FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 1996 0-24630
MAHASKA INVESTMENT COMPANY
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1003699
(State of Incorporation) (I.R.S. Employer Identification No.)
222 First Avenue East, Oskaloosa, Iowa 52577
Telephone Number (515) 673-8448
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of April 25, 1996, 2,259,506 shares of common stock $5 par value were
outstanding.
<PAGE>
PART 1 -- Item 1. Financial Statements
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited)
(dollars in thousands) March 31, December 31,
1996 1995
--------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks ......... $ 6,478 6,700
Interest-bearing deposits in banks 2,974 3,439
Federal funds sold .............. 1,395 10,682
-------- -------
Cash and cash equivalents .... 10,847 20,821
-------- -------
Investment securities:
Available for sale ........... 20,249 11,169
Held to maturity ............. 32,618 31,451
Loans ........................... 95,215 86,475
Less:
Unearned discount ............ (734) (606)
Allowance for loan losses .... (1,038) (1,001)
-------- -------
Net loans .................... 93,443 84,868
-------- -------
Loan pool participations ........ 42,327 45,318
Premises and equipment, net ..... 2,650 2,495
Accrued interest receivable ..... 2,195 2,203
Other assets .................... 2,803 2,495
Goodwill ........................ 4,241 4,342
-------- -------
Total assets ................. 211,373 205,162
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Deposits:
Demand ......................... 16,251 15,480
NOW and Super NOW .............. 26,004 26,188
Savings ........................ 48,245 46,556
Certificates of deposit ........ 76,503 73,280
------- -------
Total deposits .............. 167,003 161,504
Note payable ...................... 9,750 10,000
Other liabilities ................. 2,211 1,552
------- -------
Total liabilities ........... 178,964 173,056
Shareholders' equity:
Common stock, $5 par value;
authorized 4,000,000 shares;
issued 2,284,506 shares ...... 11,423 11,423
Capital surplus ................ 7,787 7,787
Treasury stock at cost,
25,000 shares as of March 31,
1996, and 15,000 shares as of
December 31, 1995 ............ (383) (231)
Retained earnings .............. 13,663 13,070
Unrealized (loss) gain on
investments available for sale (81) 57
-------- -------
Total shareholders' equity 32,409 32,106
-------- -------
Total liabilities and
shareholders' equity ...... 211,373 205,162
-------- -------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
(dollars in thousands March 31,
except per share) ------------------------
1996 1995
---------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans ...... 2,174 1,742
Interest and discount on loan pools 1,938 1,801
Interest on bank deposits ....... 71 25
Interest on federal funds sold 57 0
Interest on investment securities:
Available for sale ........... 228 155
Held to maturity ............. 427 433
-------- --------
Total interest income ..... 4,895 4,156
-------- --------
Interest expense:
Interest on deposits:
NOW and Super NOW ............ 141 154
Savings ...................... 457 419
Certificates of deposit ...... 1,081 850
Interest on federal funds purchased 0 40
Interest on note payable ........ 205 104
-------- --------
Total interest expense .... 1,884 1,567
-------- --------
Net interest income ....... 3,011 2,589
Provision for loan losses .......... 65 32
-------- --------
Net interest income after
provision for loan losses 2,946 2,557
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Noninterest income:
Service charges ................. 183 174
Data processing income .......... 57 82
Other operating income .......... 103 114
Investment security (losses) gains (4) 2
-------- --------
Total noninterest income 339 372
-------- --------
Noninterest expense:
Salaries and employee
benefits expense ............. 879 849
Net occupancy expense .......... 243 210
FDIC assessment ................ 21 83
Professional fees .............. 147 88
Other operating expense ........ 362 363
Goodwill amortization .......... 101 94
-------- --------
Total noninterest expense 1,753 1,687
-------- --------
Income before income
tax expense ............ 1,532 1,242
Income tax expense ................ 526 415
-------- --------
Net income ............... 1,006 827
-------- --------
Earnings per common share ......... $0.4400 0.360
Dividends per common share ........ $0.1825 0.165
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
(dollars in thousands March 31,
except per share) ------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................... $ 1,006 827
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 202 176
Provision for loan losses ..... 65 32
Investment securities losses (gains) 4 (2)
Loss on sale of bank premises
and equipment ............... 1 0
Amortization of investment
securities premiums ......... 88 91
