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
SEPTEMBER 30, 1997 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 November 1, 1997, there were 2,172,456 shares of common stock $5 par value
outstanding.
<PAGE>
PART I -- Item 1. Financial Statements
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(dollars in thousands)
September 30,December 31,
1997 1996
--------- --------
<S> <C> <C>
ASSETS
Cash and due from banks ............................... $ 8,187 9,896
Interest-bearing deposits in banks .................... 1,873 3,603
Federal funds sold .................................... 0 2,985
--------- --------
Cash and cash equivalents .......................... 10,060 16,484
--------- --------
Investment securities:
Available for sale ................................. 24,938 26,483
Held to maturity ................................... 22,320 27,705
Loans ................................................. 139,403 118,045
Less:
Unearned discount .................................. (853) (629)
Allowance for loan losses .......................... (1,740) (1,491)
--------- --------
Net loans ....................................... 136,810 115,925
--------- --------
Loan pool participations .............................. 47,243 50,687
Premises and equipment, net ........................... 3,299 3,102
Accrued interest receivable ........................... 3,402 2,518
Other assets .......................................... 2,398 2,152
Goodwill .............................................. 6,320 6,795
--------- --------
Total assets ..................................... $ 256,790 251,851
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand ............................................. $ 17,667 19,353
NOW and Super NOW .................................. 31,517 33,124
Savings ............................................ 62,352 57,831
Certificates of deposit ............................ 93,615 96,644
--------- --------
Total deposits ............................... 205,151 206,952
Federal funds purchased ............................... 300 0
Note payable .......................................... 12,800 8,500
Other liabilities ..................................... 3,060 2,156
--------- --------
Total liabilities ............................ 221,311 217,608
--------- --------
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, 112,050 shares
as of September 30, 1997, and 55,000
shares as of December 31, 1996 ............... (2,278) (853)
Retained earnings .................................. 18,461 15,926
Unrealized gain (loss) on investments
available for sale ................................. 86 (40)
--------- --------
Total shareholders' equity ................... 35,479 34,243
--------- --------
Total liabilities and shareholders'
equity .................................... $ 256,790 251,851
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) .................................. Nine Months Ended
(dollars in thousands)................... September 30,
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 3,851 3,369
-------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ................. 838 654
Provision for loan losses ...................... 313 320
Investment securities losses ................... 8 68
(Gain) loss on sale of bank premises
and equipment .............................. 16 7
Amortization of investment securities
premiums ..................................... 176 240
Accretion of investment securities and
loan discounts ............................... (398) (259)
Decrease (increase) in other assets ............. (1,129) (274)
Increase in other liabilities ................... 822 1,288
-------- -------
Total adjustments ............................ 646 2,044
-------- -------
Net cash provided by operating
activities ............................. 4,497 5,413
-------- -------
Cash flows from investing activities: Investment securities available for sale:
Proceeds from sales ........................... 994 5,027
Proceeds from maturities ....................... 6,755 3,135
Purchases ...................................... (6,038) (21,195)
Investment securities held to maturity:
Proceeds from maturities ....................... 5,904 5,177
Purchases ...................................... (647) (5,599)
Purchases of loan pool participations ................ (12,775) (29,410)
Principal recovery on loan pool
participations ................................. 16,218 15,479
Net increase in loans ................................ (20,813) (16,915)
Purchases of bank premises and equipment ............ (583) (560)
Proceeds from sale of bank premises
and equipment .................................... 7 1
Proceeds from branch acquisition ....................... 0 14,246
-------- -------
Net cash used in investing activities (10,978) (30,614)
Cash flows from financing actitivies:
Net (decrease) increase in deposits .................. (1,801) 10,860
Net increase in federal funds purchased ............. 300 0
Advances on note payable ............................... 8,900 11,125
Principal payments on note payable ..................... (4,600) (2,700)
Dividends paid ........................................ (1,316) (1,232)
Purchases of treasury stock ............................ (1,610) (622)
Proceeds from stock issued ............................. 184 0
-------- -------
Net cash (used in) provided by
financing activities ........................... 57 17,431
-------- -------
Net decrease in cash and cash
