SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
to the
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number 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 Number)
222 First Avenue East, Oskaloosa, Iowa 52577
(Address of principal executive offices)
(515) 673-8448
(Registrant's telephone number, including area code)
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 July 29, 1996, 2,249,506 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) June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,104 6,700
Interest-bearing deposits in banks 10,372 3,439
Federal funds sold 0 10,682
------- ------
Cash and cash equivalents 16,476 20,821
------- ------
Investment securities:
Available for sale 18,004 11,169
Held to maturity 31,364 31,451
Loans 115,050 86,475
Less:
Unearned discount (812) (606)
Allowance for loan losses (1,267) (1,001)
-------- ------
Net loans 112,971 84,868
-------- -------
Loan pool participations 55,855 45,318
Premises and equipment, net 3,011 2,495
Accrued interest receivable 2,520 2,203
Other assets 2,481 2,495
Goodwill 7,122 4,342
-------- -------
Total assets $ 249,804 205,162
---------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS'EQUITY
<S> <C> <C>
Deposits:
Demand $ 14,992 15,480
NOW and Super NOW 31,544 26,188
Savings 58,781 46,556
Certificates of deposit 93,639 73,280
------- -------
Total deposits 198,956 161,504
Note payable 14,750 10,000
Other liabilities 3,114 1,552
------- -------
Total liabilities 216,820 173,056
------- -------
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,
35,000 shares as of June 30, 1996,
and 15,000 shares as of
December 31, 1995 (538) (231)
Retained earnings 14,514 13,070
Unrealized (loss) gain on
investments available for sale (202) 57
------- -------
Total shareholders'equity 32,984 32,106
------- -------
Total liabilities and
shareholders'equity $ 249,804 205,162
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended Six Months Ended
(dollars in June 30, June 30,
thousands, ------------------ ----------------
except per share 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Interest and fees
on loans $2,495 1,889 4,669 3,630
Interest and discount
on loan pools 1,917 2,272 3,855 4,073
Interest on bank deposits 42 49 112 74
Interest on federal
funds sold 20 63 76 63
Interest on investment
securities:
Available for sale 313 129 542 284
Held to maturity 419 420 846 854
----- ----- ----- -----
Total interest income 5,206 4,822 10,100 8,978
----- ----- ------ -----
Interest expense:
Interest on deposits:
NOW and Super NOW 139 155 280 309
Savings 472 468 929 887
Certificates of deposit 1,105 989 2,185 1,840
Interest on federal
funds purchased 4 0 4 41
Interest on note payable 217 125 422 228
----- ----- ----- -----
Total interest expense 1,937 1,737 3,820 3,305
----- ----- ----- -----
Net interest income 3,269 3,085 6,280 5,673
Provision for loan losses 47 43 112 75
----- ----- ----- -----
Net interest income
after provision for
loan losses 3,222 3,042 6,168 5,598
----- ----- ----- -----
Noninterest income:
Service charges 218 186 401 360
Data processing income 59 64 116 147
Other operating income 98 71 201 185
Investment security losses (8) (17) (12) (15)
---- ---- ---- -----
Total noninterest income 367 304 706 677
---- ---- ---- -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee,
benefits expense 780 754 1,659 1,603
Net occupancy expense 262 197 506 407
FDIC assessment 23 83 44 167
Professional fees 91 99 237 187
Other operating expense 410 370 772 733
Goodwill amortization 101 94 202 187
--- --- ----- -----
Total noninterest
expense 1,667 1,597 3,420 3,284
----- ----- ----- -----
Income before income
tax expense 1,922 1,749 3,454 2,991
Income tax expense 660 602 1,186 1,016
Net income $1,262 1,147 2,268 1,975
----- ----- ----- -----
Earnings per common share $0.56 0.50 1.00 0.86
Dividends per common share $0.1825 0.165 0.365 0.33
</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) Six Months Ended
(dollars in thousands) June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,268 1,975
-------- ------
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 427 356
Provision for loan losses 112 75
Investment securities losses 12 15
Loss on sale of bank premises
and equipment 1 0
