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
JUNE 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 August 1, 1997, there were 2,172,456 shares of common stock $5 par value
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,
1997 1996
<S> <C> <C>
ASSETS
Cash and due from bank $ 9,972 9,896
Interest-bearing deposits in banks 748 3,603
Federal funds sold 675 2,985
Cash and cash equivalents 11,395 16,484
Investment securities:
Available for sale 27,607 26,483
Held to maturity 23,157 27,705
Loans 133,177 118,045
Less:
Unearned discount (681) (629)
Allowance for loan losses (1,619) (1,491)
Net loans 130,877 115,925
Loan pool participations 47,021 50,687
Premises and equipment, net 3,291 3,102
Accrued interest receivable 2,443 2,518
Other assets 2,178 2,152
Goodwill 6,478 6,795
Total assets $ 254,447 251,851
LIABILITIES AND SHAREHOLDERS'EQUITY
Deposits:
Demand 17,797 19,353
NOW and Super NOW 32,469 33,124
Savings 57,564 57,831
Certificates of deposit 97,829 96,644
Total deposits 205,659 206,952
Note payable 11,350 8,500
Other liabilities 2,653 2,156
Total liabilities 219,662 217,608
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, 105,383 shares
as of June 30, 1997, and 55,000 shares
as of December 31, 1996 (2,081) (853)
Retained earnings 17,649 15,926
Unrealized gain (loss) on investments
available for sale 7 (40)
Total shareholders' equity 34,785 34,243
Total liabilities and shareholders' equity $ 254,447 251,851
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PART I Item 1 . Financial Statements, Continued
SKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Six Months
(unaudited) Ended June 30, Ended June 30,
(dollars in thousands, except per share) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,998 2,495 5,718 4,669
Interest and discount on loan pools 1,977 1,917 4,417 3,855
Interest on bank deposits 15 42 56 112
Interest on federal funds sold 12 20 61 76
Interest on investment securities:
Available for sale 460 323 897 554
Held to maturity 329 409 678 834
Total interest income 5,791 5,206 11,827 10,100
INTEREST EXPENSE:
Interest on deposits:
NOW and Super NOW 168 139 333 280
Savings 567 472 1,105 929
Certificates of deposit 1,358 1,105 2,684 2,185
Interest on federal funds purchased 7 4 11 4
Interest on note payable 208 217 368 422
Total interest expense 2,308 1,937 4,501 3,820
Net interest income 3,483 3,269 7,326 6,280
Provision for loan losses 39 47 167 112
Net interest income after provision
for loan losses 3,444 3,222 7,159 6,168
NONINTEREST INCOME:
Service charges 272 218 535 401
Data processing income 61 59 114 116
Other operating income 97 98 212 201
Investment security losses (8) (8) (8) (12)
Total noninterest income 422 367 853 706
NONINTEREST EXPENSE:
Salaries and employee benefits expense 985 780 1,949 1,659
Net occupancy expense 302 262 587 506
FDIC assessment 12 23 18 44
Professional fees 93 99 189 250
Other operating expense 403 402 896 759
Goodwill amortization 159 101 317 202
Total noninterest expense 1,954 1,667 3,956 3,420
Income before income tax expense 1,912 1,922 4,056 3,454
Income tax expense 685 660 1,451 1,186
NET INCOME $1,227 1,262 2,605 2,268
Earnings per common share $ 0.56 0.56 1.18 1.00
Dividends per common share $ 0.20 0.1825 0.40 0.365
See accompanying notes to consolidated financial statements.