equivalents .................................... (6,424) (7,770)
<PAGE>
Cash and cash equivalents at beginning
of period .............................................. 16,484 20,821
-------- -------
Cash and cash equivalents at end of
period ............................................. $ 10,060 13,051
-------- -------
-------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ....................................... $ 6,884 6,086
-------- -------
-------- -------
Income taxes .................................. $ 1,964 1,591
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, Three Months Ended Nine Months Ended
except per share) September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,195 2,759 8,913 7,428
Interest and discount on
loan pools 2,128 2,375 6,545 6,230
Interest on bank deposits 22 92 78 204
Interest on federal funds sold 2 7 63 83
Interest on investment securities:
Available for sale 413 377 1,310 931
Held to maturity 295 401 973 1,235
------- ------- ------- ------
Total interest income 6,055 6,011 17,882 16,111
------- ------- ------- ------
Interest expense:
Interest on deposits:
NOW and Super NOW 168 163 501 443
Savings 574 555 1,679 1,484
Certificates of deposit 1,358 1,329 4,042 3,514
Interest on federal funds
purchased 20 37 31 41
Interest on note payable 219 292 587 714
------ ------ ------- -----
Total interest expense 2,339 2,376 6,840 6,196
------ ------ ------- -----
Net interest income 3,716 3,635 11,042 9,915
Provision for loan losses 146 208 313 320
------ ------ ------- -----
Net interest income after
provision for loan losses 3,570 3,427 10,729 9,595
------ ------ ------- -----
Noninterest income:
Service charges 311 257 846 658
Data processing income 49 57 163 173
Other operating income 112 103 324 304
Investment security losses 0 (56) (8) (68)
------ ------ ------ ------
Total noninterest income 472 361 1,325 1,067
------ ------ ------ ------
Noninterest expense:
Salaries and employee benefits
expense 1,038 957 2,987 2,616
Net occupancy expense 318 241 905 747
FDIC assessment 12 237 30 281
Professional fees 163 115 352 365
Other operating expense 432 408 1,328 1,167
Goodwill amortization 158 151 475 353
------ ------ ------ -----
Total noninterest expense 2,121 2,109 6,077 5,529
------ ------ ------ -----
Income before income tax
expense 1,921 1,679 5,977 5,133
Income tax expense 675 578 2,126 1,764
Net income $ 1,246 1,101 3,851 3,369
-------- ------ ------ -----
-------- ------ ------ -----
Earnings per common share $ 0.57 0.5000 1.75 1.5000
Dividends per common share $ 0.20 0.1825 0.60 0.5475
</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 consolidated financial statements (unaudited) include
the accounts and transactions of the Company and its three wholly-owned
subsidiaries, Mahaska State Bank, Central Valley Bank, and On-Site
Credit Services, Inc.(formerly known as MIC Leasing Co.). All material
inter-company balances and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements (unaudited) have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although
management believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these
interim consolidated financial statements (unaudited) be read in
conjunction with the Company's most recent audited financial statements
and notes thereto. In the opinion of management, the accompanying
consolidated financial statements (unaudited) contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1997, and the results
of operations for the three and nine months ended September 30, 1997
and 1996, and changes in cash flows for the nine months ended September
30, 1997 and 1996.
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 and nine months ended
September 30, 1997 and 1996 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
<PAGE>
during the period. The weighted average number of shares for the
three-month periods ended September 30, 1997 and 1996 was 2,172,572 and
2,239,452, respectively. The weighted average number of shares for the
nine-month periods ended September 30, 1997 and 1996 was 2,196,954 and
2,252,407, respectively.
<PAGE>
Part I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
THREE MONTHS ENDED SEPTEMBER 30, 1997
Net income for the Company was $1,246,000 for the quarter ended September 30,
1997, which is an increase of 13% compared with $1,101,000 for the three months
ended September 30, 1996. Earnings per share for the third quarter of 1997 were
$.57 compared with $.50 per share for the third quarter of 1996. Weighted
average shares outstanding were 2,172,572 and 2,239,452 for the third quarter of
1997 and 1996, respectively. Return on average assets for the quarter ended
September 30, 1997 was 1.94% compared with a return of 1.72% for the quarter
ended September 30, 1996. The Company had a return on average equity of 13.94%
for the three months ended September 30, 1997 versus 12.84% for the three months
ended September 30, 1996.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the quarter ended September 30, 1997 increased 2% to
$3,716,000 from $3,635,000 for the three months ended September 30, 1996. This
was mainly due to increased interest income earned on higher loan volumes which
was partially offset by a decrease in the amount of interest income and discount
recovery on loan pool investments. The Company's overall loan volumes were
higher in the third quarter of 1997 due to increased loan originations in the
current and prior periods which contributed to the increased interest income.