Amortization of investment securities
premiums 172 173
Accretion of investment securities
and loan discounts (174) (121)
(Increase) decrease in other assets (75) 160
Increase in other liabilities 1,494 592
------ ------
Total adjustments 1,969 1,250
------ ------
Net cash provided by operating
activities 4,237 3,225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales 1,988 3,991
Proceeds from maturities 2,026 2,000
Purchases (11,328) (1,000)
Investment securities held to maturity:
Proceeds from sales 2,001 0
Proceeds from maturities 1,825 5,177
Purchases (3,855) (4,379)
Purchases of loan pool participations (22,541) (7,736)
Principal recovery on loan pool
participations 12,004 7,367
Net increase in loans (13,570) (6,836)
Purchases of bank premises and equipment (366) (134)
Proceeds from branch acquisition 14,246 0
------- ------
Net cash used in investing activities (17,570) (1,550)
-------- -------
Cash flows from financing activities:
Net increase in deposits 5,369 7,948
Net decrease in federal funds purchased 0 (4,700)
Advances on note payable 5,500 6,800
Principal payments on note payable (750) (3,700)
Dividends paid (824) (753)
Purchases of treasury stock (307) (151)
-------- --------
Net cash provided by financing
activities 8,988 5,444
-------- --------
Net (decrease) increase in cash and
cash equivalents (4,345) 7,119
Cash and cash equivalents at
beginning of period 20,821 7,691
-------- -------
Cash and cash equivalents at end of period $16,476 14,810
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 3,651 3,023
------- -------
Income taxes $ 770 865
------- -------
</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 and the six
months ended June 30, 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 and six month periods ended June 30, 1996, was 2,256,759
and 2,258,957, respectively. The weighted average number of
shares for the three-month and six-month periods ended June 30,
1995 was 2,281,044 and 2,282,766, respectively.
<PAGE>
Part I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Company earned $1,262,000 for the three months ended June 30,
1996, compared with net income of $1,147,000 for the three months
ended June 30, 1995. Earnings per share for the second quarter
of 1996 was $.56 based on 2,256,759 average shares outstanding,
versus earnings of $.50 per share for the second quarter of 1995
with an average 2,281,044 shares outstanding. Return on average
assets for the quarter ended June 30, 1996 was 2.35% compared
with a return of 2.43% for the quarter ended June 30, 1995. The
Company had a return on average equity of 15.79% for the three
months ended June 30, 1996 versus 15.04% for the three months
ended June 30, 1995.
For the six months ended June 30, 1996, the Company earned net
income of $2,268,000 compared with $1,975,000 for the six months
ended June 30, 1995. Earnings per share for the six months ended
June 30, 1996 was $1.00 with an average of 2,258,957 shares
outstanding, compared to $.86 per share on 2,282,766 average
shares outstanding for the six months ended June 30, 1995.
Return on average assets for the first six months of 1996 was
2.16% compared with a return of 2.13% for the six months ended
June 30, 1995. The Company had a return on average equity of
14.10% for the six months ended June 30, 1996 compared to 13.11%
for the six months ended June 30, 1995.
On June 21, 1996, one of the Company's subsidiaries completed the
acquisition of a bank office from Boatmen's Bank Iowa, N.A.
(Boatmen's). Central Valley Bank assumed approximately $32.6
million in deposits and purchased certain loans totaling
approximately $14.7 million of the Sigourney, Iowa office of
Boatmen's. Central Valley's existing branch facility in
Sigourney was closed and the operations were consolidated in the
Boatmen's facility. A premium of approximately $3.0 million was
paid by Central Valley to acquire the deposits. The acquisition
was accounted for as a purchase transaction and, as such, did not
require any restatement of prior period financial statements.
Due to the relatively late date in the second quarter of the
Boatmen's acquisition, the acquisition did not have a material
impact on the results of operations for the second quarter of
1996 or on the 1996 year-to-date results of the Company.
