in various positions since 1970. He
founded Central States Resources Corporation in 1988 and organized Midstates
Resources Corporation in 1991 and All States Resources Corporation in 1993.
Prior to the formation of the servicing corporations, he reviewed various FDIC
loan pool packages, participated in the liquidation of certain banking
institutions in Iowa, and served as assistant liquidator at the FDIC's Division
of Liquidation. Mr. Johnson has served as credit supervisor with the servicing
corporations since their inceptions. Prior thereto, he served as section chief
of commercial loans for the FDIC Division of Liquidation.
The Company has invested in loan pools purchased by the Servicer at deep
discounts from the aggregate outstanding principal amount of the underlying
loans. The loan pools were sold by the FDIC or the RTC acting as conservator,
receiver, or liquidator of failed banks and savings and loan institutions, and
by other large nonaffiliated banking organizations. The loans comprising the
pools were originated throughout the United States. As part of the agreement to
purchase participation interests in the loan pools, the Company and its
subsidiaries have contracted with the Servicer to service the underlying loans
within the respective loan pools which are owned of record by the Servicer. The
Servicer also evaluates various loan pools prior to purchase and makes
recommendations to the Company concerning the creditworthiness of proposed loan
pool purchases and proposes appropriate bids to the Company and any other
potential pool participants.
The Servicer has bid on loan pools from various regional offices of the
FDIC and the RTC, and from other sources. The Company, the Bank, and the Thrift
have purchased participation interests in such pools. The purchase prices paid
by the Company for loan pool participations have ranged from 5.5% to 85.0% of
the aggregate outstanding principal amount of the loans comprising such pools at
the time of purchase. The Servicer acquires the loan pools without recourse
against the sellers and, accordingly, the risk of noncollectibility is, for the
most part, assumed by the Company and any other investors in a particular pool.
Although only the FDIC currently offers loan pools, there is no assurance
that it will continue to do so. Federal law mandated that after July 1, 1995,
the RTC no longer was appointed to act as conservator or liquidator and was
phased out of existence by year end 1995; however, the FDIC assumed the RTC's
role with respect to failed savings and loans, as well as continuing in its role
as conservator for failed banks. Beginning in 1996, the Servicer successfully
bid on packages of loans offered for sale by a large banking organization
headquartered in the eastern United States. Should the opportunity to invest in
loan pools not exist in the future, the Company intends to invest available
funds in other income producing assets.
Each pool has a different composition and different characteristics. The
composition of a loan pool is generally determined by the seller based on its
desire to maximize the price it receives for all loans among the various pools.
Some pools may consist of a large number of small consumer loans which are
unsecured or are secured by other assets such as automobiles or mobile homes,
while other pools may consist of loans primarily secured by real estate, and yet
other pools may consist of small to medium balance commercial loans. Still other
pools may contain a mixture of such loans and other types of loans. Some pools
may contain significant numbers of past-due nonperforming loans while other
pools are comprised almost entirely of performing loans. The price bid and paid
for such a loan pool is determined based on the composition of the particular
pool, the amounts the Servicer believes can be collected on such a pool, and the
risks associated with the collection of such amounts.
In considering an investment in a loan pool, the Servicer will evaluate
loans owned and being offered and make recommendations to the Company and other
prospective investors concerning the creditworthiness of the proposed loan pool
purchase. The Servicer performs a comprehensive analysis of the loan pool in an
attempt to ensure proper valuation and adequate safeguards in the event of
default. The bid price on the loan
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pools will be reflective of the results of the Servicer's pre-acquisition review
of the loan files. In many cases the loan files may not be current and
substantial uncertainties may exist regarding the collectibility of the various
loans in the pool. Management believes that in many instances the non-current
loans can be brought current once the Servicer has an opportunity to contact the
debtor. The Company makes its own decisions as to whether or not to participate
in a particular loan pool which has been recommended by the Servicer, based on
the Company's experience with the various categories and qualities of loans.
The sales of loan pools by the FDIC and by other sellers is generally
conducted by sealed bid auction. A sealed bid auction requires each bidder to
submit a confidential bid on the subject loan pool and the loan pool is awarded
to the highest bidder. In recent years, the Servicer and the Company have faced
increasing competition in bidding for loan pools.
Since 1988, the Servicer, on behalf of the Company and other investors, has
bid on a large number of loan pools and has been successful in purchasing 52
loan pools. The Company and other investors in the loan pools fund the purchase
by the Servicer and each investor receives a percentage interest in the loan
pool based on its proportional investment relative to the total purchase price
of the pool. Each investor receives a loan pool participation certificate
reflecting this interest.
The purchased loan pools consist, for the most part, of loans evidenced by
promissory notes and secured by either personal property or real property. The
value of the collateral may range from nominal to substantial and often may be
impossible to establish prior to acquisition of the pools with the level of
certainty that is typically required in a financial institution.
Upon the acquisition of a participation interest in a loan pool, the
Company assumes the risk that the Servicer will be unable to recover an amount
equal to the purchase price plus the carrying costs, if any, collection costs
and expected profits on such accounts. The extent of such risk is dependent on a
number of factors, including the Servicer's ability to locate the debtors, the
debtors' financial condition, the possibility that a debtor may file for
protection under applicable bankruptcy laws, the Servicer's ability to locate
the collateral, if any, for the loan and to obtain possession of such
collateral, the value of such collateral, and the length of time it takes to
realize the ultimate recovery either through collection procedures or through a
resale of the loans following a restructure.
Loan pool participations are shown on the Company's balance sheet as a
separate asset category. The original carrying value of loan pool participations
represents the discounted price paid by the Company to acquire its participation
interests in various loan pools purchased by the Servicer. The Company's
investment balance is reduced as the Servicer collects principal payments on the
loans and remits the proportionate share of such payments to the Company.
A cost "basis" is assigned to each individual loan acquired on a cents per
dollar (discounted price) based on the Servicer's assessment of the recovery
potential of each such loan. This methodology assigns a higher basis to
performing loans with greater potential collectibility and a lower basis to
those loans identified as having little or no collectibility.
The investment in loan pools is accounted for on a nonaccrual (or cash)
basis in one of three methods, depending on the circumstances. First, if a
borrower makes regular payments on a loan, the payment received is first applied
to interest income in the amount of interest due at the contract rate. Further
payments are applied to principal in a ratio reflecting the proportion of cost
basis to loan principal amount. Payments in excess of interest and this ratio
are recorded as discount income. Discount income earned over the life of a loan
represents loan principal collected in excess of the price originally paid to
acquire the loan from the FDIC, the RTC, or any other sellers, which price
constitutes the cost "basis" of the loan.
Secondly, if the borrower fails to make regular payments, the Servicer
evaluates the collateral supporting the loan. If the Servicer determines that
the loan is well secured, then payments are applied as previously described. If
the Servicer determines that the collateral is deficient, payments are applied
to the principal balance of the loan with no recognition of interest due. The
cost recovery method governs the application of payments received to the
outstanding principal balance. Under this method, any amount received is
initially applied to the cost "basis" of the loan and any additional amounts
received are recognized as discount income.
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Third, where the Servicer negotiates a settlement of a loan for a lump sum,
the payment is first applied to principal to the extent of the assigned cost
"basis" with the excess treated as discount income up to the original principal
value of the loan, and any remainder is treated as interest income on loan pool
participations. In each case, where changed circumstances or new information
lead the Servicer to believe that collection of the note or recovery of the
basis through collateral would be less than originally determined, the cost
basis assigned to the loan is written down or written off through a charge
against discount income.
Collection expenses incurred by the Servicer are netted against discount
income. Discount income is added to interest income and reflected as one amount
on the Company's consolidated statement of income. Profit (or loss) from
collection activities is determined on a monthly basis for each servicing
corporation from which loan pool participation interests have been purchased.
The Company does not recognize as income any accrued interest receivable on
the loan pools. Interest income is only recognized when collected and actually
remitted to the Company by the Servicer. Many of the pools that have been
purchased by the Servicer do not include purchased interest in the cost basis;
thus, interest collected does not have a cost basis and represents profit.
Interest income collected by the Servicer is reflected in the Company's
financial statements as interest income included as part of interest income and
discount on loan pool participations.
The Servicer provides the Company with monthly reports detailing
collections of principal and interest, face value of loans collected and those
written off, actual operating expenses incurred, remaining asset balances (both
in terms of cost basis and principal amount of loans), a comparison of actual
collections and expenses with target collections and budgeted expenses, and
summaries of remaining collection targets. Monthly meetings are held between the
Company and representatives of the Servicer to review collection efforts and
results, to discuss future plans of action, and to discuss potential
opportunities. Additionally, the Company's and the Servicer's personnel
communicate via telephone and telecopy on a regular basis to discuss various
issues regarding the loan pools. Company management personnel visit the
Servicer's operation in Omaha, Nebraska on a regular basis; and the Company's
internal auditor has performed audit procedures in recent years.
The Servicer is reimbursed for costs incurred to collect loan principal and
interest, which are netted against loan principal and interest collections.
These costs include salary and benefits paid by the Servicer to its employees,
legal fees, and other overhead expenses. Each loan pool investment is tracked on
an individual basis with the Servicer receiving a "Servicing Fee" of up to
twenty-five percent of net interest collected based on the percentage of net
loan principal collections to the original investment amount. Once the original
investment amount has been fully recovered, the Servicer is no longer entitled
to the Servicing Fee. In lieu of the Servicing Fee, the Servicer receives a
"Bonus Fee" of ten percent of all subsequent net collections and receives a
twenty-five percent participation interest in the individual pool and shares
proportionally in all future collections, net of costs and Bonus Fees.
The Company's overall cost basis in its loan pool participations represents
a deep discount from the aggregate outstanding principal amount of the loans
underlying the pools. For example, as of December 31, 1996 and 1995, such cost
basis was $50,687,000 and $45,318,000, respectively, while the contractual
outstanding principal amounts of the underlying loans as of such dates were
approximately $99,888,000 and $87,976,000, respectively. Because this discounted
cost basis inherently reflects the assessed collectibility of the underlying
loans and thus creates a built-in reserve against the risk of nonpayment in the
loan pools, the Company is not required to establish any allowance for loan
losses relating to the loan pool participations. The Company does not include
any amounts related to the loan pool participations in its totals of
nonperforming loans.
The underlying loans in the loan pool participations include both fixed
rate and variable rate instruments, but are accounted for on a nonaccrual basis,
and no amounts for interest due are reflected in the carrying value of the loan
pool participations. Based on historical experience, the average period of
collectibility for loans underlying the Company's loan pool participations, many
of which have exceeded contractual maturity dates, is approximately three to
five years. Management has reviewed the recoverability of the underlying loans
and
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believes that the carrying value does not exceed the net realizable value of its
investment in loan pool participations.
D. COMPETITION
The Company competes in the commercial banking and thrift industries
through its subsidiaries, the Bank and the Thrift. These industries are highly
competitive, and both the Bank and Thrift face strong direct competition for
deposits, loans, and other financial-related services. The Bank and the Thrift
compete in Mahaska, Wapello, Keokuk, Iowa, and Jefferson counties in south
central Iowa with other commercial banks, other thrifts, credit unions,
stockbrokers, finance divisions of auto and farm equipment companies,
agricultural suppliers, and other agricultural-related lenders. Some of these
competitors are local, while others are statewide or nationwide. The Bank and
the Thrift compete for deposits principally by offering depositors a wide
variety of deposit programs, convenient office locations, hours and other
services, and for loan originations primarily through interest rates and loan
fees they charge, the efficiency and quality of services they provide to
borrowers and the variety of their loan products. Some of the financial
institutions and financial service organizations with which the Bank and the
Thrift compete are not subject to the same degree of regulation as that imposed
on bank and thrift holding companies, federally insured Iowa-chartered banks,
and federal savings banks. As a result, such competitors have advantages over
the Bank and the Thrift in providing certain services. As of December 31, 1996,
approximately twenty commercial banks, three thrifts, and seven credit unions
operated within a 25-mile radius of Oskaloosa, and new competitors may develop
that are substantially larger and have significantly greater resources than
either the Bank or the Thrift. Currently, major competitors in certain of the
Company's markets include banking subsidiaries of Norwest Corporation, Firstar
Corporation of Iowa, Mercantile Bank, and Boatmen's Banchares (soon to be
NationsBank). As a result of recently passed federal legislation to allow
unlimited interstate branching, the Company may experience heightened
competition from these and other major financial institutions seeking to expand
their regional banking presence in Iowa.
The Company also faces competition with respect to its investments in loan
pool participations. The Company's financial success to date is largely
attributable to the Servicer's ability to determine the loan pools to bid on and
ultimately purchase, the availability of assets to fund the purchases and the
Servicer's ability to collect on the underlying assets. Investments in loan
pools have become increasingly popular in recent years, leading financial
institutions and other competitors to become active at loan pool auctions
conducted by the FDIC and other sellers. There is no assurance that the Company,
through the Servicer, will be able to bid successfully in the future. Certain
existing competitors of the Company are substantially larger and have
significantly greater financial resources than the Company. Increased
participation by new institutions or other investors may also create increased
buying interest which could also result in higher bid prices for the type of
loan pools considered for investment by the Company. In addition, new and
existing competitors may develop due diligence procedures comparable to the
Servicer's procedures. The emergence of such competition could have a material
adverse effect on the Company's business and financial results.
E. SUPERVISION AND REGULATION
Bank holding companies, banks, savings and loan holding companies, and
savings and loan associations are extensively regulated under federal and state
law. References under this heading to applicable statutes or regulations are
brief summaries of the portions thereof which do not purport to be complete and
which are qualified in their entirety by reference to those statutes and
regulations. Any change in applicable laws or regulation may have a material
adverse effect on the business of the Company, the Bank, and the Thrift.
The Company, as a bank holding company, is subject to regulation under the
Bank Holding Company Act of 1956 (the "Act") and is registered with the Board of
Governors of the Federal Reserve System. Under the Act, the Company is
prohibited, with certain exceptions, from acquiring direct or indirect ownership
or control of more than 5% of the voting shares of any company which is not a
bank and from engaging in any business other than that of banking, managing and
controlling banks or furnishing services to affiliated banks, except that the
Company may engage in and own shares of companies engaged in certain businesses
found by the Board of Governors to be so closely related to banking "as to be
proper incident thereto," such as owning a
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savings association. The Act does not place territorial restrictions on the
activities of bank-related subsidiaries of bank holding companies. The Company
is required by the Act to file periodic reports of its operations with the Board
of Governors and is subject to examination by the Board of Governors. Under the
Act and Federal Reserve Board regulations, the Company and the Bank are
prohibited from engaging in certain tie-in arrangements in connection with an
extension of credit, lease, sale of property, or furnishing of services.
Iowa law permits bank holding companies domiciled in Iowa to make
acquisitions throughout the state. Iowa law also permits bank holding companies
located in the Midwestern Region (defined to include Illinois, Iowa, Minnesota,
Missouri, Nebraska, South Dakota, and Wisconsin) to acquire banks or bank
holding companies located in Iowa subject to approval by the Iowa Division of
Banking and subject to certain statutory limitations. In addition, the Company
may acquire banks or bank holding companies located in the Midwestern Region or
outside the Midwestern Region, provided the Company's principal place of
business remains in the Midwestern Region and the acquisition is authorized by
the laws of the state in which the acquisition is to be made.
As a savings and loan holding company, the Company is subject to federal
regulation and examination by the Office of Thrift Supervision (the "OTS"). The
OTS has enforcement authority over the Company. This authority permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
the subsidiary savings association. Generally, the activities for a bank holding
company are more limited than the authorized activities for a savings and loan
holding company.
The Company and its subsidiaries are affiliates within the meaning of the
Federal Reserve Act and OTS regulations. As affiliates, they are subject to
certain restrictions on loans by a an affiliated bank or thrift (collectively
"affiliated banks") to the Company, other affiliated banks or such other
subsidiaries, on investments by an affiliated bank in their stock or securities
and on an affiliated bank taking such stock and securities as collateral for
loans to any borrower. The Company is also subject to certain restrictions with
respect to direct issuance, flotation, underwriting, public sale or distribution
of certain securities.
Under Iowa law, the Bank is subject to supervision and examination by the
Iowa Division of Banking. As an affiliate of the Bank, the Company is also
subject to examination by the Iowa Division of Banking.
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") and the Bank is, therefore, also subject to the
supervision and examination by the FDIC. The Bank is required to maintain
certain minimum capital ratios established by these regulators.
In addition, Iowa state law imposes restrictions on the operations of the
Bank including limitations on the amount the bank can lend to a single borrower
and limitations on the nature and amount of securities in which it may invest.
Among other things, Iowa law imposes restrictions on certain types of loans made
by the Bank, limiting the bank from making loans (or purchasing participation
interests in loan pools) secured by real estate located outside Iowa and its
contiguous states in amounts exceeding 25% of its regulatory capital. There can
be no assurance that the Iowa or federal regulators will not in the future
impose further restrictions or limits on the Company's loan pool activities.
Iowa law strictly regulates the establishment of bank offices and thus may
affect the Company's future plans to establish additional offices of the Bank.
Under Iowa law, a state bank may not establish a bank office outside the
boundaries of the counties contiguous to or cornering upon the county in which
the principal place of business of the state bank is located. The number of
offices a state bank may establish in a particular municipality is also limited
depending upon the municipality's population.
The Thrift is subject to the supervision of and is regularly examined by
the OTS and is assessed fees by the OTS based upon the thrift's total assets. As
a savings institution, the Thrift is a member of the Federal Home Loan Bank of
Des Moines, must maintain certain minimum capital ratios established by the OTS
and is required to meet a qualified thrift lender test (the "QTL") to avoid
certain restrictions upon its operations. The QTL was modified by the passage of
the Economic Growth and Regulatory Paperwork Reduction Act of 1996. On December
31, 1996, the Thrift complied with the current minimum capital guidelines and
met the QTL test.
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OTS regulations permit federally chartered savings associations to branch
nationwide to the extent allowed by federal statute, enabling federal savings
associations with interstate networks to diversify their loan portfolios and
lines of business.
The Company operates within a regulatory structure that continuously
evolves. In the last several years significant changes have occurred that affect
the Company.
The FDIC Improvement Act of 1991 (the "FDICIA") was primarily designed to
recapitalize the FDIC's Bank Insurance Fund (the "BIF") and the Savings
Association Insurance Fund (the "SAIF"). To accomplish this purpose the FDIC was
granted additional borrowing authority, granted the power to levy emergency
special assessments on all insured depository institutions, granted the power to
change the BIF and SAIF rates on deposits on a semiannual basis, and directed to
draft regulations that provided for a "Risk-Based Assessment System" that was
implemented on January 1, 1994. The FDICIA also imposed additional regulatory
safety and soundness standards upon depository institutions and granted
additional authority to the FDIC. The FDICIA generally requires that all
institutions be examined by the FDIC annually. Under the provisions of the
FDICIA, all regulatory authorities are required to examine their regulatory
accounting standards and, to the extent possible, are required to conform to
Generally Accepted Accounting Principles. Finally, the FDICIA requires the
federal banking regulators to take prompt corrective action with respect to
depository institutions that fall below certain capital standards and prohibits
any depository institution from making any capital distribution that would cause
it to be undercapitalized.
The Bank and the Thrift are assessed fees based on the institutions'
deposits by the FDIC, to insure the funds of customers on deposit with the
institutions. The deposits of the Bank (except those acquired from a failed
thrift) and the Thrift deposits acquired from Boatmen's are insured by the BIF.
The deposits of the Thrift and those Bank deposits acquired from the failed
thrift are insured by the SAIF. On August 8, 1995, the FDIC reduced the
assessment rate applicable to the Bank to $.04 per $100 of insured deposits.
This reduced assessment rate was retroactively effective to June 1, 1995. The
Bank and the Thrift continued to pay an insurance rate of $.23 per $100 of
deposits on their SAIF deposits through September 30, 1996. Upon the adoption of
the Deposit Insurance Funds Act of 1996, the Bank and the Thrift were assessed a
one-time charge equal to $.675 per $100 of SAIF-insured deposits to recapitalize
the SAIF. Subsequent to this special assessment, all BIF and SAIF-insured
deposits will be assessed at an equal rate.
Legislation became effective on September 30, 1995 which serves to lessen
or remove certain legal barriers to interstate banking and branching by
financial institutions. The legislation may result in an increase in the
nationwide consolidation activity occurring among financial institutions by
facilitating interstate bank operations and acquisitions. The legislation does,
however, allow states to "opt out" of interstate branching, and at this time it
is difficult to predict what effect this legislation might have on the Company.
The earnings of the Company are affected by the policies of regulatory
authorities, including the Federal Reserve System. Federal Reserve System
monetary policies have had a significant effect on the operating results of
banks and thrifts in the past and are expected to do so in the future. Because
of changing conditions in the economy and in the money markets as a result of
actions by monetary and fiscal authorities, interest rates, credit availability
and deposit levels may change due to circumstances beyond the control of the
Company. Future policies of the Federal Reserve System and other authorities
cannot be predicted, nor can their effect on future earnings be predicted.
F. EMPLOYEES
On December 31, 1996, the Company had 99 full-time employees and 21
part-time employees of which 54 full-time and 16 part-time employees were
employed by the Bank and 32 full-time and 4 part-time employees were employed by
the Thrift. The Company provides its employees with a comprehensive program of
benefits, some of which are on a contributory basis, including comprehensive
medical and dental plans, life insurance, long-term and short-term disability
coverage, a 401(k) plan, and an employee stock ownership plan. None of the
employees are represented by unions. Management considers its relationship with
its employees to be excellent.