Total interest income increased $44,000 (1%) in the third quarter of 1997
compared with the same period in 1996. The Company's total interest expense for
the quarter decreased $37,000 (2%) compared with the same period in 1996 mainly
due to a reduced level of notes payable. The Company's net interest margin (on a
federal tax-equivalent basis) for the third quarter of 1997 increased to 6.36%
from 6.27% in the third quarter of 1996. The overall yield on interest-earning
assets increased slightly to 10.32% for the third quarter of 1997 compared to
10.30% for the third quarter of 1996. The rate on interest-bearing liabilities
decreased to 4.66% for the third quarter of 1997 versus 4.70% for the third
quarter of 1996.
Interest income and fees on loans increased $436,000 (16%) in the third quarter
of 1997 compared to the same period in 1996 due to higher loan volumes. Average
loans outstanding increased to $135,375,000 for the three months ended September
30, 1997 compared with $116,052,000 for the third quarter of 1996, an increase
of $19,323,000 (17%). The majority of the average loan volume growth occurred in
agricultural and commercial loans at Mahaska State Bank ("MSB") and at Central
Valley Bank ("CVB"). On-Site Credit Services, Inc. ("On-Site") also experienced
an increase in lease volumes. The average yield on loans decreased to 9.36% for
the
<PAGE>
third quarter of 1997, down from 9.46% for the three months ended September 30,
1996.
The revenue from loan pool investments declined in the third quarter of 1997
compared to the same period in 1996. Interest income and discount collected on
the loan pools decreased $247,000 (10%) in the third quarter of 1997 to
$2,128,000 compared with $2,375,000 earned in the third quarter of 1996. The
yield on loan pool investments increased to 17.38% for the third quarter of 1997
compared with 16.28% for the quarter ended September 30, 1996. Loan pool
earnings may vary from period to period reflecting fluctuations in the level of
collections by the Company's servicer, the basis (or purchase investment)
relative to loan principal collected, and the amount of interest collected. The
average loan pool participation investment balance was $9,443,000 (16%) lower in
the third quarter of 1997 than in the third quarter of 1996.
Interest income on investment securities available for sale increased $36,000
(9%) for the third quarter of 1997 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". Interest income on investment securities held to
maturity has declined $106,000 (26%) for the third quarter of 1997 compared to
the third quarter of 1996 as the funds from maturing securities that were
classified as held to maturity have been primarily used to fund loan growth.
Interest expense for the third quarter of 1997 decreased $37,000 (2%) compared
with the third quarter of 1996 mainly as a result of a decrease in total
interest-bearing liabilities. Average interest-bearing deposits for the third
quarter of 1997 increased $1,414,000 (1%) from the same period in 1996 with the
greatest increase occurring in the time deposit category. Average short-term
borrowings decreased during the third quarter of 1997 by $2,969,000 compared
with the third quarter of 1996, with a resultant decrease in interest expense on
these funds. Interest rates on interest-bearing liabilities in the third quarter
of 1997 were marginally higher when compared with the rates for the third
quarter of 1996, with the exception of the rate on other short-term borrowings,
which was lower.
Provision for Loan Losses
The Company's provision for loan loss expense in the third quarter of 1997 was
$62,000 (30%) lower than in the third quarter of 1996. The provision for loan
loss expense in the third quarter of 1996 was substantially greater than in
prior periods of 1996 as an additional provision was taken to reserve for
anticipated losses at On-Site Credit Services.
Other Income
Total noninterest income increased $111,000 (30%) in the third quarter of 1997
compared with 1996, mainly due to higher service
<PAGE>
charge and fee income at both Mahaska State Bank and Central Valley Bank (up
$53,000) and investment security losses of $56,000 recorded by Mahaska State
Bank in the third quarter of 1996.
