<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MAHASKA INVESTMENT COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
MAHASKA INVESTMENT COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 30, 1998
TO THE SHAREHOLDERS OF MAHASKA INVESTMENT COMPANY:
The Annual Meeting of Shareholders of Mahaska Investment Company will be held
at the Elmhurst Country Club, 2214 South 11th Street, Oskaloosa, Iowa, on
Thursday, April 30, 1998, at 10:30 a.m., for the following purposes:
1. To elect directors to serve until the Annual Meeting of Shareholders at
which their term expires, and until their successors shall have been
elected and qualified;
2. To approve an amendment to the Articles of Incorporation of the Company to
increase the aggregate number of authorized shares which the Company shall
have authority to issue;
3. To approve the 1998 Stock Incentive Plan, as more fully described in the
accompanying Proxy Statement;
4. To ratify the appointment of KPMG Peat Marwick LLP as independent auditor
for the current fiscal year; and
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
-------------------------------------------------
The Board of Directors has fixed the close of business on March 2, 1998, as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the Annual Meeting or any adjournment thereof.
Shareholders who do not expect to be present at the meeting in person are urged
to complete, date, sign, and return the enclosed Proxy in the accompanying
envelope, which requires no postage if mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
CHARLES S. HOWARD, CHAIRMAN OF THE BOARD
Oskaloosa, Iowa
March 25, 1998
<PAGE> 3
2-3
PROXY STATEMENT
Mahaska Investment Company
222 First Avenue East
Oskaloosa, Iowa 52577
INTRODUCTION
The enclosed Proxy is solicited by the Board of Directors of Mahaska Investment
Company, an Iowa corporation (the "Company"), for use at the Annual Meeting of
Shareholders to be held on April 30, 1998, and at any adjournment thereof. The
Proxy may be revoked at any time before it is exercised by submitting a later
dated Proxy, by giving notice of such revocation to the Company in writing, or
by attending and requesting such revocation at the Annual Meeting. Attendance
at the Annual Meeting will not in and of itself constitute the revocation of
the Proxy. If the Proxy is not revoked, the shares represented thereby will be
voted in the manner specified in the Proxy. A Proxy properly executed and
received prior to the Annual Meeting which does not give specific voting
instructions will be voted FOR the amendment to the Articles of
Incorporation, FOR the 1998 Stock Incentive Plan, and FOR the ratification of
the appointment of KPMG Peat Marwick LLP as independent auditor for the current
fiscal year and as the persons designated as proxies on the enclosed proxy card
determine is in the best interests of the Company in any other business that
may properly come before the meeting or any adjournment thereof. Abstentions
will be treated as shares present and entitled to vote for purposes
of determining whether a quorum is present, but not voted for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. If a Proxy returned by a broker indicates that the broker does not have
discretionary authority to vote some or all of the shares covered thereby for
any matter submitted to the shareholders for a vote, such shares will be
considered to be present for the purpose of determining whether a quorum is
present, but will not be considered to be present and entitled to vote at the
Annual Meeting of Shareholders.
For participants in the Mahaska Investment Company Employee Stock Ownership
Plan and Trust (the "ESOP"), the proxy card will also serve as a voting
instruction card for Mahaska State Bank, the trustee of the ESOP (the
"Trustee"), with respect to shares held in the participants' accounts. A
participant cannot direct the voting of shares allocated to the participant's
account in the ESOP unless the proxy card is signed and returned. If proxy cards
representing shares in the ESOP are not returned, those shares will be voted by
the Trustee in the same proportion as the shares for which signed proxy cards
are returned by the other participants in the ESOP.
The cost of preparing, assembling, and mailing this Proxy Statement, the Notice
of Annual Meeting of Shareholders, and the accompanying Proxy is being borne by
the Company. In addition to the solicitation by mail, officers, directors, and
regular employees of the Company may solicit Proxies by telephone or personal
interview. Such persons will receive no additional compensation for such
services. Brokerage houses, nominees, fiduciaries, and other custodians will be
requested to forward soliciting material to the beneficial owners of shares
held of record by them and will be reimbursed by the Company for their
reasonable expenses.
The record date for shareholders entitled to vote at the meeting is the close
of business on March 2, 1998, at which time the Company had issued and
outstanding 3,673,816 shares of Common Stock. Holders of Common Stock are
entitled to one vote per share on any matter which may properly come before the
meeting.
This Proxy Statement, the enclosed Proxy, and the attached Notice were first
sent to shareholders on approximately March 25, 1998.
<PAGE> 4
[MAHASKA INVESTMENT COMPANY LOGO]
PROPOSAL 1
ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting of Shareholders by
holders of Common Stock to serve until the Annual Meeting of Shareholders at
which their respective term expires and until their respective successor has
been elected and qualified. The Articles of Incorporation and Bylaws of the
Company state that the Board of Directors of the Company shall set the size of
the Board of Directors in a range of not less than five directors nor greater
than fifteen directors. The Company had ten directors during the 1997 fiscal
year until the death of Chairman of the Board Russell S. Howard on December 28,
1997. At its meeting on January 22, 1998, the Board of Directors voted to
reduce the size of the Board of Directors to nine members.
Each shareholder of record shall be entitled to as many votes as the total of
the number of shares of Common Stock, $5.00 par value per share, held of record
by such shareholder. Proxies cannot be voted for a greater number of persons
than the number of nominees named.
Under applicable provisions of Iowa law and the Bylaws of the Company, a
majority of the outstanding shares of the Company entitled to vote, represented
in person or by Proxy, constitute a quorum. If a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting and
entitled to vote on the election of directors in the manner set forth above,
will be required to elect directors.
In the absence of instructions to the contrary, the Proxies solicited by the
Board of Directors will be voted in favor of the election of the nominees
identified in the following table, all of whom are members of the present Board
of Directors. If any such nominee shall withdraw or otherwise become
unavailable, which is not expected, the Proxies will be voted for a substituted
nominee who will be designated by the Board of Directors.
The nominees have previously been elected as directors by the holders of the
Company's Common Stock and such nominees are presently serving as directors of
the Company. The nominees and the directors of the Company whose terms continue
beyond the 1998 Annual Meeting of Shareholders are identified in the following
table. The term for which each nominee is nominated will expire at the 2001
Annual Meeting of Shareholders. Except as may be otherwise expressly
stated, the nominees for director have been employed in the capacities
indicated for more than five years. Additional information regarding these
nominees and each director as of March 2, 1998 is set forth in the following
table. The number of shares of Common Stock of the Company beneficially owned
by each of the nominees and directors as of March 2, 1998, is set forth on
pages 11 and 12.
<PAGE> 5
4-5 PROXY STATEMENT
<TABLE>
<CAPTION>
PRESENT TERM
NAME AND PRINCIPAL OCCUPATION FIRST BECAME EXPIRES AT
FOR THE LAST FIVE YEARS A DIRECTOR ANNUAL MEETING AGE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NOMINEES:
Robert K. Clements.............................. 1988 1998 48
Attorney, Clements Law Firm,
Oskaloosa, Iowa
John P. Pothoven................................ 1994 1998 55
President and, since January 1998,
Chairman of Mahaska State Bank(1)
John W. N. Steddom.............................. 1975 1998 67
Civil Engineer for the County of
Keokuk, Iowa from 1988 to
February 1995, Retired
OTHER DIRECTORS:
Martin L. Bernstein............................. 1976 2000 66
Owner, Bernstein Realty,
Oskaloosa, Iowa
John A. Fallon, III............................. 1995 1999 51
President, William Penn
College, Oskaloosa, Iowa, since
September 1995; previously
Vice President for Public Affairs
at Saginaw Valley State University,
University Center, Michigan
Charles S. Howard............................... 1988 1999 42
Chairman of the Company since
January 1998 and President and Chief
Executive Officer of the Company
since June 1993; previously
Executive Vice President of the
Company; Chairman of Central Valley
Bank(1) since June 1994; Vice Chairman
of Mahaska State Bank(1) since January
1996; Chairman of Pella State Bank(1)
since November 1997; Chairman of
On-Site Credit Services, Inc.(1) since
January 1998
R. Spencer Howard............................... 1989 2000 41
Vice President Corporate Planning of the
Company; President of On-Site Credit
Services, Inc.(1)
James F. Mathew................................. 1979 1999 70
President, Mathew Lumber Company,
Oskaloosa, Iowa
David A. Meinert................................ 1991 1999 44
Executive Vice President of the Company
since June 1993 and Chief Financial
Officer since September 1984; President
of Central Valley Bank(1) from June 1994
to January 1997
(1) Mahaska State Bank, Central Valley Bank, Pella State Bank, and On-Site
Credit Services, Inc. are subsidiaries of the Company (all located in Iowa).
</TABLE>
<PAGE> 6
[MAHASKA INVESTMENT COMPANY LOGO]
MANAGEMENT
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
NAME AGE POSITION WITH THE COMPANY
- -------------------------------------------------------------------------------
<S> <C> <C>
Charles S. Howard 42 Chairman, President and Chief Executive Officer
David A. Meinert 44 Executive Vice President and Chief Financial Officer
R. Spencer Howard 41 Vice President of Corporate Planning
</TABLE>
Following the death of Board Chairman Russell S. Howard on December 28, 1997,
the Board of Directors elected Charles S. Howard as Chairman of the Board of
Directors at its meeting held on January 22, 1998. Except as set forth in the
previous sentence, each executive officer was elected by the Board to the
position described above for a term of one year in April 1997. The
responsibilities and experience of each executive officer are described below.
Charles S. Howard has been a director of the Company since 1988 and a director
of Mahaska State Bank since 1993. He was elected President and Chief Executive
Officer of the Company in June 1993 and elected Chairman of the Company in
January 1998. Mr. Howard was elected Vice Chairman of Mahaska State Bank in
January 1996. Mr. Howard has served as Chairman and as a director of Central
Valley Bank since June 1994. He has also served as Chairman and as a director
of Pella State Bank since November 1997. Prior thereto he served as Executive
Vice President and Chief Operating Officer of the Company. Before joining the
Company in 1984, Mr. Howard was a Commercial Loan Officer of Mahaska State Bank
from 1977 to 1984. Charles S. Howard is a brother of R. Spencer Howard.
David A. Meinert, C.P.A., has been a director of the Company since 1991. He
also serves as Executive Vice President and Chief Financial Officer of the
Company. Mr. Meinert is a director of Central Valley Bank and served as
President of Central Valley Bank from June 1994 to January 1997. He is also a
director of Pella State Bank. Prior to joining the Company in 1984, Mr.
Meinert was the Auditor for Mahaska State Bank from 1978 to 1984. Before
joining Mahaska State Bank, Mr. Meinert worked for the Liberty Trust & Savings
Bank, Durant, Iowa, for three years.
R. Spencer Howard has been a director of the Company since 1989 and a director
of Mahaska State Bank since 1993. He serves as President of On-Site Credit
Services, Inc. Mr. Howard is also a director of Central Valley Bank and Pella
State Bank. He also serves as Vice President of Corporate Planning of the
Company. Prior thereto, Mr. Howard served as Vice President, Marketing for
Mahaska State Bank for six years before joining the Company in 1992. R. Spencer
Howard is a brother of Charles S. Howard.
DIRECTORS
Information about directors who are not executive officers is shown in the
table set forth on page 4.