7
<PAGE> 10
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE
The following statistical disclosures relative to the consolidated
operations of the Company have been prepared in accordance with Guide 3 of the
Guides for the Preparation and Filing of Reports and Registration Statements
under the Securities Exchange Act of 1934. Average balances were primarily
calculated on a daily basis.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The following table details average balances, interest income/expense and
average rates/yield for the Company's earning assets and interest bearing
liabilities for the years ended December 31, 1996, 1995 and 1994 reported on a
fully tax-equivalent basis assuming a 34% tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
------------------------------------ ----------------------------------
INTEREST INTEREST
AVERAGE INCOME(2)/ AVERAGE AVERAGE INCOME(2)/ AVERAGE
BALANCE EXPENSE RATE/YIELD BALANCE EXPENSE RATE/YIELD
------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Average earning assets:
Loans(1)................. 105,372 $10,203 9.68% $ 81,174 $ 7,775 9.58%
Loan pool
participations......... 50,105 9,097 18.16 45,582 7,864 17.25
Interest-bearing
deposits............... 5,097 266 5.23 3,040 175 5.76
Investment securities
available for sale:
Taxable investments.... 20,557 1,348 6.56 10,391 668 6.43
Investment securities
held to maturity:
Taxable investments.... 21,616 1,215 5.62 23,711 1,251 5.28
Tax exempt
investments.......... 9,510 619 6.51 9,106 595 6.53
Federal funds sold....... 1,704 92 5.39 3,441 202 5.87
-------- ------- -------- -------
Total earning assets... $213,961 $22,840 10.67 $176,445 $18,530 10.50
======== ======= ======== =======
Average interest-bearing
liabilities:
Interest-bearing demand
deposits............... $ 28,786 $ 612 2.13 $ 25,325 $ 632 2.49...
Savings deposits......... 53,844 2,058 3.82 42,699 1,816 4.25
Time deposits............ 86,056 4,845 5.63 71,636 3,959 5.53
Federal funds
purchased.............. 829 48 5.73 671 42 6.20
Other short-term
borrowings............. 11,323 968 8.55 7,327 651 8.89
-------- ------- -------- -------
Total interest-bearing
liabilities............ $180,838 $ 8,531 4.72 $147,658 $ 7,100 4.81
======== ======= ======== =======
Net interest income........ 14,309 5.95 11,430 5.69
Net interest margin(3)..... 6.69% 6.48%
===== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994
----------------------------------
INTEREST
AVERAGE INCOME(2)/ AVERAGE
BALANCE EXPENSE RATE/YIELD
------- ---------- ----------
<S> <C> <C> <C>
Average earning assets:
Loans(1)................. $ 69,043 $ 5,870 8.50%
Loan pool
participations......... 26,562 4,479 16.86
Interest-bearing
deposits............... 9,434 193 2.04
Investment securities
available for sale:
Taxable investments.... 6,911 496 7.18
Investment securities
held to maturity:
Taxable investments.... 28,381 1,416 4.99
Tax exempt
investments.......... 9,659 642 6.64
Federal funds sold....... 2,711 107 3.94
-------- -------
Total earning assets... $152,701 $13,203 8.65
======== =======
Average interest-bearing
liabilities:
Interest-bearing demand
deposits............... $ 22,408 $ 555 2.48
Savings deposits......... 40,451 1,294 3.20
Time deposits............ 59,306 2,472 4.17
Federal funds
purchased.............. 427 23 5.26
Other short-term
borrowings............. 4,389 332 7.56
-------- -------
Total interest-bearing
liabilities............ $126,981 $ 4,676 3.68
======== =======
Net interest income........ 8,527 4.97
Net interest margin(3)..... 5.58%
=====
</TABLE>
- -------------------------
(1) Average loans outstanding includes the daily average balance of
non-performing loans. Interest on these loans does not include additional
interest of $90,000, $15,000, and $27,000 for 1996, 1995 and 1994,
respectively, which would have been accrued based on the original terms of
these loans compared to the interest that was actually recorded. Interest
earned on loans includes loan fees (which are not material in amount).
(2) Includes interest income and discount on loan pool participations.
(3) Net interest margin is net interest income divided by average total earning
assets.
8
<PAGE> 11
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL, CONTINUED
The following table sets forth an analysis of volume and rate changes in
interest income and interest expense of the Company's average earning assets and
average interest-bearing liabilities reported on a fully tax-equivalent basis
assuming a 34% tax rate. The table distinguishes between the changes related to
average outstanding balances (changes in volume holding the initial interest
rate constant) and the changes related to average interest rates (changes in
average rate holding the initial outstanding balance constant). The change in
interest due to both volume and rate has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
-------------------------- ---------------------------
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM AVERAGE-EARNING ASSETS:
Loans...................................... $2,342 $ 86 $2,428 $1,107 $ 798 $1,905
Loan pool participations(1)................ 807 426 1,233 3,279 106 3,385
Interest-bearing deposits.................. 106 (15) 91 10 (28) (18)
Investment securities available for sale:
Taxable investments..................... 666 14 680 217 (45) 172
Investment securities held to maturity:
Taxable investments..................... (137) 101 (36) (253) 88 (165)
Tax exempt investments.................. 26 (2) 24 (36) (11) (47)
Federal funds sold......................... (95) (15) (110) 34 61 95
------ ----- ------ ------ ------ ------
Total income from earning assets........ 3,715 595 4,310 4,358 969 5,327
------ ----- ------ ------ ------ ------
INTEREST EXPENSE OF AVERAGE INTEREST-BEARING
LIABILITIES:
Interest-bearing demand deposits........... 241 (261) (20) 73 4 77
Savings deposits........................... 395 (153) 242 75 447 522
Time deposits.............................. 811 75 886 579 908 1,487
Federal funds purchased.................... 9 (3) 6 15 4 19
Other short-term borrowings................ 341 (24) 317 253 66 319
------ ----- ------ ------ ------ ------
Total expense from interest-bearing
liabilities........................... 1,797 (366) 1,431 995 1,429 2,424
------ ----- ------ ------ ------ ------
Net interest income.......................... $1,918 $ 961 $2,879 $3,363 $ (460) $2,903
====== ===== ====== ====== ====== ======
</TABLE>
- -------------------------
(1) Includes interest income from loan pool participations plus discount on loan
pool participations.
9
<PAGE> 12
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL, CONTINUED
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth the scheduled repricing or maturity of the
Company's assets and liabilities as of December 31, 1996, based on the
assumptions described below. The effect of these assumptions is to quantify the
dollar amount of items that are interest rate-sensitive and can be repriced
within each of the periods specified. The table does not necessarily indicate
the impact of general interest rate movements on the Company's net interest
margin because the repricing of certain categories of assets and liabilities is
subject to competitive and other pressures beyond the Company's control. As a
result, certain assets and liabilities indicated as maturing or otherwise
repricing within a stated period may, in fact, mature or reprice at different
times and at different volumes.
<TABLE>
<CAPTION>
THREE OVER THREE ONE TO THREE
MONTHS MONTHS THREE YEARS
OR LESS TO ONE YEAR YEARS OR MORE TOTAL
------- ----------- ------ ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans...................................... $33,975 $ 24,213 $ 25,763 $32,886 $116,837
Loan pool participations................... 4,224 12,672 33,791 0 50,687
Interest-bearing deposits in banks......... 3,587 0 0 0 3,587
Federal funds sold......................... 2,985 0 0 0 2,985
Investment securities:
Available for sale....................... 1,000 3,189 2,001 19,645 25,835
Held to maturity......................... 1,703 6,155 9,726 10,468 28,052
------- -------- -------- ------- --------
Total interest-earning assets......... 47,474 46,229 71,281 62,999 227,983
======= ======== ======== ======= ========
INTEREST-BEARING LIABILITIES:
NOW and Super NOW deposits................. 13,467 13,467 11,543 0 38,477
Savings deposits........................... 10,467 10,496 15,743 15,773 52,479
Certificates of deposit.................... 21,591 42,888 28,531 3,636 96,646
Note payable............................... 8,500 0 0 0 8,500
------- -------- -------- ------- --------
Total interest-bearing liabilities.... 54,025 66,851 55,817 19,409 196,102
======= ======== ======== ======= ========
Interest sensitivity gap per period........ $(6,551) $(20,622) $ 15,464 $43,590
======= ======== ======== =======
Cumulative interest sensitivity gap........ $(6,551) $(27,173) $(11,709) $31,881
======= ======== ======== =======
Interest sensitivity gap as a percentage of
total assets............................. 0.88% 0.69% 1.28% 3.25%
Cumulative sensitivity gap as a percentage
of total assets.......................... 0.88% 0.78% 0.93% 1.16%
</TABLE>
In the table above, NOW and Super NOW deposit account balances and savings
deposits are included as interest-bearing liabilities in the three months or
less, and over three months to one year, and one to three years categories in
accordance with the proposed revision to the banking regulatory authorities'
risk-based capital guidelines issued in August 1992. This results in the
distribution of 70% of NOW and Super NOW account balances to the less than one
year categories and the remaining 30% to the one to three years category.
Savings deposits are included 70% in the less than three year categories and the
remaining 30% in the three years or more category.
Loan pool participations are included in the interest rate sensitivity
analysis using an estimated three-year average life. The historical average for
the return of original investment on the pools is approximately 36 months. Given
the non-performing aspect of the loan pool portfolio, management feels that the
use of contractual weighted-average maturity data in inappropriate.
10
<PAGE> 13
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
II. INVESTMENT PORTFOLIO
The following table sets forth certain information with respect to the book
value of the Company's investment portfolio as of December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. government securities................................ $ 5,019 $ 5,101 $ 5,979
U.S. government agency securities......................... 18,679 5,059 2,958
Other investment securities............................... 2,785 1,627 460
------- ------- -------
Total securities available for sale.................... 26,483 11,787 9,397
------- ------- -------
SECURITIES HELD TO MATURITY:
U.S. government securities................................ 8,135 12,247 21,444
U.S. government agency securities......................... 5,445 6,810 7,017
Obligations of states and political subdivisions.......... 8,904 9,574 9,152
Other investment securities............................... 5,221 2,202 707
------- ------- -------
Total securities held to maturity...................... 27,705 30,833 38,320
------- ------- -------
Total investment securities............................... $54,188 $42,620 $47,717
======= ======= =======
</TABLE>
The following table sets forth the contractual maturities of investment
securities as of December 31, 1996, and the weighted average yields (for
tax-exempt obligations on a fully tax-equivalent basis assuming a 34% tax rate)
of such securities. As of December 31, 1996, the Company held no securities with
a book value exceeding 10% of shareholders' equity.
<TABLE>
<CAPTION>
MATURITY
--------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN FIVE WITHIN TEN
WITHIN ONE YEAR YEARS YEARS AFTER TEN YEARS
---------------- ---------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------- ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government securities...... 2,020 6.15% 2,999 5.81% 0 0.00% 0 0.00%
U.S. government agency
securities................... 2,173 6.93 10,003 6.78 1,000 7.50 5,503 7.17
Other Investment securities..... 0 0.00 1,992 6.00 0 0.00 793 5.21
------- ------- ------ ------
Total........................ 4,193 6.55 14,994 6.48 1,000 7.50 6,296 6.92
------- ------- ------ ------
Securities held to maturity:
U.S. government securities...... 3,016 5.49 5,119 5.07 0 0.00 0 0.00
U.S. government agency
securities................... 1,000 6.00 2,003 5.51 0 0.00 2,442 7.51
Obligations of states and
political subdivisions....... 3,185 6.46 5,601 6.57 118 7.64 0 0.00
Other investment securities..... 693 6.13 4,428 5.73 0 0.00 100 7.15
------- ------- ------ ------
Total........................ 7,894 6.00 17,151 5.78 118 7.64 2,542 7.50
------- ------- ------ ------
Total investment
securities................. 12,087 6.19% 32,145 6.11% 1,118 7.51% 8,838 7.09%
======= ==== ======= ==== ====== ==== ====== ====
</TABLE>
11
<PAGE> 14
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
III. LOAN PORTFOLIO
The Company's loan portfolio largely reflects the profile of the
communities in which it operates. Approximately two-thirds of the total loans as
of December 31, 1996, were agricultural, commercial or residential real estate
loans. The following table shows the composition of the Company's loan portfolio
as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural........... $ 19,940 16.9% $ 16,319 18.9% $ 15,968 21.5% $ 16,644 25.7% $ 16,144 27.2%
Commercial............. 23,613 20.0 22,235 25.7 18,789 25.3 14,853 22.9 12,760 21.5
Real estate:
1-4 family
residences......... 27,274 23.1 15,765 18.2 14,261 19.2 12,757 19.7 10,797 18.2
5 + residential
property........... 261 0.2 0 0.0 17 0.0 24 0.0 38 0.1
Agricultural......... 16,952 14.4 9,855 11.4 8,443 11.4 7,499 11.6 7,174 12.1
Construction......... 4,017 3.4 2,502 2.9 1,859 2.5 436 0.7 155 0.3
Commercial........... 11,895 10.1 10,097 11.7 9,018 12.2 7,288 11.3 6,415 10.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Real estate total.... 60,399 51.2 38,219 44.2 33,598 45.3 28,004 43.3 24,579 41.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Installment............ 11,522 9.7 7,637 8.8 4,700 6.3 4,673 7.2 5,011 8.4
Lease financing........ 2,571 2.2 2,065 2.4 1,154 1.6 596 0.9 817 1.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans(1)....... $118,045 100.0% $ 86,475 100.0% $ 74,209 100.0% $ 64,770 100.0% $ 59,311 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Total assets........... $251,851 $205,162 $186,818 $143,752 $128,424
Loans to total
assets............... 46.9% 42.1% 39.7% 45.1% 46.2%
</TABLE>
- -------------------------
(1) Total loans do not include the Company's investments in loan pool
participations.
The following table sets forth the remaining maturities for certain loan
categories as of December 31, 1996.
<TABLE>
<CAPTION>
TOTAL FOR LOANS DUE
AFTER ONE YEAR
HAVING:
DUE IN -------------------
DUE WITHIN ONE TO DUE AFTER FIXED VARIABLE
ONE YEAR FIVE YEARS FIVE YEARS TOTAL RATES RATES
---------- ---------- ---------- ----- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Agricultural........................ $16,653 $ 2,920 $ 367 $19,940 $ 3,088 $ 199
Commercial.......................... 15,716 5,790 2,107 23,613 7,266 631
Real estate - construction.......... 1,991 1,744 282 4,017 1,363 663
------- ------- ------ ------- ------- ------
Total.......................... $34,360 $10,454 $2,756 $47,570 $11,717 $1,493
======= ======= ====== ======= ======= ======
</TABLE>
The following table provides information on the Company's non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
90 days past due......................................... $ 625 $134 $ 95 $ 22 $ 622
Renegotiated............................................. 380 409 285 440 528
Nonaccrual............................................... 1,085 124 207 129 347
------ ---- ---- ---- ------
Total non-performing loans.......................... $2,090 $667 $587 $591 $1,497
====== ==== ==== ==== ======
Ratio of non-performing loans to total loans............. 1.78% 0.78% 0.79% 0.91% 2.52%
</TABLE>
12
<PAGE> 15
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table sets forth loans charged off and recovered by the type
of loan and an analysis of the allowance for loan losses for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end of period
(net of unearned interest)(1)............... $117,416 $85,869 $74,015 $64,700 $59,212
======== ======= ======= ======= =======
Average amount of loans outstanding for the
period (net of unearned interest)(1)........ $105,372 $81,175 $69,043 $61,130 $80,253
======== ======= ======= ======= =======
Allowance for possible credit losses at
beginning of period......................... $ 1,001 $ 881 $ 833 $ 820 $ 1,089
-------- ------- ------- ------- -------
CHARGE-OFFS:
Agricultural................................ 41 53 42 87 256
Commercial.................................. 10 18 110 34 95
Real estate -- construction................. 0 0 0 0 0
Real estate -- mortgage..................... 0 2 0 2 6
Installment................................. 38 18 23 28 28
Lease financing............................. 616 0 14 2 10
-------- ------- ------- ------- -------
Total charge-offs........................ 705 91 189 153 395
-------- ------- ------- ------- -------
RECOVERIES:
Agricultural................................ 6 24 11 11 53
Commercial.................................. 1 1 36 7 53
Real estate -- construction................. 0 0 0 0 0
Real estate -- mortgage..................... 0 0 2 1 0
Installment................................. 8 10 5 4 25
Lease financing............................. 23 8 0 0 1
-------- ------- ------- ------- -------
Total recoveries......................... 38 43 54 23 132
-------- ------- ------- ------- -------
Net loans charged off......................... 667 48 135 130 263
Provision for possible credit losses.......... 987 168 183 143 290
Allowance for branch acquisition.............. 170 0 0 0 0
Allowance of bank divested.................... 0 0 0 0 296
-------- ------- ------- ------- -------
Allowance for possible credit losses at end of
period...................................... $ 1,491 $ 1,001 $ 881 $ 833 $ 820
======== ======= ======= ======= =======
Net loans charged off to average loans........ 0.63% 0.06% 0.20% 0.21% 0.33%
Allowance for possible credit losses to total
loans at end of period...................... 1.27% 1.17% 1.19% 1.29% 1.38%
</TABLE>
- -------------------------
(1) Loans do not include, and the allowance for loan losses does not include any
reserve for, investments in loan pool participations.
13
<PAGE> 16
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
IV. SUMMARY OF LOAN LOSS EXPERIENCE, CONTINUED
The Company has allocated the allowance for loan losses to provide for the
possibility of loan losses being incurred within the categories of loans set
forth in the table below. The allocation of the allowance and the ratio of loans
within each category to total loans as of the dates indicated are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993
----------------------- ----------------------- ----------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS TO ALLOWANCE LOANS TO ALLOWANCE LOANS TO ALLOWANCE LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural......... $ 289 16.9% $ 262 18.9% $ 242 21.5% $ 308 25.7%
Commercial........... 439 20.0 248 25.7 271 25.3 288 22.9
Real estate --
mortgage........... 588 51.2 392 44.2 302 45.3 200 43.3
Installment.......... 111 9.7 78 8.8 55 6.3 33 7.2
Lease financing...... 64 2.2 21 2.4 11 1.6 4 0.9
------ ----- ------ ----- ------ ----- ------ -----
Total............ $1,491 100.0% $1,001 100.0% $ 881 100.0% $ 833 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
DECEMBER 31,
-----------------------
1992
-----------------------
PERCENT OF
ALLOWANCE LOANS TO
AMOUNT TOTAL LOANS
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Agricultural......... $ 290 27.2%
Commercial........... 209 21.5
Real estate --
mortgage........... 263 41.5
Installment.......... 50 8.4
Lease financing...... 8 1.4
------ -----
Total............ $ 820 100.0%
====== =====
</TABLE>
V. DEPOSITS
The following table sets forth the average amount of and the average rate
paid on deposits by deposit category for the years ended December 31, 1996, 1995
and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits........ $ 15,653 N/A $ 12,269 N/A $ 14,786 N/A
Interest-bearing demand (NOW and money
market)................................... 28,786 2.13% 25,325 2.49% 22,408 2.48%
Savings deposits............................ 53,844 3.82 42,699 4.25 40,451 3.20
Time deposits............................... 86,056 5.63 71,636 5.53 59,306 4.17
-------- -------- --------
Total................................ $184,339 4.08% $151,929 4.22% $136,951 3.16%
======== ==== ======== ==== ======== ====
</TABLE>
The following table summarizes certificates of deposit in amounts of
$100,000 or more by time remaining until maturity as of December 31, 1996. These
time deposits are made by individuals, corporations and public entities, all of
which are located in the Company's market area or are State of Iowa funds.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
(IN THOUSANDS)
<S> <C>
Three months or less........................................ $ 5,152
Over three through six months............................... 1,993
Over six months through one year............................ 2,269
Over one year............................................... 4,133
-------
Total................................................ $13,547
=======
</TABLE>
14
<PAGE> 17
ITEM 1(G) BUSINESS -- STATISTICAL DISCLOSURE, CONTINUED
VI. RETURN ON EQUITY AND ASSETS
Various operating and equity ratios for the years indicated are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average total assets........................ 1.93% 2.04% 1.68%
Return on average equity.............................. 13.52 12.67 12.45
Dividend payout ratio................................. 36.50 38.37 36.27
Average equity to average assets...................... 14.31 16.09 13.46
Equity to assets ratio................................ 13.60 15.65 15.94
===== ===== =====
</TABLE>
VII. SHORT-TERM BORROWINGS
The following table summarizes the outstanding amount of and the average
rate on short-term borrowings as of December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Note payable(1)........................... $8,500 8.00% $10,000 8.50% $5,000 8.50%
Federal funds purchased................... 0 0.00 0 0.00 4,700 5.33
------ ------- ------
Total................................... $8,500 8.00% $10,000 8.50% $9,700 6.96%
====== ==== ======= ==== ====== ====
</TABLE>
- -------------------------
(1) The note payable balance at December 31, 1996 consists of advances on a
$17,000,000 revolving line of credit. The line has a variable interest rate
which currently is twenty-five basis points below the lender's prime rate.
Interest is payable quarterly and the line is due June 19, 1997.
The maximum amount of short-term borrowings outstanding at any month end
for the years ended December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Note payable.................................... 14,750 10,000 8,400
Federal funds purchased......................... 5,990 5,475 4,700
ESOP loan....................................... 0 0 100
</TABLE>
The following table sets forth the average amount of and the average rate
paid on short-term borrowings for the years ended December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Note payable................................... $11,323 8.55% $7,327 8.89% $4,389 7.56%
Federal funds purchased........................ 829 5.73 671 6.20 427 5.26
ESOP loan...................................... 0 0.00 0 0.00 99 0.00
------- ------ ------
Total........................................ $12,152 8.36% $7,998 8.66% $4,915 7.21%
======= ==== ====== ==== ====== ====
</TABLE>
15
<PAGE> 18
ITEM 2. PROPERTIES
The Company's headquarters are located at 222 First Avenue East, Oskaloosa,
Iowa. This building is a two-story combination office and motor bank and was
constructed in 1975. The Company's offices are located on the second floor and
the Bank leases the first floor and the basement from the Company. The ground
floor houses the Bank's data processing department and motor bank operation
which includes four drive-up lanes and two walk-up windows. The basement
contains a meeting room, kitchen, and storage. The Bank's lease runs through the
year 2005.
The principal offices of the Bank are located at 124 South First Street,
Oskaloosa, Iowa, in a two-story building owned by the Bank which contains a full
banking facility. The Bank also owns a second building in Oskaloosa located at
301 A Avenue West. This one-story, full-banking facility, including two drive-up
lanes, is located five blocks northwest of the Bank's principal offices. In
addition, the Bank owns a 24-hour automatic teller machine located at 211 South
First Street, Oskaloosa, Iowa. The Bank also has a branch office located in
North Engish, Iowa which is 40 miles northeast of Oskaloosa. The branch is a
one-story building with a full banking facility, including two drive-up lanes
and a 24-hour automatic teller machine.