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the quarter ended June 30, 1996,
increased 6% to $3,269,000 from $3,085,000 for the three months
ended June 30, 1995. This increase is mainly due to greater
interest income on loans as a result of higher loan volumes.
Total interest income increased $384,000 (8%) in the second
quarter of 1996 compared with the same period in 1995. Total
interest income for the first half of 1996 was $1,122,000 (13%)
higher than in 1995. The increase in income was offset, in part,
by an increase in the amount of interest expense incurred on deposits
and borrowed funds. The Company's net interest margin
for the second quarter of 1996 decreased to 6.71% from 7.24% in
the second quarter of 1995 as the rate earned on interest-earning
assets decreased more than the rate paid on interest-bearing
liabilities. The Company's overall yield on earning assets
decreased to 10.6% for the second quarter of 1996 compared to
11.3% for the second quarter of 1995. The rate on interest-bearing
liabilities also decreased in the second quarter of 1996
to 4.7% compared with 4.8% for the second quarter of 1995.
For the six months ended June 30, 1996, net interest income was
$6,280,000, an increase of $607,000 (11%) compared to the net
interest income of $5,673,000 for the six months ended June 30,
1995. This increase was mainly attributable to an increase in
volume, with lessened effect caused by rate increases. The net
interest margin decreased to 6.6% for the first six months of
1996 compared with 6.8% for the first half of 1995. The yield on
earning assets declined to 10.6% in 1996 compared to 10.7% for
the first half of 1995, while the rate on interest-bearing
liabilities increased slightly to 4.8% in 1996 from 4.7% for the
six months ended June 30, 1995.
Interest income and discount earned on the loan pools decreased
16% in the second quarter of 1996 to $1,917,000 compared with
$2,272,000 earned in the second 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 mostly 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. For the
first half of 1996, loan pool interest income and discount
<PAGE>
totaled $3,855,000, a decrease of 5% compared to the June 30,
1995 year-to-date total of $4,073,000. Average loan pool
participation investments decreased to $43,658,000 for first half
of 1996, down from $45,134,000 for the first half of 1995. Loan
pool participation investments had a yield of 17.4% and 17.8% for
the quarter and the six months ended June 30, 1996, respectively.
For the quarter ended June 30, 1995 and the six months ended
thereon, loan pool investments yielded 20.2% and 18.2%,
respectively.
Interest income and fees on loans increased $607,000 (32%) in the
second quarter of 1996 compared to the same period in 1995 due to
increased loan volumes and an increase in the overall yield on
loans. For the six months ended June 30, 1996, interest income
and fees on loans increased $1,039,000 (29%) compared with the
first half of 1995. The average yield on loans increased to
10.0% for the first half of 1996, up from 9.4% for the six months ended
June 30, 1995. Average loans outstanding increased to
$93,589,000 for the first six months of 1996 compared with
$77,677,000 for the same period in 1995.
Interest income on investment securities available for sale
increased $184,000 (143%) for the second quarter of 1996 compared
to the same period in the prior year. This increase is primarily
due to the increased level of securities held as "available for
sale" as management has classified most of the new securities
being purchased in this category. The interest income on
securities available for sale for the first six months of 1996
increased $258,000 (91%) compared with that earned in the first
half of 1995 due to the same increase in volume.
Interest expense for the second quarter of 1996 increased
$199,000 (11%) compared with the second quarter of 1995 as a
result of the increase in total deposits, increased level of
borrowed funds, and the higher interest rates paid on
certificates of deposit. The average deposits for the second
quarter of 1996 were up approximately $15,620,000 from the same
period in 1995. These additional deposits added to the Company's
interest expense for the quarter. Short-term borrowings averaged
$5,096,000 higher during the second quarter of 1996 with a
resultant increase in interest expense on these funds. The
additional borrowings were used primarily to fund loan pool
investments and to provide funds for On-Site Commercial Services
leases and accounts receivable financing activities. For the six
months ended June 30, 1996, total interest expense was $516,000
(16%) greater than in the first half of 1995. The average rate
<PAGE>
paid on interest-bearing liabilities was 4.8% for the first six
months of 1996 compared with 4.7% in the first half of 1995.
