FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1998 0-24630
MAHASKA INVESTMENT COMPANY
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1003699
(State of Incorporation) (I.R.S. Employer Identification No.)
222 First Avenue East, Oskaloosa, Iowa 52577
Telephone Number (515) 673-8448
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
As of October 30, 1998, there were 3,631,344 shares of common stock $5 par value
outstanding.
<PAGE>
PART I -- Item 1. Financial Statements
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(dollars in thousands) September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,951 10,854
Interest-bearing deposits in banks 76 1,526
Federal funds sold 1,955 6,815
Cash and cash equivalents 13,982 19,195
Investment securities:
Available for sale 26,879 23,228
Held to maturity 16,698 19,833
Loans 166,250 144,333
Allowance for loan losses (1,873) (1,816)
Net loans 164,377 142,517
Loan pool participations 56,250 54,326
Premises and equipment, net 4,143 4,183
Accrued interest receivable 3,668 2,927
Other assets 2,249 2,502
Goodwill 5,703 6,162
Total assets $ 293,949 274,873
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 19,815 21,277
NOW and Super NOW 30,406 33,226
Savings 61,338 59,020
Certificates of deposit 108,998 101,785
Total deposits 220,557 215,308
Federal funds purchased 3,775 0
Federal Home Loan Bank advances 12,299 6,000
Note payable 16,750 14,050
Other liabilities 2,635 2,761
Total liabilities 256,016 238,119
Shareholders' equity:
Common stock, $5 par value;
authorized 4,000,000 shares;
issued 3,807,501 shares 19,038 19,038
Capital surplus 80 119
Treasury stock at cost, 176,157
shares as of September 30, 1998,
and 142,007 shares as of
December 31, 1997 (2,877) (1,752)
Retained earnings 21,470 19,230
Accumulated other comprehensive income 222 119
Total shareholders' equity 37,933 36,754
Total liabilities and shareholders'
equity $ 293,949 274,873
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, Continued
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended Nine Months Ended
(dollars in thousands, September 30, September 30,
except per share) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,986 3,199 11,038 8,919
Interest and discount
on loan pools 1,527 2,128 6,182 6,545
Interest on bank deposits 21 21 109 77
Interest on federal funds sold 15 2 238 63
Interest on investment securities:
Available for sale 418 413 1,196 1,310
Held to maturity 217 295 693 973
Total interest income 6,184 6,058 19,456 17,887
Interest expense:
Interest on deposits:
NOW and Super NOW 161 168 502 501
Savings 553 574 1,654 1,679
Certificates of deposit 1,533 1,358 4,477 4,042
Interest on federal funds
purchased 10 21 11 32
Interest on Federal Home Loan
Bank advances 101 29 280 80
Interest on note payable 271 189 750 506
Total interest expense 2,629 2,339 7,674 6,840
Net interest income 3,555 3,719 11,782 11,047
Provision for loan losses 307 145 594 312
Net interest income
after provision for
loan losses 3,248 3,574 11,188 10,735
Noninterest income:
Service charges 329 311 917 846
Data processing income 48 48 148 163
Other operating income 138 108 307 318
Investment security gains (losses) 0 0 26 (8)
Total noninterest income 515 467 1,398 1,319
Noninterest expense:
Salaries and employee benefits
expense 1,210 1,039 3,540 2,988
Net occupancy expense 349 304 1,004 863
FDIC assessment 12 12 36 30
Professional fees 94 163 343 352
Other operating expense 427 444 1,298 1,369
Goodwill amortization 153 158 459 475
Total noninterest expense 2,245 2,120 6,680 6,077
Income before income
tax expense 1,518 1,921 5,906 5,977
Income tax expense 541 675 2,125 2,126
Net income $ 977 1,246 3,781 3,851
Earnings per common share - basic $ 0.27 0.34 1.03 1.05
Earnings per common share - diluted $ 0.26 0.33 0.98 1.01
Dividends per common share $ 0.14 0.12 0.42 0.36
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, Continued
<TABLE>
<CAPTION>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited) Three Months Ended Six Months Ended
(in thousands) September 30 September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 977 1,246 3,781 3,851
Other Comprehensive Income:
Unrealized gains (losses)
on securities available for sale:
Unrealized holding gains (losses)
arising during the period,
net of tax 59 50 82 74
Less: reclassification
adjustment for net (gains)
losses included in net income,
net of tax 0 0 (17) 5
Other comprehensive income,
net of tax 59 50 65 79
Comprehensive income 1,036 1,296 3,846 3,930
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Nine Months Ended
(dollars in thousands) September 30,
1998 1997
Cash flows from operating activities:
Net income $ 3,781 3,851
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 918 838
Provision for loan losses 594 312
Investment securities (gains) losses (26) 8
Loss on sale of bank premises and
equipment 0 16
Amortization of investment
securities premiums 115 176
Accretion of investment securities
and loan discounts (323) (398)
Increase in other assets (487) (1,129)
(Decrease) increase in other
liabilities (184) 823
Total adjustments 607 646
Net cash provided by operating
activities 4,388 4,497
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales 175 994
Proceeds from maturities 3,479 6,755
Purchases (7,137) (6,038)
Investment securities held to maturity:
Proceeds from maturities 6,902 5,904
Purchases (3,849) (647)
Purchases of loan pool participations (21,029) (12,775)
Principal recovery on loan pool
participations 19,105 16,218
Net increase in loans (22,145) (20,813)
Purchases of bank premises and
equipment (420) (583)
Proceeds from sale of bank premises
and equipment 0 7
Net cash used in investing
activities (24,919) (10,978)
Cash flows from financing activities:
Net increase (decrease) in deposits 5,249 (1,801)
Net increase in federal funds purchased 3,775 300
Advances on note payable 7,200 3,300
Principal payments on note payable (4,500) (1,000)
Federal Home Loan Bank advances 6,300 5,600
Repayment of Federal Home Loan
Bank advances (1) (3,600)
Dividends paid (1,542) (1,316)
Purchases of treasury stock (1,768) (1,610)
Proceeds from exercise of stock options 605 184
Net cash provided by financing
activities 15,318 57
Net decrease in cash and cash
equivalents (5,213) (6,424)
Cash and cash equivalents at beginning of
period 19,195 16,484
Cash and cash equivalents at end of period $ 13,982 10,060
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,627 6,884
Income taxes $ 2,061 1,964
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
MAHASKA INVESTMENT COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. Adjustments and Reclassifications
The accompanying consolidated financial statements (unaudited) include the
accounts and transactions of the Company and its four wholly-owned subsidiaries,
Mahaska State Bank, Central Valley Bank, Pella State Bank and On- Site Credit
Services, Inc. All material intercompany balances and transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements (unaudited) have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated financial statements (unaudited) be read in conjunction
with the Company's most recent audited financial statements and notes thereto
contained in the 1997 annual report on Form 10-K. In the opinion of management,
the accompanying consolidated financial statements (unaudited) contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1998, and the results of
operations for the three months and the nine months ended September 30, 1998 and
1997, and changes in cash flows for the nine months ended September 30, 1998 and
1997. Results for the nine months may not be indicative of the results for the
entire year.