Accretion of investment securities
and loan discounts .......... (84) (62)
Increase in other assets ...... (300) (191)
Increase in other liabilities 741 443
--------- --------
Total adjustments .......... 717 487
--------- --------
Net cash provided by
operating activities ..... 1,723 1,314
--------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales ........... 0 3,008
Proceeds from maturities ...... 2,000 0
Purchases ..................... (11,328) 0
Investment securities held to
maturity:
Proceeds from sales ........... 2,001 0
Proceeds from maturities ...... 625 2,206
Purchases ..................... (3,855 (1,146)
Purchases of loan pool
participations ................ (2,709) 0
Principal recovery on loan
pool participations ........... 5,700 4,969
Net increase in loans ........... (8,557) (3,873)
Purchases of bank premises
and equipment ................. (257) (45)
--------- --------
Net cash (used in) provided
by investing activities ... (16,380) 5,119
Cash flows from financing activities:
Net increase in deposits 5,498 5,921
Net decrease in federal
funds purchased ............... 0 (4,700)
Advances on note payable ........ 500 0
Principal payments on note payable (750) (1,500)
Dividends paid .................. (412) (377)
Purchases of treasury stock ..... (153) 0
--------- --------
Net cash provided by (used in)
financing activities ....... 4,683 (656)
--------- --------
Net (decrease) increase in cash
and cash equivalents ......... (9,974) 5,777
Cash and cash equivalents at
beginning of period .......... 20,821 7,691
-------- --------
Cash and cash equivalents at
end of period ................ 10,847 13,468
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................... 2,006 1,456
------- -------
Income taxes ................. 0 0
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
MAHASKA INVESTMENT COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. Adjustments and Reclassifications
The accompanying financial statements for the interim periods were prepared
without audit. In the opinion of management, all adjustments which were
necessary for a fair presentation of financial position and results of
operations have been made. These adjustments were of a normal recurring
nature.
2. Statements of Cash Flows
In the statements of cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits with banks, and federal funds sold.
3. Income Taxes
Federal income tax expense for the three months ended March 31, 1996 and
1995 was computed using the consolidated effective federal tax rate.
The Company also recognized income tax expense pertaining to state
franchise taxes payable individually by the subsidiary bank and thrift.
4. Earnings Per Common Share
Earnings per common share computations are based on the weighted average
number of shares of common stock outstanding during the period. The
weighted average number of shares for the three-month periods ended
March 31, 1996, and March 31, 1995, was 2,261,154 and 2,284,506,
respectively.
<PAGE>
Part I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Net income for the Company increased 22% to $1,006,000 for the
quarter ended March 31, 1996, compared with $827,000 for the
three months ended March 31, 1995. Net income per share for the
first quarter of 1996 was $.44 versus net income of $.36 per share
for the first quarter of 1995. Weighted average shares outstanding
were 2,261,154 and 2,284,506 for the first quarter of 1996 and 1995,
respectively. Return on average assets for the quarter ended March 31,
1996 was 1.97% compared with a return of 1.82% for the quarter ended
March 31, 1995. The Company had a return on average equity of 12.44%
for the three months ended March 31, 1996 versus 11.13% for the three
months ended March 31, 1995.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the quarter ended March 31, 1996, increased 16.3%
to $3,010,000 from $2,589,000 for the three months ended March 31, 1995.
This is due to increased interest income earned on loans and an increase
in interest income and discount on loan pool participations. The increase
in total interest income was offset, in part, by greater interest expense.
Total interest income increased $738,000 (18%) in the first quarter of 1996
compared with the same period in 1995. The Company's total interest expense
for the quarter increased $317,000 (20.2%) compared with the same period in
1995. The Company's net interest margin for the first quarter of 1996
increased to 6.50% from 6.36% in the first quarter of 1995 as the
composite rate earned on interest-earning assets increased more than the
overall rate paid on interest-bearing liabilities. The Company's overall
yield on earning assets increased to 10.5% for the first quarter of 1996
compared to 10.1% for the first quarter of 1995. The rate on
interest-bearing liabilities also increased in the first quarter of 1996
to 4.8% compared with 4.5% for the first quarter of 1995.