</TABLE>
<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,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 2,605 2,268
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 555 427
Provision for loan losses 167 112
Investment securities losses 8 12
(Gain) loss on sale of bank premises and equipment (7) 1
Amortization of investment securities premiums 123 172
Accretion of investment securities and loan
discounts (242) (174)
Decrease (increase) in other assets 50 (75)
Increase in other liabilities 465 1,494
Total adjustments 1,119 1,969
Net cash provided by operating activities 3,724 4,237
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales 994 1,988
Proceeds from maturities 3,468 2,026
Purchases (5,540) (11,355)
Investment securities held to maturity:
Proceeds from maturities 5,008 3,826
Purchases (548) (3,828)
Purchases of loan pool participations (8,641) (22,541)
Principal recovery on loan pool participations 12,307 12,004
Net increase in loans (14,886) (13,570)
Purchases of bank premises and equipment (428) (366)
Proceeds from sale of bank premises and equipment 7 0
Proceeds from branch acquisition 0 14,246
Net cash used in investing activities (8,259) (17,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (1,293) 5,369
Advances on note payable 5,600 5,500
Principal payments on note payable (2,750) (750)
Dividends paid (882) (824)
Purchases of treasury stock (1,376) (307)
Proceeds from stock issued 147 0
Net cash (used in) provided by financing
activities (554) 8,988
Net decrease in cash and cash equivalents (5,089) (4,345)
Cash and cash equivalents at beginning of period 16,484 20,821
Cash and cash equivalents at end of period $11,395 16,476
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,504 3,651
Income taxes $ 1,245 770
See accompanying notes to consolidated financial statements.
</TABLE>
<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 June 30, 1997, and the results of
operations for the three and six months ended June 30, 1997 and 1996,
and changes in cash flows for the six months ended June 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 six months ended June 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.
<PAGE>
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
June 30, 1997 and 1996 was 2,190,467 and 2,256,759, respectively. The
weighted average number of shares for the six-month periods ended June
30, 1997 and 1996 was 2,209,348 and 2,258,957, respectively.
<PAGE>
Part I -- Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Net income for the Company was $1,227,000 for the quarter ended June 30, 1997,
compared with $1,262,000 for the three months ended June 30, 1996. Earnings per
share for the second quarter of 1997 of $.56 were equal to the earnings per
share for the second quarter of 1996. Weighted average shares outstanding were
2,190,467 and 2,256,759 for the second quarter of 1997 and 1996, respectively.
Return on average assets for the quarter ended June 30, 1997 was 1.95% compared
with a return of 2.35% for the quarter ended June 30, 1996. The Company had a
return on average equity of 14.17% for the three months ended June 30, 1997
versus 15.79% for the three months ended June 30, 1996.
The Company earned net income of $2,605,000 for the six months ended June 30,
1997. This is an increase of $337,000 (15%) compared with the $2,268,000 earned
by the Company during the first six months of 1996. On an earnings per share
basis, the Company earned $1.18 for the first six months of 1997 compared with
$1.00 for the first six months of 1996. Weighted average shares outstanding
declined slightly to 2,209,348 for the first six months of 1997, compared to an
average of 2,258,957 for the first half of 1996. The return on average assets
decreased to 2.09% for the six months ended June 30, 1997, down from 2.16% for
the six-month period ended June 30, 1996. Return on average equity rose to
15.05% for the first half of 1997 compared with 14.10% for the first half of
1996.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the quarter ended June 30, 1997 increased 7% to
$3,483,000 from $3,269,000 for the three months ended June 30, 1996. This was
mainly due to increased interest income earned on greater loan volumes. A
portion of the increased interest income earned on loans was due to the
acquisition by Central Valley Bank ("CVB") of a branch office on June 21, 1996.
This acquisition resulted in increased average outstanding loans in the second
quarter of 1997 compared with the second quarter of 1996. The Company's overall
loan volumes were also higher in the second quarter of 1997 due to increased
loan originations in the current and prior periods which contributed to the
increased interest income. The increase in total interest income was offset, in
part, by additional interest expense related to increased deposit levels. Total
interest income increased $586,000 (11%) in the second quarter of 1997 compared
with the same period in 1996. The Company's total interest expense for the
quarter increased $372,000 (19%) compared with the same period in 1996 following
the increase in average deposits attributable
<PAGE>
to the branch office acquisition. The Company's net interest margin (on a
federal tax-equivalent basis) for the second quarter of 1997 decreased to 6.07%
from 6.71% in the second quarter of 1996 as the composite yield on
interest-earning assets declined while the overall rate paid on interest-bearing
liabilities remained approximately constant. The Company's overall yield on
earning assets decreased to 10.04% for the second quarter of 1997 compared to
10.62% for the second quarter of 1996. The rate on interest-bearing liabilities
was essentially unchanged in the second quarter of 1997 at 4.66% versus 4.68%
for the second quarter of 1996.