CERTAIN ADDITIONAL INFORMATION REGARDING DIRECTORS
Twelve regularly scheduled meetings of the Board of Directors of the Company
were held during 1997. Each director attended at least 75 percent of the
Board meetings and any meetings of committees on which he served. The Company
does not have a nominating committee. For a description of the Board's Audit
Committee and its functions, refer to "AUDIT MATTERS" and see "BOARD
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" for a description of
the Compensation Committee.
<PAGE> 7
6-7 PROXY STATEMENT
DIRECTORS' COMPENSATION
Directors of the Company are paid an annual retainer of $2,500, payable
quarterly in advance, plus $300 per meeting for directors' meetings attended.
In addition, each non-affiliated director is paid $25 per meeting for committee
meetings attended. Non-affiliated directors are also entitled to annual option
grants under the Company's 1996 Stock Incentive Plan, upon their election and
subsequent re-election, pursuant to a formula based on the financial
performance of the Company for the fiscal year. On April 30, 1997, each
non-affiliated director of Mahaska Investment Company and its subsidiaries was
granted a non-qualified stock option for 2,242 shares at an option price of
$13.95 per share. (The number of shares and exercise price have been adjusted
to reflect a 5-for-3 stock split in the form of a stock dividend for
shareholders of record on October 20, 1997.) The number of shares to be awarded
pursuant to non-qualified stock options for non-affiliated directors is
determined by dividing the fair market value of the underlying shares on the
date of grant of the options into five percent of the pre-tax profits of the
Company for the previous fiscal year. The number of shares so determined is
then allocated equally among the non-affiliated directors on the date of grant
of the options (the date of the Annual Meeting of Shareholders of the Company).
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term
compensation of those persons who were at December 31, 1997, the Chairman of
the Board of the Company, the Chief Executive Officer, the Executive Vice
President, the Vice President, Corporate Planning, and the Chairman and
President of Mahaska State Bank for the last three fiscal years ended December
31, 1997. No other executive officer was paid more than $100,000 for any such
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (2) SECURITIES UNDERLYING OPTIONS(10) COMPENSATION(3)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R.S. Howard(9)................ 1997 $ 13,700 $ 0 62,718 $100,000(4)
Chairman 1996 73,375 0 2,830 75,000(4)
1995 252,000 45,400(2) 75,307 14,353(4)
Charles S. Howard............. 1997 $111,600 $51,461(2) 13,492 $ 9,706(5)
President and Chief Executive 1996 107,175 44,910(2) 21,652 7,208(5)
Officer 1995 80,000 27,200(2) 29,307 6,857(5)
David A. Meinert.............. 1997 $ 78,900 $43,544(2) 10,379 $ 8,453(6)
Executive Vice President and 1996 76,075 38,001(2) 16,655 7,932(6)
Chief Financial Officer 1995 67,800 25,000(2) 29,307 7,777(6)
R. Spencer Howard............. 1997 $ 95,100 $43,544(2) 10,379 $ 8,257(7)
Vice President, Corporate 1996 91,575 38,001(2) 16,655 7,744(7)
Planning 1995 73,800 25,000(2) 29,307 7,153(7)
John P. Pothoven.............. 1997 $109,600 $40,000(2) 8,000 $ 26,557(8)
Chairman and President, 1996 105,175 25,000(2) 12,500 21,012(8)
Mahaska State Bank 1995 102,000 19,350(2) 6,345 16,328(8)
</TABLE>
<PAGE> 8
[MAHASKA INVESTMENT COMPANY LOGO]
(1) Amounts include director compensation of $6,000 received from each of
Mahaska Investment Company and Mahaska State Bank for 1995, $5,775 from
Mahaska Investment Company and $5,800 from Mahaska State Bank for 1996, and
$5,800 from Mahaska Investment Company and $5,500 from Mahaska State Bank
for 1997 to R. S. Howard; $6,000 received from each of Mahaska Investment
Company and Mahaska State Bank for 1995, $6,075 from Mahaska Investment
Company and $6,100 from Mahaska State Bank for 1996, and $6,100 from
Mahaska Investment Company and $5,500 from Mahaska State Bank for 1997 to
Charles S. Howard; $6,000 from Mahaska Investment Company for 1995, $6,075
from Mahaska Investment Company for 1996, and $6,100 from Mahaska
Investment Company for 1997 to David A. Meinert; $6,000 received from each
of Mahaska Investment Company and Mahaska State Bank for 1995, $5,775 from
Mahaska Investment Company and $5,800 from Mahaska State Bank for 1996, and
$6,100 from Mahaska Investment Company and $5,800 from Mahaska State Bank
for 1997 to R. Spencer Howard; and $6,000 received from Mahaska Investment
Company for 1995, $6,075 from Mahaska Investment Company and $6,100 from
Mahaska State Bank for 1996, and $6,100 from Mahaska Investment Company and
$6,100 from Mahaska State Bank for 1997 to John P. Pothoven.
(2) Executive bonuses are based on the financial performance of the Company and
are calculated by multiplying the Company's pre-tax profits by 3 percent
for the year 1995 and 2 percent for the years 1996 and 1997, then
distributing that amount among certain employees of the Company, including
33 percent to R. S. Howard, 20 percent to Charles S. Howard, and 18 percent
each to David A. Meinert and R. Spencer Howard for 1995, 33 percent to
Charles S. Howard and 28 percent each to David A. Meinert and R. Spencer
Howard for 1996, and 33 percent to Charles S. Howard and 28 percent each to
David A. Meinert and R. Spencer Howard for 1997. The bonuses for John P.
Pothoven were discretionary bonuses determined by the Board of Directors of
Mahaska State Bank.
(3) Amounts include Company contributions to the ESOP based upon a percentage
of salary and bonus in 1995 to the accounts of R. S. Howard, Charles S.
Howard, David A. Meinert, R. Spencer Howard, and John P. Pothoven in the
amounts of $7,500, $5,003, $5,484, $5,484, and $5,768, respectively; in
1996 to the accounts of Charles S. Howard, David A. Meinert, R. Spencer
Howard, and John P. Pothoven in the amounts of $5,160, $5,400, $5,900, and
$5,900, respectively; and in 1997 to the accounts of Charles S. Howard,
David A. Meinert, R. Spencer Howard, and John P. Pothoven in the amounts of
$7,573, $5,817, $6,337, and $6,871, respectively.
(4) Amount includes $6,853 for 1995 which represents the present value of the
benefit to the ESOP of premiums paid by Mahaska State Bank with respect
to a split dollar life insurance arrangement between Mahaska State
Bank and the ESOP to provide liquidity to the ESOP in the event of the
death of R. S. Howard. The policy was canceled in 1996 because Mr. Howard
received distribution of his ESOP benefits. Mr. Howard received a
consulting fee from the Company in the years 1996 and 1997 in the amounts
of $75,000 and $100,000, respectively.
(5) Amount includes $1,854 for 1995, $2,048 for 1996, and $2,133 for 1997
contributed by the Company to a salary continuation plan pursuant to which
Charles S. Howard is to receive $29,900 per year for 10 years starting at
age 65.
(6) Amount includes $2,293 for 1995, $2,532 for 1996, and $2,636 for 1997
contributed by the Company to a salary continuation plan pursuant to which
David A. Meinert is to receive $29,900 per year for 10 years starting at
age 65.
(7) Amount includes $1,669 for 1995, $1,844 for 1996, and $1,920 for 1997
contributed by the Company to a salary continuation plan pursuant to which
R. Spencer Howard is to receive $29,900 per year for 10 years starting at
age 65.
(8) Amount includes $10,560 for 1995, $15,112 for 1996, and $19,686 for 1997
contributed by the Company to a salary continuation plan pursuant to which
John P. Pothoven is to receive $29,900 per year for 10 years starting at
age 65.
(9) Russell S. Howard was Chairman of the Board of Directors until his death on
December 28, 1997.
(10) Option numbers have been restated to reflect the 5-for-3 stock split in the
form of a stock dividend for shareholders of record on October 20, 1997.
<PAGE> 9
[MAHASKA INVESTMENT COMPANY LOGO]
8-9 Proxy Statement
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan during the last fiscal
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK PRICE
NUMBER OF SHARES OPTIONS GRANTED APPRECIATION FOR OPTION TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES EXERCISE EXPIRATION -----------------------------------
NAME GRANTED IN FISCAL YEAR PRICE ($/SH) DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R.S. Howard.................. 37,810(2) 17.5% $11.10 01/22/07 $263,914 $668,859
24,908 26.6% $19.875 12/31/07 $311,225 $788,961
Charles S. Howard............ 13,492 9.5% $19.875 12/31/07 $168,583 $427,359
David A. Meinert............. 10,379 7.3% $19.875 12/31/07 $129,686 $328,755
R. Spencer Howard............ 10,379 7.3% $19.875 12/31/07 $129,686 $328,755
John P. Pothoven............. 8,000 5.6% $19.875 12/31/07 $ 99,960 $253,400
</TABLE>
(1) The amounts set forth represent the value that would be received by the
Named Executive Officers upon exercise of the option on the date
before the expiration date of the option based upon assumed annual growth
rates in the market value of the Company's shares of 5 percent and 10
percent, rates prescribed by applicable SEC rules. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Company's shares and other factors such as the general condition of the
stock markets and the timing of the exercise of the options.
(2) This grant to R.S. Howard was to correct an error made in the number of
options which should have been granted to him during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R.S. Howard............ 35,000 $417,449 117,359/0 $920,839/0
Charles S. Howard...... 0 $ 0 34,197/37,964 $366,925/$235,668
David A. Meinert....... 5,000 $ 54,750 27,548/31,503 $290,580/$206,290
R. Spencer Howard...... 0 $ 0 32,548/31,503 $352,455/$206,290
John P. Pothoven....... 3,333 $ 41,246 8,313/18,532 $ 81,741/$ 96,148
</TABLE>
<PAGE> 10
[MAHASKA INVESTMENT COMPANY LOGO]
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE PARTICIPATION
The Compensation Committee of the Board of Directors of Mahaska Investment
Company reviews and approves the Company's executive compensation policies. The
Compensation Committee, which met twice during 1997, consists of Martin L.
Bernstein, John A. Fallon, III, and James F. Mathew. All members of the
Compensation Committee are outside directors, and there is no insider
participation in the Compensation Committee.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
Mahaska Investment Company's compensation package for its executive officers,
including its Chief Executive Officer, consists primarily of base salary,
annual bonuses pursuant to a predetermined formula, and potential annual stock
option grants. The potential annual stock option grants are also subject to a
predetermined formula which relates to the increase in profits which occurred
in the Company over the prior fiscal year. The Compensation Committee has the
ability to consider bonuses which deviate from the predetermined formula, in
their discretion, based on annual performance criteria relating to the
executive employee, and relating to the performance of the Company.
In general, base salary levels are set, after review of peer group comparative
salary data, at levels believed by the Compensation Committee to be sufficient
to attract and retain qualified executives when considered with other
components of the Company's compensation structure.
The bonus amount for each executive officer is set by a predetermined formula
based on the profitability of the Company before taxes. Such bonuses are
subject to discretionary adjustment by the Compensation Committee for
subjective factors.
Stock option grants to executives or similar awards are similarly based upon a
predetermined stock option formula, which grants stock options to executive
officers based on the increase in Company profitability over the prior fiscal
year.