2. Statements of Cash Flows
In the statements of cash flows, cash and cash equivalents include cash and due
from banks, interest-bearing deposits with banks, and federal funds sold.
3. Income Taxes
Federal income tax expense for the three months and the nine months
ended September 30, 1998 and 1997 was computed using the consolidated effective
federal tax rate. The Company also recognized income tax expense pertaining to
state franchise taxes payable individually by the subsidiary banks.
4. Earnings Per Common Share
Basic earnings per common share computations are based on the weighted average
number of shares of common stock actually outstanding during the period. The
weighted average number of shares for the three-month periods ended September
30, 1998 and 1997 was 3,654,768 and 3,620,953 (restated to reflect the
five-for-three stock split effected in the form of a stock dividend which
occurred in November 1997), respectively. For the nine-month periods ended
September 30, 1998 and 1997, the weighted average number of common shares
outstanding was 3,669,414 and 3,661,591, respectively. 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 period. The
computation of diluted earnings per share used a weighted average number of
shares outstanding of 3,832,830 and 3,833,380 for the three months ended
September 30, 1998 and 1997, respectively, and 3,864,608 and 3,822,856 for the
nine months ended September 30, 1998 and 1997, respectively.
5. Effect of New Financial Accounting Standards
SFAS 130, "Reporting Comprehensive Income" became effective for the Company on
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.
The adoption of SFAS 130 did not have a material effect on the financial
position and results of operations, nor did the adoption require additional
resources.
Part I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
THREE MONTHS ENDED SEPTEMBER 30, 1998
Net income for the Company was $977,000 for the quarter ended September 30,
1998, compared with $1,246,000 for the three months ended September 30, 1997.
Basic earnings per share for the third quarter of 1998 were $.27 versus basic
earnings of $.34 per share for the third quarter of 1997. Diluted earnings per
share for the third quarter of 1998 were $.26 versus diluted earnings per share
of $.33 for the third quarter of 1997. All historical per share amounts have
been restated to reflect the five-for-three stock split effected in the form of
a stock dividend which occurred in November 1997. Actual weighted average shares
outstanding were 3,654,768 and 3,620,953 for the third quarter of 1998 and 1997,
respectively. The Company's return on average assets for the quarter ended
September 30, 1998 was 1.39 percent compared with a return of 1.94 percent for
the quarter ended September 30, 1997. The Company had a return on average equity
of 10.15 percent for the three months ended September 30, 1998 versus 13.94
percent for the three months ended September 30, 1997.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income may fluctuate as a result of changes in the volumes of
assets and liabilities as well as changes in interest rates. The Company's net
interest income for the quarter ended September 30, 1998 was $3,556,000 compared
with $3,720,000 for the three months ended September 30, 1997. The decrease of
$164,000 was mainly due to lower interest income and discount collected on loan
pool participations in the third quarter of 1998 compared with 1997. Interest
and fee income on loans increased $787,000 (25 percent) in the third quarter of
1998 due to higher loan volumes. Total interest income increased $126,000 (2
percent) in the third quarter of 1998 compared with 1997. Total interest expense
for the quarter increased $290,000 (12 percent) compared with the same period in
1997 due to the additional deposits and borrowed funds. The Company's net
interest margin (on a federal tax-equivalent basis) for the third quarter of
1998 was 5.54 percent compared with 6.37 percent in the third quarter of 1997.
Net interest margin is net return on interest-earning assets and is computed by
dividing annualized net interest income by the average of total interest-earning
assets for the period. Most of the reduction in the net interest margin in the
third quarter of 1998 is attributable to the decline in loan pool interest
income and discount recovery recorded in the third quarter of 1998 compared with
the income recognized in the 1997 period. The Company's overall yield on earning
assets was 9.58 percent for the third quarter of 1998 compared to 10.32 percent
for the third quarter of 1997. The rate on interest-bearing liabilities
increased in the third quarter of 1998 to 4.76 percent compared with 4.66
percent for the third quarter of 1997.
The increase in interest income and fees on loans in the third quarter of 1998
compared to the same period in 1997 was mainly the result of higher loan volumes
which produced greater revenues. The average yield on loans rose to 9.67 percent
for the third quarter of 1998, up from 9.37 percent for the three months ended
September 30, 1997 as the mix of the Company's loan portfolio shifted into
higher-yielding commercial loans. Average loans outstanding were $163,574,000
for the third quarter of 1998 compared with $135,375,000 for the third quarter
of 1997, an increase of $28,199,000 (21 percent). Each of the Company's
subsidiaries (except for Pella State Bank which did not open until December
1997) experienced an increase in average loan volume in the third quarter of
1998 compared with 1997. Average real estate loan volumes increased $12,187,000
(21 percent), commercial loans averaged $9,525,000 (28 percent) higher, and
agricultural loans increased $4,787,000 (18 percent) in average volume for the
third quarter of 1998 compared with the third quarter of 1997.
Interest income and discount collected on the loan pools was $1,527,000 for the
third quarter of 1998 compared with $2,128,000 earned in the third quarter of
1997. The yield on loan pool investments was 12.51 percent for the third quarter
of 1998 compared with 17.38 percent for the quarter ended September 30, 1997.
The average loan pool participation investment balance was $48,445,000 during
the third quarter of 1998 compared with an average balance of $48,589,000 in the
third quarter of 1997. These loan pool investments are pools of performing,
nonperforming and distressed loans that the Company has purchased at a discount
from the aggregate outstanding principal amount of the underlying loans. Income
is derived from this investment in the form of interest collected and the
repayment of the principal in excess of the purchase cost which is herein
referred to as "discount" recovery. Interest income and discount recovery on the
loan pools is recognized on a "cash" basis by the Company. Collection expenses
incurred by the servicer to collect these loans are netted directly against the
income received. The reduction in loan pool income recognized in 1998 compared
with 1997 followed a decline in the amount of cash collections in the third
quarter of 1998. Since the Company commenced purchases of loan pools in 1988,
income recognition on the pools has been uneven.
The increase in interest expense for the third quarter of 1998 compared with
1997 was mainly attributable to growth in deposits and an increase in borrowed
funds. Interest expense on deposits increased $147,000 (7 percent) in the third
quarter of 1998 as average interest-bearing deposits for the period were
$11,328,000 (6 percent) greater than in the same period in 1997. Federal Home
Loan Bank advances during the third quarter of 1998 averaged $4,263,000 greater
in the third quarter of 1998 compared with the third quarter of 1997 resulting
in an additional $71,000 in interest expense. Interest expense on the Company's
commercial bank line of credit borrowed funds increased $81,000 as the amount
borrowed averaged $4,853,000 higher in the third quarter of 1998 compared with
the third quarter of 1997. The Company utilized these borrowings to provide
operating funds to On-Site Credit Services, Inc., to repurchase stock to be
reissued as stock options are exercised, and to provide capital to the newly-
chartered Pella State Bank.