For the six months ended June 30, 1997, net interest income increased $1,046,000
(17%) to $7,325,000 compared to $6,280,000 for the first half of 1996. This
increase was primarily due to additional interest income from increased loan and
loan pool volumes in 1997 compared to 1996, which were offset, in part, by an
increased level of deposits in 1997. The Company's net interest margin for the
first half of 1997 declined to 6.47% compared with 6.61% for the first six
months of 1996.
Interest income and fees on loans increased $503,000 (20%) in the second quarter
of 1997 compared to the same period in 1996 due to higher loan volumes. Average
loans outstanding increased to $128,246,000 for the second three months of 1997
compared with $98,583,000 for the second quarter of 1996, an increase of
$29,664,000 (30%). Approximately $14,218,000 of the increase in average loans
outstanding is attributable to the Sigourney branch of CVB, which was acquired
in June 1996. The majority of the remaining average loan volume growth occurred
in agricultural and real estate loans at Mahaska State Bank ("MSB") and CVB.
On-Site Credit Services, Inc. ("On-Site") also experienced an increase in lease
volumes. The average yield on loans decreased to 9.38% for the second three
months of 1997, down from 10.18% for the three months ended June 30, 1996.
Loan pool investments provided the Company with a modest increase in revenue
during the second quarter of 1997 compared to the same period in 1996. Interest
income and discount collected on the loan pools increased 3% in the second
quarter of 1997 to $1,977,000 compared with $1,917,000 earned in the second
quarter of 1996. The yield on loan pool investments declined to 15.81% for the
second quarter of 1997 compared with 17.42% for the quarter ended June 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 $5,891,000
(13%) greater in the second quarter of 1997 than in the second quarter of 1996.
Interest income and discount collected on the Company's loan pool
<PAGE>
investments increased $562,000 (15%) for the half of 1997 in comparison with the
first six months of 1996. The overall yield on loan pool investments rose
slightly to 18.01% for the first half of 1997, up from 17.76% in the 1996
comparable period. The loan pool investment balance averaged $49,459,000 during
the six months ended June 30, 1997, compared with $43,658,000 for the same
period in 1996.
Interest income on investment securities available for sale increased $136,000
(42%) for the second 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" since management has elected to classify most of the new
securities being purchased in this category. Interest income on investment
securities held to maturity has declined $80,000 (19%) for the second quarter of
1997 compared to the second quarter of 1996 as the funds from maturing
securities have been reinvested in the available for sale category, thus
reducing the held to maturity volume. The interest income on securities
available for sale for the first half of 1997 increased $343,000 (62%) compared
with that earned in the first half of 1996 due to the same increases in volume.
Interest expense for the first quarter of 1997 increased $371,000 (19%) compared
with the first quarter of 1996 as a result of an increase in total deposits
(much of which was attributable to the deposits acquired by CVB). Average
interest-bearing deposits for the second quarter of 1997 increased $33,010,000
(21%) from the same period in 1996 with the greatest increase occurring in the
time deposit category. Average short-term borrowings decreased during the second
quarter of 1997 by $670,000 compared with the second quarter of 1996 with a
resultant decrease in interest expense on these funds. Interest rates on
interest-bearing liabilities in the second quarter of 1997 were generally
consistent with those in the second quarter of 1996.
Total interest expense for the Company increased by $681,000 (18%) for the first
half 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 declined slightly to 4.62% for the first half of
1997, compared with 4.76% in the first half of 1996.
Provision for Loan Losses
The Company's provision for loan loss expense in the second quarter of 1997 was
$8,000 lower than in the second quarter of 1996. For the first half of 1997, the
provision for loan loss expense was $54,000 greater than in the same period of
1996.
Other Income
<PAGE>
Total noninterest income increased $56,000 (15%) in the second quarter of 1997
compared with 1996, mainly due to higher service charge income at both Mahaska
State Bank and Central Valley Bank. Noninterest income for the first half of
1997 increased $148,000 (21%) over the amount recorded in the same period of
1996 mainly due to higher service charge income.
Other Expense
Total noninterest expense for the quarter ended June 30, 1997 increased $288,000
(17%) compared to noninterest expense for the second quarter of 1996. Salaries
and benefits expense for the second quarter of 1997 increased $205,000 (26%)
over the second 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 second
quarter of 1997 increased $40,000 in comparison to the second 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 second quarter of 1997
decreased by $11,000 compared with the second quarter of 1996 reflecting the
reduced assessment rate paid by 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 $57,000 (57%) in
the second quarter of 1997 versus 1996 due to the additional goodwill created by
the Sigourney branch acquisition.