The Thrift owns three facilities in the communities of Ottumwa, Fairfield,
and Sigourney, Iowa. The Ottumwa building is a single-story brick structure
constructed in 1981. The approximately 4,200 square foot building has several
offices and a potential for three drive-up lanes, with two presently in
operation. The building is located at 116 West Main in Ottumwa's downtown
business district. The Fairfield facility is a two-story building located at 58
East Burlington on the southeast corner of the downtown square. The building's
three floors have 8,932 total square feet, over half of which is used by the
Thrift. The second floor is leased to a small software company. The Thrift's
Sigourney facility located at 112 North Main Street is one-half block northwest
of the community's courthouse square in the downtown business district. The
4,596 square foot one-story masonry building was constructed in 1972 as a
banking facility with one drive-up window. This building was acquired by the
Thrift in 1996 from Boatmen's Bank, N.A. in conjunction with the purchase of the
deposits of the Sigourney office from Boatmen's.
The Thrift leases its "In-Store" branch facility in Fairfield. The branch
is located in an Easter's Super Value grocery store and occupies approximately
400 square feet of the store. The lease agreement expires in October, 2000 and
may be renewed for two additional terms of five years each.
ITEM 3. LEGAL PROCEEDINGS
Mahaska Investment Company and its subsidiaries are involved in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information appearing on page 35 of the Corporation's Annual Report,
filed as Exhibit 13 hereto, is incorporated herein by reference.
There were approximately 228 holders of record of the Company's $5 common
stock as of March 7, 1997. Additionally, there are an estimated 700 additional
beneficial holders whose stock was held in street name by brokerage houses as of
that date. The closing bid price of the Parent Company's common stock was $20.50
on March 7, 1997.
16
<PAGE> 19
The Company increased dividends to common shareholders in 1996 to $.73 per
share, a 10.6 percent increase over $.66 for 1995. Dividend declarations are
evaluated and determined by the Board of Directors on a quarterly basis. In
February 1997, the Board of Directors declared a dividend of $.20 per common
share. The Company's loan agreement requires that the Company does not pay any
dividends in excess of forty percent of net income without the lenders'
permission. Except for certain regulatory restrictions that may affect dividend
payments, there are no other restrictions on the Company's present or future
ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 4 of the Company's Annual Report, filed
as Exhibit 13 hereto, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing on pages 12 through 17 of the Company's Annual
Report, filed as Exhibit 13 hereto, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 18 through 34 of the Company's Annual
Report, filed as Exhibit 13 hereto, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Within the twenty-four months prior to the date of the most recent
financial statements, there has been no change of accountants of the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The definitive proxy statement of Mahaska Investment Company is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The definitive proxy statement of Mahaska Investment Company is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The definitive proxy statement of Mahaska Investment Company is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The definitive proxy statement of Mahaska Investment Company is
incorporated herein by reference.
17
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following exhibits and financial statement schedules are filed as part
of this report:
(a) 1. Financial Statements: See the financial statements on pages 18
through 34 of the Company's Annual Report, filed as Exhibit 13
hereto, which are incorporated by reference herein.
2. Exhibits (not covered by independent auditors' report).
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
3.1 Articles of Incorporation, as amended, of Mahaska Investment
Company.
3.2 Bylaws of Mahaska Investment Company.
10.1 Mahaska Investment Company Employee Stock Ownership Plan &
Trust as restated and amended. This Plan & Trust is
incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.2.1 1993 Stock Incentive Plan. This 1993 Stock Incentive Plan is
incorporated by reference to Form S-1 Registration Number
3-81922 of Mahaska Investment Company.
10.2.2 1996 Stock Incentive Plan.
10.3.1 Midstates Resources Corp. Loan Participation and Servicing
Agreement dated December 9, 1992 between Midstates Resources
Corp., Mahaska Investment Company and Mahaska State Bank.
This Midstates Resources Corp. Agreement is incorporated by
Reference to Form S-1 Registration Number 33-81922 of
Mahaska Investment Company.
10.3.2 Central States Resources Corp. Liquidation Agreement dated
April 18, 1988 between Central States Resources Corp.,
Mahaska State Bank, National Bank & Trust Co., and Randal
Vardaman. This Central States Resources Corp. Agreement is
incorporated by reference to Form S-1 Registration Number
33-81922 of Mahaska Investment Company.
10.3.3 All States Resources Corp. Loan Participation and Servicing
Agreement dated September 13, 1993 between All States
Resources Corp., Mahaska Investment Company and West Gate
Bank. This All States Resources Corp. Agreement is
incorporated by reference to Form S-1 Registration Number
33-81922 of Mahaska Investment Company.
10.5.1 Revolving Loan Agreement dated January 31, 1996 between
Mahaska Investment Company and Harris Trust and Savings
Bank. This Loan Agreement is incorporated herein by
reference to the Form 8-K report filed by Mahaska Investment
Company on February 29, 1996.
10.5.2 First Amendment to Revolving Loan Agreement and Revolving
Loan Note between Mahaska Investment Company and Harris
Trust & Savings Bank dated June 19, 1996.
10.6 Purchase and Assumption Agreement between Boatmen's Bank
Iowa, National Association and Central Valley Bank dated
February 15, 1996. This Purchase and Assumption Agreement is
incorporated herein by reference to the Form 8-K report
filed by Mahaska Investment Company on February 29, 1996.
11 Computation of Per Share Earnings
13 The Annual Report to Shareholders of Mahaska Investment
Company for the 1996 calendar year.
21 Subsidiaries
23 Consent of Auditor
</TABLE>
18
<PAGE> 21
The Company will furnish to any shareholder upon request and upon payment
of a fee of $.50 per page, a copy of any exhibit. Requests for copies should be
directed to Karen K. Baack, Secretary/Treasurer, Mahaska Investment Company,
P.O. Box 1104, Oskaloosa, Iowa 52577-1104.
(b) Reports on Form 8-K: No reports on Form 8-K were required to be filed
during the last quarter of 1996.
19
<PAGE> 22
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.
MAHASKA INVESTMENT COMPANY
(Registrant)
March 20, 1997 By: /s/ CHARLES S. HOWARD
------------------------------------
Charles S. Howard
President, Chief Executive Officer
and Director
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>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
By: /s/ R. S. HOWARD Director and Chairman of the March 20, 1997
--------------------------------------- Board
R. S. Howard
By: /s/ CHARLES S. HOWARD Director, President and Chief March 20, 1997
--------------------------------------- Executive Officer
Charles S. Howard
By: /s/ DAVID A. MEINERT Director, Executive Vice March 20, 1997
--------------------------------------- President and Chief Financial
David A. Meinert Officer
(Principal Accounting Officer)
By: /s/ R. SPENCER HOWARD Director and Vice President March 20, 1997
--------------------------------------- Corporate Planning
R. Spencer Howard
By: /s/ MARTIN L. BERNSTEIN Director March 20, 1997
---------------------------------------
Martin L. Bernstein
By: /s/ ROBERT K. CLEMENTS Director March 20, 1997
---------------------------------------
Robert K. Clements
By: /s/ JOHN A. FALLON, III Director March 20, 1997
---------------------------------------
John A. Fallon, III
By: /s/ JAMES F. MATHEW Director March 20, 1997
---------------------------------------
James F. Mathew
By: /s/ JOHN P. POTHOVEN Director March 20, 1997
---------------------------------------
John P. Pothoven
By: /s/ JOHN W. N. STEDDOM Director March 20, 1997
---------------------------------------
John W. N. Steddom
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
MAHASKA INVESTMENT COMPANY
We, the undersigned, acting as incorporators of a corporation under
the Iowa Business Corporation Act, Chapter 496 A, Code of Iowa, 1971, as
amended, adopt the following Articles of Incorporation for such corporation:
ARTICLE I.
The name of the corporation is MAHASKA INVESTMENT COMPANY.
ARTICLE II.
The period of duration of the corporation shall be perpetual.
ARTICLE III.
The corporation shall have unlimited power to engage in, and to do,
any lawful act concerning any and all lawful business for which corporations
may be organized under said Act.
ARTICLE IV.
The aggregate number of shares which the corporation shall have
authority to issue is Four Million (4,000,000) shares of common stock of the
par value of Five ($5.00) Dollars each.
A holder or subscriber to shares of the corporation shall be under no
obligation to the corporation or its creditors with respect to such shares
other than the obligation to pay to the corporation the full consideration for
which such shares were issued or are to be issued.
ARTICLE V.
The address of the initial registered office of the corporation is 110
North Market Street in the City of Oskaloosa, Mahaska County, Iowa, and the
name of its initial registered agent at such address is C. A. Williams, Jr.
<PAGE> 2
ARTICLE VI.
The number of directors of the corporation shall be not less than 5
and not greater than 15, and, effective as of the annual meeting of
shareholders of the corporation in 1996, the Board of Directors shall be
divided into three classes, designated Class I, Class II, and Class III. Such
classes shall be as nearly equal in number as possible. The term of directors
of one class shall extend to each annual meeting of shareholders and in all
cases as to each director, until his successor shall be elected and shall
qualify, or until his earlier resignation, removal from office, death or
incapacity. Additional directorships resulting from an increase in number of
directors shall be apportioned among the classes as equally as possible. The
initial term of office of directors of Class I shall extend to the annual
meeting of shareholders in 1997, that of Class II shall extend to the annual
meeting in 1998, and that of Class III shall extend to the annual meeting in
1999, and in all cases as to each director until his successor shall be elected
and shall qualify or until his earlier resignation, removal from office, death
or incapacity. At each annual meeting of shareholders, the number of directors
equal to the number of directors of the class whose term extends to the time of
such meeting shall be elected to hold office until the third succeeding annual
meeting of shareholders after their election. The Board of Directors may, upon
a majority vote of its members, increase or decrease the number of directors
within the limits set forth above. Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in the
number of directors, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. Any
director elected to fill a vacancy other than by reason of an increase in the
number of directors shall be elected for the unexpired term of his or her
predecessor in office. Any director elected to fill a vacancy by reason of an
increase in the number of directors may continue in office only until the next
election of directors by the shareholders.
<PAGE> 3
ARTICLE VII.
The name and address of each incorporator is as follows:
Name Address
R. S. Howard, Jr. 116 Highland Avenue, Oskaloosa, Iowa
C. A. Williams, Jr. 837 High Avenue East, Oskaloosa, Iowa
Ralph E. Lyddon 1219 North Third Street, Oskaloosa, Iowa
ARTICLE VIII.
No contract or other transaction between the corporation and any other
corporation shall be affected or invalidated by the fact that any one or more
of the directors of this corporation is or are interested in, or is a director
or officer, or are directors or officers of such other corporation, and any
director or directors, individually or jointly may be a party or parties to or
may be interested in any contract or transaction of this corporation or in
which this corporation is interested; and no contract, act or transaction of
this corporation with any person or persons, firm or association, shall be
affected or invalidated by the fact that any director or directors of this
corporation is a party or are parties to, or interested in, such contract, act
or transaction, or in any way connected with such person or persons, firm or
association, and each and every person who may become a director of this
corporation is hereby relieved from any liability that might otherwise exist
from contracting with the corporation for the benefit of himself or any firm or
corporation in which he may be in any wise interested so long as he acts in
good faith and in a manner he reasonably believes to be in or not opposed to
the best interests of the corporation.
ARTICLE IX.
All deeds, mortgages, releases and other instruments in writing
affecting real estate which shall be made by the corporation shall be executed
and acknowledged in its name by the president or any vice president and
attested by the secretary or any assistant secretary with the corporate seal
<PAGE> 4
attached.
ARTICLE X.
The initial bylaws of the corporation shall be adopted by the board of
directors which shall have the power to alter, amend or repeal the same or
adopt new bylaws at any regular meeting or at any special meeting called for
that purpose, and said bylaws may contain provisions restricting the transfer
of shares of stock of the corporation.
Dated at Oskaloosa, Iowa, this 14th day of February, 1973.
/s/ R. S. Howard, Jr.
----------------------------
R. S. Howard, Jr.
/s/ C. A. Williams, Jr.
----------------------------
C. A. Williams, Jr.
/s/ Ralph E. Lyddon
----------------------------
Ralph E. Lyddon
INCORPORATORS
<PAGE> 5
STATE OF IOWA
ss.
Mahaska County
On this 14th day of February, 1973, before me, the undersigned Notary
Public, personally appeared R. S. Howard, Jr., C. A. Williams, Jr. and Ralph E.
Lyddon, to me known to be the identical persons named in and who executed the
forgoing Articles of Incorporation, and acknowledged that they executed the
same as their voluntary act and deed.
/s/ Alice M. Parlet
-----------------------------------------------
Notary Public in and for said County and State.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
MAHASKA INVESTMENT COMPANY
(As Amended Through March 18, 1997)
ARTICLE I. OFFICES OF CORPORATION.
Section 1. Principal Office. The principal office of the corporation in
the State of Iowa shall be located in the City of Oskaloosa, Mahaska County,
Iowa. The corporation may have such other offices, either within or without
the State of Iowa, as the board of directors may designate or as the business
of the corporation may require from time to time.
Section 2. Registered Office. The registered office of the corporation
required by the Iowa Business Corporation Act to be maintained in the State of
Iowa may be, but need not be, identical with the principal office in the State
of Iowa, and the address of the registered office may be changed from time to
time by the board of directors.
ARTICLE II. SHAREHOLDERS.
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on any day in the month of April in each year, other than Sundays and
legal holidays, commencing at an hour between 8:00 a.m. and 5:00 p.m. as may be
specified from year to year by the board of directors, for the purpose of
electing directors and transacting such other business as may properly come
before the meeting. If the election of directors shall not be held on the date
designated for any annual meeting of the shareholders, or any adjournment
thereof, the board of directors shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as conveniently may be.
If the annual meeting is not held within any eighteen-month period, the
District Court of the county wherein the registered office of the corporation
is located may, upon the written application of any shareholder, order an
annual meeting to be held.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the president or by the board of directors, and shall be called by the
president at the request of the holders of not less than one-tenth of all the
outstanding shares of the corporation entitled to vote at the meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Iowa, as the place of meeting for
any annual meeting or for any special meeting called by the board of directors.
-1-
<PAGE> 2
Section 4. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten nor more than seventy days before the date of the meeting, either
personally or by mail, by or at the direction of the president, the secretary,
or the officer or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid. Any shareholder may waive notice of
any regular or special meeting of shareholders at any time.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting. In lieu of
closing the stock transfer books, the board of directors may fix in advance a
date as the record date for any such determination of shareholders, such date
in any case to be not more than fifty days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken. If the
stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the board of directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten
days before each meeting of shareholders,, a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original stock transfer book shall be prima facie evidence
as to who are the shareholders entitled to examine such list or transfer books
or to vote at any meeting of shareholders.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, and
-2-
<PAGE> 3
if a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the vote of a greater number is required by
law or the articles of incorporation. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
Section 9. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by such officer, agent or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A custodian of securities under the Iowa Uniform Gift to Minors Act may
vote a security which is custodial property.
Section 11. Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the shareholders entitled to vote with respect to the subject matter
thereof.
Section 12. Meetings of All Shareholders. If all of the shareholders
shall meet at any time
-3-
<PAGE> 4
and place, either within or without the State of Iowa, and consent to the
holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting any corporate action may be taken.
Section 13. Method of Voting. Voting by shareholders on any
question or in any election may be viva voce unless the presiding officer shall
order or any shareholders shall demand that voting be by ballot.
ARTICLE III. BOARD OF DIRECTORS.
Section 1. General Powers. The business and affairs of the
corporation shall be managed by its board of directors. The board of directors
may authorize any officer or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the corporation, and such authority may be general or confined to specific
instances.
Section 2. Number, Tenure and Qualifications.
The number of directors of the corporation shall be not less than
5 and not greater than 15, and, effective as of the annual meeting of
shareholders of the corporation in 1996, the Board of Directors shall be
divided into three classes, designated Class I, Class II, and Class III. Such
classes shall be as nearly equal in number as possible. The term of directors
of one class shall extend to each annual meeting of shareholders and in all
cases as to each director, until his successor shall be elected and shall
qualify, or until his earlier resignation, removal from office, death or
incapacity. Additional directorships resulting from an increase in number of
directors shall be apportioned among the classes as equally as possible. The
initial term of office of directors of Class I shall extend to the annual
meeting of shareholders in 1997, that of Class II shall extend to the annual
meeting in 1998, and that of Class III shall extend to the annual meeting in
1999, and in all cases as to each director until his successor shall be elected
and shall qualify or until his earlier resignation, removal from office, death
or incapacity. At each annual meeting of shareholders, the number of directors
equal to the number of directors of the class whose term extends to the time of
such meeting shall be elected to hold office until the third succeeding annual
meeting of shareholders after their election. The Board of Directors may, upon
a majority vote of its members, increase or decrease the number of directors
within the limits set forth above. Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in the
number of directors, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. Any
director elected to fill a vacancy other than by reason of an increase in the
number of directors shall be elected for the unexpired term of his or her
predecessor in office. Any director elected to fill a vacancy by reason of an
increase in the number of directors may continue in office only until the next
election of directors by the shareholders.
Section 3. Place and Notice of Meetings. A regular meeting of the board
of directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of the shareholders. The
board of directors may provide, by resolution, the time and place, either
within or without the State of Iowa, for the holding of additional regular
meetings
-4-
<PAGE> 5
without other notice than such resolution. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or without the State of
Iowa, as the place for holding any special meeting of the board of directors
called by him or them. Notice of any special meeting of the board of directors
shall be given at least two days previously thereto by written notice delivered
personally or mailed to each director at his business address, or by telegram.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Any director may waive notice
of any meeting. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting. Members of the board of directors, or any committees designated by
the board, may participate in a meeting of such board or committee by
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting pursuant to this provision shall constitute presence in person at
such meeting.
Section 4. Quorum. A majority of the total number of directors
shall constitute a quorum for the transaction of business at any meeting of
the board of directors, but if less than such majority is present at a meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice.
Section 5. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
Section 6. Vacancies. Any vacancy occurring in the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase
in the number of directors shall be filled by the affirmative vote of a
majority of the remaining directors, at any regular or special meeting of the
board of directors called for that purpose in which a quorum of the board of
directors is present, and the director or directors so elected shall serve
until the next regular annual meeting of shareholders.
Section 7. Compensation. By resolution of the board of directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the board of directors, and may be paid such compensation for their services
as shall be fixed by the board of directors from time to time. No payment
received by any director shall preclude him from serving the corporation in any
other capacity and receiving compensation therefor.
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Section 8. Presumption of Assent. A director of the corporation
who is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 9. Informal Action by Directors. Any action required to
be taken at a meeting of the directors, or any other action which may be taken
at a meeting of the directors, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors entitled to vote with respect to the subject matter thereof.
Section 10. Committees. The board of directors may designate from
among its members an executive committee and one or more other committees and
define or limit the extent of authority of each of such committees in
compliance with the law and these bylaws.
ARTICLE IV. OFFICERS.
Section 1. Number. The officers of the corporation shall be a
president, one or more vice-presidents (the number thereof to be determined by
the board of directors), a secretary, and a treasurer, each of whom shall be
elected by the board of directors. Such other officers, assistant officers and
acting officers as may be deemed necessary may be elected or appointed by the
board of directors. Any two or more offices may be held by the same person.
officers need not be residents of the State of Iowa or directors or
shareholders of the corporation.
Section 2. Election and Term of Office. The initial officers of
the corporation shall be elected by the board of directors at their
organization meeting and thereafter the officers shall be elected annually by
the board of directors at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by
the board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
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Section 5. President. The president shall be the principal
executive officer of the corporation and, subject to the control of the board
of directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders and of the board of directors. He shall in general perform
all duties incident to the office of president and such other duties as may be
prescribed by the bylaws or by the board of directors from time to time.
Section 6. Vice-Presidents. In the absence of the president or in
the event of his death, inability or refusal to act, the vice- president (or in
the event there be more than one vice-president, the vice-presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president; and in addition thereto, shall
perform such other duties as may be assigned to him by the president or by the
board of directors or prescribed by the bylaws.
Section 7. Secretary. The secretary shall: (a) keep the minutes of
the shareholders, and of the board of directors, meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep
a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) have general charge of the
stock transfer books of the corporation; and (f) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the president or by the board of directors.
Section 8. Treasurer. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the board of directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
V of these bylaws; and (b) in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the board of directors.
Section 9. Assistant Secretaries and Assistant Treasurers. The
assistant secretaries, when authorized by the board of directors, may sign with
the president or a vice-president certificates for shares of the corporation
the issuance of which shall have been authorized by a resolution of the board
of directors. The assistant treasurers shall respectively, if required by the
board of directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the board of directors shall determine.
The assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or the treasurer,
respectively, or
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by the president or the board of directors.
Section 10. Other Assistants and Acting Officers. The board of
directors shall have the power to appoint any person to act as assistant to any
officer, or to perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or acting
officer so appointed by the board of directors shall have the power to perform
all the duties of the office to which he is so appointed to be assistant, or as
to which he is so appointed to act, except as such power may be otherwise
defined or restricted by the board of directors.
Section 11. Salaries. The salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V. WRITTEN INSTRUMENTS, LOANS AND DEPOSITS.
Section 1. Written Instruments. Subject to the specific directions
of the board of directors, all deeds, mortgages, releases and other instruments
in writing affecting real estate made by the corporation shall be executed and
acknowledged in its name by the president or any vice-president and attested by
the secretary or any assistant secretary with the corporate seal attached. All
other written contracts and agreements to which the corporation shall be a
party shall be executed in its name by such officer or officers as shall be
authorized by the board of directors. The signatures of the proper officers of
the corporation on the bonds, notes, debentures or other evidences of
indebtedness of the corporation may be facsimiles and such facsimiles on such
instruments shall be deemed the equivalent of and constitute the written
signatures of such officers for all purposes including, but not limited to, the
full satisfaction of any signature requirements of the laws of the State of
Iowa on the bonds, notes, debentures and other evidence of indebtedness of the
corporation.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER.
Section 1. Certificates for Shares. Certificates representing
shares of the corporation
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shall be in such form as shall be determined by the board of directors. Such
certificates shall be signed by the president or a vice-president and by the
secretary or an assistant secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
Section 3. Stock Regulations. The board of directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of Iowa as they may deem expedient concerning
the issue, transfer, and registration of certificates representing shares of
the corporation.