Provision for Loan Losses
The Company's provision for loan loss expense of $307,000 in the third quarter
of 1998 was $162,000 greater than in the third quarter of 1997. 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. During the third quarter of 1998, management deemed it prudent to
increase the provision for loan losses due to growth in total loans, as a result
of difficulties in the agricultural economy, and due to higher loan charge-offs.
Other Income
Other income results from the charges and fees collected by the Company from its
customers for various services performed, data processing income received from
nonaffiliated banks, miscellaneous other income and gains (or losses) from the
sale of investment securities held in the available for sale category. Total
other income increased $47,000 (10 percent) in the third quarter of 1998
compared with 1997, mainly due to the receipt of a settlement of an employee
misappropriation of customer funds which occurred in 1995 and was expensed at
that time. Higher service charge income from overdraft fees at the bank
subsidiaries also contributed to the increase in other income in the current
quarter.
Other Expense
Total other noninterest expense for the quarter ended September 30, 1998
increased $124,000 (6 percent) compared to noninterest expense for the third
quarter of 1997. Other expense includes all the costs incurred to operate the
Company except for interest expense, the loan loss provision and income taxes.
Salaries and benefits expense for the third quarter of 1998 increased $171,000
(17 percent) over the third quarter of 1997, primarily as a result of the
additional employees at the newly-chartered Pella State Bank and also due to
increased staffing at other subsidiaries. Net occupancy expenses for the third
quarter of 1998 increased $43,000 (14 percent) in comparison to the third
quarter of 1997 with most of the increase due to the additional facilities of
Pella State Bank. Professional fees decreased $68,000 for the third quarter of
1998 over the same period in 1997. Other miscellaneous operating expense
decreased by $17,000 (4 percent) in the third quarter of 1998 compared with the
three months ended September 30, 1997. Goodwill amortization expense decreased
$5,000 (3 percent) in the third quarter of 1998 versus 1997 in accordance with
the effective yield method of amortization.
Income Tax Expense
Income tax expense for the three months ended September 30, 1998, decreased
$134,000 compared to the amount for the three months ended September 30, 1997,
primarily due to the overall decrease in taxable income for the period. The
effective income tax rate in the third quarter of 1998 was 35.64 percent
compared with 35.14 percent in the third quarter of 1997. The Company's
effective income tax rate varies from the statutory rate principally due to
interest income from tax-exempt securities and loans. Changes in the effective
rate for one period in comparison to another are primarily due to changes in the
amount of tax-exempt income.
NINE MONTHS ENDED SEPTEMBER 30, 1998
The Company's net income for the nine months ended September 30, 1998 was
$3,781,000, compared with $3,851,000 for the first nine months of 1997. Basic
earnings per share for the nine month period of 1998 were $1.03 versus basic
earnings of $1.05 per share for 1997. Diluted earnings per share for the nine
months ended September 30, 1998 were $.98 versus diluted earnings per share of
$1.01 in 1997. All historical per share amounts have been restated to reflect
the five-for-three stock split effected in the form of a stock dividend which
occurred in November 1997. Actual weighted average shares outstanding were
3,669,414 and 3,661,591 for the first nine months of 1998 and 1997,
respectively. The Company's return on average assets for the period ended
September 30, 1998 was 1.83 percent compared with a return of 2.04 percent for
the first nine months of 1997. The Company had a return on average equity of
13.32 percent for the nine months ended September 30, 1998 versus 14.67 percent
for the nine months ended September 30, 1997.
RESULTS OF OPERATIONS
Net Interest Income
The Company's net interest income for the nine months ended September 30, 1998
increased $735,000 (7 percent) to $11,782,000 from $11,047,000 for the nine
months ended September 30, 1997. This was mainly due to increased interest
income earned on higher loan volumes. The increase in total interest income was
offset, in part, by additional interest expense related to increased deposits
and borrowed funds. Total interest income increased $1,569,000 (9 percent) in
the first nine months of 1998 compared with the same period in 1997. The
Company's total interest expense for the nine months ended September 30, 1998
increased $834,000 (12 percent) compared with the same period in 1997. The
Company's net interest margin (on a federal tax-equivalent basis) for the nine
months of 1998 was 6.25 percent compared with 6.44 percent in 1997. The
Company's overall yield on earning assets was 10.29 percent in 1998 compared to
10.38 percent in 1997. The rate on interest-bearing liabilities increased in
1998 to 4.75 percent compared with 4.63 percent for 1997.
Interest income and fees on loans increased $2,120,000 (24 percent) in the first
nine months of 1998 compared to the same period in 1997 due to higher loan
volumes. Average loans outstanding were $154,457,000 for the first nine months
of 1998 compared with $127,776,000 for the nine months ended September 30, 1997,
an increase of $26,681,000 (21 percent). The average yield on loans rose to 9.55
percent for the nine months of 1998, up from 9.33 percent for the nine months
ended September 30, 1997.
Interest income and discount collected on the loan pools was $6,182,000 in the
nine months of 1998 compared with $6,545,000 earned in the first nine months of
1997. The yield on loan pool investments was 16.98 percent in the 1998 period
compared with 17.80 percent for the nine months ended September 30, 1997. The
average loan pool participation investment balance for the first nine months of
1998 was $48,663,000 compared with $49,166,000 in the nine months of 1997.
The increase in interest expense for the nine months ended September 30, 1998
compared with 1997 was mainly attributable to growth in deposits and an increase
in borrowed funds. Average interest-bearing deposits for the first nine months
of 1998 were $10,363,000 (6 percent) greater than in the same period in 1997
resulting in an increase in interest expense on deposits of $411,000. Interest
expense on Federal Home Loan Bank advances increased by $200,000 during the
first nine months of 1998 compared with 1997 as the average balance of these
advances rose $4,456,000 in comparison with the first nine months of 1997.
Borrowings on the Company's commercial bank line of credit which averaged
$4,060,000 higher in the first nine months of 1998 compared with 1997 produced
an increase of $243,000 in interest expense for the current period.
Provision for Loan Losses
The Company's provision for loan loss expense of $594,000 in the first nine
months of 1998 was $282,000 greater than in 1997. 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.
Management deemed it prudent to increase the provision for loan losses as a
result of the growth of the Company's overall loan portfolio, concerns with the
agricultural economy, and due to the increased loan charge-offs in 1998.
Other Income
Total other income increased $78,000 (6 percent) in the first nine months of
1998 compared with 1997, mainly due to higher service charge income from
overdraft fees at the bank subsidiaries and due to investment security gains.
The additional income was offset, in part, by reduced data processing income
from nonaffiliated banks and lower miscellaneous income.
Other Expense
Total other noninterest expense for the nine months ended September 30, 1998
increased $603,000 (10 percent) compared to noninterest expense for the first
nine months of 1997. Salaries and benefits expense in 1998 increased $552,000
(18 percent) over 1997, primarily as a result of the additional employees at the
newly-chartered Pella State Bank and also due to increased staffing at other
subsidiaries. Net occupancy expenses for the nine months of 1998 increased
$140,000 (16 percent) in comparison to 1997 with most of the increase due to the
additional facilities of Pella State Bank. Other miscellaneous operating expense
decreased by $71,000 (5 percent) in 1998 compared with the nine months ended
September 30, 1997. Goodwill amortization expense decreased $16,000 (3 percent)
in 1998 versus 1997 in accordance with the effective yield method of
amortization.