Other Expense
Total noninterest expense for the quarter ended September 30, 1997 increased
$11,000 (1%) compared to noninterest expense for the third quarter of 1996.
Salaries and benefits expense for the third quarter of 1997 increased $82,000
(9%) over the third quarter of 1996, primarily as a result of the increase in
the number of employees at CVB and at On-Site. Net occupancy expenses for the
third quarter of 1997 increased $76,000 in comparison to the third quarter of
1996 with most of the increase due to the additional facilities of CVB. The FDIC
assessment expense incurred by the Company during the third quarter of 1997
decreased by $225,000 compared with the third quarter of 1996 reflecting the
reduced assessment rate paid by MSB and CVB as a result of the one-time SAIF
assessment in September 1996 which reduced the FDIC deposit insurance rate
charged to thrift institutions. Goodwill amortization expense increased
minimally in the third quarter of 1997 versus 1996 due to the constant yield
method of amortization of goodwill.
Income Tax Expense
Income tax expense for the three months ended September 30, 1997, increased
$96,000 compared to the amount for the three months ended September 30, 1996,
primarily due to an increase in the amount of income before tax and a decrease
in the amount of tax-exempt income for the 1997 period. The amount of tax-exempt
municipal bond income declined $23,000 for the quarter ended September 30, 1997,
compared with the same period in 1996 mainly due to a decrease in the volume of
municipal bonds. The effective income tax rate rose slightly in the third
quarter of 1997 to 35.14% compared with 34.45% in the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997
The Company earned net income of $3,851,000 for the nine months ended September
30, 1997. This is an increase of $482,000 (14%) compared with the $3,369,000
earned by the Company during the first nine months of 1996. On an earnings per
share basis, the Company earned $1.75 for the first nine months of 1997 compared
with $1.50 for the first nine months of 1996. Weighted average shares
outstanding declined slightly to 2,196,954 for the first nine months of 1997,
compared to an average of 2,252,407 for the nine months ended September 30,
1996. The return on average assets improved to 2.04% for the nine months ended
September 30, 1997, up from 2.00% for the nine-month period ended September 30,
1996. Return on average equity rose to 14.67% for the first nine months of 1997
compared with 13.66% for the same period of 1996.
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
For the nine months ended September 30, 1997, net interest income increased
$1,127,000 (11%) to $11,042,000 compared to $9,915,000 for the first nine months
of 1996. This increase was primarily due to additional interest income from
increased loan volumes in 1997 compared to 1996, which were offset, in part, by
higher interest expense resulting from an increased level of deposits in 1997.
The Company's net interest margin for the first nine months of 1997 declined
slightly to 6.43% compared with 6.48% for the first nine months of 1996.
Total interest income on loans increased 20% in the first nine months of 1997
compared with the same period in 1996 primarily as a result of the higher
average loan volumes outstanding during 1997. Average loans for the first nine
months of 1997 totaled $127,776,000 compared with $101,130,000 for the first
nine months of 1996. The average rate on loans for the nine months ended
September 30, 1997 declined to 9.33%, down from 9.81% for the first nine months
of 1996.
Interest income and discount collected on the Company's loan pool investments
increased $315,000 (5%) for the nine months of 1997 in comparison with the first
nine months of 1996. The overall yield on loan pool investments rose slightly to
17.80% for the first nine months of 1997, up from 17.16% in the 1996 comparable
period. The loan pool investment balance averaged $49,166,000 during the nine
months ended September 30, 1997, compared with $48,484,000 for the same period
in 1996.
The interest income on securities available for sale for the nine months of 1997
increased $379,000 (41%) compared with that earned in the first nine months of
1996 due to the increases in average volume. Interest income on securities held
to maturity declined $262,000 (21%) as the level of securities in this category
decreased with maturities.
Total interest expense for the Company increased by $644,000 (10%) for the first
nine months of 1997 compared to 1996. Most of this increase resulted from the
higher average balance of interest-bearing liabilities in 1997. The average rate
paid on interest-bearing liabilities decreased to 4.63% for the 1997 period,
compared with 4.74% in the first nine months of 1996.