Average interest-bearing liabilities for the six months ended
June 30, 1996 increased $18,325,000 compared with the same period
in 1995.
Provision for Loan Losses
The Company's provision for loan loss expense in the second
quarter of 1996 was $4,000 greater than in the second quarter of
1995. For the first six months of 1996, the provision for loan
loss was $37,000 higher than in 1995. The Company continues to
add to the reserves at its subsidiaries as overall loan volumes
continue to grow.
Other Income
Noninterest income increased $63,000 (21%) in the second quarter
of 1996 compared with 1995. For the six months ended June 30,
1996, noninterest income increased $29,000 (4%) compared to the
first six months of 1995. Service charge income for both the quarter
and the six month periods has increased in 1996 compared
with 1995 mainly due to the growth in demand and Now account
deposits of Central Valley Bank and related overdraft fees. Data
processing income for the quarter ended June 30, 1996 was
slightly below the income earned in the second quarter of 1995.
For the first six months of 1996, data processing income is
$31,000 lower than in the same period in 1995 due to a reduction
in the number of clients that the Mahaska State Bank data center
is processing in 1996. Management continues to search for new
data processing clients that would provide additional revenue.
Other Expense
Total noninterest expense for the quarter ended June 30, 1996
increased $70,000 (4%) compared to the second quarter of 1995.
For the six months ended June 30, 1996, noninterest expense was
$136,000 (4%) higher than for the six months ended June 30, 1995.
Total salaries and employee benefits expense increased 4% in both
the second quarter and in the six months ended June 30, 1996,
compared to the same time periods in 1995. Net occupancy
expenses increased by $65,000 in the second quarter of 1996
compared with the second quarter of 1995 and by $99,000 for the
first six months of 1996 versus the first half of 1995 mainly due
to the operation of the supermarket branch of Central Valley
Bank. Mahaska State Bank closed one of its offices in Oskaloosa
on May 1, 1996, which should produce some future cost savings.
<PAGE>
The reduction in the FDIC premium paid by Mahaska State Bank
caused the decrease in FDIC assessment expense of $60,000 for the
quarter and $123,000 for the six months ended June 30, 1996
compared to the same periods in 1995. Professional fees for the
second quarter are relatively unchanged while much of the $50,000
increase in 1996 year-to-date professional fees is attributable
to the Boatmen's acquisition. Other operating expenses have
increased approximately $40,000 in the second quarter and for the
first half of 1996 mainly due to the costs associated with the
supermarket branch operation and the costs incurred related to
the Boatmen's office acquisition.
Income Tax Expense
Income tax expense for the three months ended June 30, 1996,
increased $58,000 compared to the amount for the three months
ended June 30, 1995. For the six months ended June 30, 1996, the
Company's income tax expense increased $169,000 compared with the
first half of 1995. The increases in tax expense are mainly due
to the increased level of income for both the quarter and for the
first half of 1996 compared to the prior year periods. The
Company's overall effective tax rate remained at approximately
34%.
FINANCIAL CONDITION
The Company's total assets as of June 30, 1996 were $249,804,000,
an increase of $44.6 million (22%) from December 31, 1995. Total
deposits increased $37.4 million during this time period with
growth of $4.8 exclusive of the Boatmen's acquisition. The
Company had no federal funds sold on June 30, 1996, compared with
funds sold of $10.7 million on December 31, 1995. Interest-bearing
deposits in banks was $10.4 million on June 30, 1996
versus $3.4 million on December 31, 1995. The interest-bearing
deposits in banks were primarily funds on deposit with the
Federal Home Loan Bank of Des Moines which were deposited on an
"overnight" basis and thus available to meet liquidity needs.