Income Tax Expense
Income tax expense for the nine months ended September 30, 1998, was unchanged
compared to the amount for the nine months ended September 30, 1997. The
effective income tax rate in the first nine months of 1998 was 35.98 percent
compared with 35.57 percent in the first nine months of 1997. The Company's
effective income tax rate varies from the statutory rate principally due to
interest income from tax-exempt securities and loans. Changes in the effective
rate for one period in comparison to another are primarily due to changes in the
amount of tax-exempt income.
FINANCIAL CONDITION
The Company's total assets as of September 30, 1998 were $293,949,000, an
increase of $19,076,000 from December 31, 1997. As of September 30, 1998, the
Company had federal funds sold of $1,955,000 compared with $6,815,000 as of
December 31, 1997. Most of the decrease in federal funds sold was utilized to
fund loan growth.
Investment Securities
Investment securities available for sale increased $3,651,000 (16 percent) from
December 31, 1997 to the September 30, 1998 total of $26,879,000 as a result of
the purchase of securities. Investment securities classified as held to maturity
totaled $16,698,000 as of September 30, 1998, a decline of $3,135,000 as
securities matured or were called during the nine-month period from December 31,
1997. These proceeds were reinvested into securities available for sale.
Loans
Overall loan volumes continued to increase, with total loans outstanding of
$166,250,000 as of September 30, 1998 reflecting growth of $21,918,000 (15
percent) from December 31, 1997. Most of the growth from December 31, 1997 to
September 30, 1998 was spread between real estate, commercial and agricultural
loans. Consumer loans outstanding as of the quarter-end declined approximately
$334,000 from the December 31, 1997 balance. As of September 30, 1998, the
Company's loan to deposit ratio (excluding loan pool investments) was 75.38
percent. This compares with a year-end 1997 loan to deposit ratio of 67.04
percent.
As of September 30, 1998, the Company had approximately $31,987,000 (19.24
percent) of its loan portfolio in agricultural loans. While this is an increase
of $5,488,000 in comparison with the December 31, 1997 agricultural loan total,
in most years the maximum level of operating loans occurs in the third and early
fourth quarters. Concerns with the agricultural economy have caused management
of the Company to require that subsidiary lending officers closely review all ag
lines and identify those specific credits that would be more at risk in the
event of continued deterioration in the agricultural economy. Contingency plans
are being developed for these "weaker" credits that would enable the lending
officers to work with these borrowers in an effort to prevent or minimize any
potential loss to the Company.
Loan Pool Participations
As of September 30, 1998, the Company had investments in loan pool
participations of $56,250,000, an increase of $1,925,000 (4 percent) from the
prior year-end balance of $54,326,000. The loan pool investment balance shown as
an asset on the Company's Balance Sheet represents the discounted purchase cost
of the loan pool participations. The average loan pool participation investment
of $48,663,000 for the first nine months of 1998 was 1 percent less than the
average balance of $49,166,000 for the first nine months of 1997.
The Company actively continues to evaluate and bid on loan pool packages. During
the third quarter of 1998, the Company invested $14,832,000 in loan pools which
were acquired from the FDIC and from two private sellers. The pools that were
purchased during the quarter were primarily performing credits that were
acquired at a higher cost basis. Although the higher cost basis of the acquired
pools may result in a decline in the future overall yield on the loan pool
investment, management felt that it was prudent to purchase a higher-quality
performing loan asset in view of the uncertainty of the current economic
environment and the lower risk associated with holding a performing credit.
Loan pool investments by the Company are participation interests in pools of
loans owned by the independent servicer. These loan pool investments are not
securitized in any manner. The servicer does not securitize these loan packages
or perform any collection functions for other outside parties that are involved
in securitization activities. The loans owned by the servicer are primarily
secured by real estate and do not include significant amounts of unsecured
consumer debt obligations. These assets were mainly acquired from other
financial institution originators and most were not categorized as subprime
credits at the time of origination.
Deposits
Total deposits grew $5,249,000 (2 percent) during the first nine months of 1998
with the most growth noted in higher rate savings and certificate of deposit
accounts. Demand deposit accounts and NOW account deposits as of September 30,
1998 decreased $4,281,000 from December 31, 1997, mostly due to seasonal
fluctuation.
Borrowed Funds/Notes Payable
The Company had Fed Funds purchased of $3,775,000 on September 30, 1998. On
December 31, 1997 there were no Fed Funds Purchased. Fixed-rate advances from
the Federal Home Loan Bank totaled $12,299,000 on September 30, 1998 compared
with $6,000,000 as of December 31, 1997. The Company has increased its
utilization of FHLB advances as a lower-cost, longer-term funding strategy in
comparison with customer deposits. Notes payable increased to $16,750,000 on
September 30, 1998 from $14,050,000 on December 31, 1997 with the additional
funds utilized to purchase loan pool investments, to repurchase outstanding
shares of Company stock to be reissued as stock options are exercised and to
fund the operating capital needed by the On-Site Credit Services subsidiary.
Nonperforming Loans
The Company's nonperforming loans totaled $1,691,000 (1.02 percent of total
loans) as of September 30, 1998, compared to $1,848,000 (1.28 percent of total
loans) as of December 31, 1997. All nonperforming loan totals and related ratios
exclude the loan pool investments. The following table presents the categories
of nonperforming loans as of September 30, 1998:
<TABLE>
<CAPTION>
Nonperforming Loans
(dollars in thousands)
September 30, 1998
<S> <C>
Nonaccrual $1,147
Loans 90 days past due 366
Renegotiated loans 166
Other real estate owned 12
$1,691
</TABLE>
From December 31, 1997 to September 30, 1998, nonaccrual loans increased
$220,000, loans ninety days past due decreased $155,000, restructured loans
decreased $222,000 and other real estate owned remained unchanged. The Company's
allowance for loan losses as of September 30, 1998 was $1,873,000, which was
1.13 percent of total loans as of that date. This compares with an allowance for
loan losses of $1,816,000 as of December 31, 1997, which was 1.26 percent of
total loans. As of September 30, 1998, the allowance for loan losses was 110.79
percent of nonperforming loans compared with 98.24 percent as of December 31,
1997. Management believes that as of September 30, 1998 the allowance for loan
losses is adequate. For the three months ended September 30, 1998, the Company
recognized a net loan charge-off of $170,000 compared with a net charge-off of
$25,000 during the quarter ended September 30, 1997. For the first nine months
of 1998, the Company experienced net charge-offs of loans totalling $536,000,
or .46 percent of average loans outstanding for the period. This compares with
net loan charge-offs of $63,000 during the first nine months of 1997.
Capital Resources
As of September 30, 1998, total shareholders' equity as a percentage of total
assets was 12.90 percent compared with 13.31 percent as of December 31, 1997.
Cash dividends paid to shareholders during the third quarter of 1998 were $.14
per share.