<PAGE>
Interest income and fees on loans increased $432,000 (25%) in the first
quarter of 1996 compared to the same period in 1995 due to increased
loan volumes and an increase in the overall yield on loans resulting
from higher market interest rates. The average yield on loans
increased to 9.9% for the first three months of 1996, up from 9.3% for the
three months ended March 31, 1995. Average loans outstanding increased
to $88,591,000 for the first three months of 1996 compared with
$76,116,000 for the first quarter of 1995, an increase of $12,475,000
(16%). The majority of this loan growth has occurred in real estate
and commercial loans at Mahaska State Bank and Central Valley Bank.
MIC Leasing Co. has experienced increases in accounts receivable
financing and leasing volumes.
Loan pool investments provided the Company with additional revenue in the
first quarter of 1996 compared to the same period in 1995. Interest income
and discount earned on the loan pools increased 7% in the first quarter
of 1996 to $1,938,000 compared with $1,801,000 earned in the first quarter
of 1995. The loan pool earnings may vary from quarter to quarter reflecting
fluctuations in the level of collections by the Company's servicer. The
fluctuations in the level of collections are due to variations in the
amount of loans settled in full or in part versus the total of payments
collected on amortizing loans and the amount of interest collected.
The interest rate environment and general economic conditions also
affect collections. The amount of income ultimately recognized by the
Company relative to the total cash collections is also affected by other
factors. These factors include the proportion of loan principal
collected versus interest collected (interest typically has no cost
basis), the underlying basis of the loan principal collected (basis
ranges from 13% to 84% of loan face amount), the collection expense
incurred to collect the loans (legal fees and operating expenses may vary
from month to month), the amount of bonus and service fees earned
by the servicer (fees earned by the servicer vary by package relative to
the percentage of original purchase cost collected), and the basis
write-offs of any uncollectible loans (amounts written off may vary from
period to period). The servicer collected a total of $9,900,000 for the
first quarter of 1996, compared with collections for the first quarter of
1995 totaling $9,299,000, an increase of $601,000 (6%). Loan pool yield
for the first quarter of 1996 was 18.1% compared with a yield 16.2% for
the three months ended March 31, 1995.
<PAGE>
Interest expense for the first quarter of 1996 increased $317,000 (20%)
compared with the first quarter of 1995 as a result of an increase in
total deposits, an increased level of borrowed funds, and increased rates
on time deposits. Average interest-bearing deposits for the first quarter
of 1996 increased $13,363,000 (10%) from the same period in 1995 with the
greatest increase occurring in the time deposit category. Average
short-term borrowings increased during the first quarter of 1996 by
$2,599,000 compared with the first quarter of 1995 with a resultant
increase in interest expense on these funds. Interest rates paid on
interest-bearing demand accounts and on savings accounts declined in the
first quarter of 1996 in comparison with the first quarter of 1995,
while the average rate on time deposits increased.
Provision for Loan Losses
The Company's provision for loan loss expense in the first quarter of 1996
was $33,000 greater than in the first quarter of 1995. As loan volumes
continue to grow (especially in the accounts receivable financing category),
management believes that it is prudent to also increase the level of the
allowance for loan losses.
Other Income
Noninterest income decreased $33,000 in the first quarter of 1996 compared
with 1995, mainly due to the reduction in the number of nonaffiliated banks
that Mahaska State Bank's data center is processing in 1996 versus 1995.
Total data processing income is down $25,000 in the first quarter of 1996
compared with prior year period. Data processing management continues to
actively seek new bank clients. Service charge income for the quarter has
increased in 1996 compared with 1995 due to additional charges collected
at Central Valley Bank.
<PAGE>
Other Expense
Total noninterest expense for the quarter ended March 31, 1996 increased
$66,000 (4%) compared to noninterest expense for the first quarter of 1995.
Salaries and benefits expense for the first quarter of 1996 increased
$30,000 (3%) over the first quarter of 1995, mainly resulting from an
increase in the number of employees at Central Valley and at MIC Leasing
Co. Net occupancy expenses for the first quarter of 1996 increased $34,000
in comparison to the first quarter of 1995 with most of the increase due
to the additional branch of Central Valley Bank. Professional fees were
up $58,000 for the first three months of 1996 over the same period in 1995.
The FDIC assessment expense incurreed by the Company during the first
quarter of 1996 decreased by $63,000 compared with the first quarter of
1995 reflecting the reduced assessment rate paid by Mahaska State Bank.