Other Income
Noninterest income increased $257,000 (24%) in 1997 compared with 1996. Deposit
service charges and fees and rental income increased $187,000 (28%) in 1997 over
1996 partially due to growth at CVB and also due to higher fees at MSB.
Investment security losses taken by MSB during 1997 were $60,000 less than in
the first nine months of 1996.
<PAGE>
Other Expense
For the nine-month period ended September 30, 1997, total other expense
increased by $548,000 (10%) in comparison with that incurred during 1996.
Salaries and benefits rose by $371,000 (14%) reflecting an increase in number of
employees both as a result of the CVB acquisition of the Sigourney Boatmen's
office and as On- Site has expanded its operations. Net occupancy expense
increased $158,000 (21%) mainly due to the additional Sigourney facility costs.
The FDIC assessment declined $251,000 (89%) in 1997 compared with 1996 due to
the one-time SAIF assessment in the third quarter of 1996 and the reduction in
rates in 1997. Professional fees were reduced by $13,000 (4%) as the Company did
not incur the legal and accounting costs associated with the CVB Sigourney
acquisition in 1997 that were experienced in 1996. Other operating expenses
increased $161,000 (14%) in 1997 as the On-Site and CVB operations have
expanded. Goodwill amortization increased $122,000 (35%) in the first nine
months of 1997 compared with the same period in 1996, all of which was
attributable to the bank office acquisition by CVB.
Income Tax Expense
Year-to-date income tax expense was $362,000 (21%) higher in 1997 compared with
the first nine months of 1996 due to the overall increase in income before taxes
and also due to the reduced level of tax-exempt interest income. The Company's
effective income tax rate for the nine months ended September 30, 1997 was
35.57% compared with 34.37% in 1996. Tax-exempt income in 1997 was $56,000 less
in 1997 than in 1996.
FINANCIAL CONDITION
The Company's total assets as of September 30, 1997 were $256,790,000, an
increase of $4,939,000 (2%) from December 31, 1996. Total deposits declined
$1,801,000 (1%) during this time period with the decreases noted in the demand
deposit, NOW accounts and time certificates of deposits. Savings accounts
(including money market accounts) increased $4,701,000 (8%) from December 31,
1996. The Company had no federal funds sold on September 30, 1997, compared with
funds sold of $2,985,000 on December 31, 1996. As of September 30, 1997, federal
funds purchased were $300,000. Total notes payable increased to $12,800,000 on
September 30, 1997 from $8,500,000 on December 31, 1996 as CVB and MSB borrowed
funds from the Federal Home Loan Bank and the Company borrowed additional funds
to provide funding to On-Site for its activities.
Loan Pool Participations
As of September 30, 1997, the Company had investments in loan pool
participations of $47,243,000, which was down $3,443,000 (7%) from the December
31, 1996 balance of $50,687,000. For the nine months ended September 30, 1997,
the Company invested $12,775,000 in loan pool purchases. During the quarter
ended September 30, 1997, the
<PAGE>
Company purchased $4,134,000 in loan pool participations. Average loan pool
participation investments declined to $48,588,000 for the third quarter of 1997
from $58,031,000 for the third quarter of 1996. The Company continued to explore
numerous loan pool investment opportunities throughout the nine months ended
September 30, 1997. Due diligence was performed on various pools offered by the
FDIC and private sellers. The Company placed numerous bids during this period.
The Company intends to continue to explore purchase opportunities and plans to
remain an active bidder.
Loans
Loan volumes continued to increase, with total loans as of September 30, 1997
reflecting growth of $21,358,000 (18%) from December 31, 1996. Most of this
growth was in the commercial, and agricultural loan categories, with some
increase occurring in lease financing. The Company's subsidiary banks have
continued to emphasize and focus on loan growth in their own markets throughout
the year. The Company's ratio of total loans (excluding loan pools) to total
deposits increased to 67.54% as of September 30, 1997, compared with 56.74% as
of December 31, 1996.