The Company held 176,157 shares of treasury stock at a cost of $2,877,000 as of
September 30, 1998. These shares were repurchased to satisfy options granted
under the Company's Stock Incentive Plans. During the third quarter of 1998 the
Company reissued 8,248 shares of treasury stock as options were exercised by
employees, officers and directors. On January 22, 1998, the Board of Directors
voted to continue the Company's stock repurchase plan that provides for the
repurchase of up to 200,000 shares through January 31, 1999. The Company
repurchased 58,500 shares of its stock during the third quarter of 1998 at a
cost of $1,228,000 (average cost of $20.99 per share).
Under risk-based capital rules, the Company's tier 1 capital ratio was 13.95
percent of risk-weighted assets as of September 30, 1998, and was 14.74 percent
of risk-weighted assets as of December 31, 1997, compared to a 4.00 percent
requirement. Risk- based capital guidelines require the classification of assets
and some off-balance sheet items in terms of credit-risk exposure and the
measuring of capital as a percentage of the risk-adjusted asset totals. Tier 1
capital is the Company's total common shareholders' equity reduced by goodwill
and including unrealized gains and losses on investment securities classified as
available for sale in accordance with FASB 115.
The Company continues to pursue acquisition and expansion opportunities that fit
the organization's strategic business and financial plans. There are currently
no pending acquisitions that would require the Company to secure capital from
public or private markets.
Liquidity
Liquidity management involves meeting the cash flow requirements of depositors
and borrowers. The Company conducts liquidity management on both a daily and
long-term basis; and it adjusts its investments in liquid assets based on
expected loan demand, projected loan maturities and payments, estimated cash
flows from the loan pool participations, expected deposit flows, yields
available on interest-bearing deposits, and the objectives of its
asset/liability management program. The Company had liquid assets (cash and cash
equivalents) of $13,982,000 as of September 30, 1998, compared with $19,195,000
as of December 31, 1997. Some of this decrease is attributable to the additional
funding of loans. Investment securities classified as available for sale could
be sold to meet liquidity needs, if necessary. Additionally, the bank
subsidiaries maintain lines of credit with correspondent banks and the Federal
Home Loan Bank that would allow them to borrow federal funds on a short-term
basis if necessary. The Company also maintains a line of credit with a
non-affiliated commercial bank that provides liquidity for the purchase of loan
pool participation investments and other corporate needs. Management believes
that the Company has sufficient liquidity as of September 30, 1998 to meet the
needs of borrowers and depositors.
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 primarily
comprised 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 believe that the Company's primary market risk exposures and
how those exposures were managed in the first nine months of 1998 changed when
compared to 1997.
The Company uses a third-party computer software simulation modelling 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 the 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. This analysis of the Company's interest
rate risk was presented in the Form 10-K filed by the Company for the year ended
December 31, 1997.
YEAR 2000 Compliance
A critical issue has emerged in the banking industry and for the economy overall
regarding how existing computer application software programs, operating systems
and hardware can accommodate that date value for the year 2000. This issue is an
area of major emphasis as management is actively working with its software and
hardware vendors to assure that the Company is compliant. Additionally, the
Company is working with material non-information system providers, including
but not limited to security, telephone, utilities, ATM cards, elevators, heating
and cooling systems, check clearing services, teller machines and proof
equipment to determine their year 2000 compliance. An assessment of the
readiness of vendors, significant customers and other third parties with which
the Company does business is also underway.
The Company could be faced with severe consequences if Year 2000 issues are not
identified and resolved in a timely manner. A worst-case scenerio would result
in the short-term inability to update customer financial records due to
unforeseen processing issues. This would result in customers being unable to
receive timely information regarding their account balances. In addition, a
worst-case scenerio for the Company is that major suppliers of electricity,
communication links and outside data processing services may fail in spite of
their best efforts to remediate their systems and in spite of our best efforts
to test their systems. The major risk as a result of these possibilities would
be a loss of customer confidence.
The Company has established Year 2000 Committees and Plans at its bank and
thrift subsidiaries, and formal project plans have been developed and adopted.
Testing and contingency plans have also been developed and adopted by the
Company's subsidiaries. Testing procedures are underway and are expected to be
completed prior to December 31, 1998. The Company purchased a new main- frame
computer system that is year 2000 compliant in 1997 at a cost of $430,000. This
computer system became fully operational in the first quarter of 1998 with the
equipment cost being depreciated over a five year period beginning in 1998.
The Company's contingency plans include two components which are business
remediation and business resumption. The business remediation plan was developed
to mitigate the risk associated with the failure to successfully complete system
renovation, validation or implementation of the Company's Year 2000 readiness.
This plan pertains to mission-critical systems developed in-house, by outside
software vendors, and by third- party service providers. The business resumption
plan is designed to be implemented in the event there are system failures at
critical dates.
The Company anticipates that it will incur internal staff costs and other
expenses related to the enhancements necessary to become Year 2000 compliant.
Based on the Company's current knowledge, the expense related to Year 2000
compliance is not expected to have a material effect on the Company's financial
position or results of operations. It is estimated that the costs incurred by
the Company for Year 2000 compliance will be approximately $20,000, exclusive of
costs associated with the new main-frame computer.
Effect of New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, will be effective for the Company
beginning January 1, 2000. Management is evaluating the impact the adoption of
SFAS No. 133 will have on the Company's consolidated financial statements and
expects to adopt SFAS 133 when required.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these forward-
looking statements.
<PAGE>
Part II -- Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this Report or, if so
indicated, incorporated by reference:
Exhibits
3.1 Articles of Incorporation of Mahaska Investment
Company, As Amended through April 30, 1998.
3.2 Amended and Restated Bylaws of Mahaska Investment
Company, dated July 23, 1998.
10.1 Mahaska Investment Company Employee Stock
Ownership Plan & Trust as restated and amended.
(b)
10.2.1 1993 Stock Incentive Plan. (a)
10.2.2 1996 Stock Incentive Plan. (d)
10.2.3 1998 Stock Incentive Plan. (e)
10.3.1 Midstates Resources Corp. Loan Participation and
Servicing Agreement dated December 9, 1992 between
Midstates Resources Corp., Mahaska Investment
Company, and Mahaska State Bank. (a)
10.3.2 Central States Resources Corp. Liquidation
Agreement dated April 18, 1988 between Central
States Resources Corp., Mahaska State Bank,
National Bank & Trust Co., and Randal Vardaman.
(a)
10.3.3 All States Resources Corp. Loan Participation and
Servicing Agreement dated September 13, 1993
between All States Resources Corp., Mahaska
Investment Company, and West Gate Bank. (a)
10.5.1 Revolving Loan Agreement dated January 31, 1996
between Mahaska Investment Company and Harris
Trust & Savings Bank. (c)
10.5.2 Fourth Amendment to Revolving Loan Agreement and
Revolving Loan Note between Mahaska Investment
Company and Harris Trust & Savings Bank dated
June 30, 1998. (f)
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(a) Incorporated by reference to the Form S-1
Registration Number 33-81922 of Mahaska Investment
Company.