ARTICLE VII. FISCAL YEAR.
The fiscal year of the Corporation shall be the calendar year commencing
with the calendar year 1985.
ARTICLE VIII. DIVIDENDS.
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE IX. SEAL.
The board of directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and word, "Seal."
ARTICLE X. VOTING OF SHARES OWNED BY CORPORATION.
Subject always to the specific directions of the board of directors, any
share or shares of stock issued by any other corporation and owned or
controlled by the corporation may be voted at any
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shareholders' meeting of such other corporation by the president of the
corporation if he be present, or in his absence by any vice-president of the
corporation who may be present. Whenever, in the judgment of the president, or
in his absence, of any vice-presidents, it is desirable for the corporation to
execute a proxy or give a shareholders, consent in respect to any share or
shares of stock issued by any other corporation and owned by the corporation,
such proxy or consent shall be executed in the name of the corporation by the
president or one of the vice-presidents of the corporation and shall be
attested by the secretary or an assistant secretary of the corporation under
the corporate seal without necessity of any authorization by the board of
directors. Any person or persons designated in the manner above stated as the
proxy or proxies of the corporation shall have full right, power and authority
to vote the share or shares of stock issued by such other corporation and owned
by the corporation the same as such share or shares might be voted by the
corporation.
ARTICLE XI. WAIVER OF NOTICE.
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of the articles of
incorporation or under the provisions of the Iowa Business Corporation Act, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XII. AMENDMENTS.
These bylaws may be altered, amended or repealed and new bylaws may be
adopted by the board of directors at any regular or special meeting of the
board of directors.
ARTICLE XIII. INDEMNIFICATION; INSURANCE.
The corporation shall have the power to make indemnification in the
manner and in the instances authorized by Section 496A.4A, Chapter 71, Acts of
70 G.A. 1983 Regular Session, with the understanding (a) that any reference to
the corporation shall include any of its subsidiaries, and (b) that in the
judgment of the board of directors the corporation may purchase and maintain
insurance on behalf of persons entitled to indemnification as provided in
Section 496A.4A(10).
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EXHIBIT 10.2.2
MAHASKA INVESTMENT COMPANY
1996 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of the plan is the Mahaska Investment Company 1996 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable the Company
(as hereinafter defined) and its Subsidiaries (as hereinafter defined) to
obtain and retain competent personnel who will contribute to the Company's
success by their ability, ingenuity and industry and to provide incentives to
the participating officers, key employees and nonemployee directors which are
related to increases in shareholder value and will therefore inure to the
benefit of all shareholders of the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Award" means any grant under the Plan in the form of Stock
Options, Stock Appreciation Rights, Performance Stock Units, Restricted Stock
Units or any combination of the foregoing.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" has the meaning given in Section 11 of the
Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(e) "Committee " means the Compensation Committee or any other
committee the Board may subsequently appoint to administer the Plan. The
Committee shall be composed entirely of directors who meet the qualifications
referred to in Section 2 of the Plan.
(f) "Company" means Mahaska Investment Company, a corporation
incorporated under the laws of the State of Iowa (or any successor
corporation).
(g) "Disability" means being permanently and totally disabled
under any insurance program of the Company, any Subsidiary or any Related
Entity.
(h) "Disinterested Person" shall have the meaning set forth in
Rule 16b-3 ("Rule 16b-3"), as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended from time to
time (the "Exchange Act"), or any successor definition adopted by the
Securities and Exchange Commission.
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(i) "Eligible Employee " means an employee of the Company, any
Subsidiary or any Related Entity as described in Section 4 of the Plan.
(j) " Fair Market Value" means, as of any given date, with
respect to any Awards granted hereunder, the bid price of the Stock on such
date as last reported on the NASDAQ National Market System, or if a bid price
for the Stock is not available on or with respect to such date on the NASDAQ
National Market System, on such other national security exchange on which the
Stock is admitted to trade, or, on the National Association of Securities
Dealers Automated Quotation System if the Stock is admitted for quotation
thereon, then as determined by the Committee.
(k) "Incentive Stock Option" means any Stock Option intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
(l) "Non-affiliated Director" means any member of the Board and
any member of the Board of Directors of a Subsidiary who is not an officer or
full-time employee of the Company, any Subsidiary or any Related Entity and who
is not affiliated with the Company or a shareholder thereof or otherwise has a
similar relationship to the Company.
(m) "Nonqualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(n) "Optionee " means a Participant granted a Stock Option
pursuant to Section 5 of the Plan which remains outstanding.
(o) "Participant" means any Eligible Employee selected by the
Committee, pursuant to the Committee's authority in Section 2 of the Plan, to
receive Awards and, solely to the extent provided by Section 8 of the Plan,
nonemployee directors of the Company.
(p) "Performance Stock Unit" means the right to receive one share
of Stock as set forth in an Award granted pursuant to Section 8 of the Plan,
the vesting of which is subject to restrictions that will lapse upon the
attainment of performance objectives.
(q) "Related Entity" means any corporation, bank, other financial
institution, joint venture or other entity, domestic or foreign, other than a
Subsidiary, in which the Company owns, directly or indirectly, a substantial
equity interest.
(r) "Reporting Person" means any person subject to the reporting
requirements of Section 16(a) of the Exchange Act.
(s) "Restricted Stock Unit" means the right to receive one share
of Stock as set forth in an Award granted pursuant to Section 7 of the Plan,
the vesting of which is subject to restrictions that will lapse with the
passage of time.
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(t) "Retirement" means (i) retirement from active employment under
a pension plan of the Company, any Subsidiary or Related Entity or under an
employment contract with any of them or (ii) termination of employment at or
after age 65 under circumstances which the Committee, in its sole discretion,
deems equivalent to retirement.
(u) "Stock" means the common stock of the Company.
(v) "Stock Appreciation Right" means the right pursuant to an
Award granted under Section 6 of the Plan, (i) in the case of a Related Stock
Appreciation Right (as defined in Section 6 of the Plan), to surrender to the
Company all or a portion of the related Stock Option and receive an amount
equal to the excess of the Fair Market Value of one share of Stock as of the
date such Stock Option or portion thereof is surrendered over the option price
per share specified in such Stock Option, multiplied by the number of shares of
Stock in respect of which such Stock Option is being surrendered, and (ii) in
the case of a Freestanding Stock Appreciation Right (as defined in Section 6 of
the Plan), to exercise such Freestanding Stock Appreciation Right and receive
an amount equal to the excess of the Fair Market Value of one share of Stock as
of the date of exercise over the price per share specified in such Freestanding
Stock Appreciation Right, multiplied by the number of shares of Stock in
respect of which such Freestanding Stock Appreciation Right is being exercised.
(w) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 of the Plan.
(x) "Subsidiary" means any corporation, bank, or other financial
institution in an unbroken chain of corporations, banks or other financial
institutions beginning with the Company, if each of the corporations, banks or
other financial institutions (other than the last corporation bank, or other
financial institution in the unbroken chain) owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the other
corporations, banks or other financial institutions in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee, composed of not less
than two directors who are Disinterested Persons, who shall be appointed by the
Board and who shall serve at the pleasure of the Board. In the event that a
Committee has not been appointed, then the Plan shall be administered by the
Board which shall have all of the power and authority of the Committee set
forth below until such time as a Committee is appointed. The Committee shall
have the power and authority in its sole discretion to grant Awards to Eligible
Employees pursuant to the terms and provisions of the Plan.
In particular, the Committee shall have full authority, not
inconsistent with the Plan:
(a) to select Participants from among the Eligible Employees;
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(b) to determine whether and to what extent Awards are to be
granted to Eligible Employees hereunder;
(c) to determine the number of shares of Stock to be covered by
each such Award granted hereunder, but in no case shall such number be in the
aggregate greater than that allowed under the Plan;
(d) to determine the terms and conditions of any Award granted
hereunder (including, without limitation, (i) the restricted periods applicable
to Restricted Stock Unit Awards and (ii) the performance objectives and periods
applicable to Performance Stock Unit Awards);
(e) to waive compliance by a Participant with any obligation to be
performed by him or her under any Award and to waive any term or condition of
any such Award (provided, however, that no such waiver shall detrimentally
affect the rights of a Participant without such Participant's consent); and
(f) to determine the terms and conditions which shall govern all
written agreements evidencing the Awards.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the provisions of the Plan and
the terms and conditions of any Award issued, expired, terminated, canceled or
surrendered under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan and as to the terms and conditions of any Award (and any agreements
relating thereto) shall be final and binding on all persons, including the
Company and the Participants.
SECTION 3. NUMBER OF SHARES OF STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
issuance under the Plan shall be two hundred fifty thousand (250,000). Such
shares of Stock may consist, in whole or in part, of authorized and unissued
shares of Stock or issued shares of Stock reacquired by the Company at any
time, as the Board may determine.
To the extent that (a) a Stock Option expires or is otherwise
terminated, canceled or surrendered without being exercised (including, without
limitation, in connection with the grant of a replacement option) or (b) any
Restricted Stock Unit Award or Performance Stock Unit Award granted hereunder
expires or is otherwise terminated or is canceled (prior to such date upon
which dividends or Dividend Equivalents (as defined in Section 7) are paid to
the Participant), the shares of Stock underlying such Stock Option or subject
to such Restricted Stock Unit Award or Performance Stock Unit Award shall again
be available for issuance in connection with future
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Awards under the Plan. Upon the exercise of a Related Stock Appreciation Right
(as defined in Section 7 of the Plan), the Stock Option, or the part thereof to
which such Related Stock Appreciation Right is related, shall be deemed to have
been exercised for the purpose of the limitation on the number of shares of
Stock to be issued under the Plan, but only to the extent of the number of
shares of Stock in respect of which the Related Stock Appreciation Right was
exercised.
The amount of Stock which may be issued under the Plan to any person
with respect to awards granted in any fiscal year shall not exceed an amount
representing or equal to 50,000 shares of Stock.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure or
capitalization affecting the Stock, the Committee in its sole discretion may
make an adjustment or substitution in the number and class of shares reserved
for issuance under the Plan, the number and class of shares set forth as the
annual maximum pursuant to this Section 3, the number and class of shares
covered by outstanding Awards and the option price per share of Stock Options
or the applicable price per share specified in Stock Appreciation Rights to
reflect the effect of such change in corporate structure or capitalization on
the Stock; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated; provided, further, however, that if by reason
of any such change in corporate structure or capitalization a Participant
holding a Restricted Stock Unit Award or Performance Stock Unit Award shall be
entitled, subject to the terms and conditions of such Award, to additional or
different shares of any security, the issuance of such additional or different
shares shall thereupon be subject to all of the terms and conditions (including
restrictions and performance criteria) which were applicable to such Award
prior to such change in corporate structure or capitalization; and, provided,
further, however, that unless the Committee in its sole discretion determines
otherwise, any issuance by the Company of shares of stock of any class or
securities convertible into shares of stock of any class shall not affect, and
no such adjustment or substitution by reason thereof shall be made with respect
to, the number or class of shares reserved for issuance under the Plan, the
number or class of shares covered by outstanding Awards or any option price or
applicable price.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company, its Subsidiaries and
its Related Entities who are responsible for or contribute to the management,
growth or profitability of the business of the Company, its Subsidiaries or its
Related Entities shall be eligible to be granted Awards; provided, however,
with respect to an employee of a Related Entity, that such person was an
employee of the Company, a Subsidiary or, if originally an employee of the
Company or a Subsidiary, or another Related Entity immediately prior to
becoming employed by such Related Entity and accepted employment with such
Related Entity at the request of the Company or a Subsidiary. The Participants
under the Plan shall be selected, from time to time, by the Committee, in its
sole discretion, from among those Eligible Employees.
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SECTION 5. STOCK OPTIONS.
(a) GRANT AND EXERCISE. Stock Options may be granted either alone
or in addition to other Awards granted under the Plan. Any Stock Option
granted under the Plan shall be in such form as the Committee may, from time to
time, approve, and the terms and conditions of Stock Option Awards need not be
the same with respect to each Optionee. Optionees shall enter into a Stock
Option agreement ("Stock Option Agreement") with the Company, in such form as
the Committee shall determine, which agreement shall set forth, among other
things, the option price of the option, the term of the option and conditions
regarding exercisability of the option granted thereunder.
(i) NATURE OF OPTIONS. The Committee shall have the
authority to grant any Participant either Incentive Stock Options,
Nonqualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights), except that the
Committee shall not grant any Incentive Stock Options to an employee
of a Related Entity. Any Stock Option which does not qualify as an
Incentive Stock Option, or the terms of which at the time of its grant
provide that it shall not be treated as an Incentive Stock Option,
shall constitute a Nonqualified Stock Option.
(ii) EXERCISABILITY. Subject to such terms and conditions
as shall be determined by the Committee in its sole discretion at or
after the time of grant, Stock Options shall be exercisable from time
to time to the extent of 33% of the number of shares of Stock covered
by the Stock Option on and after the first anniversary and before the
second anniversary of the date of grant of the Stock Option, to the
extent of 66% of the number of shares of Stock covered by the Stock
Option on and after the second anniversary and before the third
anniversary of the date of grant of the Stock Option and to the extent
of 100% of the number of shares of Stock covered by the Stock Option
on and after the third anniversary of the date of grant of the Stock
Option and before the expiration of the stated term of the Stock
Option (or to such lesser extent as the Committee in its sole
discretion shall determine at the time of grant or to such greater
extent as the Committee in its sole discretion shall determine at or
after the time of grant).
(iii) METHOD OF EXERCISE. Stock Options may be exercised
by giving written notice of exercise delivered in person or by mail as
required by the terms of any Stock Option Agreement at the Company's
principal executive office, specifying the number of shares of Stock
with respect to which the Stock Option is being exercised, accompanied
by payment in full of the option price in cash or its equivalent as
determined by the Committee in its sole discretion. If requested by
the Committee, the Optionee shall deliver to the Company the Stock
Option Agreement evidencing the Stock Option being exercised for
notation thereon of such exercise and return thereafter of such
agreement to the Optionee. As determined by the Committee in its sole
discretion at or after the time of grant, payment of the option price
in full or in part may also be made in the form of shares of
unrestricted Stock already owned by the Optionee (based on the Fair
Market Value of the Stock on the
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date the Stock Option is exercised); provided, however, that in the
case of an Incentive Stock Option, the right to make payment of the
option price in the form of already owned shares of Stock may be
authorized only at the time of grant. An Optionee shall generally
have the rights to dividends or other rights of a shareholder with
respect to shares of Stock subject to the Stock Option when the
Optionee has given written notice of exercise, has paid in full for
such shares of Stock, and, if requested, has made the representations
described in Section 12(a) of the Plan.
(b) TERMS AND CONDITIONS. Stock Options granted under the Plan
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan,
as the Committee shall deem desirable.
(i) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the
Committee at the time of grant, but shall be not less than 100% of the
Fair Market Value of the Stock on the date of the grant; provided,
however, that if any Participant owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or
any Subsidiary when an Incentive Stock Option is granted to such
Participant, the option price of such Incentive Stock Option (to the
extent required by the Code at the time of grant) shall be not less
than 110% of the Fair Market Value of the Stock on the date such
Incentive Stock Option is granted.
(ii) OPTION TERM. The term of each Stock Option shall be
fixed by the Committee at the time of grant, but no Stock Option shall
be exercisable more than ten years after the date such Stock Option is
granted; provided, however, that if any Participant owns or is deemed
to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary when an Incentive Stock Option
is granted to such Participant, such Stock Option (to the extent
required by the Code at time of grant) shall not be exercisable more
than five years from the date such Incentive Stock Option is granted.
(iii) TRANSFERABILITY OF OPTIONS. No Stock Options shall be
transferable by the Optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable,
during the Optionee's lifetime, only by the Optionee.
(iv) OPTION EXERCISE AFTER TERMINATION BY REASON OF
DISABILITY OR RETIREMENT. If an Optionee's employment with the
Company, any Subsidiary or any Related Entity terminates by reason of
Disability or Retirement, any Stock Option held by such Optionee may
thereafter be exercised for a period of three years (or such shorter
period as the Committee in its sole discretion shall specify at or
after the time of grant) from the date of such termination or until
the expiration of the stated term of such Stock Option, whichever
period is shorter, to the extent to which the Optionee would on the
date of exercise have been entitled to exercise the Stock Option if
such Optionee had continued to be employed by the
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Company, such Subsidiary or such Related Entity (or to such greater or
lesser extent as the Committee in its sole discretion shall determine
at or after the time of grant). In the event of a termination of
employment by reason of Disability or Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise period
that applies for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a Nonqualified Stock Option.
(v) OPTION EXERCISE AFTER TERMINATION BY CONSENT. If an
Optionee's employment with the Company or any Subsidiary is terminated
by the Company or such Subsidiary under mutually satisfactory
conditions or if an Optionee's employment with a Related Entity is
terminated under conditions mutually satisfactory to such Related
Entity and the Optionee, the Committee, in its sole discretion, may
permit the Optionee to exercise any Stock Option held by such Optionee
for a period of one year (or such shorter period as the Committee in
its sole discretion shall specify at or after the time of grant) from
the date of such termination or until the expiration of the stated
term of such Stock Option, whichever period is shorter, to the extent
to which the Optionee would on the date of exercise have been entitled
to exercise the Stock Option if such Optionee had continued to be
employed by the Company, such Subsidiary or such Related Entity (or to
such greater or lesser extent as the Committee in its sole discretion
shall determine at or after the time of grant). If an Optionee's
employment with the Company or any Subsidiary is terminated in
connection with such Optionee's acceptance of employment, at the
request of the Company or a Subsidiary, with a Related Entity (or an
Optionee's employment with one Related Entity is terminated in
connection with such Optionee's acceptance of employment, at the
request of the Company or a Subsidiary, with another Related Entity),
the Committee in its sole discretion may permit the Optionee to
exercise any Stock Option held by such Optionee after the date of such
termination at any time until the expiration of the stated term of
such Stock Option (or such shorter period as the Committee in its sole
discretion shall specify at or after the time of grant), to the extent
that the Optionee would on the date of exercise have been entitled to
exercise such Stock Option if such Optionee had continued to be
employed by the Company or such Subsidiary (or such initial Related
Entity), provided that the Optionee has been in continuous employ with
the Related Entity to which such Optionee has moved from the date of
acceptance of employment therewith until the date of exercise. In the
event of a termination of employment by the Company, any Subsidiary or
any Related Entity under mutually satisfactory conditions, if an
Incentive Stock Option is exercised after the expiration of the
exercise period that applies for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(vi) OPTION EXERCISE AFTER TERMINATION BY DEATH. If (x) an
Optionee's employment with the Company, any Subsidiary or any Related
Entity terminates by reason of death; (y) an Optionee dies within the
three year period (or such shorter period as the Committee shall have
specified for exercise in accordance with Section 5(a) of the Plan)
following termination by reason of Disability or Retirement as set
forth in Section 5(a) of the Plan or (z) an Optionee dies within the
one year period (or such shorter period as the
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Committee shall have specified for exercise in accordance with Section
5(a) of the Plan) following termination under mutually satisfactory
conditions as set forth in the first sentence of Section 5(a) of the
Plan, any Stock Option held by such Optionee may thereafter be
exercised by the legal representative of the estate or by the legatee
of the Optionee under the will of the Optionee for a period of one
year (or such shorter period as the Committee in its sole discretion
shall specify at or after the time of grant) from the date of such
death or until the expiration of the stated term of such Stock Option,
whichever period is shorter, to the extent to which the Optionee would
on the date of exercise have been entitled to exercise the Stock
Option if such Optionee had continued to be employed by the Company,
such Subsidiary or such Related Entity (or to such greater or lesser
extent as the Committee in its sole discretion shall determine at or
after the time of grant).
(vii) RESTRICTION ON EXERCISE AFTER TERMINATION.
Notwithstanding the provisions of this Section 5, but subject to the
provisions of Section 11 of the Plan, the exercise of any Stock Option
after termination of employment shall be subject to satisfaction of
the conditions precedent that the Optionee neither, (x) takes other
employment or renders services to others without the written consent
of the Company, nor (y) conducts himself in a manner adversely
affecting the Company.
(viii) OTHER TERMINATION. Except as otherwise provided in
this Section 5 or Section 11 of the Plan, or as determined by the
Committee in its sole discretion, if an Optionee's employment with the
Company, any Subsidiary or any Related Entity terminates, all Stock
Options held by the Optionee will terminate.
(ix) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the
extent required for incentive stock option treatment under Section 422
of the Code, the aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Stock
with respect to which Incentive Stock Options granted under the Plan
and all other option plans of the Company or any Subsidiary become
exercisable for the first time by an Optionee during any calendar year
shall not exceed $100,000; provided, however, that if the aggregate
Fair Market Value (so determined) of the shares of Stock covered by
such options exceeds $100,000 during any year in which they become
exercisable, such options with a Fair Market Value in excess of
$100,000 will be Nonqualified Stock Options.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted
either in conjunction with all or part of any Stock Option granted under the
Plan ("Related Stock Appreciation Rights) or alone ("Freestanding Stock
Appreciation Rights") and, in either case, in addition to other Awards granted
under the Plan. Participants shall enter into a Stock Appreciation Rights
agreement with the Company if requested by the Committee, in such form as the
Committee shall determine.
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<PAGE> 10
(i) TIME OF GRANT. Related Stock Appreciation Rights
related to a Nonqualified Stock Option may be granted either at or
after the time of the grant of such Nonqualified Stock Option.
Related Stock Appreciation Rights related to an Incentive Stock Option
may be granted only at the time of the grant of such Incentive Stock
Option. Freestanding Stock Appreciation Rights may be granted at any
time.
(ii) EXERCISABILITY. Related Stock Appreciation Rights
shall be exercisable only at such time or times and to the extent that
the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5(a)(ii) of the Plan and
Freestanding Stock Appreciation Rights shall be exercisable, subject
to such terms and conditions as shall be determined by the Committee
in its sole discretion at or after the time of grant, from time to
time, to the extent that Stock Options are exercisable in accordance
with the provisions of Section 5(a)(ii) of the Plan; provided,
however, that any Stock Appreciation Right granted to a director or
officer of the Company shall not be exercisable during the first six
months from the date of grant of such Stock Appreciation Right, except
that this additional limitation shall not apply in the event of death
or Disability of the director or officer prior to the expiration of
the six-month period. A Related Stock Appreciation Right granted in
connection with an Incentive Stock Option may be exercised only if and
when the Fair Market Value of the Stock subject to the Incentive Stock
Option exceeds the option price of such Stock Option.