The $7.0 million increase reflects cash received from the
Boatmen's Sigourney office that as of June 30, 1996, had not been
fully deployed. The note payable balance increased $4.8 million
through June 30, 1996, as a result of additional borrowings
incurred by the Company to inject additional capital into Central
Valley Bank. The Bank required additional capital in order to
maintain satisfactory capital levels following the Boatmen's
acquisition. Goodwill increased approximately $2.8 million from
December 31, 1995 to June 30, 1995 reflecting the approximately
$3.0 million deposit premium paid to acquire the Boatmen's
Sigourney office, less the year-to-date amortization related to
previous goodwill.
<PAGE>
Loan Pool Participations
As of June 30, 1996, the Company had investments in loan pool
participations of $55,855,000. The Company successfully bid on a
number of pools offered by the FDIC and by other private sellers
during the second quarter of 1996. New loan pool investments
during the quarter totaled $19,832,000. Approximately $10.8
million of the second quarter new pool investments occurred late
in June following the receipt of funds from the Boatmen's office
acquisition. These new pool purchases did not contribute
significantly to the income for the second quarter; but it is
anticipated that they will begin to contribute revenue in the
third quarter of 1996. On June 28, 1996, the loan pool servicer
sold loans having a face value of $2.7 million to an independent
third party for $2.6 million. The total basis in these loans was
approximately $2.0 million. The gain on the sale of these loans
will be recorded in July 1996, which is consistent with the
accounting method used by the Company for loan pool investments.
The 1996 year-to-date investment in new loan pool participations
was $22,541,000. Average loan pool participation investment for
the quarter and the six months ended June 30, 1996 was
$44,265,000 and $43,658,000, respectively. The loan pool
participation investment as of December 31, 1995 was $45,318,000.
Loans
Loan volumes continued to increase, with total loans as of June
30, 1996 reflecting an increase of $28,369,000 (33%) from
December 31, 1995. Approximately $14.7 million of this increase
was attributable to the Boatmen's acquisition, while the
Company's existing subsidiaries experiencing loan growth of $13.7
million (16%) from year-end 1995. The majority of this growth
was in the real estate and the commercial loan categories, with
all three of the Company's subsidiaries experiencing loan growth.
Demand for these types of loans continues to remain strong in the
market areas served by the Company. Marketing efforts to
increase loan volumes have also been emphasized.
Non-performing Loans
The Company's non-performing loans totaled $822,000 (.7% of total
loans) as of June 30, 1996, compared to $694,000 (.8% of total
loans) as of December 31, 1995. All non-performing loan totals
and related ratios exclude the loan pool investments. The
following table presents the categories of non-performing loans
as of June 30, 1996:
<PAGE>
Non-performing Loans
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
90 days past due $ 150
Renegotiated 375
Nonaccrual 297
Other real estate owned 0
-----
$ 822
</TABLE>
From December 31, 1995 to June 30, 1996, nonaccrual loans
increased $173,000 while restructured loans decreased $34,000,
loans ninety days past due increased $16,000, and other real
estate owned of $27,000 was sold. The Company's allowance for
loan losses as of June 30, 1996 was $1,267,000, 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 June 30, 1996, the allowance for loan
losses to nonperforming loans was 154.2% compared with 144.3% as
of December 31, 1995. A purchase accounting adjustment added
$170,000 to the allowance for loan losses as part of the Central
Valley acquisition of the Boatmen's Sigourney office. Central
Valley purchased selected loans from Boatmen's and did not
acquire any nonperforming loans. Management believes that as of
June 30, 1996, the allowance for loan losses is adequate. For the three
months ended June 30, 1996, the Company recognized a
net recovery on loans previously charged off of $12,000 compared
with a recovery of $3,000 during the quarter ended June 30, 1995.
The Company charged off net loans of $16,000 for the first six
months of 1996 and recognized a net recovery on loans previously
charged off of $8,000 for the six months ended June 30, 1995.