Income Tax Expense
Income tax expense for the three months ended March 31, 1996, increased
$111,000 compared to the amount for the three months ended March 31, 1995,
due to the overall increase in taxable income for the period.
FINANCIAL CONDITION
The Company's total assets as of March 31, 1996 were $211,373,000, an
increase of $6.2 million (3%) from December 31, 1995. Total deposits
grew $5.5 million during this time period with the most growth noted in
the time certificate of deposit accounts. The Company had federal funds
sold of $1,395,000 on March 31, 1996, compared with funds sold of
$10,632,000 on December 31, 1995. The note payable balance decreased to
$9,750,000 on March 31, 1996.
<PAGE>
Loan Pool Participations
As of March 31, 1996, the Company had investments in loan pool
participations of $42,327,000. New loan pool investments during the
quarter totaled $2,709,000. The loan pool participation investment as of
December 31, 1995 was $45,318,000. Pool pay down for the first three
months of 1996 exceeded new loan pool investments by $5,700,000.
During the first quarter of 1996, the servicer sold performing single-
family real estate loans having a basis of $1,443,000 to Central Valley
Bank. This was done to ensure that Central Valley would continue to meet
the Qualified Thrift Lender (QTL) test. No gain was recognized by the
Company. Average loan pool participation investments decreased to
$43,050,000 for the first three months of 1996, a decline from $45,128,000
for the first three months of 1995.
Loans
Loan volumes continued to increase, with total loans as of March 31, 1996
reflecting growth of $8,612,000 (10.0%) from December 31, 1995.
Most of this growth was in the commercial and real estate loans categories,
as well as the accounts receivable financing.
Nonperforming Loans
The Company's nonperforming loans totaled $744,000 (.8% of total loans)
as of March 31, 1996, compared to $694,000 (.8% of total loans) as of
December 31, 1995. All nonperforming loan totals and related ratios
exclude the loan pool investments. The following table presents the
categories of nonperforming loans as of March 31, 1996:
Nonperforming Loans
(dollars in thousands)
March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
90 days past due $ 222
Renegotiated 388
Nonaccrual 133
Other real estate owned 0
------
$ 744
------
</TABLE>
<PAGE>
From December 31, 1995 to March 31, 1996, nonaccrual loans increased
$9,000 while restructured loans decreased $21,000, loans ninety days
past due increased $87,000, and other real estate owned of $27,000 was
sold. The Company's allowance for loan losses as of March 31, 1996 was
$1,038,000, which was 1.1% of total loans as of that date. This
compares with an allowance for loan losses of $1,001,000 as of
December 31, 1995, which was 1.2% of total loans. As of March 31, 1996,
the allowance for loan losses to nonperforming loans was 139.6% compared
with 144.3% as of December 31, 1995. Management believes that as of March
31, 1996, the allowance for loan losses was adequate. For the three
months ended March 31, 1996, the Company recognized a net loan charged-off
of $28,000 compared with a net recovery of loans previously charged-off
of $5,000 during quarter ended March 31, 1995.
Capital Resources
As of March 31, 1996, total shareholders' equity as a percentage of total
assets was 15.3% compared with 15.7% as of December 31, 1995. The
Company held 25,000 shares of treasury stock at a cost of $383,000 as of
March 31, 1996. These shares were repurchased following the announcement
on April 24, 1995 that the Company would reacquire up to 200,000 shares
in order to satisfy options granted under the Company's Stock Incentive
Plan. On March 4, 1996, it was announced that the stock repurchase plan
would continue through January 31, 1997. Dudring the first quarter of
1996, a total of 10,000 shares were purchased. Under risk-based capital
rules, the Company's total capital was 19.3% of risk-weighted assets
as of March 31, 1996, and was 20.6% of risk-weighted assets as of
December 31, 1995, compared to an 8.0% requirement.
<PAGE>
Part II -- Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K -- A report on Form 8-K was filed as of February 15,
1996 related to the Company's subsidiary Central Valley Bank entering into
an agreement to purchase certain assets and assume certain liabilities of
the Sigourney, Iowa office of Boatmen's Bank Iowa, N.A.
<PAGE>
SIGNATURES
Pursuant to the requirements 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)
/s/ Charles S. Howard
Dated: May 13, 1995 ---------------------
Charles S. Howard
President
/s/ David A. Meinert
Dated: May 13, 1995 --------------------
David A. Meinert
Chief Financial Officer and
Executive Vice President