(iii) METHOD OF EXERCISE. Stock Appreciation Rights shall
be exercised by a Participant by giving written notice of exercise
delivered in person or by mail as required by the terms of any
agreement evidencing the Stock Appreciation Right at the Company's
principal executive office, specifying the number of shares of Stock
in respect of which the Stock Appreciation Right is being exercised.
If requested by the Committee, the Participant shall deliver to the
Company the agreement evidencing the Stock Appreciation Right being
exercised and, in the case of a Related Stock Appreciation Right, the
Stock Option Agreement evidencing any related Stock Option, for
notation thereon of such exercise and return thereafter of such
agreements to the Participant.
(iv) AMOUNT PAYABLE. Upon the exercise of a Related Stock
Appreciation Right, an Optionee shall be entitled to receive an amount
in cash or shares of Stock equal in value to the excess of the Fair
Market Value of one share of Stock on the date of exercise over the
option price per share specified in the related Stock Option,
multiplied by the number of shares of Stock in respect of which the
Related Stock Appreciation Right shall have been exercised, with the
Committee having in its sole discretion the right to determine the
form of payment.
Upon the exercise of a Freestanding Stock Appreciation Right, a
Participant shall be entitled to receive an amount in cash or shares of Stock
equal in value to the excess of the Fair Market Value of one share of Stock on
the date of exercise over the price per share specified in the Freestanding
Stock Appreciation Right, which shall be not less than 100% of the Fair Market
Value of the Stock
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<PAGE> 11
on the date of grant, multiplied by the number of shares of Stock in respect
of which the Freestanding Stock Appreciation Right shall have been exercised,
with the Committee having in its sole discretion the right to determine the
form of payment.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights granted under
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions not inconsistent with the terms of
the Plan, as the Committee shall deem desirable.
(i) TERM OF STOCK APPRECIATION RIGHTS. The term of a
Related Stock Appreciation Right shall be the same as the term of the
related Stock Option. A Related Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be
exercisable upon the exercise, termination, cancellation or surrender
of the related Stock Option, except that, unless otherwise provided by
the Committee in its sole discretion at or after the time of grant, a
Related Stock Appreciation Right granted with respect to less than the
full number of shares of Stock covered a related Stock Option shall
terminate and no longer be exercisable if and to the extent that the
number of shares of Stock covered by the exercise, termination,
cancellation or surrender of the related Stock Option exceeds the
number of shares of Stock not covered by the Related Stock
Appreciation Right.
The term of each Freestanding Stock Appreciation Right shall be fixed
by the Committee, but no Freestanding Stock Appreciation Right shall be
exercisable more than ten years after the date such right is granted.
(ii) TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under Section 5(b)(iii) of
the Plan.
(iii) TERMINATION OF EMPLOYMENT. In the event of the
termination of employment of an Optionee holding a Related Stock
Appreciation Right, such right shall be exercisable to the same extent
that the related Stock Option is exercisable after such termination.
In the event of the termination of employment of the holder of a
Freestanding Stock Appreciation Right, such right shall be exercisable to the
same extent that a Stock Option with the same terms and conditions as such
Freestanding Stock Appreciation Right would have been exercisable in the event
of the termination of employment of the holder of such Stock Option.
SECTION 7. RESTRICTED STOCK UNITS AND PERFORMANCE STOCK UNITS.
(a) GRANT. Awards of Restricted Stock Units or Performance Stock
Units may be granted either alone or in addition to other Awards granted under
the Plan. Each Restricted Stock Unit or Performance Stock Unit represents the
right to receive, subject to the terms and provisions of the Plan and any
agreements evidencing such Awards, one share of Stock. If the Committee in its
sole discretion so determines at the time of grant, a Participant to whom a
Restricted Stock Unit Award
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or Performance Stock Unit Award has been granted may be credited with
an amount equivalent to all cash dividends ("Dividend Equivalents") that would
have been paid to the holder of such Restricted Stock Unit Award or Performance
Stock Unit Award if one share of Stock for every Restricted Stock Unit or
Performance Stock Unit awarded had been issued to the holder on the date of
grant of such Restricted Stock Unit Award or Performance Stock Unit Award. The
Committee shall determine the terms and conditions of each Restricted Stock
Unit Award and Performance Stock Unit Award including, without limitation, the
number of Restricted Stock Units or Performance Stock Units to be covered by
such Award, the restricted period applicable to Restricted Stock Unit Awards
and the performance objectives applicable to Performance Stock Unit Awards.
The Committee in its sole discretion may prescribe terms and conditions
applicable to the vesting of such Restricted Stock Unit Awards or Performance
Stock Unit Awards in addition to those provided in the Plan. The Committee
shall establish such rules and guidelines governing the crediting of Dividend
Equivalents, including the timing, form of payment and payment contingencies of
Dividend Equivalents, as it may deem desirable. The Committee in its sole
discretion may at any time accelerate the time at which the restrictions on all
or any part of a Restricted Stock Unit Award lapse or deem the performance
objectives with respect to all or any part of a Performance Stock Unit Award to
have been attained. Restricted Stock Unit Awards and Performance Stock Unit
Awards shall not be transferable otherwise than by will or by the laws of
descent and distribution. Shares of Stock shall be deliverable upon the
vesting of Restricted Stock Unit Awards and Performance Stock Unit Awards for
no consideration other than services rendered or, in the Committee's sole
discretion, the minimum amount of consideration other than services (such as
the par value per share of Stock) required to be received by the Company in
order to assure compliance with applicable state law, which amount shall not
exceed 10% of the Fair Market Value of such shares of Stock on the date of
issuance. Each such Award shall be evidenced by a Restricted Stock Unit Award
agreement ("Restricted Stock Unit Award Agreement") or Performance Stock Unit
Award agreement ("Performance Stock Unit Award Agreement").
(b) TERMS AND CONDITIONS. Unless otherwise determined by the
Committee in its sole discretion:
(i) a breach of any term or condition provided in the
Plan, the Restricted Stock Unit Award Agreement or the Performance
Stock Unit Award Agreement or established by the Committee with
respect to such Restricted Stock Unit Award or Performance Stock Unit
Award will cause a cancellation of the invested portion of such
Restricted Stock Unit Award or Performance Stock Unit Award (including
any invested Dividend Equivalents credited in respect thereof) and the
Participant shall not be entitled to receive any consideration in
respect of such cancellation; and
(ii) subject to Section 11 of the Plan, termination of
such holder's employment with the Company, any Subsidiary or any
Related Entity prior to the lapsing of the applicable restriction
period or attainment of applicable performance objectives will cause a
cancellation of the invested portion of such Restricted Stock Unit
Award or Performance
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Stock Unit Award (including any Dividend Equivalents credited in
respect thereof and the Participant shall not be entitled to receive
any consideration in respect of such cancellation.
(c) COMPLETION OF RESTRICTION PERIOD AND ATTAINMENT OF PERFORMANCE
OBJECTIVES. To the extent that restrictions with respect to any Restricted
Stock Unit Award lapse or performance objectives with respect to any
Performance Stock Unit Award are attained and provided that other applicable
terms and conditions have then been satisfied:
(i) such of the Restricted Stock Units or Performance
Stock Units as to which restrictions have lapsed or performance
objectives have been attained shall become vested and the Committee
shall cause to be issued and delivered to the Participant a stock
certificate representing a number of shares of Stock equal to such
number of Restricted Stock Units or Performance Stock Units, free of
all restrictions, except as provided in Section 11 (a) of the Plan;
and
(ii) any Dividend Equivalents credited in respect of such
Restricted Stock Units or Performance Stock Units shall become vested
to the extent that such Restricted Stock Units or Performance Stock
Units shall have become vested and the Committee shall cause such
Dividend Equivalents to be delivered to the Participant.
Any such Restricted Stock Unit Award or Performance Stock Unit Award
(including any Dividend Equivalents credited in respect thereof) that shall not
have become vested at the end of the applicable restricted period or the period
given for the attainment of performance objectives shall expire, terminate and
be canceled and the Participant shall not thereafter have any rights with
respect to the Restricted Stock Units or Performance Stock Units (or any
Dividend Equivalents credited in respect thereto) covered thereby.
SECTION 8. GRANT OF STOCK OPTIONS TO NON-AFFILIATED DIRECTORS.
After the close of the applicable exchange on the date of the annual
meeting of shareholders of the Company next following a Non- affiliated
Director's initial full year of service as such on the Board or the Board of
Directors of a Subsidiary, and the date of any subsequent annual meeting of
shareholders of the Company when a Non-affiliated Director was serving as such
during the term immediately preceding such meeting of the Company shareholders,
or, in the case of a Subsidiary with a fiscal year different from the Company,
the entire fiscal year of such Subsidiary immediately preceding the year in
which such meeting of the Company's shareholders is held, each Non-affiliated
Director shall be granted an Award consisting of a Stock Option to purchase
such number of full shares of Common Stock equal to 5% of the pre- tax profits,
if any, for the last full fiscal year of the Company divided by the Option
Price per share equal to 100% of the Fair Market Value of the Stock on such
annual meeting date divided by the number of Non-affiliated Directors on the
Board and the Board of Directors of Subsidiaries eligible to receive Awards on
such date. All such Stock Options shall be designated as Nonqualified Stock
Options. Subject to Section II of the Plan, a Nonaffiliated Director must
serve continuously as a Non-affiliated Director of the Company for a period of
twelve
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consecutive months from the date such Award is granted before he or she
can exercise any part of such Award. Thereafter, on and after the first
anniversary of the date of granting the Award and before the second
anniversary, the Non-affiliated Director may exercise the Award with respect to
not more than 33% of the number of shares of Stock covered thereby, on and
after the second anniversary and before the third anniversary, the
Non-affiliated Director may exercise the Award with respect to not more than
66% of the number of shares of Stock covered thereby, and on and after the
third anniversary and before the expiration of the stated term of the Award,
which shall be ten years from the date of its granting, the Non-affiliated
Director may at any time or from time to time exercise the Award with respect
to all or any portion of the shares of Stock covered thereby. If a
Non-affiliated Director's service with the Company terminates by reason of
permanent and total disability or retirement from active service as a director
of the Company, any Award held by such Non-affiliated Director may be exercised
for a period of three years from the date of such termination or until the
expiration of the Award, whichever is shorter, to the extent to which the
individual would on the date of exercise have been entitled to exercise the
Award if such individual had continued to serve as a Non-affiliated Director.
If a Non-affiliated Director's service with the Company terminates by reason of
death or under mutually satisfactory conditions, or if a Non-affiliated
Director dies within the three-year period following termination by reason of
permanent and total disability or retirement from active service as a director
of the Company or within the one year period following termination under
mutually satisfactory conditions, any Award held by such Non- affiliated
Director may be exercised for a period of one year from the date of such
termination or post-termination death, as the case may be, or until the
expiration of the stated term of the Award, whichever is shorter, to the extent
to which the individual would on the date of exercise have been entitled to
exercise the Award if such individual had continued to serve as a
Non-affiliated Director. All applicable provisions of the Plan not
inconsistent with this Section 8 shall apply to Awards granted to Nonaffiliated
Directors; provided, however, that the Committee may not exercise discretion
under any provision of the Plan with respect to Awards granted under this
Section 8 to the extent that such discretion is inconsistent with Rule 16b-3.
SECTION 9. AMENDMENT AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (a) which would impair the rights
of a Participant under any Award theretofore granted without such Participant's
consent, or (b) which, without the approval of the shareholders of the Company
(but only where such approval is necessary to satisfy then-applicable
requirements of Rule 16b-3, any Federal tax law relating to Incentive Stock
Options or applicable state law), would:
(i) modify the formula set forth in Section 8 (other than
as may be required for compliance under applicable federal income tax
or Employee Retirement Income Security Act of 1974, as amended, laws
and regulations);
(ii) except as provided in Section 3 of the Plan, increase
the total number of shares of Stock which may be issued under the Plan;
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<PAGE> 15
(iii) except as provided in Section 3 of the Plan, decrease
the option price of any Stock Option to less than 100% of the Fair
Market Value on the date of the grant of the Option;
(iv) change the class of employees or directors eligible
to participate in the Plan; or
(v) extend (A) the period during which Stock Options may
be granted or (B) the maximum period of any Award under Sections
5(b)(ii) or 6(b)(i) of the Plan.
Except as restricted herein with respect to Incentive Stock Options,
the Committee may amend or alter the terms and conditions of any Award
theretofore granted, and of any agreement evidencing such Award, prospectively
or retroactively, but no such amendment or alteration shall impair the rights
of any Participant under such Award or agreement without such Participant's
consent.
SECTION 10. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan. With respect
to any payments not yet made and due to a Participant by the Company, nothing
contained herein shall give any such Participant any rights that are greater
than those of a general unsecured creditor of the Company.
SECTION 11. CHANGE IN CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a Change in Control notwithstanding other provisions of the Plan or
any provisions of any applicable agreement to the contrary:
(a) In the event of a Change in Control:
(i) the restriction period applicable to any Restricted
Stock Unit Award shall lapse, the performance objectives applicable to
any Performance Stock Unit Award shall be deemed attained, and any
other restrictions or conditions applicable to any Restricted Stock
Unit Award or Performance Stock Unit Award shall be waived and the
shares of Stock covered thereby and all unrestricted Dividend
Equivalents credited in respect thereof shall be deemed fully vested;
and
(ii) any Participant holding an Award who is terminated by
the Company or any Subsidiary for any reason within the two year
period immediately following a Change in Control shall be permitted to
exercise any Stock Option, Stock Appreciation Right after such
termination of employment at any time (x) within the three month
period commencing on the later of the date of termination of his or
her employment or the date on which such Award would first be
exercisable in accordance with the terms of the Plan had such
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<PAGE> 16
termination not occurred or (y) until the stated term of such Award,
whichever period is shorter.
(b) For purposes of the Plan, "Change in Control" shall mean a
Change in Control of the Company, which shall be deemed to have occurred if:
(i) any Person (as defined in this Section 11) is or
becomes the Beneficial Owner (as defined in this Section 11) of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities (unless the
event causing the 20% threshold to be crossed is an acquisition of
securities directly from the Company);
(ii) during any period of two consecutive years beginning
after December 31,1996, individuals who at the beginning of such
period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii) or
(iv) of this Change in Control definition) whose election or
nomination for election was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved cease for any reason to constitute a
majority of the Board;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation (other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the entity surviving such merger or
consolidation), in combination with voting securities of the Company
or such surviving entity held by a trustee or other fiduciary pursuant
to any employee benefit plan of the Company or such surviving entity
or of any Subsidiary of the Company or such surviving entity, at least
80% of the combined voting power of the securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of
the Company's assets.
(c) For purposes of the definition of Change in Control, "Person"
shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act as supplemented by Section 13(d)(3) of the Exchange Act; provided, however,
that Person shall not include (i) the Company, any Subsidiary or any other
Person controlled by the Company, (ii) any trustee or other fiduciary holding
securities under any employee benefit plan of the Company or of any Subsidiary,
(iii) a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of securities
of the Company, or (iv) any person who, as of December
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31, 1996, was the beneficial owner (as defined in this Section 11) of
securities of the Company representing 20% or more of the combined voting
power.
(d) For purposes of the definition of Change in Control, a Person
shall be deemed the Beneficial Owner of any securities which such Person,
directly or indirectly, has the right to vote or dispose of or has "beneficial
ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of,
including pursuant to any agreement, arrangement or understanding (whether or
not in writing); provided, however, that: (i) a Person shall not be deemed the
Beneficial Owner of any security as a result of an agreement, arrangement or
understanding to vote such security (x) arising solely from a revocable proxy
or consent given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and the applicable rules
and regulations thereunder or (y) made in connection with, or to otherwise
participate in, a proxy or consent solicitation made, or to be made, pursuant
to, and in accordance with, the applicable provisions of the Exchange Act and
the applicable rules and regulations thereunder; in either case described in
clause (x) or clause (y) above, whether or not such agreement, arrangement or
understanding is also then reportable by such Person on Schedule 13 under the
Exchange Act (or any comparable or successor report); and (ii) a Person engaged
in business as an underwriter of securities shall not be deemed to be the
Beneficial Owner of any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of forty
days after the date of such acquisition.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each Optionee purchasing shares of
Stock pursuant to a Stock Option to represent to and agree with the Company in
writing that such Optionee is acquiring the shares of Stock without a view to
distribution thereof.
All certificates for shares of Stock delivered under the Plan and, to
the extent applicable, all evidences of ownership with respect to Dividend
Equivalents delivered under the Plan, shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed or quotation
system on which the Stock is admitted for trading and any applicable federal or
state securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company, any Subsidiary or any
Related Entity any right to continued employment with the Company, any
Subsidiary or any Related Entity, as the case may be, nor shall it interfere in
any way with the right of the Company, any Subsidiary or any Related Entity to
terminate the employment of any of its employees at any time.
-17-
<PAGE> 18
(c) Each Participant shall be deemed to have been granted an Award
on the date the Committee took action to grant such Award under the Plan or
such later date as the Committee in its sole discretion shall determine at the
time such grant is authorized.
(d) Unless the Committee otherwise determines, each Participant
shall, no later than the date as of which the value of an Award first becomes
includable in the gross income of the Participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the
Committee regarding payment of, any federal, state or local taxes of any kind
required by law to be withheld with respect to the Award. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company (and, where applicable, its Subsidiaries and its Related
Entities) shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Participant. A
Participant (other than a Non-affiliated Director) may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Stock to be issued upon the exercise of a
Stock Option or upon the vesting of any Restricted Stock Unit Award or
Performance Stock Unit Award a number of shares of Stock with an aggregate Fair
Market Value that would satisfy the withholding amount due, or (ii)
transferring to the Company shares of Stock owned by the Participant with an
aggregate Fair Market Value that would satisfy the withholding amount due.
With respect to any Participant who is a director or officer, the following
additional restrictions shall apply:
(i) the election to satisfy tax withholding obligations
relating to the exercise of a Stock Option or to the vesting of a
Restricted Stock Unit Award or Performance Stock Unit Award in the
manner permitted by this subsection (d) shall be made either (x)
during the period beginning on the third business day following the
date of release of quarterly or annual summary statements of sales and
earnings and ending on the twelfth business day following such date,
or (y) at least six months prior to the date on which the amount of
tax to be withheld upon the exercise of such Stock Option or the
vesting of such Restricted Stock Unit Award or Performance Stock Unit
Award is determinable;
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the consent or
disapproval of the Committee; and
(iv) such election shall not be made within six months of
the date of the grant of such Award.
(e) No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, failure to act, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and
-18-
<PAGE> 19
protected by the Company in respect of any such action, failure to act,
determination or interpretation.
(f) The Plan is intended to satisfy the applicable conditions of
Rule 16b-3, and all interpretations of the Plan shall, to the extent permitted
by law, regulations and rulings, be made in a manner consistent with and so as
to satisfy the conditions of Rule 16b-3. The phrase "director or officer" as
used in the Plan means any director or officer who is subject to the provisions
of Section 16(b) of the Exchange Act. Any provision of the Plan or the
application of any provision of the Plan inconsistent with Rule 16b-3 shall be
inoperative and shall not affect the validity of the Plan.
In interpreting and applying the provisions of the Plan, any Stock
Option granted as an Incentive Stock Option pursuant to the Plan shall to the
extent permitted by law, regulations and rulings be construed as, and any
ambiguity shall be resolved in favor of preserving its status as, an "incentive
stock option" within the meaning of Section 422 of the Code. Once an Incentive
Stock Option has been granted, no action by the Committee that would cause such
Stock Option to lose its status under the Code as an "incentive stock option"
shall be effective as to such Incentive Stock Option unless taken at the
request of or with the consent of the Optionee. Notwithstanding any provision
to the contrary in the Plan or in any Incentive Stock Option granted pursuant
to the Plan, if any change in law or any regulation or ruling of the Internal
Revenue Service shall have the effect of disqualifying any Stock Option granted
under the Plan which is intended to be an "incentive stock option" within the
meaning of Section 422 of the Code, the Stock Option granted shall nevertheless
continue to be outstanding as and shall be deemed to be a Nonqualified Stock
Option under the Plan.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of February 22, 1996 by action of the
Board of Directors conditioned on and subject to approval of the Plan by the
vote of the shareholders of the Company holding a majority of the shares of
Stock of the Company present in person or by proxy at a duly held meeting of
shareholders.
SECTION 14. TERM OF PLAN.
No Award shall be granted under the Plan on or after the tenth
anniversary of the effective date of the Plan; provided, however, that
Awards granted prior to such tenth anniversary may extend beyond that date.
-19-
<PAGE> 1
EXHIBIT 10.5.2
MAHASKA INVESTMENT COMPANY
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1996 (the "Credit Agreement"), between the undersigned, Mahaska
Investment Company, an Iowa corporation (the "Borrower"), and you (the "Bank").
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement.
The Borrower has requested that the Bank increase the Commitment to
$17,000,000, extend the maturity to June 19, 1997, and make certain other
amendments to the Credit Agreement, and the Bank is willing to do so under the
terms and conditions set forth in this Amendment.
1. AMENDMENTS.
Upon your acceptance hereof in the space provided for that purpose
below, the Credit Agreement shall be and hereby is amended as follows:
(a) Section 1.1 of the Credit Agreement shall be amended
by deleting the amount "$15,000,000" appearing therein and inserting
the amount "$17,000,000" in lieu thereof.
(b) Section 3 of the Credit Agreement shall be amended by
adding the phrase "and of MIC Leasing Company" immediately following
the name "Central Valley Bank" appearing in the third lien therein.
(c) The definition of "Termination Date" appearing in
Section 4 of the Credit Agreement shall be amended by deleting the
date "July 31, 1996" and inserting the date "June 19, 1997" in lieu
thereof.
(d) The first sentence to Section 5.4 of the Credit
Agreement shall be amended in its entirety, and as amended it shall be
restated to read as follows:
"The Borrower shall use the proceeds of the Loans during the
term of this Agreement solely for the following purposes: (a)
to finance the purchase price of participation interests in
loan pools from the FDIC
<PAGE> 2
and/or RTC, (b) to finance its general working capital
requirements, (c) up to $5,000,000 in the aggregate to finance
its acquisition of a branch of Boatmen's Bankshares, Inc. or
of one of its subsidiaries, and (d) up to $2,000,000 in the
aggregate to make loans, advances, or additional investments
in MIC Leasing Company."