(b) Incorporated by reference to the Form 10-K for the
year ended December 31, 1994 filed by Mahaska
Investment Company.
(c) Incorporated by reference to the Form 8-K filed by
Mahaska Investment Company on February 29, 1996.
(d) Incorporated by reference to the Form 10-K for the
year ended December 31, 1996 filed by Mahaska
Investment Company.
(e) Incorporated by reference to the Form 10-K for the
year ended December 31, 1997 filed by Mahaska
Investment Company.
(f) Incorporated by reference to the Form 10-Q for the
quarter ended June 30, 1998 filed by Mahaska
Investment Company.
(b) Reports on Form 8-K -- No reports on Form 8-K were filed
during the three months ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAHASKA INVESTMENT COMPANY
(Registrant)
November 4, 1998 /s/ Charles S. Howard
Dated Charles S. Howard
President
November 4, 1998 /s/ David A. Meinert
Dated David A. Meinert
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Earnings per Share Information:
Weighted average number of
shares outstanding during
the year 3,654,768 3,620,953 3,669,414 3,661,591
Weighted average number of
shares outstanding during
the year including all
dilutive potential shares 3,832,830 3,833,380 3,864,608 3,822,856
Net earnings $ 977,218 1,245,908 3,780,895 3,851,381
Earnings per share - basic $ 0.27 0.34 1.03 1.05
Earnings per share - diluted $ 0.26 0.33 0.98 1.01
</TABLE>
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
MAHASKA INVESTMENT COMPANY
(As Amended Through April 30, 1998)
We, the undersigned, acting as incorporators of a corporation under the
Iowa Business Corporation Act, Chapter 496 A, Code of Iowa, 1971, as amended,
adopt the following Articles of Incorporation for such corporation:
ARTICLE I.
The name of the corporation is MAHASKA INVESTMENT COMPANY.
ARTICLE II.
The period of duration of the corporation shall be perpetual.
ARTICLE III.
The corporation shall have unlimited power to engage in, and to do, any
lawful act concerning any and all lawful business for which corporations may be
organized under said Act.
ARTICLE IV.
The aggregate number of shares which the corporation shall have authority
to issue is Twenty Million (20,000,000) shares of common stock of the par value
of Five Dollars ($5.00) each.
A holder or subscriber to shares of the corporation shall be under no
obligation to the corporation or its creditors with respect to such shares other
than the obligation to pay to the corporation the full consideration for which
such shares were issued or are to be issued.
ARTICLE V.
The address of the initial registered office of the corporation is 110
North Market Street in the City of Oskaloosa, Mahaska County, Iowa, and the name
of its initial registered agent at such address is C. A. Williams, Jr.
ARTICLE VI.
The number of directors of the corporation shall be not less than 5 and not
greater than 15, and, effective as of the annual meeting of shareholders of the
corporation in 1996, the Board of Directors shall be divided into three classes,
designated Class I, Class II, and Class III. Such classes shall be as nearly
equal in number as possible. The term of directors of one class shall extend to
each annual meeting of shareholders and in all cases as to each director, until
his successor shall be elected and shall qualify, or until his earlier
resignation, removal from office, death or incapacity. Additional directorships
resulting from an increase in number of directors shall be apportioned among the
classes as equally as possible. The initial term of office of directors of Class
I shall extend to the annual meeting of shareholders in 1997, that of Class II
shall extend to the annual meeting in 1998, and that of Class III shall extend
to the annual meeting in 1999, and in all cases as to each director until his
successor shall be elected and shall qualify or until his earlier resignation,
removal from office, death or incapacity. At each annual meeting of
shareholders, the number of directors equal to the number of directors of the
class whose term extends to the time of such meeting shall be elected to hold
office until the third succeeding annual meeting of shareholders after their
election. The Board of Directors may, upon a majority vote of its members,
increase or decrease the number of directors within the limits set forth above.
Any vacancy occurring in the Board of Directors and any directorship to be
filled by reason of an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. Any director elected to fill a vacancy other
than by reason of an increase in the number of directors shall be elected for
the unexpired term of his or her predecessor in office. Any director elected to
fill a vacancy by reason of an increase in the number of directors may continue
in office only until the next election of directors by the shareholders.
ARTICLE VII.
The name and address of each incorporator is as follows:
Name Address
R. S. Howard, Jr. 116 Highland Avenue, Oskaloosa, Iowa
C. A. Williams, Jr. 837 High Avenue East, Oskaloosa, Iowa
Ralph E. Lyddon 1219 North Third Street, Oskaloosa, Iowa
ARTICLE VIII.
No contract or other transaction between the corporation and any other
corporation shall be affected or invalidated by the fact that any one or more of
the directors of this corporation is or are interested in, or is a director or
officer, or are directors or officers of such other corporation, and any
director or directors, individually or jointly may be a party or parties to or
may be interested in any contract or transaction of this corporation or in
which this corporation is interested; and no contract, act or transaction of
this corporation with any person or persons, firm or association, shall be
affected or invalidated by the fact that any director or directors of this
corporation is a party, or are parties to, or interested in, such contract, act
or transaction, or in any way connected with such person or persons, firm or
association, and each and every person who may become a director of this
corporation is hereby relieved from any liability that might otherwise exist
from contracting with the corporation for the benefit of himself or any firm or
corporation in which he may be in any wise interested so long as he acts in good
faith and in a manner he reasonably believes to be in or not opposed to the best
interests of the corporation.
ARTICLE IX.
All deeds, mortgages, releases and other instruments in writing affecting
real estate which shall be made by the corporation shall be executed and
acknowledged in its name by the president or any vice president and attested by
the secretary or any assistant secretary with the corporate seal attached.
ARTICLE X.
The initial bylaws of the corporation shall be adopted by the board of
directors which shall have the power to alter, amend or repeal the same or adopt
new bylaws at any regular meeting or at any special meeting called for that
purpose, and said bylaws may contain provisions restricting the transfer of
shares of stock of the corporation.
ARTICLE XI.
No holder of any shares of the capital stock of the corporation shall have
a pre-emptive right to acquire any unissued or treasury shares or securities
convertible into such shares or carrying a right to subscribe to or acquire such
shares, and any such unissued or treasury shares or securities convertible into
such shares or carrying a right to subscribe to or acquire such shares may be
issued and disposed of pursuant to resolutions of the Board of Directors to such
persons, firms, corporations, or associations and upon such terms and conditions
as may be deemed advisable by the Board of Directors in the exercise of its
discretion.
ARTICLE XII.