1997 STOCK OPTIONS, BONUSES, AND 1998 COMPENSATION
The Committee reviewed and approved the bonuses for executive officers and the
incentive formula for the 1997 cash bonus and stock option grants in accordance
with the formulas previously established and found them to be reasonable and
proper. The Committee authorized the issuance of stock options to the executive
officers on December 31, 1997 at the bid price of the stock on that date
pursuant to the formula established for such purposes. The Committee also
reviewed the President's compensation recommendations for executive officers,
excluding the President. The Committee approved the recommendation of the
President that the salaries of the executive officers for 1998 be increased to
place a greater emphasis on the base salary component of the compensation mix
and less emphasis on the bonus portion of the mix. The Committee agreed that by
increasing the base salary component the executive officers could be placed in
the same bonus program as the remainder of the employees of the Company. The
increase in the base compensation should also make it possible to more easily
retain and attract executive officers, keep the compensation competitive with
the compensation of other companies in the same peer group as the Company, and
better reflect the performance of the executive officers.
The Compensation Committee approved including executive officers in the same
performance compensation program used for other employees. The performance
program measures the performance of the Company or subsidiary in the areas of
growth, profitability, quality and productivity. Each area of measurement has
key performance indicators weighted on the basis of the importance that
management believes should be emphasized for a particular fiscal year. The
increased income to the Company resulting from attaining targeted growth is
shared pro rata among all the employees participating in the program based upon
the base salary of the employee. The executive officers participating in the
program receive a multiple of the award to the other employees based upon the
position of the executive officer. The compensation committee will retain the
discretion to deviate from the predetermined formula based upon the individual
performance of the employee and the overall performance of the Company.
<PAGE> 11
10-11 PROXY STATEMENT
FINANCIAL PERFORMANCE
The following graph illustrates the cumulative total return (assuming the
reinvestment of dividends) experienced by the Company's shareholders since
September 22, 1994, the date of the Company's initial public offering, through
December 31, 1997, compared to the SNL Index comprised of Midwestern bank
holding companies and the performance of all NASDAQ US stocks.
MAHASKA INVESTMENT COMPANY
STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURN PERFORMANCE
PERIOD ENDING
------------------------------------------------
9/22/94* 12/31/94 12/31/95 12/31/96 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAHASKA INVESTMENT COMPANY 100.00 90.34 103.98 137.81 247.65
NASDAQ-TOTAL US 100.00 99.39 140.57 172.89 212.16
SNL MIDWEST BANK INDEX 100.00 91.41 135.08 183.77 297.96
</TABLE>
* Date of the Company's initial public offering.
<PAGE> 12
[MAHASKA InVESTMENT COMPANY LOGO]
LOANS TO OFFICERS AND DIRECTORS AND OTHER TRANSACTIONS WITH OFFICERS AND
DIRECTORS
During 1997, Mahaska State Bank, Central Valley Bank, and Pella State Bank made
loans or loan commitments, in the ordinary course of business, to directors and
officers of the Company and to corporations or partnerships with which one or
more of the officers or directors of the Company were associated. In the
opinion of management of the Company, all of such loans and loan commitments
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
Robert K. Clements has been a Director of the Company since 1988. Mr. Clements
is an attorney with the Clements Law Firm in Oskaloosa, Iowa. During 1997, Mr.
Clements performed legal services on behalf of Mahaska State Bank, Central
Valley Bank, and On-Site Credit Services, Inc. The amount of fees paid to the
law firm at which Mr. Clements practices did not exceed five percent (5%) of
the law firm's gross revenues for that firm's last full fiscal year.
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 2, 1998, with
respect to the Common Stock beneficially owned by each director of the Company,
by all executive officers and directors as a group and by each shareholder
known by the Company to be the beneficial owner of more than five percent of
the Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1) CLASS(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Mahaska Investment Company Employee
Stock Ownership Plan (ESOP)(2) (3)...................... 421,025 11.5%
John Hancock Mutual Life
Insurance Company(4).................................... 249,166 6.8%
Dalton, Greiner, Hartman,
Maher & Co.(5).......................................... 198,732 5.4%
R.S. Howard Estate(6)..................................... 215,933 5.7%
Martin L. Bernstein(7).................................... 143,002 3.9%
Robert K. Clements(8)..................................... 35,426 1.0%
John A. Fallon III(9)..................................... 1,115 *
Charles S. Howard(10)..................................... 207,074 5.6%
R. Spencer Howard(11)..................................... 191,893 5.2%
James F. Mathew(12)....................................... 21,935 *
David A. Meinert(13)...................................... 53,515 1.5%
John P. Pothoven(14)...................................... 83,809 2.3%
John W. N. Steddom(15).................................... 50,360 1.4%
Executive Officers and Directors
as a group (9 persons)(16).............................. 788,129 20.8%
</TABLE>
*Less than 1%.
(1) Except as described in the following notes, each person or group owns the
shares directly and has sole voting and investment power with respect to
such shares. The shares listed include shares subject to options
exercisable within sixty days of March 2, 1998.
(2) The Company's ESOP holds shares of the Company's Common Stock pursuant to
the terms of the ESOP. The Trustee of the ESOP, the Trust Department of
Mahaska State Bank, has the power to dispose of ESOP shares in accordance
with the terms of the ESOP and votes any unallocated ESOP shares at the
direction of the Committee acting as ESOP Administrators. Currently, the
ESOP Administrators are Thomas W. Campbell, President of Central Valley
Bank, R. Spencer Howard, David A. Meinert, Michael T. Patrick, President of
Pella State Bank, and John P. Pothoven. Shares allocated to participants'
accounts are voted by the respective participants. Shares not voted by a
participant will be voted by the Trustee in the same proportion as the
shares for which signed proxy cards are returned by the other participants
in the ESOP. The Trustee disclaims beneficial ownership of all of the
shares, and the ESOP Administrators disclaim beneficial ownership of all
shares other than those allocated to their respective accounts held by the
ESOP. The amount of beneficial ownership shown for the ESOP includes those
shares allocated to accounts of directors and executive officers of the
Company, which shares are also reflected in the individual's respective
beneficial ownership as indicated in the footnotes which follow.
<PAGE> 13
12-13 PROXY STATEMENT
(3) The address of the ESOP Administrators is 222 First Avenue East, Oskaloosa,
IA 52577.
(4) The address of the shareholder listed is John Hancock Place, P. O. Box 111,
Boston, MA 02117. Such shares were held as of December 31, 1997, by the
John Hancock Bank & Thrift Opportunity Fund, a registered closed-end
mutual fund, which is managed by an indirect investment adviser subsidiary
of John Hancock.
(5) The address of the shareholder listed is Dalton, Greiner, Hartman, Maher &
Co., 1100 5th Avenue S., Suite 309, Naples, FL 33940.
(6) Such shares include 63,574 shares held in Howard Resources, Inc., 35,000
shares in the estate of R. S. Howard for which Mr. Howard's spouse is
executor, and 117,359 shares subject to currently exercisable options.
(7) Such shares include 7,926 shares subject to currently exercisable options.
(8) Such shares include 2,500 shares owned by his spouse and 7,926 shares
subject to currently exercisable options.
(9) Such shares include 740 shares subject to currently exercisable options.
(10) Such shares include 8,605 shares owned jointly with his spouse, a total of
226 shares owned as custodian for his two minor children, 142,753 shares
in Howard Partners, L.P., in which Mr. Howard is a one-third partner,
34,197 shares subject to currently exercisable options, and 21,293 shares
allocated to his ESOP account.
(11) Such shares include 1,273 shares held in an IRA, a total of 552 shares held
by his two minor children, 142,753 shares in Howard Partners, L.P., in
which Mr. Howard is a one-third partner, 27,385 shares subject to
currently exercisable options, and 13,285 shares allocated to his ESOP
account. Excludes the remaining 399,732 ESOP shares with respect to which
Mr. Howard shares dispositive power as an ESOP Administrator.
(12) Such shares include 3,333 shares owned by his spouse and 4,426 shares
subject to currently exercisable options.
(13) Such shares include 5,191 shares owned jointly with his spouse, a total of
332 shares owned as custodian for his two minor children, 27,548 shares
subject to currently exercisable options, and 20,444 shares allocated to
his ESOP account. Excludes the remaining 400,581 ESOP shares with respect
to which Mr. Meinert shares dispositive power as an ESOP Administrator.
(14) Such shares include 4,117 shares held in an IRA, 8,313 shares subject to
currently exercisable options, and 44,284 shares allocated to his ESOP
account. Excludes the remaining 376,741 ESOP shares with respect to which
Mr. Pothoven shares dispositive power as an ESOP Administrator.
(15) Such shares include 600 shares held in his spouse's IRA and 4,871 shares
subject to currently exercisable options.
(16) Such shares include a total of 99,306 ESOP shares allocated to the accounts
of directors and executive officers and a total of 123,332 shares subject
to currently exercisable options.
<PAGE> 14
[MAHASKA INVESTMENT COMPANY LOGO]
PROPOSAL 2
AMENDMENT TO ARTICLES OF INCORPORATION
The Articles of Incorporation of Mahaska Investment Company currently authorize
the Company to issue up to 4,000,000 shares of Common Stock. The Board of
Directors has recommended that the number of authorized shares be increased to
20,000,000. The Board of Directors has no immediate plans to issue a
significant number of additional shares of Common Stock. However, the increase
in the number of authorized shares of Common Stock will provide the Company
with the certainty and flexibility to undertake various types of transactions,
including stock splits (in the form of stock dividends), increases in the
shares reserved for issuance pursuant to stock incentive plans, or other
corporate transactions not yet determined.
As a result of the growth experienced by the Company, the Board of Directors
approved a 5-for-3 stock split (in the form of a stock dividend) effective for
shareholders of record on October 20, 1997. The Board of Directors had the
flexibility to respond to the growth of the Company's business in approving the
stock split without having to wait for shareholder approval. The increase in
the number of authorized shares will allow the Board of Directors the
flexibility to split the Company stock again without shareholder approval if
the growth experienced by the Company would warrant such a stock split.
Although the Company is not currently contemplating any additional stock split
and there can be no assurance that any additional stock split will happen at
any particular time in the future or at all, the additional authorized shares
will effectively provide the Board of Directors with the same flexibility it
previously had to split the shares.
The Company will also need to make certain that it has sufficient authorized
shares for future issuance under the Company's stock incentive plans. In
an effort to align the interests of management with the shareholders of the
Company, the Company has adopted a series of stock incentive plans under which
incentive stock options and non-qualified stock options have been granted to key
management employees and non-affiliated directors. If the 1998 Stock Incentive
Plan recommended for approval as Proposal 3 is adopted by the shareholders,
additional authorized shares will be potentially needed to satisfy the
obligations under such plan.
The Board of Directors also believes that the ability to issue additional
shares may facilitate future acquisitions by the Company, which the Board
believes is in the best interest of the Company. The availability of sufficient
authorized shares would facilitate any such acquisition if the opportunity
should arise.
The Board of Directors has unanimously approved this proposal and recommends
that shareholders vote FOR the proposal to set the number of authorized shares
of Common Stock at 20,000,000.
<PAGE> 15
14-15 PROXY STATEMENT
PROPOSAL 3
APPROVAL OF 1998 STOCK INCENTIVE PLAN
In January 1998, the Board of Directors (the "Board") of the Company adopted
the Mahaska Investment Company 1998 Stock Incentive Plan (the "Plan") which is
being submitted for approval by shareholders under which 550,000 shares of
Common Stock have been approved for reservation pursuant to options which may
be granted to executive officers, key employees and non-affiliated directors.
The Plan is substantially similar to the 1993 and 1996 Stock Incentive Plans
adopted by the Board and approved by the shareholders. All of the authorized
options have been granted under the 1993 Plan and nearly all the available
options have been granted under the 1996 Plan.