(e) Section 7.10 of the Credit Agreement shall be amended
by deleting the percentage "35%" appearing therein and inserting the
percentage "40%" in lieu thereof.
(f) Exhibit A to the Credit Agreement shall be amended in
its entirety, and as amended it shall be restated to read as set forth
on Exhibit A attached hereto and made a part hereof.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Borrower and the Bank shall have executed and
delivered this Amendment, and the Borrower shall have executed and
delivered to the Bank a replacement Note in the form attached hereto
as Exhibit A.
(b) The Borrower and the Bank shall have executed and
delivered an amendment to the Collateral Documents in form and
substance satisfactory to the Bank, and the Borrower shall have
delivered to the Bank certificates for 100% of the capital stock of
MIC Leasing Company together with executed stock powers therefor.
(c) Legal matters incident to the execution and delivery
of this Amendment, the amendments to the Collateral Documents, and the
replacement Note shall be satisfactory to the Bank and its counsel.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Borrower hereby represents to the Bank that as of the date hereof, the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Borrower delivered to the Bank) and the Borrower is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
<PAGE> 3
4. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement
shall continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Note, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Borrower agrees to pay on demand all costs and expenses of
or incurred by the Bank in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Bank.
(c) This Amendment may be executed in any number of counterparts,
and by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Amendment by signing any such counterpart and
each of such counterparts shall for all purposes be deemed to be an original.
This Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of June 19, 1996.
MAHASKA INVESTMENT COMPANY
By
---------------------------
Its
---------------------------
Accepted and agreed to in Chicago, Illinois as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By
---------------------------
Its Vice President
<PAGE> 4
EXHIBIT A
REVOLVING CREDIT NOTE
$17,000,000 Chicago, Illinois
June 19, 1996
On the Termination Date, for value received, the undersigned, MAHASKA
INVESTMENT COMPANY, an Iowa corporation (the "Borrower"), hereby promises to
pay to the order of HARRIS TRUST AND SAVINGS BANK (the "Bank") at its office at
111 West Monroe Street, Chicago, Illinois, the principal sum of (i) Seventeen
Million Dollars ($17,000,000), or (ii) such lesser amount as may at the time of
the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all Loans owing from the Borrower to the Bank under
the Revolving Credit provided for in the Credit Agreement hereinafter
mentioned.
This Note is issued in substitution and replacement for, and evidences
the indebtedness currently evidenced by, that certain Revolving Credit Note of
the Borrower dated January 31, 1996, in the principal amount of $15,000,000
and, in addition, evidences additional Loans made or to be made to the Borrower
by the Bank under the Revolving Credit provided for under that certain Credit
Agreement dated as of January 31, 1996, as amended, between the Borrower and
the Bank (said Credit Agreement, as the same may be amended, modified or
restated from time to time, being referred to herein as the "Credit
Agreement"), and the Borrower hereby promises to pay interest at the office
described above on such Loans evidenced hereby at the rates and at the times
and in the manner specified therefor in the Credit Agreement.
This Note is issued by the Borrower under the terms and provisions of
the Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due to prior its expressed maturity and voluntary
prepayments may be made hereon, in all the events, on the terms and with the
effects provided in the Credit Agreement. All capitalized terms used herein
without definition shall have the same meanings herein as such terms are
defined in the Credit Agreement.
The Borrower hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Borrower hereby
waives presentment for
<PAGE> 5
payment and demand. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPALS OF CONFLICTS OF LAWS.
MAHASKA INVESTMENT COMPANY
By
---------------------------
---------------------------
(Type or Print Name) (Title)
<PAGE> 1
EXHIBIT 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Not Covered by Auditor's Report)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
EARNINGS PER SHARE INFORMATION:
- -------------------------------
Weighted average number
of shares outstanding
during the year 2,246,651 2,277,944 1,686,821
Net earnings $ 4,494,394 3,922,697 2,780,175
Earnings per share $ 2.00 1.72 1.66
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
MAHASKA INVESTMENT COMPANY (THE "COMPANY") RECORDED NET INCOME OF $4,494,000,
OR $2.00 PER SHARE, FOR THE YEAR ENDED DECEMBER 31, 1996, which is an increase
of 14.6 percent compared with the net income of $3,923,000, or $1.72 per share,
earned in 1995. The net income for 1995 increased 41.1 percent from the
$2,780,000, or $1.65 per share, earned in 1994.
The Company's total assets increased 22.8 percent in 1996 compared to 1995.
Much of this growth was attributable to Central Valley Bank's ("CVB")
acquisition of a bank office in June 1996. Through this acquisition the Company
acquired approximately $14,645,000 in loans and approximately $32,083,000 in
deposits. Both Mahaska State Bank ("MSB") and CVB experienced loan and deposit
growth in 1996. Exclusive of the bank office acquisition, the Company's total
assets as of December 31, 1996, had increased approximately $9.4 million, or 4.6
percent, from the year-end 1995 total. Deposit growth in 1996 was approximately
8.3 percent without the bank office acquisition. During 1995, the Company's
total assets grew 9.8 percent from 1994 while deposits increased 10.3 percent.
Return on average assets was 1.93 percent in 1996, 2.04 percent in 1995,
and 1.68 percent in 1994. The Company's return on average equity has shown an
increase during each of the last three years and was 13.52 percent in 1996,
12.67 percent in 1995, and 12.45 percent in 1994.
INTEREST AND DISCOUNT ON
LOAN POOL PARTICIPATION
(In thousands)
[BAR CHART]
<TABLE>
<S> <C> <C> <C>
93 94 95 96
$3,930 4,479 7,864 9,097
</TABLE>
INVESTMENT IN LOAN POOLS The Company continued to experience increasing returns
on its investment in loan pool participations. Interest income and discount on
the loan pool participations increased 15.7 percent in 1996 to $9,097,000. For
the year 1995, interest income and discount from loan pool participations
increased 75.6 percent to $7,864,000 compared to $4,479,000 for the year ended
December 31, 1994.
The average loan pool participation investment by the Company for 1996
was $50,105,000 compared with an average for 1995 of $45,582,000. During 1996
the Company invested $29,827,000 in loan pool participations with most of this
growth occurring in the second and third quarters of the year. New loan pool
investments made during 1995 totaled $12,468,000. Throughout 1996, loan pool
participation investments averaged 23.7 percent of earning assets while in 1995
they were 25.7 percent of average earning assets. The yield on loan pool
participation investments rose to 18.2 percent for 1996, compared with 17.3
percent in 1995.
NET INTEREST INCOME Net interest income for the year ended December 31, 1996,
increased 25.6 percent to $14,098,000. Net interest income for 1995 was
$11,227,000, an increase of 35.2 percent from $8,303,000 in 1994.
Net interest income for 1996 increased $2,871,000 compared with 1995.
Total interest income increased by $4,302,000 in 1996, partially offset by a
$1,431,000 increase in total interest expense. Interest income on loans
increased by $2,428,000, and interest income and discount
collected on loan pool participations rose by $1,233,000 in 1996. Interest
income on taxable investment securities held as available for sale increased
by $690,000 in 1996 compared with 1995. Most of the increases in interest
income on earning
12
<PAGE> 2
TOTAL ASSETS
(In thousands)
[BAR CHART]
<TABLE>
<CAPTION>
93 94 95 96
<S> <C> <C> <C>
$143,752 186,818 205,162 251,851
</TABLE>
assets were attributable to higher volumes of these assets during 1996 compared
to 1995. For 1996, interest expense on deposits increased by $1,108,000 and the
interest expense on borrowed funds grew by $323,000 reflecting increased levels
of deposits and borrowed funds over 1995. The Company's net interest margin
rose to 6.69 percent on a fully tax equivalent basis for 1996, up from 6.48
percent for 1995.
The $2,924,000 increase in net interest income in 1995 was primarily
attributable to the increase in interest income and discount collected on loan
pool participations and to an increase in interest income on loans. An increase
of $2,424,000 in interest expense on deposits and borrowed funds partially
offset the additional interest income. Interest income and discount recovery on
loan pool participations increased $3,385,000 in 1995 as the pools acquired in
the latter part of 1994 began to show recoveries. Interest income on loans
increased $1,905,000 over 1994 as loan volumes grew in 1995. Interest expense on
deposits rose in 1995 compared to 1994 as the deposits acquired in the formation
of CVB were on the Company's books for the entire year. Additionally, the
Company's total deposits rose $15,028,000 from year-end 1994 to 1995 resulting
in higher interest expense. The Company's net interest margin increased to 6.48
percent for 1995 compared with 5.58 percent in 1994.
PROVISION FOR LOAN LOSSES The Company recorded a provision for loan loss
expense of $987,000 for 1996 compared to a 1995 provision of $168,000 and a
1994 provision of $183,000. The increase in 1996 provision was primarily
attributable to problems in a line of credit managed by our commercial finance
subsidiary, MIC Leasing Co. ("Leasing"). This line was charged off prior to
year-end 1996. The decrease in the provision for 1995 compared to 1994
reflects a reduction in the net charge-offs in 1995.
OTHER INCOME Noninterest income increased $205,000 in 1996 compared with 1995.
An increase in service charge and fee income related to the bank office
acquisition contributed to the growth in noninterest income. Higher trust
income in 1996 also added to total noninterest income. The Company did
recognize a loss on the sale of some of its investment securities held as
available for sale during the year. These securities were sold to meet
liquidity needs.
The Company's total other income decreased $156,000 in 1995 to $1,301,000
from the $1,457,000 recorded in 1994. The $199,000 decrease in data processing
income in 1995 was the primary reason for the decline in total other income.
This was caused by a reduction in the number of non-affiliated banks that
Mahaska State Bank provided data processing for in 1995. Service charge income
grew $76,000 in 1995 reflecting the additional accounts acquired in the
formation of CVB.
OTHER EXPENSE Noninterest expense increased 20 percent for the year 1996
compared to 1995. The additional operating expenses associated with the
operation of CVB's Fairfield grocery store branch and the expanded Sigourney
branch contributed significantly to the increase in noninterest expense. The
Savings Association Insurance Fund (SAIF) one-time assessment which occurred on
September 30, 1996, resulted in a net increase in the Company's FDIC assessment
expense of approximately $69,000. The one-time assessment was offset by reduced
overall FDIC insurance costs for
13
<PAGE> 3
MSB and CVB. The Company incurred additional amortization expense on the
deposit premium paid for the acquisition of the bank branch.
The formation of CVB was the primary factor in the 1995 operating expense
increase of $998,000 compared to 1994. Central Valley operations produced
increases in salary and benefits expense, occupancy expense, other operating
expense, and goodwill amortization expense. One area of significant expense
reduction in 1995 was in the FDIC assessment expense incurred by MSB. Mahaska
State Bank's premium cost decreased by $115,000 due to the overall reduction in
the assessment rate.
INCOME TAX EXPENSE The Company's income tax expense for the year 1996 increased
$398,000 (20 percent) compared with 1995 mainly due to the increase in before
tax earnings. Income tax expense for 1995 increased $642,000 when compared to
1994 primarily as a result of the overall increase in earnings. The Company's
consolidated income tax rate varies from the statutory rate
principally due to interest income from tax-exempt securities and loans. The
effective income tax rate as a percent of income before taxes was 34.7 percent
in 1996, 33.6 percent for 1995, and 32.6 percent for 1994.
CAPITAL RESOURCES Total shareholders' equity as of December 31, 1996, was
$34,243,000, which is an increase of $2,137,000 due to the retention of
earnings from the December 31, 1995, total of
CENTRAL VALLEY
DOUBLES IN ASSET SIZE
The June 1996 acquisition of the Boatmen's Bank office effectively doubled the
size of CVB. Total assets of CVB rose by $37.3 million on the date
it acquired the bank office in Sigourney. The acquisition produced an increase
in all interest income, interest expense, noninterest income,
and noninterest expense categories for the year 1996 in comparison with 1995.
The bank office acquisition provides CVB with a significantly expanded market
presence in Keokuk County.
BOOK VALUE PER SHARE
[BAR CHART]
<TABLE>
<S> <C> <C> <C>
93 94 95 96
$11.74 13.04 14.15 15.36
</TABLE>
$32,106,000. Shareholders' equity as a percentage of total assets was 13.6
percent on December 31, 1996, versus 15.6 percent on December 31, 1995. The
decrease in the percentage of shareholders' equity to total assets reflects
the increase in total assets in 1996. During 1996 the Company repurchased
40,000 shares of its common stock, leaving 2,229,506 shares outstanding as of
year-end 1996.
Effective January 1, 1994, the Company adopted the Statement of Financial
Accounting Standards No. 115. This accounting standard requires the
classification of investment securities based on the Company's intended holding
period. Accordingly, securities which the Company may sell at its discretion
prior to maturity are recorded at their fair market value. Additionally, the
aggregate unrealized net gains or losses, including the effects of income tax,
are recorded as a component of shareholders' equity. As of December 31, 1996,
aggregate unrealized losses totaled $40,000, while on December 31, 1995,
aggregate unrealized gains totaled $57,000.
The Company's risk-based Tier 1 capital ratio was 15.4 percent as of
December 31, 1996, and the Total capital ratio was 16.2 percent. As of December
31, 1995, the Company's Tier 1 capital ratio was 19.8 percent, and the Total
capital ratio was 21.2 percent. Although these ratios declined in 1996 from
1995 due to the increased asset level,
14
<PAGE> 4
they substantially exceeded the minimum regulatory requirements of 4.0 percent
for Tier 1 capital and 8.0 percent for Total capital. The Company's tier 1
leverage ratio, which measures capital excluding intangible assets, was 11.1
percent as of December 31, 1996, and 13.7 percent at December 31, 1995,
exceeding the regulatory minimum requirement range of 3.0 percent to 5.0
percent. Each of these capital calculations excludes unrealized gains or losses
on assets available for sale in accordance with Federal regulations.
The debt-to-equity ratio of the Company was 24.8 percent at December 31,
1996, compared to 31.2 percent at the end of 1995. As of December 31, 1996, the
Company had borrowed $8,500,000 on a revolving line of credit from a major
commercial bank to fund loan pool participation investments and to provide
additional capital to CVB and Leasing. The Company entered into this
revolving line of credit agreement on January 31, 1996, with an amendment
to the agreement as of June 19, 1996. The agreement provides for a maximum
line of $17,000,000 and matures on June 19, 1997. The Company had no material
commitments for capital expenditures as of December 31, 1996.
Mahaska Investment Company common stock closed on December 31, 1996 at a
bid price of $18.50 per share, representing 1.2 times the book value per share
of $15.36 on December 31, 1996. The year-end stock price represented a
price-to-1996-earnings multiple of 9.3 times.
LIQUIDITY Liquidity management involves the ability to meet the cash flow
requirements of depositors and borrowers. Liquidity management is conducted by
the Company on both a daily and long-term basis. The Company adjusts its
investments in liquid assets based upon management's assessment of expected
loan demand, projected loan sales, expected deposit flows, yields available on
interest-bearing deposits, and the objectives of its asset/liability management
program. Excess liquidity is invested generally in short-term U.S. Government
and agency securities, short-term state and political subdivision securities
and other investment securities.
Liquid assets (including cash and federal funds sold) are maintained to
meet customer needs. The Company had liquid assets of $16,484,000 as of
December 31, 1996, compared with $20,821,000 as of December 31, 1995.
Investment securities classified as available for sale and securities and loans
maturing within one year totaled $93,316,000 and $78,265,000 as of December 31,
1996 and 1995, respectively. Assets maturing within one year, combined with
liquid assets, on December 31, 1996, were 45.7 percent and on December 31,
1995, were 61.9 percent of total deposits as of the same dates.
The Company's principal sources of funds are deposits, principal
repayments on loans, proceeds from the maturities and sales of investment
securities, principal recoveries on loan pool participations, and funds
provided by operations. While scheduled loan amortization and maturing
interest-bearing deposits are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by economic conditions, the
general level of interest rates, and competition. Principal recoveries on loan
pool participations are also influenced by economic conditions and, to a lesser
extent, the interest rate environment. The Company utilizes particular sources
of funds based on comparative costs and availability. The Company
DIVIDENDS PER SHARE
[BAR CHART]
<TABLE>
<S> <C> <C> <C>
93 94 95 96
.44 .60 .66 $.73
</TABLE>
15
<PAGE> 5
generally manages the pricing of its deposits to maintain a steady deposit
base.
Net cash provided by operations is another major source of liquidity. The
net cash provided by operating activities was $7,137,000 in 1996, $5,086,000 in
1995, and $3,248,0000 in 1994. This trend of strong cash from operations is
expected to continue into the foreseeable future.
The Company anticipates that it will have sufficient funds available to
fund its loan commitments. As of December 31, 1996, the Company had outstanding
commitments to originate loans of $13,976,000 and had no commitments to sell
loans. Certificates of deposit which are scheduled to mature in one year or
less as of December 31, 1996, totaled $64,480,000. Management believes that a
significant portion of these deposits will remain with the Company.
The Company continues to seek acquisition opportunities that would
strengthen its presence in current and new market areas. There are currently no
pending acquisitions that would require the Company to secure capital from
public or private markets.
ASSET-LIABILITY MANAGEMENT The Company's strategy with respect to
asset-liability management is to maximize net interest income while limiting
exposure to risks associated with volatile interest rates. This strategy is
implemented by MSB's and CVB's asset-liability committees which take action
based upon their analysis of expected changes in the balance sheet. A gap ratio
of 1.0 indicates a matched position, in which case interest rate movements will
not materially affect net interest income.
As of December 31, 1996, the Company's gap ratio for assets and
liabilities maturing within three months and within one year were .90 and .69
respectively, meaning more liabilities than assets are scheduled to reprice
within these periods. This situation suggests that a decrease in market
interest rates may benefit net interest income and that an increase in interest
rates may negatively impact the Company. The gap position is largely the result
of classifying interest-bearing NOW accounts, money market accounts, and
savings accounts as short-term repriceable and the classification of loan pool
participations as having a three-year average life based on the historical
average for return of pool investment.
LOAN QUALITY Total loans increased 36.7 percent during 1996 to a year-end
total of $118,045,000. Loans acquired with the bank office on June 24, 1996,
totaled $14,645,000. The remaining increase in loans from 1995 of $16,924,000
was mainly in the commercial and consumer categories. Exclusive of the bank
office acquisition, loans increased 19.6 percent in 1996 over the December 31,
1995 total of $86,476,000.
Non-performing assets (including $12,000 in Other Real Estate) as of
December 31, 1996, totaled $2,102,000. As of December 31, 1995, non-performing
loans totaled $694,000. The ratio of non-performing loans to total loans was
1.79 percent for year-end 1996 compared to .81 percent in 1995. The increase in
non-performing loans was mainly due to timing situations that management
anticipates will be resolved in the near future with minimal or no loss to the
Company. Approximately one-half of the Company's nonaccrual loans are 90
percent government guaranteed against loss.
The allowance for loan losses was $1,491,000 as of December 31, 1996, and
$1,001,000 as of year-end 1995. The allowance represented 1.27 percent of total
loans at December 31, 1996, and 1.17 percent of loans on December 31, 1995. The
allowance as a percentage of non-performing assets was 70.9 percent on December
31, 1996, and was 144.2 percent as of year-end 1995. Net loan charge-offs for
1996 totaled $668,000, or .63 percent of average loans, compared with 1995 net
charge-offs of $48,000, or .06 percent of average loans. As part of the
purchase transaction for Boatmen's, an additional $170,000 was added to the
allowance. The allowance for loan losses is maintained at a level considered by
management to be adequate to provide for estimated loan losses.
Statement of Financial Accounting Standards No. 114 requires that the
value of impaired loans be established by discounting the expected future cash
flows at the loan's effective interest rate or
16
<PAGE> 6
by the current observable price. For foreclosed assets and collateral
dependent loans, the value may be based on the fair value of the collateral.
The Company implemented this Statement as of its effective date, January 1,
1995, and it did not have a material impact on the Company's financial position
or results of operation.
FUTURE PROSPECTS Inflation can have a significant effect on the operating
results of all industries. Management believes that inflation does not affect
the banking industry as much as it does other industries with a high proportion
of fixed assets and inventory. Inflation does, however, have an impact on the
growth of total assets and the need to maintain a proper level of equity
capital.
Interest rates are significantly affected by inflation, but it is
difficult to assess the impact since neither the timing nor the magnitude of
changes in the various inflation indices coincides with changes in interest
rates. There is, of course, an impact on longer-term earning assets; however,
this effect continues to diminish as investment maturities are shortened and
interest-earning assets and interest-bearing liabilities shift from fixed-rate
long-term to rate-sensitive short-term.
RETURN ON ASSETS
[BAR CHART]
<TABLE>
<S> <C> <C> <C>
93 94 95 96
2.26% 1.68 2.04 1.93
</TABLE>
During 1996, the national inflation rate was very low at approximately
three percent. Interest rates remained relatively constant throughout the year.
Management of the Company believes that the 1997 rate of inflation will remain
consistent with 1996 and that interest rates in 1997 will hold relatively
stable or increase slightly. Given the Company's negative gap position (greater
amount of interest-bearing liabilities repricing than interest-earning assets),
an increase in interest rates may reduce the Company's net interest margin
through the year 1997. Management continues to focus on improving the net
interest margin as one of its major goals for 1997.
Much of the increases in interest income, interest expense, noninterest
income, and operating expenses experienced during 1996 were a result of the
acquisition of the bank office by Central Valley. In 1997, there will be
additional increases in income and expense attributable to the Sigourney branch
of Central Valley since the acquisition occurred in mid-year. Management
believes that there will be a substantial reduction in the amount of loan loss
provision expense in 1997 and that the one-time SAIF assessment will cause the
future FDIC insurance assessment to be significantly lower. The overall effect
to the Company on 1997 income is expected to be positive.
Management will continue to explore opportunities to acquire additional
loan pool participation investments in 1997. Bids on pool participations during
the year will take into account the availability of funds to invest, the market
for such pools in terms of price and availability, and the potential return on
the pools relative to risk. Management may elect to sell small blocks of pool
loans in order to maximize the anticipated return on these loans.