Any action required or permitted by Chapter 490 of the 1993 Code of Iowa,
as amended, or by these Articles or the Bylaws of the corporation, to be taken
at a shareholders meeting may be taken without a meeting or vote, and, except as
provided below, without prior notice, if one or more written consents describing
the action taken are signed by the holders of outstanding shares having not less
than 51% of the votes entitled to be cast at a meeting at which all shares
entitled to vote on the action were present and voted, and such written consents
are delivered to the corporation for inclusion in the minutes or filing with the
corporate records; provided, however, that in the event any provision of Chapter
490 of the 1993 Code of Iowa, as amended, requires that notice of proposed
action be given to shareholders not entitled to vote and the action is to be
taken by consent of the voting shareholders, the corporation shall give all
shareholders written notice of the proposed action at least ten days before the
action is taken, in the form and in the manner required by Chapter 490 of the
1993 Code of Iowa, as amended. Any such written consent shall bear the date of
signature of each shareholder who signs the consent and no written consent shall
be effective to take the corporate action referred to in the consent unless,
within 60 days of the earliest dated consent delivered in the manner required
above to the corporation, written consents signed by a sufficient number of
holders to take action are delivered to the corporation. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those shareholders who have not consented in writing.
Dated at Oskaloosa, Iowa, this 14th day of February, 1973.
/s/ R. S. Howard, Jr.
R. S. Howard, Jr.
/s/ C. A. Williams, Jr.
C. A. Williams, Jr.
/s/ Ralph E. Lyddon
Ralph E. Lyddon
INCORPORATORS
STATE OF IOWA )
) SS.
MAHASKA COUNTY )
On this 14th day of February, 1973, before me, the undersigned Notary
Public, personally appeared R. S. Howard, Jr., C. A. Williams, Jr. and Ralph E.
Lyddon, to me known to be the identical persons named in and who executed the
foregoing Articles of Incorporation, and acknowledged that they executed the
same as their voluntary act and deed.
/s/ Alice M. Parlet
Notary Public in and for said County
and State.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
MAHASKA INVESTMENT COMPANY
JULY 23, 1998
ARTICLE I. OFFICES OF CORPORATION.
Section 1. Principal Office. The principal office of the corporation in the
State of Iowa shall be located in the City of Oskaloosa, Mahaska County, Iowa.
The corporation may have such other offices, either within or without the State
of Iowa, as the board of directors may designate or as the business of the
corporation may require from time to time.
Section 2. Registered Office. The registered office of the corporation
required by the Iowa Business Corporation Act to be maintained in the State of
Iowa may be, but need not be, identical with the principal office in the State
of Iowa, and the address of the registered office may be changed from time to
time by the board of directors.
ARTICLE II. SHAREHOLDERS.
Section 1. Annual Meeting. The annual meeting of the share holders shall be
held on any day in the month of April in each year, other than Sundays and legal
holidays, commencing at an hour between 8:00 a.m. and 5:00 p.m. as may be
specified from year to year by the board of directors, for the purpose of
electing directors and transacting such other business as may properly come
before the meeting. If the election of directors shall not be held on the date
designated for any annual meeting of the shareholders, or any adjournment
thereof, the board of directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as conveniently may be. If the
annual meeting is not held within any eighteen-month period, the District Court
of the county wherein the registered office of the corporation is located may,
upon the written application of any shareholder, order an annual meeting to be
held.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the president or by the board of directors, and shall be called by the president
at the request of the holders of not less than one-half of all the outstanding
shares of the corporation entitled to vote at the meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Iowa, as the place of meeting for
any annual meeting or for any special meeting called by the board of directors.
Section 4. Notice of Meetings. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the president, the secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid. Any shareholder may waive notice of any regular or special
meeting of shareholders at any time.
Section 5. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than seventy days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken. If a
record date is not fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is mailed
or the date on which the resolution of the board of directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof, if the meeting is
adjourned to a date within 120 days after the date fixed for the original
meeting.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, beginning two business
days after notice of the meeting is given for which the list was prepared and
continuing through the meeting, a complete list of the shareholders entitled to
vote at such meeting, or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer book shall be prima facie
evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
Section 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders, and if a quorum is present, the affirmative vote
of the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater number is required by law or the articles of incorporation. If less than
a majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A custodian of securities under the Iowa Uniform Gift to Minors Act may
vote a security which is custodial property.
Section 11. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Section 12. Meetings of All Shareholders. If all of the shareholders shall
meet at any time and place, either within or without the State of Iowa, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may be
taken.
Section 13. Method of Voting. Voting by shareholders on any question or in
any election may be viva voce unless the presiding officer shall order or any
shareholders shall demand that voting be by ballot.
ARTICLE III. BOARD OF DIRECTORS.
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its board of directors. The board of directors may authorize
any officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 2. Number, Tenure and Qualifications. The number of directors of
the corporation shall be not less than 5 and not greater than 15, and, effective
as of the annual meeting of shareholders of the corporation in 1996, the Board
of Directors shall be divided into three classes, designated Class I, Class II,
and Class III. Such classes shall be as nearly equal in number as possible. The
term of directors of one class shall extend to each annual meeting of
shareholders and in all cases as to each director, until his successor shall be
elected and shall qualify, or until his earlier resignation, removal from
office, death or incapacity. Additional directorships resulting from an increase
in number of directors shall be apportioned among the classes as equally as
possible. The initial term of office of directors of Class I shall extend to the
annual meeting of shareholders in 1997, that of Class II shall extend to the
annual meeting in 1998, and that of Class III shall extend to the annual meeting
in 1999, and in all cases as to each director until his successor shall be
elected and shall qualify or until his earlier resignation, removal from office,
death or incapacity. At each annual meeting of shareholders, the number of
directors equal to the number of directors of the class whose term extends to
the time of such meeting shall be elected to hold office until the third
succeeding annual meeting of shareholders after their election. The Board of
Directors may, upon a majority vote of its members, increase or decrease the
number of directors within the limits set forth above. Directors need not be
residents of the State of Iowa or, except as required by the Board of Directors,
shareholders of the corporation.
Section 3. Place and Notice of Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of the shareholders. The board of
directors may provide, by resolution, the time and place, either within or
without the State of Iowa, for the holding of additional regular meetings
without other notice than such resolution. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or without the State of
Iowa, as the place for holding any special meeting of the board of directors
called by him or them. Notice of any special meeting of the board of directors
shall be given at least two days previously thereto by notice delivered
personally or mailed to each director at his business address. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. Any director may waive notice of any
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting unless the director at the beginning of the meeting, or
promptly upon the director's arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. Members of the board of directors, or any
committees designated by the board, may participate in a meeting of such board
or committee by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can simultaneously hear
each other during the meeting, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting.
Section 4. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business at any meeting of the board
of directors, but if less than such majority is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice.
Section 5. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 6. Vacancies. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors. The term of a director
elected to fill a vacancy, including a vacancy caused by reason of an increase
in the number of directors, shall be filled by the affirmative vote of a
majority of the remaining directors, at any regular or special meeting of the
board of directors called for that purpose in which a quorum of the board of
directors is present, and the director or directors so elected shall serve until
the next meeting of the shareholders at which directors are elected.
Section 7. Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors, and may be paid such compensation for their services as
shall be fixed by the board of directors from time to time. No payment received
by any director shall preclude him from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors or a committee of the board of
directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless the director objects at the beginning
of the meeting or promptly upon the director's arrival to holding it or
transacting business at the meeting, the director's dissent or abstention from
the action taken is entered in the minutes of the meeting, or the director
delivers written notice of the director's dissent or abstention to the presiding
officer in the meeting before its adjournment or to the corporation immediately
after adjournment of the meeting. The right of dissent or abstention is not
available to a director who votes in favor of the action taken.