The Company presently estimates that the number of executive officers, key
employees and non-affiliated directors eligible to participate in the Plan is
thirty. No awards may be made under the Plan after January 22, 2008, the tenth
anniversary of its adoption by the Board. Awards granted prior to such tenth
anniversary may extend beyond that date. The exercise price with respect to any
options granted under the Plan may not be less than the fair market value of
the Common Stock on the date of grant.
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee is authorized to determine the fair
market value for options granted under the Plan, interpret the Plan, to
prescribe and modify rules and procedures; to determine the officers and key
employees to whom, and the times at which, options and other benefits are to be
granted, the number of shares subject to each award, and the term and any
applicable vesting provisions thereof; and to make all other determinations
necessary in the administration of the Plan.
The Board of Directors may amend, alter or discontinue the Plan without the
approval of the shareholders, except that (i) no amendment, alteration or
discontinuation may impair the rights of a participant under any award
theretofore granted, unless such participant consents thereto; and (ii) such
approval may be required under then applicable requirements of Rule 16b-3 of
the Securities Exchange Act of 1934, any Federal tax law relating to incentive
stock options or applicable state law.
Persons eligible to receive awards under the Plan include executive officers,
key employees and non-affiliated directors of the Company, its subsidiaries and
related entities who are responsible for or contribute to the management,
growth or profitability of the business of the Company, its subsidiaries or
related entities. The the Committee, in its sole discretion, from among those
eligible. In making awards under the Plan, the Committee may choose one or more
alternatives available under the Plan, including non-qualified and incentive
stock options.
In addition to awards to officers and key employees, the Plan provides for the
award of non-qualified options to non-affiliated directors of the Company and
its subsidiaries (defined to include any current or subsequent non-employee
director). Each non-affiliated director of the Company will, effective as of
election or reelection as a director, be granted an equal number of
non-qualified options with respect to shares of Common Stock on such date
determined pursuant to a formula.
The following general description of federal income tax consequences is based
upon current statutes, regulations and interpretations. This description is not
intended to address specific tax consequences applicable to an individual
grantee who receives awards.
A grantee who is granted an incentive stock option does not realize any taxable
income at the time of the grant or at the time of exercise (but in some
circumstances may be subject to an alternative minimum tax as a result of the
exercise). Similarly, the Company is not entitled to any deduction at the time
of grant or at the time of exercise. If the grantee makes no disposition of the
shares acquired pursuant to an incentive stock option before the later of two
years from the date of grant and one year from the date of exercise, any gain
or loss realized on a subsequent disposition of the shares will be treated as a
long-term capital gain or loss. Under such circumstances, the Company will not
be entitled to any deduction for federal income tax purposes. If the grantee
fails to hold the shares for the foregoing period, the disposal is treated as a
disqualifying disposition. The gain on such disposition is ordinary income to
the grantee to the extent of the difference between the option price and the
fair market value on the exercise date, and any excess is long-term or
short-term capital gain, depending on the holding period. Under such
circumstances, the Company generally will be entitled to a tax deduction equal
to the ordinary income amount the grantee recognizes in such disqualifying
disposition.
<PAGE> 16
[MAHASKA INVESTMENT COMPANY LOGO]
A grantee who is granted a non-qualified stock option does not have taxable
income at the time of grant, but does have taxable income at the time of
exercise equal to the difference between the exercise price of the shares and
the market value of the shares on the date of exercise, and generally the
Company receives a corresponding tax deduction.
An affirmative vote of the holders of a majority of shares of Common Stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the Mahaska Investment Company 1998 Stock Incentive Plan.
The Board of Directors recommends a vote FOR approval of the 1998 Stock
Incentive Plan.
PROPOSAL 4
RATIFICATION OF AUDITOR'S APPOINTMENT
The Company's Audit Committee is presently comprised of Messrs. Clements and
Steddom. The Audit Committee, which met once during 1997, recommends the annual
appointment of the Company's independent auditor and is primarily responsible
for reviewing and evaluating the Company's accounting policies and its system
of internal accounting controls.
The Board of Directors of the Company, at the recommendation of the Audit
Committee, has approved the accounting firm of KPMG Peat Marwick LLP,
independent certified public accountants, to conduct the audit examination of
the Company and its subsidiaries for 1998 as it did for 1997.
A representative from the KPMG Peat Marwick LLP is anticipated to be present at
the Annual Meeting of Shareholders. He will have the opportunity to make a
statement if he desires to do so and is expected to be available to respond to
appropriate questions from shareholders.
The Board recommends that shareholders vote FOR the ratification of the
appointment of KPMG Peat Marwick LLP as independent auditor for 1998.
<PAGE> 17
16-17 PROXY STATEMENT
GENERAL MATTERS
FINANCIAL STATEMENTS
The Company's 1997 Annual Report to Shareholders has accompanied the mailing of
this Proxy Statement.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH SHAREHOLDER SOLICITED, UPON THE
WRITTEN REQUEST OF ANY SUCH SHAREHOLDER, A COPY OF ITS ANNUAL REPORT ON FORM
10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO KAREN K. BAACK, SECRETARY/TREASURER, MAHASKA
INVESTMENT COMPANY, P. O. BOX 1104, OSKALOOSA, IOWA 52577-1104.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers and persons who own more than 10
percent of the Company's Common Stock to file initial reports of ownership and
reports of changes of ownership with the Securities and Exchange Commission and
NASDAQ. Specific due dates for these reports have been established, and the
Company is required to disclose in its Proxy Statement any failure to file by
these dates during the Company's 1997 fiscal year.
All the applicable filing requirements were satisfied by its officers,
directors and 10 percent owners during 1997. In making this statement, the
Company is relying upon written representations of its incumbent officers,
directors and 10 percent owners and copies of applicable reports furnished to
the Company.
SHAREHOLDER PROPOSALS
In order for any proposals of shareholders to be presented as an item of
business at the 1999 Annual Meeting of Shareholders of the Company, the
proposal must be received at the Company's principal executive offices no later
than November 13, 1998.
OTHER MATTERS
Management does not know of any other matters to be presented at the meeting,
but should other matters properly come before the meeting, the proxies will
vote on such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
KAREN K. BAACK, SECRETARY
March 25, 1998
<PAGE> 18
[MAHASKA INVESTMENT COMPANY LOGO]
MAHASKA INVESTMENT COMPANY
APPENDIX TO THE PROXY STATEMENT
FISCAL YEAR 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS 18
Contents CONSOLIDATED BALANCE SHEETS 24
CONSOLIDATED STATEMENTS OF INCOME 25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 26
CONSOLIDATED STATEMENTS OF CASH FLOWS 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 28
INDEPENDENT AUDITOR'S REPORT 43
<PAGE> 19
18-19
MANAGEMENT'S DISCUSSION & ANALYSIS
The following discussion and analysis is intended as a review of significant
affecting the financial condition and results of operation of Mahaska Investment
Company and subsidiaries (the "Company") for the periods indicated. The
discussion should be read in conjunction with the consolidated financial
statements and the notes thereto.
In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from those anticipated in these
forward-looking statements.
OVERVIEW
The Company recorded net income of $5,058,000, or $1.38 per share, for the year
ended December 31, 1997, which is an increase of 12.5 percent compared with the
net income of $4,494,000, or $1.20 per share, earned in 1996. The net income
for 1996 increased 14.6 percent from the $3,923,000 ($1.03 per share) earned in
1995.
Total assets of the Company grew 9.1 percent to a year-end 1997 total of
$274,873,000. Deposits increased 4.0 percent to $215,308,000 as of December 31,
1997, while the Company's total loans outstanding grew 22.9 percent to end 1997
at $144,333,000. Throughout 1997, management of the Company continued to focus
on quality loan in the markets served by its subsidiaries. This resulted in
significant increases in commercial, agricultural and real estate loan volumes
as of December 31, 1997, in comparison to year-end 1996 totals. The increase in
loan volume contributed additional interest income which strengthened the
Company's profitability.
In June of 1996, one of the Company's subsidiaries purchased a bank branch in
Sigourney, Iowa. Central Valley Bank acquired approximately $14,645,000 in loans
and approximately $32,083,000 in deposits through this acquisition. The existing
branch of Central Valley Bank in Sigourney was merged into the acquired branch
facility.
Return on average assets is a measure of profitability that indicates how
effectively a financial institution utilized its assets. It is calculated by
dividing net income by average total assets. The Company's return on average
assets for 1997 was 1.98 percent, 1.93 percent in 1996, and 2.04 percent in
1995. Return on average equity indicates what the Company earned on its
shareholders' investment and is calculated by dividing net income by average
total shareholders' equity. The return on average equity for the Company has
shown an increase during each of the last three years. For 1997 the return on
average equity was 14.47 percent compared with 13.52 percent in 1996 and 12.67
percent in 1995.
INVESTMENT IN LOAN POOLS
For the year 1997 the Company collected interest income and discount on loan
pool participations of $8,474,000, which is a decrease of 6.8 percent from the
1996 total. Interest income and discount on the loan pool participations
increased 15.7 percent in 1996 to $9,097,000, up from the 1995 total of
$7,864,000.
The average loan pool participation investment for 1997 was $49,399,000
compared with an average for 1996 of $50,105,000. New loan pool participation
investments made by the Company during 1997 totaled $25,589,000. During 1996
the Company invested $29,827,000 in loan pool participations. Throughout 1997
loan pool participation investments averaged 21.0 percent of earning assets
while in 1996 they were 23.4 percent of average earning assets.
The yield on loan pool participation investments declined to 17.2 percent for
1997, compared with 18.2 percent in 1996.
NET INTEREST INCOME
Net interest income is the difference between total interest income and total
interest expense. Fluctuations in net interest income can result from the
changes in volumes of assets and liabilities as well as changes in interest
rates. For the year ended December 31, 1997, net interest income increased 3.8
percent to $14,634,000. Net interest income for 1996 was $14,098,000, an
increase of 25.6 percent from $11,227,000 in 1995.
The Company's net interest income increased $536,000 in 1997 compared with
1996. A $1,317,000 increase in total 1997 interest income was partially
offset by a $781,000 increase in overall interest expense. The interest income
earned on loans rose by $2,079,000 in 1997 mainly as a result of the growth in
loan volumes the Company experienced during
<PAGE> 20
[MAHASKA INVESTMENT COMPANY LOGO]
the year. The $623,000 decrease in interest income and discount on loan
pool participations reduced the overall gain in interest income for the year.
Interest income on investment securities decreased $17,000 as the average volume
of securities held by the Company declined slightly. During 1997 the Company
maintained a lower balance in interest-bearing deposits at other banks which
resulted in a decrease of $158,000 in interest income from these accounts.
Interest expense on deposits increased $862,000 primarily due to the higher
average volume of customer deposits at the Company's subsidiary banks. Most of
the deposit growth in 1997 occurred in certificates of deposit, with minimal
growth in other types of deposits.The interest expense incurred on notes payable
in 1997 decreased $203,000 compared with 1996 primarily due to lower interest
rates. The Company's net interest margin on a tax-equivalent basis declined to
6.30 percent for 1997 compared with 6.69 percent in 1996 mainly as a result of
the lower income recognized on loan pool participations. Net interest margin is
a measurement of the net return on interest-earning assets and is computed by
dividing net interest income by the average of total interest-earning assets.