17
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (In thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks .......................................... $9,896 6,700
Interest-bearing deposits in banks ............................... 3,603 3,439
Federal funds sold ............................................... 2,985 10,682
--------- --------
Cash and cash equivalents ...................................... 16,484 20,821
--------- --------
Investment securities (note 2):
Available for sale ............................................. 26,483 11,787
Held to maturity (fair value of $27,595 in 1996
and $30,831 in 1995) .......................................... 27,705 30,833
Loans (notes 3 and 5) ............................................ 118,045 86,475
Less:
Unearned discount .............................................. (629) (606)
Allowance for loan losses (note 4) ............................. (1,491) (1,001)
--------- --------
Net loans ..................................................... 115,925 84,868
--------- --------
Loan pool participations ......................................... 50,687 45,318
Premises and equipment, net (note 6) ............................. 3,102 2,495
Accrued interest receivable ...................................... 2,518 2,203
Other assets ..................................................... 8,947 6,837
--------- --------
Total assets .................................................. $ 251,851 205,162
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (notes 2 and 7):
Demand ......................................................... $19,353 15,480
NOW and Super NOW............................................... 33,124 26,188
Savings ........................................................ 57,831 46,556
Certificates of deposit ........................................ 96,644 73,280
--------- --------
Total deposits ................................................ 206,952 161,504
Note payable (note 8) ............................................ 8,500 10,000
Other liabilities ................................................ 2,156 1,552
--------- --------
Total liabilities ............................................. 217,608 173,056
--------- --------
Shareholders' equity:
Common stock, $5 par value; authorized 4,000,000
shares; issued and outstanding 2,229,506
as of December 31, 1996, and 2,269,506 shares
as of December 31, 1995 ...................................... 11,423 11,423
Capital surplus ................................................ 7,787 7,787
Treasury stock at cost, 55,000, and 15,000 shares
as of December 31, 1996, and 1995 ............................ (853) (231)
Retained earnings (note 14) .................................... 15,926 13,070
Unrealized (loss) gain on investments available for sale ....... (40) 57
--------- --------
Total shareholders' equity .................................... 34,243 32,106
--------- --------
Commitments and contingencies (note 15) .......................... -- --
Total liabilities and shareholders' equity .................... $ 251,851 205,162
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (In thousands, except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $10,203 7,775 5,870
Interest income and discount on loan pool participations ...... 9,097 7,864 4,479
Interest on bank deposits ..................................... 266 175 187
Interest on federal funds sold ................................ 92 202 107
Interest on investment securities:
Available for sale .......................................... 1,348 668 496
Held to maturity ............................................ 1,623 1,643 1,840
------- ------ ------
Total interest income ...................................... 22,629 18,327 12,979
------- ------ ------
INTEREST EXPENSE:
Interest on deposits (note 7):
NOW and Super NOW ........................................... 612 632 555
Savings ..................................................... 2,058 1,816 1,294
Certificates of deposit ..................................... 4,845 3,959 2,472
Interest on federal funds purchased and other borrowings ...... 48 42 23
Interest on note payable ...................................... 968 651 332
------- ------ ------
Total interest expense ...................................... 8,531 7,100 4,676
------- ------ ------
Net interest income ......................................... 14,098 11,227 8,303
Provision for loan losses (note 4) ............................ 987 168 183
------- ------ ------
Net interest income after provision for loan losses ........ 13,311 11,059 8,120
------- ------ ------
OTHER INCOME:
Service charges ............................................... 922 746 670
Data processing income ........................................ 221 253 452
Other operating income ........................................ 437 314 338
Investment securities losses, net (note 2) .................... (74) (12) (3)
------- ------ ------
Total other income ......................................... 1,506 1,301 1,457
------- ------ ------
OTHER EXPENSE:
Salaries and employee benefits expense (note 12) .............. 3,774 3,251 2,671
Net occupancy expense ......................................... 1,044 863 720
Federal Deposit Insurance Corporation assessment .............. 282 213 311
Professional fees ............................................. 459 270 346
Other operating expense ....................................... 1,650 1,410 1,186
Goodwill amortization ......................................... 529 443 218
------- ------ ------
Total other expense ........................................ 7,738 6,450 5,452
------- ------ ------
Income before income tax expense ........................... 6,879 5,910 4,125
Income tax expense (note 10) .................................. 2,385 1,987 1,345
------- ------ ------
Net income $ 4,494 3,923 2,780
======= ====== ======
Net income per share $ 2.00 1.72 1.65
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY #
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
SECURITIES
COMMON CAPITAL TREASURY REDUCTION FOR RETAINED AVAILABLE
(In thousands) STOCK SURPLUS STOCK ESOP LOAN EARNINGS FOR SALE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ................ $ 7,398 1,195 -- (100) 8,878 -- 17,371
Net income .................................. -- -- -- -- 2,780 -- 2,780
Dividends paid .............................. -- -- -- -- (1,008) -- (1,008)
Stock issued (805,000 shares) ............... 4,025 6,592 -- -- -- -- 10,617
Reduction in ESOP loan ...................... -- -- -- 100 -- -- 100
Unrealized loss on securities
available for sale ........................ -- -- -- -- -- (80) (80)
-------- ------- -------- ------- ------- ------ -------
Balance at December 31, 1994 ................ 11,423 7,787 -- -- 10,650 (80) 29,780
Net income .................................. -- -- -- -- 3,923 -- 3,923
Dividends paid .............................. -- -- -- -- (1,503) -- (1,503)
Treasury stock purchased (15,000 shares)..... -- -- (231) -- -- -- (231)
Unrealized gain on securities
available for sale ........................ -- -- -- -- -- 137 137
-------- ------- -------- ------- ------- ----- -------
Balance at December 31, 1995 ................ 11,423 7,787 (231) -- 13,070 57 32,106
Net income .................................. -- -- -- -- 4,494 -- 4,494
Dividends paid .............................. -- -- -- -- (1,638) -- (1,638)
Treasury stock purchased (40,000 shares)..... -- -- (622) -- -- -- (622)
Unrealized loss on securities
available for sale ........................ -- -- -- -- -- (97) (97)
-------- ------- -------- ------- ------- ----- -------
Balance at December 31, 1996 ................ $ 11,423 7,787 (853) -- 15,926 (40) 34,243
======== ======= ======== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 4,494 3,923 2,780
------- ------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................. 930 764 497
Federal Home Loan Bank stock dividend .......................................... -- (11) --
Provision for loan losses ...................................................... 987 168 183
Investment securities losses, net .............................................. 74 12 3
Loss (gain) on sale of bank premises and equipment ............................. 7 -- (3)
Amortization of premiums on investment securities .............................. 301 297 370
Accretion of investment securities and loan discounts .......................... (353) (226) (192)
Decrease (increase) in other assets ............................................ 256 (450) (210)
Increase (decrease)in other liabilities ........................................ 441 609 (180)
------- ------- -------
Total adjustments ............................................................ 2,643 1,163 468
------- ------- -------
------- ------- -------
Net cash provided by operating activities .................................... 7,137 5,086 3,248
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales ............................................................ 6,022 4,993 961
Proceeds from maturities ....................................................... 3,285 1,000 --
Purchases ...................................................................... (24,310) (5,159) --
Investment securities held to maturity:
Proceeds from maturities ....................................................... 8,611 12,073 7,695
Purchases ...................................................................... (5,698) (7,834) (16,373)
Purchases of loan pool participations ........................................... (29,827) (12,468) (36,702)
Principal recovery on loan pool participations .................................. 24,458 14,002 10,467
Net increase in loans ........................................................... (17,227) (11,733) (9,381)
Purchase of bank premises and equipment ......................................... (650) (426) (925)
Proceeds from sale of bank premises and equipment ............................... 12 1 22
Proceeds from assumption of deposits ............................................ -- -- 38,178
Proceeds from branch acquisition, net ........................................... 14,246 -- --
------- ------- -------
Net cash used in investing activities ........................................ (21,078) (5,551) (6,058)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ............................................. 13,364 15,029 (17,564)
Net (decrease) increase in federal funds purchased .............................. -- (4,700) 4,700
Advances on note payable ........................................................ 6,400 7,500 10,625
Principal payments on note payable .............................................. (7,900) (2,500) (9,625)
Dividends paid .................................................................. (1,638) (1,503) (1,008)
Purchases of treasury stock ..................................................... (622) (231) --
Proceeds from issuance of common stock .......................................... -- -- 10,617
------- ------- -------
Net cash provided by (used in) financing activities .......................... 9,604 13,595 (2,255)
------- ------- -------
Net (decrease) increase in cash and cash equivalents ......................... (4,337) 13,130 (5,065)
------- ------- -------
Cash and cash equivalents at beginning of year .................................. 20,821 7,691 12,756
------- ------- -------
Cash and cash equivalents at end of year ........................................ $16,484 20,821 7,691
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ....................................................................... $ 8,299 6,689 4,443
======= ======= =======
Income taxes ................................................................... $ 2,239 1,973 1,462
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Mahaska Investment Company and
subsidiaries (the "Company") conform to generally accepted accounting
principles and to general practices within the banking industry. The
consolidated financial statements of the Company include the accounts of its
100 percent owned subsidiaries, Mahaska State Bank (the "Bank"), Central Valley
Bank (the "Thrift"), and MIC Leasing Co. ("Leasing"). All material intercompany
transactions have been eliminated in consolidation.
BANK OFFICE ACQUISITION On June 21, 1996, the Thrift acquired the Sigourney,
Iowa bank office of Boatmen's Bank Iowa, N.A. (Boatmen's) and assumed
approximately $32.1 million in deposits and purchased certain loans totaling
approximately $14.6 million. Central Valley's existing branch facility in
Sigourney was consolidated into the newly acquired facility. A premium of
approximately $3.0 million was paid by Central Valley to acquire the deposits.
The acquisition was accounted for as a purchase transaction and, as such, did
not require any restatement of prior period financial statements.
NATURE OF OPERATIONS The Bank and the Thrift engage in retail and commercial
banking and related financial services, providing the usual products and
services such as deposits, commercial, real estate, and consumer loans, and
trust services. The Bank also provides data processing services to affiliated
and non-affiliated banks. Leasing provides equipment leasing and accounts
receivable financing.
Since 1988, the Company, either directly or through the Bank or the
Thrift, has invested in loan pool participations that have been purchased by
certain non-affiliated independent service corporations (collectively, the
"Servicer") from the Federal Deposit Insurance Corporation ("FDIC"), the
Resolution Trust Corporation ("RTC"), or other sources. These loan pool
investments are comprised of packages of loans previously made by financial
institutions, which often include distressed or nonperforming loans, that have
been sold at prices reflecting varying discounts from the aggregate outstanding
principal amount of the underlying loans depending on the credit quality of the
portfolio. The Servicer then proceeds to collect these loans from the borrowers.
EARNINGS PER SHARE Earnings per share computations are based on the weighted
average number of shares outstanding. The Company adopted a Stock Repurchase
Plan in April 1995. In accordance with this plan, 40,000, and 15,000 shares of
common stock were repurchased by the Company during 1996 and 1995,
respectively. In September 1994, the Company issued 805,000 shares of common
stock in an initial public offering. The average number of shares outstanding,
after considering the stock repurchase and the initial public offering, was
2,246,651, 2,277,944, and 1,686,821 for 1996, 1995 and 1994, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are made at a specific
point in time, based on relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering the Company's entire holdings of a particular financial
instrument for sale at one time. Unless included in assets available for sale,
it is the Company's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sale activities.
Fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Estimated fair values have been determined by the Company using the best
available data, and an estimation method suitable for each category of
financial instruments.
CASH AND DUE FROM BANKS The Company is required to maintain certain daily
reserve balances on hand in accordance with federal banking regulations. The
average reserve balance maintained in accordance with such regulations for the
years ended December 31, 1996, 1995 and 1994 was $835,000, $778,000 and
$783,000, respectively.
22
<PAGE> 12
INVESTMENT SECURITIES The Company classifies its investment securities based on
the intended holding period. Securities which may be sold prior to maturity to
meet liquidity needs, to respond to market changes, or to adjust the Company's
asset-liability position are classified as available for sale. Securities held
principally for the purpose of near-term sales are classified as trading.
Securities which the Company intends to hold until maturity are classified as
held to maturity.
Investment securities available for sale are recorded at fair value. The
aggregate unrealized gains or losses, net of the income tax effect, are
recorded as a component of shareholders' equity. Trading securities are
recorded at fair value with gains and losses, both realized and unrealized,
included in operations. Securities held to maturity are recorded at cost,
adjusted for amortization of premiums and accretion of discounts.
Net gains or losses on the sales of securities are shown in the statements
of operations using the specific identification method.
LOANS Loans are stated at the principal amount outstanding, net of unearned
discount and allowance for loan losses. Unearned discount on installment loans
is transferred to income over the term of the loan using the level-yield
method. Interest on all other loans is credited to income as earned based on
the principal amount outstanding.
It is the Company's policy to discontinue the accrual of interest income
on any loan when, in the opinion of management, there is reasonable doubt as to
the timely collectibility of interest or principal. Nonaccrual loans are
returned to an accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to timely payment of principal or interest.
CONCENTRATIONS OF CREDIT RISK The Company originates real estate, consumer, and
commercial loans primarily in its southeast Iowa market area and adjacent
counties. Although the Company has a diversified loan portfolio, a substantial
portion of its borrowers' ability to repay their loans is dependent upon
economic conditions in the Company's market area.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through
a provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes collectibility of the
principal is unlikely.
The allowance for loan losses is maintained at a level believed adequate
by management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan experience, current economic conditions, and other
relevant factors.
LOAN POOL PARTICIPATIONS The Company has invested in participations in pools
of loans acquired from the FDIC, the RTC, and other sources at substantial
discounts. The pools, all acquired since 1988, consist of loans to borrowers
located throughout the United States.
The Company carries its investment in the loan pools as a separate earning
asset on its balance sheet. Principal or interest restructures, write-downs, or
write-offs within the pools are not included in the Company's disclosures for
its loan portfolio.
The loan pools are managed by the Servicer operating in Omaha, Nebraska,
the sole incentive of which is cash collection without regard to principal or
income allocation of the payment.
The investment in loan pools is accounted for on a nonaccrual basis. For
loans receiving regular payments, cash is applied first to interest income for
interest due at the contract rate. Additional payment is then applied to
principal in a ratio of cost basis to loan face amount and to discount income
for the remainder.
For loans where payments are received on an irregular basis, the Servicer
evaluates the collateral position of the loan and where well-secured, the
payments are applied as described above. When the loan is judged to be other
than well-secured, the payment is applied to principal and discount income with
no recognition of interest due.
For loans where the circumstances or new information lead the Servicer to
believe that collection of the note or recovery through collateral is less than
originally determined, the cost basis assigned to the loan is written down or
off through a charge to discount income.
23
<PAGE> 13
For loans where the Servicer negotiates a settlement of the obligation for
a lump sum, the payment is applied first to principal, then to discount income
and last to interest due.
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line or
accelerated method over the estimated useful lives of respective assets, which
range from 10 to 30 years for building and improvements and 3 to 10 years for
furniture and equipment.
EXCESS OF COST OVER UNDERLYING NET ASSETS The excess of cost over underlying
net assets of $6,795,000, $4,342,000 and $4,785,000 at December 31, 1996, 1995
and 1994, respectively, is being amortized primarily using the straight-line
method over 15 years. Amortization expenses for 1996, 1995 and 1994 were
$529,000, $443,000 and $218,000, respectively.
OTHER REAL ESTATE OWNED Other real estate owned represents property acquired
through foreclosure or deeded to the subsidiary banks in lieu of foreclosure on
real estate mortgage loans on which the borrowers have defaulted as to payment
of principal and interest. Other real estate owned is carried at the lower of
the cost of acquisition or the asset's fair market value, less estimated costs
of disposition, and is included in other assets on the consolidated balance
sheets. Reductions in the balance of other real estate at the date of
acquisition are charged to the allowance for loan losses. Expenses incurred
subsequent to the acquisition of the property and any subsequent write-downs to
reflect current fair market value are charged as noninterest expense as
incurred. Gains or losses on the disposition of other real estate are
recognized in other income or expense in the period in which they are realized.
Other real estate owned of $12,000 and $27,000 at December 31, 1996 and
1995, respectively, was included in other assets and is valued at the lower
of cost or estimated fair market value as determined by management.
TRUST DEPARTMENT ASSETS Property held for customers in fiduciary or agency
capacities is not included in the accompanying consolidated statements of
condition, as such items are not assets of the Bank.
INCOME TAXES The Company files a consolidated federal income tax return. Federal
income taxes are allocated based on each entity computing its taxes on a
separate company basis. For state purposes, the Bank and the Thrift each file
a franchise return and the remaining entities file a consolidated income tax
return.
STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
RECLASSIFICATIONS Certain reclassifications have been made to prior year
consolidated financial statements in order to conform to current year
presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts 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. A significant estimate that is particularly
sensitive to change relates to the allowance for loan losses.
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," will be effective for the Company transactions occurring after
December 31, 1996, and provides standards for accounting recognition or
derecognition of assets and liabilities. The Company expects to adopt SFAS 125
when required, and management believes adoption will not have a material effect
on the financial position and results of operation, nor will adoption require
additional capital resources.
24
<PAGE> 14
2 INVESTMENT SECURITIES
A summary of investment securities by type as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 (In thousands) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities ........................ $ 5,020 8 9 5,019
U.S. government agency securities ................. 18,721 43 85 18,679
Other investment securities ....................... 2,810 -- 25 2,785
-------- ------- ------- ------
Total ........................................... $ 26,551 51 119 26,483
======== ======= ======= ======
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government securities ........................ $8,135 4 63 8,076
U.S. government agency securities ................. 5,445 39 23 5,461
Obligations of states and political subdivisions .. 8,904 30 43 8,891
Other investment securities ....................... 5,221 -- 54 5,167
-------- ------- ------- ------
Total ........................................... $ 27,705 73 183 27,595
======== ======= ======= ======
<CAPTION>
GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 (In thousands) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities ........................ $ 5,068 33 -- 5,101
U.S. government agency securities ................. 5,007 55 3 5,059
Other investment securities ....................... 1,623 4 -- 1,627
-------- ------- ------- ------
Total ........................................... $ 11,698 92 3 11,787
======== ======= ======= ======
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government securities ........................ $ 12,247 17 79 12,185
U.S. government agency securities ................. 6,810 48 26 6,832
Obligations of states and political subdivisions .. 9,574 45 15 9,604
Other investment securities ....................... 2,202 11 3 2,210
-------- ------- ------- ------
Total ........................................... $ 30,833 121 123 30,831
======== ======= ======= ======
</TABLE>
Proceeds from the sale of investment securities available for sale during
1996, 1995 and 1994 were $6,022,000, $4,993,000 and $961,000, respectively.
Gross gains and losses realized on the sale of investment securities available
for sale for each of the following years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------
<S> <C> <C> <C>
Realized gains ... $ 6 8 --
Realized losses .. (80) (20) (3)
----- ----- ----
Total .......... $ (74) (12) (3)
===== ===== ====
</TABLE>
As of December 31, 1996 and 1995, investment securities of approximately
$15,297,000 and $10,224,000 respectively, which were included in the
consolidated balance sheets, were pledged as collateral to secure public fund
deposits, and for other purposes required or permitted by law. Public funds
approximated $19,478,000 and $14,942,000 at December 31, 1996 and 1995,
respectively.
25
<PAGE> 15
The amortized cost and approximate market value of investment securities
as of December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
(In thousands) COST MARKET VALUE
- ----------------------------------------------------------------------------
INVESTMENT SECURITIES
AVAILABLE FOR SALE:
<S> <C> <C>
Due in 1 year or less ................................ $ 4,189 4,193
Due after 1 year through 5 years ..................... 15,016 14,994
Due after 5 years through 10 years ................... 1,000 1,000
Due after 10 years ................................... 6,346 6,296
------- ------
Total .............................................. $26,551 26,483
======= ======
INVESTMENT SECURITIES
HELD TO MATURITY:
Due in 1 year or less ................................ $ 7,894 7,895
Due after 1 year through 5 years ..................... 17,151 17,013
Due after 5 years through 10 years ................... 118 118
Due after 10 years ................................... 2,542 2,569
------- ------
Total .............................................. $27,705 27,595
======= ======
</TABLE>
3 LOANS
A summary of the respective loan categories as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Real estate loans .................................... $60,399 38,219
Commercial and agricultural loans .................... 43,553 38,554
Loans to individuals ................................. 11,522 7,637
Other loans .......................................... 2,571 2,065
------- ------
Total .............................................. 118,045 86,475
======= ======
</TABLE>
Total non-performing loans and assets at December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Impaired loans and leases
Non-accrual ........................................ $ 1,085 124
Restructured ....................................... 380 409
------- ------
Total impaired loans and losses ................... 1,465 533
Loans and leases past due
90 days or more .................................... 625 134
------- ------
Total non-performing loans ........................... 2,090 667
Other real estate owned .............................. 12 27
------- ------
Total non-performing assets .......................... $ 2,102 693
======= ======
</TABLE>
The average balances of impaired loans for the years ended December 31, 1996 and
1995 were $1,349,000 and $833,000, respectively. The allowance for credit losses
related to impaired loans at December 31, 1996 and 1995 was $206,000 and $10,000
respectively. Impaired loans of $1,533,000 and $671,000 were not subject to a
related allowance for credit losses at December 31, 1996 and 1995, respectively,
because of the net realizable value of loan collateral, guarantees and other
factors.