For the six-month period ended June 30, 1997, total other expense increased by
$537,000 (16%) in comparison with that incurred during the first half of 1996.
Salaries and benefits rose by $289,000 (17%) reflecting the increase in number
of employees. Net occupancy expense increased $81,000 (16%) due to the
additional Sigourney facility costs. The FDIC assessment declined due to the
reduced SAIF assessment. Professional fees were reduced by $61,000 (24%) as the
Company did not incur the legal and accounting costs associated with the CVB
Sigourney acquisition in 1997 that were experienced in 1996. Goodwill
amortization increased $115,000 (57%) in the first half of 1997 compared with
the same period in 1996, all of which was attributable to the bank office
acquisition.
Income Tax Expense
Income tax expense for the three months ended June 30, 1997, increased $25,000
compared to the amount for the three months ended June 30, 1996, primarily due
to a decrease in the amount of tax-exempt income for the 1997 period. The
average volume of tax-exempt municipal investments declined $1,027,000 for the
quarter ended June 30, 1997, compared with the same period in 1996. The
effective income tax rate rose slightly in the second quarter of 1997 to 35.83%
compared with 34.33% in the second quarter of 1996. Year-to-date income tax
expense was $265,000 (22%)
<PAGE>
higher in 1997 compared with the first six months of 1996 due to the overall
increase in income before taxes and also due to the reduced level of tax-exempt
interest income.
FINANCIAL CONDITION
The Company's total assets as of June 30, 1997 were $254,447,000, an increase of
$2,596,000 (1%) from December 31, 1996. Total deposits declined $1,293,000 (1%)
during this time period with the largest decrease noted in the demand deposit
accounts. Time certificates of deposits increased by $1,185,000 from December
31, 1996 to June 30, 1996. The Company had federal funds sold of $675,000 on
June 30, 1997, compared with funds sold of $2,985,000 on December 31, 1996.
Total notes payable increased to $11,350,000 on June 30, 1997 from $8,500,000 on
December 31, 1996 as CVB and MSB borrowed funds from the Federal Home Loan Bank.
Loan Pool Participations
As of June 30, 1997, the Company had investments in loan pool participations of
$47,021,000. There were no new loan pool investments during the quarter, but the
Company was scheduled to fund a loan pool purchase settlement on July 1, 1997
totaling $3,644,000. The loan pool participation investment as of December 31,
1996 was $50,687,000. Average loan pool participation investments increased to
$50,156,000 for the second three months of 1997 from $44,265,000 for the second
quarter of 1996.
Loans
Loan volumes continued to increase, with total loans as of June 30, 1997
reflecting growth of $15,080,000 (13%) from December 31, 1996. Most of this
growth was in the commercial, agricultural, and real estate 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.
Nonperforming Loans
The Company's nonperforming loans totaled $1,370,000 (1.03% of total loans) as
of June 30, 1997, compared to $2,102,000 (1.79% of total loans) as of December
31, 1996. This is a decrease of 35% from December 31, 1996 to June 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 June
30, 1997:
<PAGE>
<TABLE>
<S> <C>
90 days past due $ 130
Renegotiated 350
Nonaccrual 878
Other real estate owned 12
------
$1,370
</TABLE>
From December 31, 1996 to June 30, 1997, loans ninety days past due decreased
$495,000, restructured and renegotiated loans decreased $30,000, nonaccrual
loans decreased $207,000, and other real estate owned remained unchanged. The
Company's allowance for loan losses as of June 30, 1997 was $1,619,000, which
was 1.22% 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 June 30, 1997, the allowance for loan losses was 118.21% of
nonperforming loans compared with 70.91% as of December 31, 1996. Management
believes that as of June 30, 1997 the allowance for loan losses is adequate. For
the three months ended June 30, 1997, the Company recognized a recovery of loans
perviously charged-off of $2,000 compared with a recovery of $12,000 during the
quarter ended June 30, 1996. The Company experienced a net loan charge-off of
$38,000 for the first six months of 1997 compared with a net charge-off of loans
totaling $16,000 for the first half of 1996.