Net interest income for 1996 increased $2,871,000 compared with 1995. Total
interest income increased by $4,302,000 in 1996. Interest income on loans
increased by $2,428,000 and interest income and discount collected on loan pool
participations rose by $1,233,000 in 1996. Interest income on investment
securities increased by $660,000 in 1996 compared with 1995. Most of the
increases in interest income on earning assets were attributable to higher
volumes of these assets during 1996 compared to 1995. For 1996, interest expense
on deposits increased by $1,108,000 and the interest expense on borrowed funds
grew by $323,000 as the levels of deposits and borrowed funds increased over
1995. The Company's net interest margin rose to 6.69 percent on a fully tax
equivalent basis for 1996, up from 6.48 percent for 1995.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan loss expense of $417,000 for 1997
compared to a 1996 provision of $987,000 and a 1995 provision of $168,000.
Management determines an appropriate provision based on its evaluation of the
adequacy of the allowance for loan losses in relationship to a continuing review
of problem loans, the current economic conditions, actual loss experience and
industry trends. The substantial reduction of the loss provision recorded in
1997 compared with the 1996 provision reflects improvements in the Company's
problem loans and lower loan charge-offs during 1997. The increase in the
provision for 1996 compared with 1995 was primarily attributable to a large line
of credit that was charged off in 1996.
OTHER INCOME
Noninterest income results from the charges and fees collected by the Company
from its customers for various services performed. In 1997 noninterest income
increased $244,000 (16.2 percent) over the amount collected in 1996. Most of
this increase was the result of higher service charges and overdraft fees
collected on deposit accounts. Data processing income received in 1997 from
nonaffiliated banks declined 5.2 percent compared with 1996. The Company did not
sell significant amounts of investment securities during 1997 that would have
resulted in security gains or losses. Noninterest income increased $205,000
(15.8 percent) in 1996 compared with 1995. An increase in service charge and fee
income attributable to the bank branch acquisition contributed to the growth in
noninterest income. Higher trust income in 1996 also added to total noninterest
income. The Company did recognize a loss of $74,000 on the sale of some of its
investment securities held as available for sale during the year 1996. These
securities were sold to meet liquidity needs throughout the year.
OTHER EXPENSE
The Company's other expense increased $577,000, or 7.5 percent, for the year
1997 in comparison to 1996. Noninterest expense includes all the costs incurred
to operate the Company except for interest expense, the loan loss provision and
income taxes. The salary and benefits, net occupancy, other operating and
goodwill amortization expense categories all increased in some measure due to
the acquisition of a bank branch by Central Valley Bank in June 1996. Due to
the timing of this acquisition, the 1996 totals for these categories did not
reflect a full year of expense whereas the 1997 amounts do include 12 months.
Costs related to the opening of the Pella State Bank in December 1997 also
added to the overall increase in a limited amount. Salary and benefit expenses
paid to the employees of the Company increased $569,000 (15.1 percent) in 1997
as a result of additional staffing and higher payouts made under the Company's
incentive compensation program. The reduced FDIC premium assessment in 1997
compared to 1996 contributed a significant cost savings to the Company.
Other expense increased 20 percent for the year 1996 compared to 1995. The
additional operating expenses associated with the operation of Central Valley
Bank's Fairfield grocery store branch which opened in December 1995 and the
<PAGE> 21
20-21 MANAGEMENT'S DISCUSSION AND ANALYSIS
acquired Sigourney branch contributed significantly to the increase in
noninterest expense. The Savings Association Insurance Fund one-time assessment
which occurred on September 30, 1996, resulted in a net increase in the
Company's FDIC assessment expense of approximately $69,000. The one-time
assessment was offset by reduced overall FDIC insurance costs for Mahaska State
Bank and Central Valley Bank. The Company incurred additional
amortization expense on the deposit premium paid for the acquisition of the
bank branch.
INCOME TAX EXPENSE
Income tax expense increased $209,000 (8.8 percent) primarily due to the
overall increase in pre-tax earnings generated by the Company. The
Company's income tax expense for the year 1996 increased $398,000 (20 percent)
in 1996 compared with 1995 mainly due to the increase in before tax earnings.
The Company's consolidated income tax rate varies from the statutory rate
principally due to interest income from tax-exempt securities and loans. The
effective income tax rate as a percent of income before taxes was 33.9 percent
in 1997, 34.7 percent for 1996, and 33.6 percent for 1995.
CAPITAL RESOURCES
As of December 31, 1997, total shareholders' equity was $36,754,000. Total
equity increased $2,511,000 in 1997 primarily as a result of earnings retained
by the Company. Total shareholders' equity as of December 31, 1996, was
$34,243,000. Shareholders' equity as a percentage of total assets was 13.4
percent on December 31, 1997, versus 13.6 percent on December 31, 1996. The
decrease in the percentage of shareholders' equity to total assets reflects the
increase in total assets in 1997. The Board of Directors declared a
five-for-three stock split in the form of a dividend to shareholders of record
as of October 20, 1997. The resulting additional shares were issued on November
10, 1997. This stock dividend did not affect the dollar amount of stockholders'
equity, but did increase the number of shares of common stock outstanding.
During 1997 the Company repurchased a total of 116,310 shares of its common
stock to be used to satisfy the exercise of stock options granted to employees
and directors of the Company. A total of 65,970 option shares were reissued from
treasury stock throughout 1997, leaving 3,665,494 shares outstanding as of
year-end 1997.
The Company's risk-based tier 1 core capital ratio was 14.7 percent as of
December 31, 1997, and the total capital ratio was 15.6 percent. As of December
31, 1996, the Company's tier 1 capital ratio was 16.3 percent, and the total
capital ratio was 17.1 percent. Although these ratios declined in 1997 from 1996
due to the increased asset level, they substantially exceeded the minimum
regulatory requirements of 4.0 percent for tier 1 capital and 8.0 percent for
total capital. The Company's tier 1 leverage ratio, which measures capital
excluding intangible assets, was 11.8 percent as of December 31, 1997, and 11.8
percent at December 31, 1996, exceeding the regulatory minimum requirement range
of 3.0 percent to 5.0 percent. Each of these capital calculations excludes
unrealized gains or losses on assets available for sale in accordance with
Federal regulations.
As of December 31, 1997, the Company had borrowed $14,050,000 on a revolving
line of credit from a major commercial bank to fund loan pool participation
investments and to provide additional capital to Pella State Bank, Central
Valley Bank and On-Site Credit Services. The Company entered into this
revolving line of credit agreement on January 31, 1996, with an amendment to
the agreement as of October 17, 1997. The agreement provides for a maximum line
of $17,000,000 and matures on June 30, 1998. Additionally, as of December 31,
1997, the Company's subsidiaries had borrowed $6 million in fixed-rate advances
from the Federal Home Loan Bank of Des Moines. The Company had no material
commitments for capital expenditures as of December 31, 1997. The Company's
common stock closed the year at a bid price of $19.875 per share, representing
1.98 times the book value per share of $10.03 on December 31, 1997. The year-end
stock price represented a price-to-1997-earnings multiple of 14.4 times.
LIQUIDITY
Liquidity management involves the ability to meet the cash flow requirements of
depositors and borrowers. Liquidity management is conducted by the Company on
both a daily and long-term basis. The Company adjusts its investments in liquid
assets based upon management's assessment of expected loan demand, projected
loan sales, expected deposit flows, yields available on interest-bearing
deposits, and the objectives of its asset/liability management program. Excess
liquidity is invested generally in short-term U.S. Government and agency
securities, short-term state and political subdivision securities and other
investment securities.
<PAGE> 22
[MAHASKA INVESTMENT COMPANY LOGO]
Liquid assets (including cash and federal funds sold) are maintained to meet
customer needs. The Company had liquid assets of $19,195,000 as of December 31,
1997, compared with $16,484,000 as of December 31, 1996. Investment securities
classified as available for sale and securities and loans maturing within one
year totaled $98,248,000 and $93,526,000 as of December 31, 1997 and 1996,
respectively. Assets maturing within one year, combined with liquid assets, on
December 31, 1997, were 47.4 percent and on December 31, 1996, were 45.8
percent of total deposits as of the same dates.
The Company's principal sources of funds are deposits, advances from the
Federal Home Loan Bank, principal repayments on loans, proceeds from the sale
of loans, principal recoveries on loan pool participations, proceeds from the
maturity and sale of investment securities, its commercial bank line of credit,
and funds provided by operations. While scheduled loan amortization and
maturing interest-bearing deposits are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by economic
conditions, the general level of interest rates and competition. Principal
recoveries on loan pool participations are also influenced by economic
conditions and to a lesser extent, the interest rate environment. Throughout
1997, management elected to utilize the proceeds from maturing investment
securities to fund loan growth, thereby reducing the investment securities total
as of December 31, 1997, in comparison with 1996. The Company utilizes
particular sources of funds based on comparative costs and availability.
Beginning in 1997, the Company utilized fixed-rate advances from the Federal
Home Loan Bank to obtain funds at a more favorable cost. The Company generally
manages the pricing of its deposits to maintain a steady deposit base, but has
from time to time decided not to pay rates on deposits as high as its
competition.
Net cash provided by operations is another major source of liquidity. The net
cash provided by operating activities was $6,017,000 in 1997, $7,137,000 in
1996, and $5,086,000 in 1995. This trend of strong cash from operations is
expected to continue into the foreseeable future.
The Company anticipates that it will have sufficient funds available to fund
its loan commitments. As of December 31, 1997, the Company had outstanding
commitments to originate loans of $15,597,000 and had no commitments
to sell loans. Certificates of deposit maturing in one year or less totaled
$51,838,000 as of December 31, 1997. Management believes that a significant
portion of these deposits will remain with the Company.
The Company continues to seek acquisition opportunities that would strengthen
the Company's presence in current and new market areas. There are currently no
pending acquisitions that would require the Company to secure capital from
public or private markets.
ASSET-LIABILITY MANAGEMENT
The Company's strategy with respect to asset-liability management is to
maximize net interest income while limiting exposure to risks associated with
volatile interest rates. This strategy is implemented by subsidiary
banks' asset-liability committees which take action based upon their analysis of
expected changes in the composition and volumes of the balance sheet and the
fluctuations in market interest rates. One of the measures of interest-rate
sensitivity is the gap ratio. This ratio indicates the amount of
interest-earning assets repricing within a given period in comparison to the
amount of interest-bearing liabilities repricing within the same period of
time. A gap ratio of 1.0 indicates a matched position, in which case the
effect on net interest income due to interest rate movements will be minimal. A
gap ratio of less than 1.0 indicates that more liabilities than assets
reprice withing the time period and a ratio greater than 1.0 indicates that
more assets reprice than liabilities.
As of December 31, 1997, the Company's gap ratio for assets and liabilities
maturing within three months and within one year were .70 and .86 respectively,
meaning more liabilities than assets are scheduled to reprice within these
periods. This situation suggests that a decrease in market interest rates may
benefit net interest income and that an increase in interest rates may
negatively impact the Company. The gap position is largely the result of
classifying interest-bearing NOW accounts, money market accounts, and savings
accounts as short-term repriceable and the classification of loan pool
participations as having a three-year average life based on the historical
average for return of pool investment.
MARKET RISK MANAGEMENT
Market risk is the risk of earnings volatility that results from adverse changes
in interest rates and market prices. The Company's market risk is comprised
primarily of interest rate risk arising from its core banking activities of
lending and deposit taking. Interest rate risk is the risk that changes in
market interest rates may adversely affect the Company's net interest income.
Management continually develops and applies strategies to mitigate this risk.