The effect of non-accrual and restructured loans on interest income for each
of the three years ended December 31, 1996, 1995 and 1994 was:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
As originally contracted ................... $131 62 62
As recognized .............................. 41 47 35
----- ----- -----
Reduction of
interest income ......................... 90 15 27
===== ===== =====
</TABLE>
4 ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
beginning of year .......................... $ 1,001 881 833
Provision for loan losses ...................... 987 168 183
Recoveries on loans
previously charged off ..................... 38 43 54
Loans charged off .............................. (705) (91) (189)
Acquisition allowance .......................... 170 -- --
------- ------ ------
Balance at end of year ......................... $ 1,491 1,001 881
======= ====== ======
</TABLE>
5 LOANS TO RELATED PARTIES
Certain directors and officers of the Company, including their immediate
families and companies in which they are principal owners, were loan customers
of the Company's subsidiaries. All loans to this group were made in the ordinary
course of business at prevailing terms and conditions. The aggregate
indebtedness of this group included in loans as of December 31, 1996 and 1995
was as follows:
26
<PAGE> 16
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
Aggregate balance at
beginning of year ............... $ 6,420 6,246
Advances .......................... 8,790 5,822
Payments .......................... 8,485 5,648
------- -------
Aggregate balance at end of year... $ 6,725 6,420
======= =======
</TABLE>
6 PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
Land and improvements ............. $ 466 431
Building and improvements ......... 3,130 2,706
Furniture and equipment ........... 3,774 3,312
------- -------
Total office properties and
equipment at cost ............. 7,370 6,449
Less accumulated depreciation ..... 4,268 3,954
------- -------
Total ........................... $ 3,102 2,495
======= =======
</TABLE>
7 DEPOSITS
The scheduled maturities of certificate accounts are as follows as of December
31, 1996
<TABLE>
<CAPTION>
<S> <C>
(In thousands)
- ------------------------
1997 ......... $ 64,480
1998 ......... 17,557
1999 ......... 10,945
2000 ......... 2,405
2001 ......... 1,252
Thereafter ... 5
--------
Total........ $ 96,644
========
</TABLE>
Time deposits in excess of $100,000 approximated $13,547,000, $9,170,000 and
$6,340,000 as of December 31, 1996, 1995 and 1994, respectively. Interest
expense on such deposits for the years ended December 31, 1996, 1995 and 1994
was approximately $663,000, $512,000 and $214,000, respectively.
8 NOTE PAYABLE
The note payable balance at December 31, 1996 consists of advances on a
$17,000,000 line of credit. The line has a variable interest rate and is due
June 19, 1997. The note is secured by all of the common stock of the Bank, the
Thrift, and Leasing. Interest is payable quarterly at the lender's prime rate,
which ranged from 8.00 percent to 8.50 percent in 1996.
9 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of December
31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
RECORDED FAIR
1996 (In thousands) AMOUNT VALUE
- ---------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks ....... $ 9,896 9,896
Interest-bearing deposits
with banks ................... 3,603 3,603
Federal funds sold ............ 2,985 2,985
Investment securities ......... 54,188 54,078
Loans, net .................... 115,925 115,905
Loan pools .................... 50,687 50,687
FINANCIAL LIABILITIES:
Deposits ...................... $206,952 208,214
Note payable .................. 8,500 8,500
OFF-BALANCE SHEET ITEMS:
Commitments to extend credit .. $ -- --
Letters of credit ............. -- --
<CAPTION>
Recorded Fair
1995 (In thousands) Amount Value
- ---------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks ....... $ 6,700 6,700
Interest-bearing deposits
with banks ................... 3,439 3,439
Federal funds sold ............ 10,682 10,682
Investment securities ......... 42,620 42,618
Loans, net .................... 84,868 85,565
Loan pools .................... 45,318 45,318
FINANCIAL LIABILITIES:
Deposits ...................... $161,504 162,460
Note payable .................. 10,000 10,000
OFF-BALANCE SHEET ITEMS:
Commitments to extend credit .. $ -- --
Letters of credit ............. -- --
</TABLE>
The recorded amount of cash due from banks and interest-bearing deposits with
banks approximates fair value.
The estimated fair value of investment securities has been determined
using available quoted market prices.
The estimated fair value of loans is net of an adjustment for credit risk.
For loans with floating interest rates, it is presumed that estimated fair
values generally approximate the recorded book
27
<PAGE> 17
balances. Fixed rate loans were valued using a present value discounted
cash flow with a discount rate approximating the market rate for similar
assets.
The recorded amount of the loan pools approximates fair value due to
the characteristics of the loan pools. Any additional value attained in the
loan pools over purchase cost is directly attributable to the expertise of
the Servicer to collect a higher percentage of the book value of loans in
the pools over the percentage paid.
Deposit liabilities with no stated maturities have an estimated fair
value equal to the recorded balance. Deposits with stated maturities have been
valued using a present value discounted cash flow with a discount rate
approximating the current market for similar deposits. The fair value estimate
does not include the benefit that results from the low-cost funding provided
by the deposit liabilities compared to the cost of borrowing funds in the
market. The Company believes the value of these depositor relationships to
be significant.
The recorded amount of the federal funds purchased and short-term
borrowings approximates fair value as a result of the short-term nature of
these instruments.
The fair value of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements.
10 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
1996 (In thousands) FEDERAL STATE TOTAL
- ---------------------------------------------
<S> <C> <C> <C>
Current ........... $ 2,198 276 2,474
Deferred .......... (89) 0 (89)
------- ----- ------
$ 2,109 276 2,385
======= ===== ======
1995 (In thousands) Federal State Total
- ---------------------------------------------
Current ........... $ 1,856 165 2,021
Deferred .......... (30) (4) (34)
------- ----- ------
$ 1,826 161 1,987
======= ===== ======
1994 (In thousands) Federal State Total
- ---------------------------------------------
Current ........... $ 1,132 195 1,327
Deferred .......... 16 2 18
------- ----- ------
$ 1,148 197 1,345
======= ===== ======
</TABLE>
Income tax expense differs from the amount computed by applying the United
States federal income tax rate of 34 percent in 1996, 1995 and 1994 to income
before income tax expense. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -----------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate.... $ 2,339 2,009 1,403
State franchise tax (net of
federal tax benefit) ......... 182 106 130
Nontaxable interest income .... (145) (138) (120)
Nondeductible goodwill
amortization ................. 21 21 21
Unrealized loss amortization .. -- -- (9)
Life insurance cash
value increase ............... (31) (32) (35)
Employee Stock Ownership Plan
dividend deduction ........... -- -- (37)
Other, net .................... (19) (21) (8)
------ ------ ------
Total ........................ $2,385 1,987 1,345
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for losses on loans ... $ 326 151
Deferred compensation ........... 64 46
Premium amortization ............ 35 26
Unrealized loss on available
for sale securities............. 28 --
------ ------
Gross deferred tax assets....... 453 220
------ ------
DEFERRED TAX LIABILITIES:
Depreciation and amortization ... (87) (3)
Leases .......................... (6) (5)
Federal Home Loan Bank stock .... (17) (17)
Deferred loan fees .............. (58) (29)
Professional fees ............... (11) (13)
Unrealized gain on available
for sale securities............. -- (33)
Other ........................... (12) (11)
------ ------
Gross deferred tax liabilities.. (191) (108)
------ ------
Net deferred tax asset.......... $ 262 112
====== ======
</TABLE>
No valuation allowance was required for the deferred tax asset at
December 31, 1996 or 1995.
28
<PAGE> 18
11 STOCK INCENTIVE PLAN
The Company has a stock incentive plan under which up to 450,000 shares of
common stock are reserved for issuance pursuant to options or other awards
which may be granted to officers, key employees, and certain non-affiliated
directors of the Company. The exercise price of each option equals the market
price of the Company's stock on the date of grant. The option's maximum term is
ten years, with vesting occurring at the rate of thirty-three percent at the
one-year anniversary of date of grant, sixty-six percent vesting on the
two-year anniversary, and one hundred percent vesting on the three-year
anniversary of date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been recognized
for its stock options in the financial statements. Had compensation cost for
the Company's stock incentive plan been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------
<S> <C> <C>
NET INCOME:
As Reported ....... $4,494 3,923
Pro forma ......... 4,392 3,861
EARNINGS PER SHARE:
As Reported ....... $ 2.00 1.72
Pro forma ......... 1.95 1.69
</TABLE>
The fair value of each option grant has been estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 3.89 percent for both
years; expected volatility of 25 percent for both years; risk free interest
rates of 6.17 percent for 1996 and 5.47 percent for 1995; and expected lives of
7.5 years for both years.
A summary of the status of the Company's stock incentive plan as of December
31, 1996 and 1995 and the activity during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
WEIGHTED- Weighted-
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
beginning of year... 199,983 $ 14.39 57,359 $12.87
Granted ............. 65,221 18.50 142,624 15.00
Exercised ........... 0 -- 0 --
Forfeited ........... 3,800 14.19 0 0
------- -------- ------- ------
Outstanding at
end of year ......... 261,404 $ 15.42 199,983 $14.39
======= ======== ======= ======
Options exercisable
at year-end ......... 95,304 $ 13.86 30,793 $12.73
Weighted-average
fair value of options
granted during
the year ............ $ 4.57 $ 2.62
</TABLE>
12 EMPLOYEE BENEFIT PLANS
The Company maintains an employee stock ownership plan ("ESOP") covering
substantially all employees meeting minimum age and service requirements.
Contributions are determined by the board of directors of each subsidiary.
Contributions relating to the plan were $114,000, $104,000 and $86,000 for
1996, 1995 and 1994, respectively. As of December 31, 1996 and 1995, the ESOP
owned 252,610 and 348,838 shares of the Company's Common Stock, respectively.
A 401(k) plan was adopted by the Company in 1994. The Company does not
make any contributions to this plan.
The Company has also provided deferred compensation plans to certain
executive officers, which provide for a series of payments to be made after
retirement. The present value of the future payments is being accrued over
the respective employees' remaining active service periods. The total expense
related to these plans was $33,000, $24,000 and $36,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company provides no material post-retirement benefits.
29
<PAGE> 19
13 REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possible additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total capital and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company meets all capital adequacy requirements to which
it is subject.
The Company's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
MINIMUM FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------------------------------------------------------
(in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated ............................ $28,939 16.2% $14,267 8.0% 17,834 10.0%
Bank .................................... 14,644 12.8 9,128 8.0 11,409 10.0
Thrift .................................. 5,625 11.8 3,811 8.0 4,764 10.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated ............................ $27,448 15.4% $ 7,134 4.0% 10,700 6.0%
Bank .................................... 13,688 12.0 4,563 4.0 6,846 6.0
Thrift .................................. 5,376 11.3 1,906 4.0 2,858 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated ............................ $27,448 12.1% $ 6,800 3.0% 11,333 5.0%
Bank .................................... 13,688 9.0 4,552 3.0 7,587 5.0
Thrift .................................. 5,376 10.1 1,603 3.0 2,672 5.0
AS OF DECEMBER 31, 1995:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated ............................ $28,765 21.2% $10,856 8.0% 13,570 10.0%
Bank .................................... 13,268 13.6 7,781 8.0 9,726 10.0
Thrift .................................. 2,515 15.8 1,277 8.0 1,596 10.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated ............................ $27,764 19.8% $ 5,598 4.0% 8,397 6.0%
Bank .................................... 12,338 12.7 3,877 4.0 5,815 6.0
Thrift .................................. 2,490 12.2 817 4.0 1,226 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated ............................ $27,764 14.8% $ 5,634 3.0% 9,390 5.0%
Bank .................................... 12,338 8.7 4,237 3.0 7,061 5.0
Thrift .................................. 2,490 8.9 839 3.0 1,399 5.0
</TABLE>
30
<PAGE> 20
14 DIVIDEND RESTRICTIONS
The Company derives a substantial portion of its cash flow, including that
available for dividend payments to shareholders, from its bank subsidiary in
the form of dividends received. The Bank and Thrift are subject to certain
statutory and regulatory restrictions that affect dividend payments. Based on
minimum regulating guidelines as published by those regulators, the maximum
dividends which could be paid by the Bank to the Company at December 31, 1996
approximated $3,200,000.
15 COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers,
which include commitments to extend credit. The Company's exposure to credit
loss in the event of nonperformance by the other party to the commitments to
extend credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions 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, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. As of December 31, 1996,
outstanding commitments to extend credit totaled approximately $13,976,000.
Commitments under standby letters of credit outstanding aggregated
$809,000 and $198,000 as of December 31, 1996 and 1995, respectively. The
Company does not anticipate any losses as a result of these transactions.
The Company is involved in various legal actions and proceedings arising
from the normal course of operations. Management believes, based on known facts
and the advice of legal counsel, that the ultimate liability, if any, not
covered by insurance, arising from all legal actions and proceedings will not
have a material adverse effect upon the consolidated financial position of the
Company.
31
<PAGE> 21
16 MAHASKA INVESTMENT COMPANY (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31 (In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash on deposit at bank subsidiary .............................................. $ 465 517
Cash at other institutions ...................................................... 29 61
--------- --------
Cash and cash equivalents ...................................................... 494 578
Investment securities ........................................................... 299 150
Loans ........................................................................... 204 2,859
Loan pool participations ........................................................ 11,308 17,865
Investments in:
Bank subsidiary ................................................................ 14,800 13,572
Thrift subsidiary .............................................................. 10,913 5,390
Bank-related subsidiary ........................................................ 4,945 265
Excess cost over net assets ..................................................... 146 209
Premises and equipment .......................................................... 640 627
Other assets .................................................................... 678 637
--------- --------
Total assets ................................................................... $ 44,427 42,152
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Note payable .................................................................... $9,900 10,000
Accrued expenses payable and other liabilities .................................. 284 46
--------- --------
Total liabilities .............................................................. 10,184 10,046
--------- --------
Shareholders' equity:
Common stock .................................................................... 11,423 11,423
Capital surplus ................................................................. 7,787 7,787
Treasury stock at cost, 55,000 and 15,000 shares
as of December 31, 1996 and 1995, respectively ................................. (853) (231)
Retained earnings ............................................................... 15,926 13,070
Unrealized (loss) gain on investments available for sale ........................ (40) 57
--------- --------
Total shareholders' equity ..................................................... 34,243 32,106
--------- --------
Total liabilities and shareholders' equity ..................................... $ 44,427 42,152
========= ========
</TABLE>
32
<PAGE> 22
16 MAHASKA INVESTMENT COMPANY (PARENT COMPANY ONLY) CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 (In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries ..................................................... $ 2,000 2,500 1,850
Interest income and discount on loan pool participations ........................ 3,498 3,038 1,485
Management, audit, and loan review fees ......................................... 285 133 108
Other operating income .......................................................... 247 231 120
--------- -------- ---------
Total income ................................................................... 6,030 5,902 3,563
--------- -------- ---------
EXPENSE:
Salaries and benefits expense ................................................... 925 922 625
Interest on short-term borrowings ............................................... 968 651 332
Other operating expense ......................................................... 642 415 340
--------- -------- ---------
Total expense .................................................................. 2,535 1,988 1,297
--------- -------- ---------
Income before income tax expense and equity in
undistributed earnings of subsidiaries ........................................ 3,495 3,914 2,266
Income tax expense .............................................................. 529 498 118
--------- -------- ---------
Income before equity in undistributed earnings of subsidiaries ................. 2,966 3,416 2,148
Equity in undistributed earnings of subsidiaries ................................ 1,528 507 632
--------- -------- ---------
Net income ..................................................................... $ 4,494 3,923 2,780
========= ======== =========
<CAPTION>
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 (In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 4,494 3,923 2,780
--------- -------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries ............................... (1,528) (507) (632)
Depreciation and amortization .................................................. 105 96 93
(Increase) decrease in other assets ............................................ (41) (133) 68
Increase (decrease)in other liabilities ........................................ 238 (52) (12)
--------- -------- ---------
Total adjustments ............................................................ (1,226) (596) (483)
--------- -------- ---------
Net cash provided by operating activities .................................... 3,268 3,327 2,297
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities .............................................. (149) -- --
Purchases of loan pool participations ........................................... (1,033) (9,866) (10,370)
Principal recovery on loan pool participations .................................. 7,590 5,942 2,941
Net decrease (increase) in loans ................................................ 2,655 (2,321) (538)
Purchases of premises and equipment ............................................. (55) (34) (27)
Investments in subsidiaries ..................................................... (10,000) -- (5,355)
--------- -------- ---------
Net cash used in investing activities ........................................ (992) (6,279) (13,349)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on note payable ........................................................ 7,800 7,500 10,625
Principal payments on note payable .............................................. (7,900) (2,500) (9,625)
Dividends paid .................................................................. (1,638) (1,503) (1,008)
Purchases of treasury stock ..................................................... (622) (231) --
Proceeds from stock issued ...................................................... -- -- 10,617
--------- -------- ---------
Net cash (used in) provided by financing activities .......................... (2,360) 3,266 10,609
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents ......................... (84) 314 (443)
Cash and cash equivalents at beginning of year .................................. 578 264 707
--------- -------- ---------
Cash and cash equivalents at end of year ........................................ $ 494 578 264
========= ======== =========
</TABLE>
33
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
MAHASKA INVESTMENT COMPANY:
We have audited the accompanying consolidated balance sheets of Mahaska
Investment Company and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated 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
statement 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 Mahaska
Investment Company and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
January 31, 1997
Des Moines, Iowa
34
<PAGE> 24
STOCK INFORMATION
Mahaska Investment Company's Common Stock trades on The Nasdaq National Market
and the quotations are furnished by the Nasdaq system. There were 232
shareholders of record on December 31, 1996 and an estimated 700 additional
beneficial holders whose stock was held in street name by brokerage houses.
The following table sets forth the quarterly high and low sales per share
for the Company's stock during 1996 and 1995.
<TABLE>
<CAPTION>
1996 QUARTER ENDED HIGH LOW
---------------------------------------------
<S> <C> <C>
MARCH 31 ............ $15.75 14.75
JUNE 30 ............. 15.75 14.75
SEPTEMBER 30......... 19.75 15.00
DECEMBER 31.......... 19.75 18.50
<CAPTION>
1995 Quarter Ended High Low
---------------------------------------------
<S> <C> <C>
March 31 ........... $14.375 13.50
June 30 ............ 16.00 13.75
September 30........ 16.75 15.25
December 31......... 16.75 15.00
</TABLE>
- -------------------------------------------------------------------------------
The Company has declared per share cash dividends with respect to its Common
Stock as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 ....... $.1825 $.1825 $.1825 $.1825
1995 ....... .165 .165 .165 .165
1994 ....... .15 .15 .15 .15
</TABLE>
- ------------------------------------------------------------------------------
NASDAQ SYMBOL: OSKY
WALL STREET JOURNAL
AND OTHER NEWSPAPERS: Mahaskainv
MARKET MAKERS:
Howe, Barnes Investments, Inc.
David A. Noyes & Company
Herzog, Heine, Geduld, Inc.
Fahnestock & Co., Inc.
FORM 10-K
Copies of Mahaska Investment Company's Annual Report to the Securities and
Exchange Commission Form 10-K will be mailed when available without charge to
shareholders upon written request to Karen K. Baack, Secretary/
Treasurer, at the corporate headquarters.
- ------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
222 First Avenue East
P.O. Box 1104
Oskaloosa, IA 52577
515-673-8448
ANNUAL SHAREHOLDERS' MEETING
April 30, 1997, 10:30 a.m.
Elmhurst Country Club
2214 South 11th Street
Oskaloosa, IA 52577
INTERNET
www.mahaskainv.com
TRANSFER AGENT/REGISTRAR/DIVIDEND DISBURSING AGENT
Illinois Stock Transfer Company
223 West Jackson Boulevard, Suite 1210
Chicago, IL 60606
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
2500 Ruan Center
Des Moines, IA 50309
ANNUAL REPORT DESIGN
Designgroup, Inc., Des Moines, IA
Photography: Scott Sinklier
35
<PAGE> 25
Directors and Officers
Board of Directors
R.S. Howard
Chairman
Martin L. Bernstein
Owner, Bernstein Realty
Robert K. Clements
Attorney, Clements Law Firm
John A. Fallon III
President, William Penn College
Charles S. Howard
President & CEO
R. Spencer Howard
Vice President Corporate Planning
William E. Masterson (died Sept. 2, 1996)
Farmer, Mahaska County
James F. Mathew
President, Mathew Lumber Company
David A. Meinert
Executive Vice President & CFO
John P. Pothoven
President, Mahaska State Bank
John W.N. Steddom
Civil Engineer, Retired
Corporate Officers
R.S. Howard
Chairman
Charles S. Howard
President & CEO
David A. Meinert
Executive Vice President & CFO
R. Spencer Howard
Vice President Corporate Planning
Karen K. Baack
Secretary/Treasurer & Administrative Assistant
Jeffrey L. Rhoads
Controller
Mark T. Gibbons
Loan Review Officer
Lori J. Seubert
Auditor
Bank Subsidiary Highlights
<TABLE>
<CAPTION>
December 31 (In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Mahaska State Bank
Total assets $156,855 148,820
Total loans, net of unearned discount 83,995 78,205
Total loan pool participations 22,618 12,836
Allowance for loan losses (956) (929)
Total deposits 140,828 134,103
Total shareholders' equity 14,800 13,572
Central Valley Bank
Total assets $ 78,671 33,763
Total loans, net of unearned discount 29,707 4,332
Total loan pool participations 16,760 14,616
Allowance for loan losses (249) (25)
Total deposits 66,980 28,057
Total shareholders' equity 10,914 5,390
</TABLE>
36
<PAGE> 1
EXHIBIT 21
Subsidiaries of Mahaska Investment Company
<TABLE>
<CAPTION>
State or Other
Name Under Jurisdiction
Which Doing in which
Subsidiary Name Business Incorporated
- --------------- -------- ------------
<S> <C> <C>
Mahaska State Bank ---- Iowa
Central Valley Bank ---- United States
MIC Leasing Co. On-Site Iowa
Commercial
Services
</TABLE>
<PAGE> 1
AUDITORS' CONSENT
The Board of Directors
Mahaska Investment Company
We consent to incorporation by reference in the Registration Statement on Form
S-8 of Mahaska Investment Company of our report dated January 31, 1997 relating
to the consolidated balance sheets of Mahaska Investment Company and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996 which report
appears in the December 31, 1996 annual report on Form 10-K of Mahaska
Investment Company.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 0
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 0
<INTEREST-LOAN> 10,203
<INTEREST-INVEST> 2,971
<INTEREST-OTHER> 9,455
<INTEREST-TOTAL> 22,629
<INTEREST-DEPOSIT> 7,515
<INTEREST-EXPENSE> 8,531
<INTEREST-INCOME-NET> 14,098
<LOAN-LOSSES> 987
<SECURITIES-GAINS> (74)
<EXPENSE-OTHER> 7,738
<INCOME-PRETAX> 6,879
<INCOME-PRE-EXTRAORDINARY> 4,494
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,494
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 10.67
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (1,001)
<CHARGE-OFFS> 705
<RECOVERIES> (38)
<ALLOWANCE-CLOSE> (1,491)
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
