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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
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-24630
MAHASKA INVESTMENT COMPANY
42-1003699
Incorporated in Iowa I.R.S. Employer Identification No.
222 FIRST AVENUE EAST, OSKALOOSA, IOWA 52577
Registrant's telephone number, including area code: 515-673-8448
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
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
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.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
------------------------------------ ----------------------------------
INTEREST INTEREST
AVERAGE INCOME(2)/ AVERAGE AVERAGE INCOME(2)/ AVERAGE
BALANCE EXPENSE RATE/YIELD BALANCE EXPENSE RATE/YIELD
------- ---------- ---------- ------- ---------- ----------
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%
===== =====
YEAR ENDED DECEMBER 31,
----------------------------------
1994
----------------------------------
INTEREST
AVERAGE INCOME(2)/ AVERAGE
BALANCE EXPENSE RATE/YIELD
------- ---------- ----------
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%
=====
- -------------------------
(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
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.
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)
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
====== ===== ====== ====== ====== ======
- -------------------------
(1) Includes interest income from loan pool participations plus discount on loan
pool participations.
9
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.
THREE OVER THREE ONE TO THREE
MONTHS MONTHS THREE YEARS
OR LESS TO ONE YEAR YEARS OR MORE TOTAL
------- ----------- ------ ------- -----
(DOLLARS IN THOUSANDS)
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%
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
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.
DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
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
======= ======= =======
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.
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)
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%
======= ==== ======= ==== ====== ==== ====== ====
11
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.
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)
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%
- -------------------------
(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.
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)
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
======= ======= ====== ======= ======= ======
The following table provides information on the Company's non-performing
loans as of the dates indicated.
DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
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%
12
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.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
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%
- -------------------------
(1) Loans do not include, and the allowance for loan losses does not include any
reserve for, investments in loan pool participations.
13
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:
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)
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%
====== ===== ====== ===== ====== ===== ====== =====
DECEMBER 31,
-----------------------
1992
-----------------------
PERCENT OF
ALLOWANCE LOANS TO
AMOUNT TOTAL LOANS
--------- -----------
(DOLLARS IN THOUSANDS)
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%
====== =====
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.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
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%
======== ==== ======== ==== ======== ====
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.
DECEMBER 31,
1996
------------
(IN THOUSANDS)
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
=======
14
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:
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
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
===== ===== =====
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.
DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
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%
====== ==== ======= ==== ====== ====
- -------------------------
(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:
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Note payable.................................... 14,750 10,000 8,400
Federal funds purchased......................... 5,990 5,475 4,700
ESOP loan....................................... 0 0 100
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.
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
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%
======= ==== ====== ==== ====== ====
15
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.
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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.
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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).
EXHIBIT
-------
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
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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.
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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.
NAME TITLE DATE
---- ----- ----
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