Management does not
<PAGE> 23
22-23 MANAGEMENT'S DISCUSSION AND ANALYSIS
believe that the Company's primary market risk exposures and how those exposures
were managed in 1997 changed when compared to 1996.
The Company uses a third-party computer software simulation modeling program to
measure its exposure to potential interest rate changes. For various assumed
hypothetical changes in market interest rates, numerous other assumptions are
made such as prepayment speeds on loans and securities backed by mortgages, the
slope of the Treasury yield curve, the rates and volumes of the Company's
deposits and the rates and volumes of the Company's loans. This analysis
measures the estimated change in net interest income in the event of
hypothetical changes in interest rates. The following table presents the
Company's projected changes in net interest income for the various rate shock
levels at December 31, 1997.
INTEREST MOVEMENT
<TABLE>
<CAPTION>
(100 Basis Points=1.00%) $ Change %Change
- -------------------------------------------------------------------------------
<S> <C> <C>
+300 bp................................................ $(502,000) -3%
+200 bp................................................ (354,000) -2%
+100 bp................................................ (181,000) -1%
Base................................................... 0 0%
- -100 bp................................................ 150,000 1%
- -200 bp................................................ 336,000 2%
- -300 bp................................................ 639,000 4%
</TABLE>
As shown above, at December 31, 1997, the effect of an immediate and sustained
300 basis point increase in interest rates would reduce the Company's net
interest income by 3% or approximately $502,000. The effect of an immediate and
sustained 300 basis point decrease in rates would increase the Company's net
interest income by 4% or approximately $639,000.
Computations of the prospective effects of hypothetical interest rate changes
are based on numerous assumptions. Actural values may differ from those
projections set forth above. Further, the computations do not contemplate any
actions the Company may undertake in response to changes in interest rates.
Current interest rates on certain liabilities are at a level that does not allow
for significant repricing should market interest rates decline significantly.
LOAN QUALITY
Total loans increased 22.9 percent during 1997 to a year-end total of
$144,333,000. The $26,917,000 increase in loans from 1996 was mainly in the
commercial, agricultural and real estate categories.
Non-performing assets (including $12,000 in Other Real Estate) as of December
31, 1997, totaled $1,848,000. As of December 31, 1996, non-performing loans
totaled $2,102,000. The ratio of non-performing assets to total loans was 1.28
percent for year-end 1997 and was 1.79 percent for year-end 1996.
The allowance for loan losses was $1,816,000 as of December 31, 1997, and
$1,491,000 as of year-end 1996. The allowance represented 1.26 percent of total
loans at December 31, 1997, and 1.27 percent of loans on December 31, 1996. The
allowance as a percentage of non-performing assets was 98.2 percent on December
31, 1997, and was 70.9 percent as of year-end 1996. Net loan charge-offs for
1997 totaled $92,000, or .07 percent of average loans, compared with 1996 net
charge-offs of $667,000, or .63 percent of average loans. The allowance for
loan losses is maintained at a level considered by management to be
adequate to provide for estimated loan losses.
FUTURE PROSPECTS
Inflation can have a significant effect on the operating results of all
industries. Management believes that inflation does not affect the banking
industry as much as it does other industries with a high proportion of fixed
assets and inventory. Inflation does, however, have an impact on the growth of
total assets and the need to maintain a proper level of equity capital.
Interest rates are significantly affected by inflation, but it is difficult to
assess the impact since neither the timing nor the magnitude of changes in the
various inflation indices coincides with changes in interest rates. There is, of
course, an impact on longer-term earning assets; however, this effect continues
to diminish as investment maturities are shortened and interest-earning assets
and interest-bearing liabilities shift from fixed-rate long-term to
rate-sensitive short-term.
<PAGE> 24
[MAHASKA INVESTMENT COMPANY LOGO]
During 1997 the national inflation rate remained historically low. Interest
rates remained relatively constant throughout the year. Management of the
Company believes that the 1998 rate of inflation will remain consistent with
1997 and that interest rates in 1998 will hold relatively stable or decline
slightly. Given the Company's negative gap position (greater amount of
interest-bearing liabilities repricing than interest-earning assets), a decrease
in interest rates may improve the Company's net interest margin through the year
1998. Management continues to focus on improving the net interest margin in
1998.
Much of the increases in interest income, interest expense, noninterest income,
and operating expenses experienced during 1997 and 1996 were a result of the
acquisition of the bank branch by Central Valley Bank. In 1998 there will be
additional increases in income and expense attributable to the new Pella State
Bank which opened on December 8, 1997.
The Company anticipates that it will continue to explore opportunities to
acquire additional loan pool participation investments in 1998. Bids on pool
participations during the year will take into account the availability of funds
to invest, the market for such pools in terms of price and availability, and
the potential return on the pools relative to risk.
A critical issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs, operating systems
and hardware can accommodate the date value for the year 2000. Many existing
application software products in the marketplace were designed only to
accommodate a two digit date position which represents the year (e.g., "97" is
stored on the system and represents the year 1997). As a result, the year 1999
(i.e., "99") could be the maximum date value these systems will be able to
accurately process. Management is in the process of working with its software
and hardware vendors to assure that the Company is prepared for the year 2000.
Management does not anticipate that the Company will incur material operating
expenses to be year 2000 compliant. The Company has acquired a new main-frame
computer system that is year 2000 compliant. The system is expected to be fully
operational in the first quarter of 1998. The decision to purchase a new
computer system was made primarily due to the obsolescence of the current
system.
<PAGE> 25
24-25 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks..................................... $ 10,854 9,896
Interest-bearing deposits in banks.......................... 1,526 3,603
Federal funds sold.......................................... 6,815 2,985
-----------------
Cash and cash equivalents.................................. 19,195 16,484
-----------------
Investment securities (notes 2 and 8):
Available for sale......................................... 23,228 26,483
Held to maturity (fair value of $19,869 in 1997
and $27,595 in 1996)...................................... 19,833 27,705
Loans, net of unearned discount (notes 3, 5, and 8)......... 144,333 117,416
Allowance for loan losses (note 4)......................... (1,816) (1,491)
-----------------
Net loans................................................. 142,517 115,925
-----------------
Loan pool participations.................................... 54,326 50,687
Premises and equipment, net (note 6)........................ 4,183 3,102
Accrued interest receivable................................. 2,927 2,518
Other assets................................................ 8,664 8,947
-----------------
Total assets.............................................. $274,873 251,851
=================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (notes 2 and 7):
Demand..................................................... $ 21,277 19,353
NOW and Super NOW.......................................... 33,226 33,124
Savings.................................................... 59,020 57,831
Certificates of deposit.................................... 101,785 96,644
-----------------
Total deposits............................................ 215,308 206,952
Federal Home Loan Bank advances (note 8).................... 6,000 --
Notes payable (note 9)...................................... 14,050 8,500
Other liabilities........................................... 2,761 2,156
-----------------
Total liabilities......................................... 238,119 217,608
-----------------
Shareholders' equity:
Common stock, $5 par value; authorized 4,000,000 shares;
issued and outstanding 3,665,494 as of December 31, 1997
and 2,229,506 shares as of December 31, 1996............... 19,038 11,423
Capital surplus............................................ 118 7,787
Treasury stock at cost, 142,007 and 55,000 shares as of
December 31, 1997 and 1996................................. (1,752) (853)
Retained earnings (note 15)................................ 19,231 15,926
Unrealized gain (loss) on securities available for sale.... 119 (40)
-----------------
Total shareholders' equity................................ 36,754 34,243
-----------------
Commitments and contingencies (note 16).................... -- --
Total liabilities and shareholders' equity................ $274,873 251,851
=================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 26
[MAHASKA INVESTMENT COMPANY LOGO]
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands, except per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................ $12,282 10,203 7,775
Interest income and discount on loan..................
pool participations................................. 8,474 9,097 7,864
Interest on bank deposits............................. 108 266 175
Interest on federal funds sold........................ 128 92 202
Interest on investment securities:
Available for sale................................... 1,705 1,348 668
Held to maturity..................................... 1,249 1,623 1,643
----------------------
Total interest income.............................. 23,946 22,629 18,327
----------------------
INTEREST EXPENSE:
Interest on deposits (note 7):
NOW and Super NOW.................................... 677 612 632
Savings.............................................. 2,259 2,058 1,816
Certificates of deposit.............................. 5,441 4,845 3,959
Interest on federal funds purchased................... 32 48 42
Interest on Federal Home Loan Bank advances........... 138 -- --
Interest on notes payable............................. 765 968 651
----------------------
Total interest expense............................... 9,312 8,531 7,100
----------------------
Net interest income.................................. 14,634 14,098 11,227
Provision for loan losses (note 4).................... 417 987 168
----------------------
Net interest income after provision
for loan losses.................................. 14,217 13,311 11,059
----------------------
OTHER INCOME:
Service charges....................................... 1,130 922 746
Data processing income................................ 209 221 253
Other operating income................................ 419 437 314
Investment securities losses, net (note 2)............ (8) (74) (12)
----------------------
Total other income................................. 1,750 1,506 1,301
----------------------
OTHER EXPENSE:
Salaries and employee benefits expense (note 13)...... 4,343 3,774 3,251
Net occupancy expense................................. 1,227 1,044 863
Federal Deposit Insurance Corporation assessment...... 42 282 213
Professional fees..................................... 407 459 270
Other operating expense............................... 1,663 1,650 1,410
Goodwill amortization................................. 633 529 443
-----------------------
Total other expense................................ 8,315 7,738 6,450
-----------------------
Income before income tax expense................... 7,652 6,879 5,910
Income tax expense (note 11).......................... 2,594 2,385 1,987
-----------------------
Net income......................................... $ 5,058 4,494 3,923
=======================
Net income per share - basic*......................... $ 1.38 1.20 1.03
=======================
Net income per share - diluted*....................... $ 1.34 1.19 1.03
=======================
</TABLE>
* Restated to reflect the five-for-three stock split effected in the form of a
dividend in 1997.
See accompanying notes to consolidated financial statements.