Capital Resources
As of June 30, 1997, total shareholders' equity as a percentage of total assets
was 13.67% compared with 13.60% as of December 31, 1996. The Company held
105,383 shares of treasury stock at a cost of $2,081,000 as of June 30, 1997.
These shares were repurchased in order to satisfy options granted under the
Company's Stock Incentive Plan. During the second quarter of 1997, a total of
45,000 shares were repurchased at a cost of $1,074,000 in accordance with the
authorization from the Board of Directors to repurchase up to 200,000 shares
through January 31, 1998. Also in the second quarter of 1997, the Company
reissued 5,584 shares of treasury stock as options were exercised. Under
risk-based capital rules, the Company's total capital was 15.58% of
risk-weighted assets as of June 30, 1997, and was 16.23% of risk-weighted assets
as of December 31, 1996, compared to an 8.00% minimum requirement.
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
<PAGE>
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 $11,395,000 as of June 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 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 June 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. Management anticipates the opening
of the new bank sometime in the fourth quarter of 1997, subject to federal and
state regulatory approval. The proposed bank will be called the Pella State Bank
and will be a full-service, state-chartered, commercial bank. Management feels
that Pella represents a very attractive, expanding market in south-central Iowa
that will provide the Company with growth potential for both loans and deposits.
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.
<PAGE>
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, 1997. The
record date for determination of shareholders entitled to vote at the meeting
was March 7, 1997. There were 2,230,539 shares outstanding as of that date, each
such share being entitled to one vote. At the shareholders' meeting the holders
of 1,957,654 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 members of the Company's board of directors were elected to serve
for the specified term 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>
Three-year term (2000):
Martin L. Bernstein 1,917,374 40,280
R. Spencer Howard 1,939,672 17,982
</TABLE>
Proposal 2 - 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, 1997. The results of the vote were as follows:
<TABLE>
<CAPTION>
DEALER
FOR AGAINST ABSTAIN NON-VOTES
<C> <C> <C> <C>
1,944,823 12,631 200 0
</TABLE>
PART II -- Item 5. Other Information
On June 19, 1997, the Board of Directors of MIC Leasing Co., a wholly-owned
subsidiary of the Company, approved an amendment to the Articles of
Incorporation to authorize a change in the corporate name of the subsidiary to
On-Site Credit Services, Inc.
On June 19, 1997, the Company and Harris Trust & Savings Bank entered
into a Second Amendment to the Revolving Loan Agreement dated January
<PAGE>
31, 1996. This amendment to the loan agreement is included as Exhibit
10.5.2 to this 10-Q filing.
<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 l9,
1997.
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.
<PAGE>
27 Financial Data Schedule.
(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.
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during the
three months ended June 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)
August 11, 1997 /s/ Charles S. Howard
Dated Charles S. Howard
President
August 11, 1997 /s/ David A. Meinert
Dated David A. Meinert
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 10.5.2
MAHASKA INVESTMENT COMPANY
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1996, as amended (the "Credit Agreement"), between the undersigned,
Mahaska Investment Company, an Iowa corporation (the "Borrower"), and you (the
"Bank"). All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
The Borrower has requested that the Bank extend the Termination Date to
June 30, 1998, and make certain other amendments to the Credit Agreement, and
the Bank is willing to do so under the terms and conditions set forth in this
Amendment.
1. AMENDMENTS.
Upon your acceptance hereof in the space provided for that purpose
below, the Credit Agreement shall be and hereby is amended as follows:
(a) The interest rate payable under Section 2.1 of the Credit
Agreement shall be reduced and, accordingly, Section 2.1 of the Credit
Agreement shall be amended by deleting the phrase "at the rate per
annum equal to the Prime Rate as in effect from time to time" appearing
in the third and fourth lines thereof and inserting the phrase "at the
rate per annum determined by subtracting (but not below zero) 1/4 of 1%
per annum from the Prime Rate as in effect from time to time" in lieu
thereof.
(b) The commitment fee payable under Section 2.2 of the Credit
Agreement shall be reduced and, accordingly, Section 2.2 of the Credit
Agreement shall be amended by deleting the phrase "at the rate of 1/4
of 1% per annum" appearing in the second and third lines thereof and
<PAGE>
inserting the phrase "at the rate of 1/8 of 1% per annum" in lieu
thereof.