Nonperforming Loans
The Company's nonperforming loans totaled $1,424,000 (1.03% of total loans) as
of September 30, 1997, compared to $2,102,000 (1.79% of total loans) as of
December 31, 1996. This is a decrease of 32% from December 31, 1996 to September
30, 1997. All nonperforming loan totals and related ratios exclude the loan pool
investments. The following table presents the categories of nonperforming loans
as of September 30, 1997:
<TABLE>
<CAPTION>
Nonperforming Loans
(dollars in thousands)
September 30, 1997
<S> <C>
90 days past due $ 309
Renegotiated 384
Nonaccrual 719
Other real estate owned 12
------
$1,424
</TABLE>
From December 31, 1996 to September 30, 1997, loans ninety days past due
decreased $317,000, restructured and renegotiated loans increased $5,000,
nonaccrual loans decreased $365,000, and other real estate owned remained
unchanged. The Company's allowance for loan losses as of September 30, 1997 was
$1,740,000, which was 1.26% of total loans as of that date. This compares with
an allowance for loan losses of $1,491,000 as of December 31, 1996, which was
1.27% of total loans. As of September 30, 1997, the allowance for loan losses
was 122.13% of nonperforming loans compared with 70.91% as of December 31, 1996.
Management believes that as of September 30, 1997 the allowance for loan losses
is
<PAGE>
adequate. For the three months ended September 30, 1997, the Company recognized
a net loan charged-off of $25,000 compared with a net charge-off of $28,000
during the quarter ended September 30, 1996. The Company experienced a net loan
charge-off of $63,000 for the first nine months of 1997 compared with a net
charge-off of loans totaling $44,000 for the first nine months of 1996.
Capital Resources
As of September 30, 1997, total shareholders' equity as a percentage of total
assets was 13.82% compared with 13.60% as of December 31, 1996. The Company held
112,050 shares of treasury stock at a cost of $2,278,000 as of September 30,
1997. These shares were repurchased in order to satisfy options granted under
the Company's Stock Incentive Plan. The Company repurchased 8,500 shares at a
cost of $233,750 (average cost of $27.50 per share) during the third quarter of
1997. The Company reissued 1,833 shares of treasury stock as options were
exercised. Under risk- based capital rules, the Company's total capital was
15.51% of risk-weighted assets as of September 30, 1997, and was 16.23% of
risk-weighted assets as of December 31, 1996, compared to an 8.00% minimum
requirement.
The Company has paid to shareholders a cash dividend of $.20 per share in March,
June and September of 1997. This is an increase of 10% in comparison with the
quarterly dividend of $.1825 paid to shareholders in each of the first three
quarters of 1996. The year-to-date 1997 dividend paid of $.60 per share
represents 34.29% of year-to-date earnings per share. This percentage is down
slightly from the 36.50% of net income through September 30, 1996 that was paid
to shareholders.
On September 22, 1997, the Company's board of directors declared a 5 for 3 stock
dividend payable on November 10, 1997, to shareholders of record as of October
20, 1997. This will increase the number of shares outstanding to 3,620,760.
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. It adjusts its investments in liquid assets based on expected
loan demand, projected loan maturities and payments, estimated cash flows from
the loan pool participations, 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
$10,060,000 as of September 30, 1997, compared with $16,484,000 as of December
31, 1996. Most of this decrease is attributable to the increase in loans which
utilized liquid assets. Investment securities classified as available for sale
could be sold to meet liquidity needs, if necessary. Additionally, the bank
subsidiaries maintain lines of credit with correspondent banks and the Federal
Home Loan Bank that
<PAGE>
would allow them to borrow federal funds on a short-term basis if necessary. The
Company also maintains a line of credit with Harris Trust & Savings Bank of
Chicago, Illinois that provides liquidity for the purchase of loan pool
participation investments and other corporate needs. Management believes that
the Company has sufficient liquidity as of September 30, 1997 to meet the needs
of borrowers and depositors.
Pella, Iowa Expansion
On June 23, 1997, the Company announced that it intends to open a de novo,
wholly-owned, subsidiary bank in Pella, Iowa sometime in the fourth quarter of
1997, subject to federal and state regulatory approval. As of September 30,
1997, the Company had received approval from the Iowa Division of Banking.
Approval from the Federal Reserve Bank of Chicago was received on October 10,
1997. Following receipt of approval from the FDIC and the completion of its
facility, the Pella State Bank will open for business.