Section 9. Informal Action by Directors. Any action required to be taken at
a meeting of the directors, or any other action which may be taken at a meeting
of the directors, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof.
Section 10. Committees. The board of directors may designate from among its
members an executive committee and one or more other committees and define or
limit the extent of authority of each of such committees in compliance with the
law and these bylaws.
ARTICLE IV. OFFICERS.
Section 1. Number. The officers of the corporation shall be a president,
one or more vice presidents (the number thereof to be determined by the board of
directors), a secretary, and a treasurer, each of whom shall be elected by the
board of directors. Such other officers, assistant officers and acting officers
as may be deemed necessary may be elected or appointed by the board of
directors. Any two or more offices may be held by the same person. Officers need
not be residents of the State of Iowa or directors or shareholders of the
corporation.
Section 2. Election and Term of Office. The initial officers of the
corporation shall be elected by the board of directors at their organization
meeting and thereafter the officers shall be elected annually by the board of
directors at the first meeting of the board of directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the board
of directors may be removed by the board of directors whenever in its judgment
the best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. President. The president shall be the principal executive
officer of the corporation and, subject to the control of the board of
directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders and of the board of directors. He shall in general perform all
duties incident to the office of president and such other duties as may be
prescribed by the bylaws or by the board of directors from time to time.
Section 6. Vice Presidents. In the absence of the president or in the event
of his death, inability or refusal to act, the executive vice president (or the
vice president in the event of the absence of the executive vice president)
shall perform the duties of the president, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the president; and in
addition thereto, shall perform such other duties as may be assigned to him by
the president or by the board of directors or prescribed by the bylaws.
Section 7. Secretary. The secretary shall: (a) keep the minutes of the
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (d) work with the transfer
agent to keep a register of the post office address of each shareholder which
shall be furnished to the secretary by such shareholder; (e) provide assistance
to the stock transfer agent in maintaining the stock transfer books of the
corporation; and (f) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the president or by the board of directors.
Section 8. Treasurer. The treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these bylaws; and (b) in general perform all
of the duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the president or by the board of
directors.
Section 9. Assistant Secretaries and Assistant Treasurers. The assistant
secretaries, when authorized by the board of directors, may sign with the
president or a vice president certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the board of
directors. The assistant secretaries and assistant treasurers, in general, shall
perform such duties as shall be assigned to them by the secretary or the
treasurer, respectively, or by the president or the board of directors.
Section 10. Other Assistants and Acting Officers. The board of directors
shall have the power to appoint any person to act as assistant to any officer,
or to perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or acting
officer so appointed by the board of directors shall have the power to perform
all the duties of the office to which he is so appointed to be assistant, or as
to which he is so appointed to act, except as such power may be otherwise
defined or restricted by the board of directors.
Section 11. Salaries. The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V. WRITTEN INSTRUMENTS, LOANS AND DEPOSITS.
Section 1. Written Instruments. Subject to the specific directions of the
board of directors, all deeds, mortgages, releases and other instruments in
writing affecting real estate made by the corporation shall be executed and
acknowledged in its name by the president or any vice president and attested by
the secretary or any assistant secretary with the corporate seal attached. All
other written contracts and agreements to which the corporation shall be a party
shall be executed in its name by such officer or officers as shall be authorized
by the board of directors. The signatures of the proper officers of the
corporation on the bonds, notes, debentures or other evidences of indebtedness
of the corporation may be facsimiles and such facsimiles on such instruments
shall be deemed the equivalent of and constitute the written signatures of such
officers for all purposes including, but not limited to, the full satisfaction
of any signature requirements of the laws of the State of Iowa on the bonds,
notes, debentures and other evidence of indebtedness of the corporation.
Section 2. Loans. No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER.
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the board of
directors. Such certificates shall be signed by the president or a vice
president and by the secretary or an assistant secretary. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
Section 3. Stock Regulations. The board of directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of Iowa as they may deem expedient concerning the issue,
transfer, and registration of certificates representing shares of the
corporation.
ARTICLE VII. FISCAL YEAR.
The fiscal year of the Corporation shall be the calendar year commencing
with the calendar year 1985.
ARTICLE VIII. DIVIDENDS.
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE IX. SEAL.
The board of directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and word, "Seal."
ARTICLE X. VOTING OF SHARES OWNED BY CORPORATION.
Subject always to the specific directions of the board of directors, any
share or shares of stock issued by any other corporation and owned or controlled
by the corporation may be voted at any shareholders' meeting of such other
corporation by the president of the corporation if he be present, or in his
absence by any vice president of the corporation who may be present. Whenever,
in the judgment of the president, or in his absence, of any vice presidents, it
is desirable for the corporation to execute a proxy or give a shareholders'
consent in respect to any share or shares of stock issued by any other
corporation and owned by the corporation, such proxy or consent shall be
executed in the name of the corporation by the president or one of the vice
presidents of the corporation and shall be attested by the secretary or an
assistant secretary of the corporation under the corporate seal without
necessity of any authorization by the board of directors. Any person or persons
designated in the manner above stated as the proxy or proxies of the corporation
shall have full right, power and authority to vote the share or shares of stock
issued by such other corporation and owned by the corporation the same as such
share or shares might be voted by the corporation.
ARTICLE XI. WAIVER OF NOTICE.
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of the articles of incorporation or
under the provisions of the Iowa Business Corporation Act, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XII. AMENDMENTS.
These bylaws may be altered, amended or repealed and new bylaws may be
adopted by the board of directors at any regular or special meeting of the board
of directors.
ARTICLE XIII. INDEMNIFICATION; INSURANCE.
The corporation shall have the power to make indemnification in the manner
and in the instances authorized by Section 490.851 et seq of the Code of Iowa,
1997, as amended from time to time, with the understanding (a) that any
reference to the corporation shall include any of its subsidiaries, and (b) that
in the judgment of the board of directors the corporation may purchase and
maintain insurance on behalf of persons entitled to indemnification as provided
in Section 490.857.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1998 OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 11,951 8,187
<INT-BEARING-DEPOSITS> 76 1,873
<FED-FUNDS-SOLD> 1,955 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
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<INVESTMENTS-MARKET> 16,851 22,328
<LOANS> 166,250 138,550
<ALLOWANCE> (1,873) (1,740)
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<DEPOSITS> 220,557 205,151
<SHORT-TERM> 32,824 13,100
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<INTEREST-TOTAL> 6,184 19,456
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<INTEREST-INCOME-NET> 3,555 11,782
<LOAN-LOSSES> 307 594
<SECURITIES-GAINS> 0 26
<EXPENSE-OTHER> 2,245 6,680
<INCOME-PRETAX> 1,518 5,906
<INCOME-PRE-EXTRAORDINARY> 977 3,781
<EXTRAORDINARY> 0 0
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<NET-INCOME> 977 3,781
<EPS-PRIMARY> 0.27 1.03
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<ALLOWANCE-CLOSE> (1,873) (1,873)
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