(c) The definition of "Termination Date" appearing in Section
4 of the Credit Agreement shall be amended by deleting the date "June
19, 1997" and inserting the date "June 30, 1998" in lieu thereof.
(d) Section 5.5 of the Credit Agreement shall be amended by
deleting the date "September 30, 1995" appearing in the last sentence
thereof and inserting the date "December 31, 1996" in lieu thereof.
(e) The amount of Consolidated Net Income required to be
maintained pursuant to Section 7.8 of the Credit Agreement shall be
amended by deleting the amount "$1,650,000" appearing therein and
inserting the amount "$1,900,000" in lieu thereof.
(f) Section 7 of the Credit Agreement shall be amended by
adding an additional covenant at the end thereof which shall read as
follows:
"Section 7.13. Minimum Tangible Net Worth of MIC Leasing
Company. The Borrower shall at all times cause MIC Leasing
Company to maintain Tangible Net Worth in an amount not less
than $4,500,000. For purposes of this Section, "Tangible Net
Worth" means, at any time the same is to be determined, the
total shareholders' equity (including capital stock,
additional paid-in capital and retained earnings after
deducting treasury stock, but excluding minority interest in
subsidiaries) which would appear on the balance sheet of MIC
Leasing Company determined in accordance with generally
accepted accouting principles, less the sum (i) the aggregate
book value of all assets which would be classified as
intangible assets under generally accepted accounting
principles, including, without limitation, goodwill, patents,
trademarks, trade names, copyrights, franchises, and deferred
charges (including, without limitation, unamortized debt
discount and expense, organization costs and deferred research
and development expense), and similar assets and (ii) the
write-up of assets above cost".
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
<PAGE>
all of the following conditions precedent:
(a) The Borrower and the Bank shall have executed and delivered
this Amendment.
(b) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Bank and its counsel.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Borrower hereby represents to the Bank that as of the date hereof, the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Borrower delivered to the Bank) and the Borrower is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Note, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Borrower agrees to pay on demand all costs and expenses of or
incurred by the Bank in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Bank.
(c) This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed
<PAGE>
to be an original. This Amendment shall be governed by the internal laws
of the State of Illinois.
Dated as of June 19, 1997.
MAHASKA INVESTMENT COMPANY
By /s/ Charles S. Howard
Its President
Accepted and agreed to in Chicago, Illinois as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Michael S. Cameli
Its Vice President
page 4 of 4
<PAGE>
<TABLE>
EXHIBIT 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings per Share Information:
Weighted average number of
shares outstanding during
period 2,190,467 2,256,759 2,209,348 2,258,957
Net earnings $ 1,227,241 1,262,291 2,605,473 2,268,093
Earnings per share 0.56 0.56 1.18 1.00
</TABLE>
<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, 1997 OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000741390
<NAME> MAHASKA INVESTMENT CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,972
<INT-BEARING-DEPOSITS> 748
<FED-FUNDS-SOLD> 675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 23,157
<INVESTMENTS-MARKET> 23,099
<LOANS> 132,496
<ALLOWANCE> (1,619)
<TOTAL-ASSETS> 254,447
<DEPOSITS> 205,659
<SHORT-TERM> 11,350
<LIABILITIES-OTHER> 2,653
<LONG-TERM> 0
0
0
<COMMON> 11,423
<OTHER-SE> 23,362
<TOTAL-LIABILITIES-AND-EQUITY> 254,447
<INTEREST-LOAN> 2,998
<INTEREST-INVEST> 789
<INTEREST-OTHER> 2,004
<INTEREST-TOTAL> 5,791
<INTEREST-DEPOSIT> 2,093
<INTEREST-EXPENSE> 2,308
<INTEREST-INCOME-NET> 3,483
<LOAN-LOSSES> 39
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 1,954
<INCOME-PRETAX> 1,912
<INCOME-PRE-EXTRAORDINARY> 1,227
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,227
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<YIELD-ACTUAL> 10.04
<LOANS-NON> 878
<LOANS-PAST> 130
<LOANS-TROUBLED> 350
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (1,578)
<CHARGE-OFFS> 10
<RECOVERIES> (12)
<ALLOWANCE-CLOSE> (1,619)
<ALLOWANCE-DOMESTIC> (1,619)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (1,303)
</TABLE>