The Company anticipates that it will capitalize the proposed bank with
$5,000,000 from available cash on hand and from an advance on the revolving line
of credit with Harris Trust & Savings Bank. This will increase the Company's
interest expense on notes payable in future periods, but this should be offset
by additional interest income from loans and investments as the new bank grows.
Interest expense on deposits will also increase as the bank's deposits grow in
future periods. Operating expenses for salaries and benefits, and general
operating expenses related to the operation of the new subsidiary, will increase
in future periods as the institution becomes fully operational.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these
forward-looking statements.
<PAGE>
Part II -- Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this Report or, if so
indicated, incorporated by reference:
Exhibits
3.1 Articles of Incorporation of Mahaska Investment
Company. (d)
3.2 Bylaws of Mahaska Investment Company. (d)
10.1 Mahaska Investment Company Employee Stock Ownership
Plan & Trust as restated and amended. (b)
10.2.1 1993 Stock Incentive Plan. (a)
10.2.2 1996 Stock Incentive Plan. (d)
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. (a)
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. (a)
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. (a)
10.5.1 Revolving Loan Agreement dated January 31, 1996
between Mahaska Investment Company and Harris Trust
& Savings Bank. (c)
10.5.2 Second Amendment to Revolving Loan Agreement and
Revolving Loan Note between Mahaska Investment
Company and Harris Trust & Savings Bank dated June
19, 1997. (e)
10.6 Purchase and Assumption Agreement between Boatmen's
Bank Iowa, National Association, and Central Valley
Bank dated February 15, 1996. (c)
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
<PAGE>
(a) Incorporated by reference to the Form S-1
Registration Number 33-81922 of Mahaska Investment
Company.
(b) Incorporated by reference to the Form 10-K for the
year ended December 31, 1994 filed by Mahaska
Investment Company.
(c) Incorporated by reference to the Form 8-K filed by
Mahaska Investment Company on February 29, 1996.
(d) Incorporated by reference to the Form 10-K for the
year ended December 31, 1996 filed by Mahaska
Investment Company.
(e) Incorporated by reference to the Form 10-Q for the
quarter ended June 30, 1997 filed by Mahaska
Investment Company.
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during the
three months ended September 30, 1997.
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)
November 12, 1997 /s/ Charles S. Howard
Dated Charles S. Howard
President
November 12, 1997 /s/ David A. Meinert
Dated David A. Meinert
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings per Share
information:
Weighted average number
of shares outstanding
during period 2,172,572 2,239,452 2,196,954 2,252,407
Net earnings $1,245,908 1,101,103 3,851,381 3,369,196
Earnings per share $ 0.57 0.50 1.75 1.50
</TABLE>
<PAGE>
<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 SEPTEMBER 30, 1997 OF
MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,187
<INT-BEARING-DEPOSITS> 1,873
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 22,320
<INVESTMENTS-MARKET> 22,328
<LOANS> 138,550
<ALLOWANCE> (1,740)
<TOTAL-ASSETS> 256,790
<DEPOSITS> 205,151
<SHORT-TERM> 13,100
<LIABILITIES-OTHER> 3,060
<LONG-TERM> 0
0
0
<COMMON> 11,423
<OTHER-SE> 24,056
<TOTAL-LIABILITIES-AND-EQUITY> 256,790
<INTEREST-LOAN> 3,195
<INTEREST-INVEST> 708
<INTEREST-OTHER> 2,152
<INTEREST-TOTAL> 6,055
<INTEREST-DEPOSIT> 2,100
<INTEREST-EXPENSE> 2,339
<INTEREST-INCOME-NET> 3,716
<LOAN-LOSSES> 146
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,121
<INCOME-PRETAX> 1,921
<INCOME-PRE-EXTRAORDINARY> 1,246
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,246
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 10.32
<LOANS-NON> 719
<LOANS-PAST> 309
<LOANS-TROUBLED> 384
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (1,619)
<CHARGE-OFFS> 30
<RECOVERIES> (5)
<ALLOWANCE-CLOSE> (1,740)
<ALLOWANCE-DOMESTIC> (1,740)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (1,740)
</TABLE>