<PAGE> 27
26-27 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES
(IN THOUSANDS) COMMON CAPITAL TREASURY RETAINED AVAILABLE
STOCK SURPLUS STOCK EARNINGS FOR SALE TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $11,423 7,787 -- 10,650 (80) 29,780
Net income..................................... -- -- -- 3,923 -- 3,923
Dividends paid................................. -- -- -- (1,503) -- (1,503)
Treasury stock purchased (15,000 shares)....... -- -- (231) -- -- (231)
Unrealized gain on securities..................
available for sale............................ -- -- -- -- 137 137
------------------------------------------------------------
Balance at December 31, 1995................... 11,423 7,787 (231) 13,070 57 32,106
Net income..................................... -- -- -- 4,494 -- 4,494
Dividends paid................................. -- -- -- (1,638) -- (1,638)
Treasury stock purchased (40,000 shares)....... -- -- (622) -- -- (622)
Unrealized loss on securities..................
available for sale............................ -- -- -- -- (97) (97)
------------------------------------------------------------
Balance at December 31, 1996................... 11,423 7,787 (853) 15,926 (40) 34,243
Net income..................................... -- -- -- 5,058 -- 5,058
Dividends paid................................. -- -- -- (1,753) -- (1,753)
Stock split effected in the form of a dividend
(five-for-three).............................. 7,615 (7,615) -- -- -- --
Stock options exercised (65,970 shares)........ -- (54) 783 -- -- 729
Treasury stock purchased (116,310 shares)...... -- -- (1,682) -- -- (1,682)
Unrealized gain on securities..................
available for sale............................ -- -- -- -- 159 159
------------------------------------------------------------
Balance at December 31, 1997................... $19,038 118 (1,752) 19,231 119 36,754
============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 28
[MAHASKA INVESTMENT COMPANY LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,058 4,494 3,923
-----------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 1,129 930 764
Federal Home Loan Bank stock dividend................. -- -- (11)
Provision for loan losses............................. 417 987 168
Investment securities losses, net..................... 8 74 12
Loss on sale of bank premises and equipment........... 14 7 --
Amortization of premiums on investment securities .... 225 301 297
Accretion of investment securities and loan discounts. (578) (353) (226)
(Increase) decrease in other assets................... (759) 256 (450)
Increase in other liabilities......................... 503 441 609
-----------------------------
Total adjustments................................... 959 2,643 1,163
-----------------------------
Net cash provided by operating activities........... 6,017 7,137 5,086
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales................................... 1,994 6,022 4,993
Proceeds from maturities.............................. 10,807 3,285 1,000
Purchases............................................. (9,330) (24,310) (5,159)
Investment securities held to maturity:
Proceeds from maturities.............................. 9,639 8,611 12,073
Purchases............................................. (1,936) (5,698) (7,834)
Purchases of loan pool participations.................. (25,589) (29,827) (12,468)
Principal recovery on loan pool participations......... 21,950 24,458 14,002
Net increase in loans.................................. (26,450) (17,227) (11,733)
Purchase of bank premises and equipment................ (1,615) (650) (426)
Proceeds from sale of bank premises and equipment...... 24 12 1
Proceeds from branch acquisition, net.................. -- 14,246 --
-----------------------------
Net cash used in investing activities............... (20,506) (21,078) (5,551)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits............................... 8,356 13,364 15,029
Net decrease in federal funds purchased................ -- -- (4,700)
Advances on notes payable.............................. 6,550 6,400 7,500
Principal payments on notes payable.................... (1,000) (7,900) (2,500)
Federal Home Loan Bank advances........................ 11,600 -- --
Repayment of Federal Home Loan Bank advances........... (5,600) -- --
Dividends paid......................................... (1,753) (1,638) (1,503)
Purchases of treasury stock............................ (1,682) (622) (231)
Proceeds from exercise of stock options................ 729 -- --
-----------------------------
Net cash provided by financing activities........... 17,200 9,604 13,595
-----------------------------
Net increase (decrease) in cash and
cash equivalents.................................. 2,711 (4,337) 13,130
Cash and cash equivalents at beginning of year......... 16,484 20,821 7,691
-----------------------------
Cash and cash equivalents at end of year...............$ 19,195 16,484 20,821
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..............................................$ 9,299 8,299 6,689
=============================
Income taxes..........................................$ 2,894 2,239 1,973
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 29
28-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Mahaska Investment Company and
subsidiaries (the "Company") conform to generally accepted accounting
principles and to general practices within the banking industry. The
consolidated financial statements of the Company include the accounts of its
100 percent owned subsidiaries, Mahaska State Bank, Central Valley Bank, Pella
State Bank, and On-Site Credit Services. All material intercompany transactions
have been eliminated in consolidation.
FORMATION OF PELLA STATE BANK
Pella State Bank is a full service, state-chartered, commercial bank which was
formed as a de novo institution by the Company in December 1997. The Company
provided initial capitalization of $5,000,000 to Pella State Bank from cash on
hand and an advance on its commercial bank line of credit.
BANK OFFICE ACQUISITION
On June 21, 1996, Central Valley Bank acquired the Sigourney, Iowa bank office
of Boatmen's Bank Iowa, N.A. and assumed approximately $32.1 million in
deposits and purchased certain loans totaling approximately $14.6 million.
Central Valley Bank's existing branch facility in Sigourney was consolidated
into the newly acquired facility. A premium of approximately $3.0 million was
paid by Central Valley Bank 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.
NATURE OF OPERATIONS
The bank subsidiaries engage in retail and commercial banking and related
financial services, providing the usual products and services such as deposits,
commercial, real estate, and consumer loans, and trust services. Mahaska State
Bank also provides data processing services to affiliated and non-affiliated
banks. On-Site Credit Services provides equipment leasing and accounts
receivable financing.
Since 1988, the Company, either directly or through the bank subsidiaries, has
invested in loan pool participations that have been purchased by certain
non-affiliated independent service corporations (collectively, the "Servicer")
from the Federal Deposit Insurance Corporation ("FDIC"), the Resolution Trust
Corporation ("RTC"), or other sources. These loan pool investments are
comprised of packages of loans previously made by financial institutions, which
often include distressed or nonperforming loans, that have been sold at prices
reflecting varying discounts from the aggregate outstanding principal amount of
the underlying loans depending on the credit quality of the portfolio. The
Servicer then proceeds to collect these loans from the borrowers.
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was effective for the Company for the year
beginning January 1, 1997, and did not have a material effect on the financial
position and results of operations, nor did the adoption require additional
capital resources.
SFAS 128, "Earnings Per Share," was adopted by the Company effective December
31, 1997. This statement replaces the primary earnings per share (EPS)
disclosure with basic and diluted EPS disclosures to simplify the calculation
and improve international comparability. The adoption of SFAS 128 did not have
a material effect on the financial position and results of operations, nor did
the adoption require additional resources.
SFAS 130, "Reporting Comprehensive Income," will be effective for the Company
for the year beginning January 1, 1998, and establishes the standards for the
reporting and display of comprehensive income in the financial statements.
Comprehensive income represents net earnings and certain amounts reported
directly in shareholders' equity, such as net unrealized gain or loss on
available for sale securities.
<PAGE> 30
[MAHASKA INVESTMENT COMPANY LOGO]
EARNINGS PER SHARE
Basic earnings per share amounts are computed by dividing net income by the
weighted average number of shares outstanding during the year. Diluted earnings
per share amounts are computed by dividing net income by the weighted
average number of shares and all dilutive potential shares outstanding during
the year. In November 1997, the Company issued a five-for-three stock split in
the form of a dividend. The Company has had a Stock Repurchase Plan in effect
since April 1995. In accordance with this plan, 116,310, 40,000 and 15,000
shares of common stock were repurchased by the Company during 1997, 1996 and
1995, respectively. The following information was used in the computation of
earnings per share on both a basic and diluted basis for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net Income............................................ $ 5,058 4,494 3,923
---------------------
Denominator:
Average Shares Outstanding............................ 3,653 3,744 3,797
---------------------
Basic EPS.............................................. $ 1.38 1.20 1.03
=====================
DILUTED EPS COMPUTATION
Numerator:
Net Income............................................ $ 5,058 4,494 3,923
---------------------
Denominator:
Average Shares Outstanding............................ 3,653 3,744 3,797
Stock Options......................................... 132 27 11
---------------------
3,785 3,771 3,808
---------------------
Diluted EPS............................................ $ 1.34 1.19 1.03
=====================
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering the Company's
entire holdings of a particular financial instrument for sale at one time.
Unless included in assets available for sale, it is the Company's general
practice and intent to hold its financial instruments to maturity and not to
engage in trading or sale activities.
Fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Estimated fair values have been determined by the Company using the best
available data, and an estimation method suitable for each category of
financial instruments.
CASH AND DUE FROM BANKS
The Company is required to maintain certain daily reserve balances on hand in
accordance with federal banking regulations. The average reserve balance
maintained in accordance with such regulations for the years ended December 31,
1997, 1996 and 1995 was $897,000, $835,000 and $778,000, respectively.
INVESTMENT SECURITIES
The Company classifies its investment securities based on the intended holding
period. Securities which may be sold prior to maturity to meet liquidity needs,
to respond to market changes, or to adjust the Company's asset-liability
position are classified as available for sale. Securities held principally for
the purpose of near-term sales are classified as trading. Securities which the
Company intends to hold until maturity are classified as held to maturity.
Investment securities available for sale are recorded at fair value. The
aggregate unrealized gains or losses, net of the income tax effect, are
recorded as a component of shareholders' equity. Trading securities are
recorded at fair value with gains and losses, both realized and unrealized,
included in operations. Securities held to maturity are recorded at cost,
adjusted for amortization of premiums and accretion of discounts.
Net gains or losses on the sales of securities are shown in the statements of
operations using the specific identification method.
<PAGE> 31
30-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS
Loans are stated at the principal amount outstanding, net of unearned discount
and allowance for loan losses. Unearned discount on installment loans is
transferred to income over the term of the loan using the level-yield method.
Interest on all other loans is credited to income as earned based on the
principal amount outstanding.
It is the Company's policy to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Nonaccrual loans are returned
to an accrual status when, in the opinion of management, the financial position
of the borrower indicates there is no longer any reasonable doubt as to timely
payment of principal or interest.
CONCENTRATIONS OF CREDIT RISK
The Company originates real estate, consumer, and commercial loans primarily in
its southeast Iowa market area and adjacent counties. Although the Company has
a diversified loan portfolio, a substantial portion of its borrowers' ability
to repay their loans is dependent upon economic conditions in the Company's
market area.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes collectibility of the principal is unlikely.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan experience, current economic conditions, and other
relevant factors.
LOAN POOL PARTICIPATIONS
The Company has invested in participations in pools of loans acquired from the
FDIC, the RTC, and other sources at substantial discounts. The pools, all
acquired since 1988, consist of loans to borrowers located throughout the
United States.
The Company carries its investment in the loan pools as a separate earning
asset on its balance sheet. Principal or interest restructures, write-downs, or
write-offs within the pools are not included in the Company's disclosures for
its loan portfolio.
The loan pools are managed by the Servicer operating in Omaha, Nebraska, the
sole incentive of which is cash collection without regard to principal or
income allocation of the payment. The investment in loan pools is accounted for
on a nonaccrual basis. For loans receiving regular payments, cash is applied
first to interest income for interest due at the contract rate. Additional
payment is then applied to principal in a ratio of cost basis to loan face
amount and to discount income for the remainder.
For loans where payments are received on an irregular basis, the Servicer
evaluates the collateral position of the loan and where well-secured, the
payments are applied as described above. When the loan is judged to be other
than well-secured, the payment is applied to principal and discount income with
no recognition of interest due.
For loans where the circumstances or new information lead the Servicer to
believe that collection of the note or recovery through collateral is less than
originally determined, the cost basis assigned to the loan is written down or
off through a charge to discount income.
For loans where the Servicer negotiates a settlement of the obligation for a
lump sum, the payment is applied first to principal, then to discount income
and last to interest due.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line or accelerated method over the
estimated useful lives of respective assets, which range from 5 to 40 years for
building and improvements and 3 to 10 years for furniture and equipment.
EXCESS OF COST OVER UNDERLYING NET ASSETS
The excess of cost over underlying net assets of $6,162,000, $6,795,000 and
$4,342,000 at December 31, 1997, 1996 and 1995, respectively, is being
amortized primarily using the straight-line method over 15 years. Amortization
expenses for 1997, 1996 and 1995 were $633,000, $529,000 and $443,000,
respectively.