Capital Resources
As of June 30, 1996, total shareholders' equity as a percentage
of total assets was 13.2% compared with 15.7% as of December 31,
1995. The decrease in equity to total assets was due to the
increase in the Company's total assets, reflecting the
acquisition of the Boatmen's Sigourney office. The Company held
35,000 shares of treasury stock at a cost of $538,000 as of June
30, 1996. During the first six months of 1996, the Company
reacquired 20,000 shares in order to satisfy options granted
under the Company's Stock Incentive Plan. Under risk-based
capital rules, the Company's total capital was 18.1% of risk-weighted
assets as of June 30, 1996, and was 20.6% of risk-weighted assets as of
December 31, 1995, compared to an 8.0% requirement.
<PAGE>
Liquidity
Liquidity management involves meeting the cash flow requirements
of depositors and borrowers. The Company conducts liquidity
management on both a daily and long-term basis and it adjusts its
investments in liquid assets based on expected loan demand,
projected loan sales, expected deposit flows, yields available on
interest-bearing deposits, and the objectives of its
asset/liability management program. The Company had liquid
assets (cash and cash equivalents) of $16,476,000 as of June 30,
1996, compared with $20,821,000 as of year-end 1995. Some of
this decrease is attributable to the increase in loans and to the
increase in loan pool investments which utilized liquid assets.
Management believes that the Company has sufficient liquidity as
of June 30, 1996 to meet the needs of borrowers and depositors.
Financial Impact of Boatmen's Acquisition
The purchase of the Boatmen's office effectively doubled the
asset size of Central Valley Bank, significantly expanded its
market presence in the Sigourney area, and also eliminated a
competitor in the market. The acquisition allowed the Company
to utilize some of its excess capital and increased the total
asset base of the organization.
Central Valley assumed deposit liabilities of approximately $32.6
million from Boatmen's. These deposit liabilities included noninterest-
bearing demand deposits and interest-bearing NOW,
savings and time certificates of deposit. The average rate of
interest-bearing liabilities assumed was approximately 4.4%.
These additional deposits will increase the Company's overall
interest expense in future periods. Central Valley did purchase
loans of $14.7 million with an average interest rate of
approximately 9.0% from Boatmen's that will provide future
interest income to the organization. The difference between
deposits assumed and loans purchased of $17.9 million was
received in cash from Boatmen's. Of this $17.9 million,
approximately $10.7 million was used to purchase additional loan
pool investments. As of June 30, 1996, the remainder was held in
an interest-earning account with the Federal Home Loan Bank of
Des Moines. Management will be deploying these funds into loans
and investment securities throughout the coming months. It is
anticipated that the interest income earned on the loans and
investments and the profits derived from the loan pool
participation investments will increase over time.
<PAGE>
The Company's total operating expense will increase in future
periods due to the Sigourney branch. The acquisition resulted in
a net increase of 8 employees and will produce a corresponding
increase in salary and benefits expense. Occupancy and other
operating expenses will also rise. There should be no additional
increase in the FDIC premium assessment, however. The
acquisition was structured as a "Reverse Oakar" transaction
whereby the deposits acquired from Boatmen's retained their BIF
(Bank Insurance Fund) status and are, therefore, not subject to
the higher SAIF (Savings Association Insurance Fund) rate paid by
Central Valley. The Company will recognize additional expense
related to the amortization of the core deposit intangible and
the goodwill incurred related to the purchase premium paid. The
core deposit intangible will be amortized using an accelerated
method over the remaining life of the intangible and the goodwill
will be amortized over a 15 year period using a straight-line method.
Part II -- Item 4. Submission of Matters to a Vote of Security
Holders.
The Company's annual meeting of shareholders was held on April
30, 1996. The record date for determination of shareholders
entitled to vote at the meeting was March 25, 1996. There were
2,259,506 shares outstanding as of that date, each such share
being entitled to one vote. At the shareholders' meeting the
holders of 1,988,041 shares of stock were represented in person
or by proxy, which constituted a quorum. The following proposals
were voted on at the meeting:
Proposal 1 - Election of Directors:
The following persons were elected to serve as members of the
Company's board of directors for the term specified below or
until their successors shall have been elected and qualified.