<PAGE> 32
[MAHASKA INVESTMENT COMPANY LOGO]
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the subsidiary banks in lieu of foreclosure on real estate mortgage
loans on which the borrowers have defaulted as to payment of principal and
interest. Other real estate owned is carried at the lower of the cost of
acquisition or the asset's fair market value, less estimated costs of
disposition, and is included in other assets on the consolidated balance
sheets. Reductions in the balance of other real estate at the date of
acquisition are charged to the allowance for loan losses. Expenses incurred
subsequent to the acquisition of the property and any subsequent write-downs to
reflect current fair market value are charged as noninterest expense as
incurred. Gains or losses on the disposition of other real estate are
recognized in other income or expense in the period in which they are realized.
Other real estate owned of $12,000 at December 31, 1997 and 1996, was included
in other assets and is valued at the lower of cost or estimated fair market
value as determined by management.
TRUST DEPARTMENT ASSETS
Property held for customers in fiduciary or agency capacities is not included
in the accompanying consolidated balance sheets, as such items are not assets
of the Company.
INCOME TAXES
The Company files a consolidated federal income tax return. Federal income
taxes are allocated based on each entity computing its taxes on a separate
company basis. For state purposes, the bank subsidiaries each file a franchise
return and the remaining entities file a consolidated income tax return.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year consolidated financial
statements in order to conform to current year presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A significant estimate that
is particularly sensitive to change relates to the allowance for loan losses.
<PAGE> 33
32-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 | INVESTMENT SECURITIES
A summary of investment securities by type as of December 31, 1997
and 1996 follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities........................................... $ 4,506 57 -- 4,563
U.S. government agency securities.................................... 15,177 143 7 15,313
Other investment securities.......................................... 3,352 5 5 3,352
-----------------------------------------
Total............................................................... $23,035 205 12 23,228
=========================================
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government securities........................................... $ 5,046 -- 12 5,034
U.S. government agency securities.................................... 2,885 34 5 2,914
Obligations of states and political subdivisions..................... 6,793 52 18 6,827
Other investment securities.......................................... 5,109 -- 15 5,094
-----------------------------------------
Total............................................................... $19,833 86 50 19,869
=========================================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
U.S. government securities........................................... $ 5,020 8 9 5,019
U.S. government agency securities.................................... 18,721 43 85 8,679
Other investment securities.......................................... 2,810 -- 25 2,785
-----------------------------------------
Total............................................................... $26,551 51 119 26,483
=========================================
INVESTMENT SECURITIES HELD TO MATURITY:
U.S. government securities........................................... $ 8,135 4 63 8,076
U.S. government agency securities.................................... 5,445 39 23 5,461
Obligations of states and political subdivisions..................... 8,904 30 43 8,891
Other investment securities.......................................... 5,221 -- 54 5,167
-----------------------------------------
Total............................................................... $27,705 73 183 27,595
=========================================
</TABLE>
Proceeds from the sale of investment securities available for sale during 1997,
1996 and 1995 were $1,994,000, $6,022,000 and $4,993,000, respectively. Gross
gains and losses realized on the sale of investment securities available for
sale for each of the following years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized gains............................................ $ -- 6 8
Realized losses........................................... (8) (80) (20)
-----------------
Total..................................................... $ (8) (74) (12)
=================
</TABLE>
As of December 31, 1997 and 1996, investment securities of approximately
$16,103,000 and $15,297,000, respectively, which were included in the
consolidated balance sheets, were pledged as collateral to secure public fund
deposits and for other purposes required or permitted by law. Public funds
approximated $25,781,000 and $19,478,000 at December 31, 1997 and 1996,
respectively.
The amortized cost and approximate market value of investment securities as of
December 31, 1997, by contractual maturity, are shown as follows. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE> 34
[MAHASKA INVESTMENT COMPANY LOGO]
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
(IN THOUSANDS) COST MARKET VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT SECURITIES
AVAILABLE FOR SALE:
Due in 1 year or less.................................. $ 499 499
Due after 1 year through 5 years....................... 16,128 16,249
Due after 5 years through 10 years..................... -- --
Due after 10 years..................................... 6,408 6,480
---------------------
Total................................................. $23,035 23,228
=====================
INVESTMENT SECURITIES
HELD TO MATURITY:
Due in 1 year or less.................................. $ 9,755 9,745
Due after 1 year through 5 years....................... 6,909 6,911
Due after 5 years through 10 years..................... 1,658 1,677
Due after 10 years..................................... 1,511 1,536
---------------------
Total................................................. $19,833 19,869
=====================
</TABLE>
3 | LOANS
A summary of the respective loan categories as of December 31, 1997
and 1996 follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans...................................... $ 72,303 60,399
Commercial and agricultural loans...................... 55,977 43,553
Loans to individuals................................... 13,268 11,522
Other loans............................................ 2,785 1,942
---------------------
Total.................................................. $144,333 117,416
=====================
</TABLE>
Total non-performing loans and assets at December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans and leases:
Non-accrual........................................... $ 927 1,085
Restructured.......................................... 387 380
---------------------
Total impaired loans and leases .................... 1,314 1,465
Loans and leases past due 90 days or more.............. 522 625
---------------------
Total non-performing loans............................. 1,836 2,090
Other real estate owned................................ 12 12
---------------------
Total non-performing assets............................ $ 1,848 2,102
=====================
</TABLE>
The average balances of non-performing assets for the years ended December 31,
1997 and 1996 were $1,669,000 and $1,349,000, respectively. The allowance for
credit losses related to non-performing assets at December 31, 1997 and 1996
was $368,000 and $206,000, respectively. Non-performing assets of $902,000 and
$1,533,000 were not subject to a related allowance for credit losses at
December 31, 1997 and 1996, respectively, because of the net realizable value
of loan collateral, guarantees and other factors. The effect of non-accrual and
restructured loans on interest income for each of the three years ended
December 31, 1997, 1996 and 1995 was:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
As originally contracted....................... $213 131 62
As recognized.................................. 91 41 47
----------------------------
Reduction of interest income................. $122 90 15
============================
</TABLE>
<PAGE> 35
34-35 NOTES TO CONSOLIDATED FINANCIAL STTEMENTS
4 | ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year....................... $1,491 1,001 881
Provision for loan losses.......................... 417 987 168
Recoveries on loans previously charged off......... 45 38 43
Loans charged off.................................. (137) (705) (91)
Acquisition allowance.............................. -- 170 --
------------------------
Balance at end of year............................. $1,816 1,491 1,001
========================
</TABLE>
5 | LOANS TO RELATED PARTIES
Certain directors and officers of the Company, including their immediate
families and companies in which they are principal owners, were loan
customers of the Company's subsidiaries. All loans to this group were made in
the ordinary course of business at prevailing terms and conditions. The
aggregate indebtedness of this group included in loans as of December 31, 1997
and 1996 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Aggregate balance at beginning of year..................... $ 7,019 6,307
Advances................................................... 10,107 9,345
Payments................................................... 9,132 8,633
-----------------
Aggregate balance at end of year........................... $ 7,994 7,019
=================
</TABLE>
6 | PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 603 466
Building and improvements 3,571 3,130
Furniture and equipment 4,614 3,774
-----------------
Total office properties and equipment at cost 8,788 7,370
Less accumulated depreciation 4,605 4,268
-----------------
Total $4,183 3,102
=================
</TABLE>
7 | DEPOSITS
The scheduled maturities of certificate accounts are as follows as of December
31, 1997:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------
<S> <C>
1998............................................................... $ 51,838
1999............................................................... 35,691
2000............................................................... 9,403
2001............................................................... 3,845
2002............................................................... 1,001
Thereafter......................................................... 7
--------
Total $101,785
========
</TABLE>
Time deposits in excess of $100,000 approximated $19,755,000 and $13,547,000 as
of December 31, 1997 and 1996, respectively. Interest expense on such deposits
for the years ended December 31, 1997, 1996 and 1995 was approximately
$871,000, $663,000 and $512,000, respectively.
<PAGE> 36
[MAHASKA INVESTMENT COMPANY LOGO]
8 | FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1997 and 1996, Federal Home Loan Bank advances consisted of
the following:
<TABLE>
<CAPTION>
WEIGHTED- Weighted-
AVERAGE average
(in thousands) 1997 INTEREST RATE 1996 interest rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity in year ending
1998.............................. $1,000 5.82% -- --
1999.............................. 3,000 5.96 -- --
2000.............................. 2,000 6.02 -- --
Amount drawn on line of credit -- VARIABLE -- Variable
------ ------
$6,000 --
====== ======
</TABLE>
Advances from the FHLB are secured by stock in the FHLB. In addition, Mahaska
State Bank has pledged certain U.S. Agency securities and Central Valley Bank
has agreed to maintain unemcumbered additional security in the in the form of
certain residential mortgage loans aggregating no less than 150 percent of
outstanding advances.
The line of credit with the FHLB with a limit of $2,000,000, matures on October
30, 1998. The line has an interest rate which fluctuates daily. During 1997,
there were no advances on this line. The line is collateralized as described
above.
At December 31, 1997 and 1996, accrued interest payable on advances from the
FHLB totaled $1,000 and $0, respectively.
9 | NOTES PAYABLE
The notes payable balance at December 31, 1997 consists of advances on a
$17,000,000 line of credit. The line has a variable interest rate and is due
June 20, 1998. The current note is secured by all of the common stock of the
subsidiaries. Interest is payable quarterly at a quarter below the lender's
prime rate, which ranged from 8.00 percent to 8.25 percent in 1997.
<PAGE> 37
- -------------------------------------------------------------------------------
THE DIRECTORS AND OFFICERS
OF MAHASKA INVESTMENT COMPANY
CORDIALLY INVITE YOU TO ATTEND OUR
1998 ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, APRIL 30, 1998, 10:30 A.M.
ELMHURST COUNTRY CLUB
2214 SOUTH 11TH STREET
OSKALOOSA, IA 52577
IMPORTANT
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD, SIGN, DATE, DETACH AND RETURN IN
THE ENCLOSED ENVELOPE.
<TABLE>
<CAPTION>
DETACH ATTENDANCE CARD HERE AND MAIL WITH
DETACH PROXY CARD HERE PROXY CARD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN MAHASKA INVESTMENT COMPANY
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, AND 4. If you plan to personally attend the Annual
Meeting of Shareholders on April 30, 1998,
please check the box below and list the names
of attendees.
Dated: _____________________________________ Return this stub in the enclosed envelope with
your completed Proxy Card.
Signature: _________________________________
I/We do plan to attend
Signature if held jointly: _________________ the Annual Meeting. [ ]
Please sign exactly as name appears. When shares are held by joint tenants, Names of persons attending
both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please _______________________________________________
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person. _______________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED _______________________________________________
ENVELOPE.
</TABLE>
- --------------------------------------------------------------------------------
REVOCABLE PROXY MAHASKA INVESTMENT COMPANY
------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles S. Howard and David A. Meinert
as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of Mahaska Investment Company which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to
be held on April 30, 1998, or any adjournment thereof.
------------------------------------------------------------------------
1. PROPOSAL 1 - ELECTION OF DIRECTORS
[ ] FOR ALL NOMINEES LISTED BELOW
(except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees below.
(Instructions: To withhold authority to vote for any
individual nominee, strike a line through the
nominee's name.)
ROBERT K. CLEMENTS JOHN P. POTHOVEN JOHN W.N. STEDDOM
2. PROPOSAL 2 - APPROVE AMENDMENT TO THE ARTICLES OF INCORPORATION of
the Company to increase the aggregate number of
authorized shares which the Company shall have
authority to issue.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL 3 - APPROVE 1998 STOCK INCENTIVE PLAN, as more fully
described in the accompanying Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL 4 - RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITOR FOR THE COMPANY
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(to be signed on the other side)