Such persons received the number of votes set opposite their
names:
<TABLE>
<CAPTION>
VOTE
FOR WITHHELD
--- --------
<S> <C> <C>
One-year term (1997):
Martin L. Bernstein 1,976,481 11,560
R. Spencer Howard 1,980,941 7,100
William E. Masterson 1,965,172 22,869
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Two-year term (1998):
Robert K. Clements 1,980,141 7,900
R. S. Howard 1,980,839 7,202
John P. Pothoven 1,980,539 7,502
John W.N. Steddom 1,980,041 8,000
Three-year term (1999):
John A. Fallon, III 1,980,441 7,600
Charles S. Howard 1,980,941 7,100
James F. Mathew 1,980,941 7,100
David A. Meinert 1,980,941 7,100
</TABLE>
Proposal 2 - Amendment to Articles of Incorporation to Provide
for a Classified Board of Directors:
A vote was taken to adopt an amendment to the Company's articles
of incorporation that would classify the board of directors into
three separate classes, as nearly equal in number as possible,
with one class being elected each year. (Directors elected to
each of the respective classes were noted above in Proposal 1.)
The results of the vote were as follows:
<TABLE>
<CAPTION>
DEALER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<C> <C> <C> <C>
1,427,003 414,121 5,933 140,984
</TABLE>
Proposal 3 - Approval of 1996 Stock Incentive Plan:
A vote was taken to approve the 1996 Stock Incentive Plan under
which 250,000 shares of Common Stock were approved for
reservation pursuant to options and other benefits which may be
granted to executive officers, key employees, and non-affiliated
directors. The results of the vote were as follows:
<TABLE>
<CAPTION>
DEALER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<C> <C> <C> <C>
1,707,505 115,847 15,523 149,166
</TABLE>
<PAGE>
Proposal 4 - Ratification of Appointment of KPMG Peat Marwick LLP
as independent auditor:
A vote was also taken on the ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors of the Company for
the fiscal year ending December 31, 1996. The results of the
vote were as follows:
<TABLE>
<CAPTION>
DEALER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<C> <C> <C> <C>
1,984,150 2,107 1,784 0
</TABLE>
Part II -- Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -- The Exhibits set forth as Item 14(a)(3) in the
Company's Form 10-K filed for the fiscal year ended December 1,
1995 are hereby incorporated by reference.
(b) Reports on Form 8-K -- There were no reports on Form 8-K
filed for the three months ended June 30, 1996.
<PAGE>
SIGNATURE
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
Date: August 9, 1996 By: /s/ Charles S. Howard
---------------------
Charles S. Howard
President
Date: August 9, 1996 By: /s/ David A. Meinert
--------------------
David A. Meinert,
Chief Financial Officer
and Executive Vice
President
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1996
OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,104
<INT-BEARING-DEPOSITS> 10,372
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 31,364
<INVESTMENTS-MARKET> 31,051
<LOANS> 114,238
<ALLOWANCE> (1,267)
<TOTAL-ASSETS> 249,804
<DEPOSITS> 198,956
<SHORT-TERM> 14,750
<LIABILITIES-OTHER> 3,114
<LONG-TERM> 0
0
0
<COMMON> 11,423
<OTHER-SE> 21,561
<TOTAL-LIABILITIES-AND-EQUITY> 249,804
<INTEREST-LOAN> 2,495
<INTEREST-INVEST> 732
<INTEREST-OTHER> 1,979
<INTEREST-TOTAL> 5,206
<INTEREST-DEPOSIT> 1,716
<INTEREST-EXPENSE> 1,937
<INTEREST-INCOME-NET> 3,269
<LOAN-LOSSES> 47
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 1,667
<INCOME-PRETAX> 1,922
<INCOME-PRE-EXTRAORDINARY> 1,262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,262
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 10.61
<LOANS-NON> 297
<LOANS-PAST> 150
<LOANS-TROUBLED> 375
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (1,038)
<CHARGE-OFFS> 13
<RECOVERIES> (25)
<ALLOWANCE-CLOSE> (1,267)
<ALLOWANCE-DOMESTIC> (1,267)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (1,152)
</TABLE>
