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, 1999 0-24630
MAHASKA INVESTMENT COMPANY
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1003699
(State of Incorporation) (I.R.S. Employer Identification No.)
222 First Avenue East, Oskaloosa, Iowa 52577
Telephone Number (515) 673-8448
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
As of November 1, 1999, there were 4,778,203 shares of common stock $5 par value
outstanding.
<PAGE>
PART 1 -- Item 1. Financial Statements
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited)
(dollars in thousands, Sept. 30, Dec. 31,
except for share amounts) 1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ................................ $ 9,808 9,292
Interest-bearing deposits in banks ..................... 1,232 3,559
Federal funds sold ..................................... 1,000 9,270
--------- ---------
Cash and cash equivalents ............................ 12,040 22,121
--------- ---------
Investment Securities:
Available for sale ................................... 63,460 29,655
Held to maturity ..................................... 32,025 13,679
Loans .................................................. 285,492 165,427
Allowance for loan losses .............................. (3,349) (2,177)
--------- ---------
Net loans .......................................... 282,143 163,250
--------- ---------
Loan pool participations ............................... 70,707 54,510
Premises and equipment, net ............................ 6,866 4,043
Accrued interest receivable ............................ 5,104 3,175
Other assets ........................................... 2,748 2,406
Goodwill ............................................... 13,140 5,550
--------- ---------
Total assets ......................................... $ 488,233 298,389
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand ............................................... $ 20,698 23,029
NOW and Super NOW .................................... 42,265 34,214
Savings .............................................. 95,244 59,758
Certificates of deposit .............................. 183,536 115,732
--------- ---------
Total deposits ..................................... 341,743 232,733
Federal funds purchased ................................ 8,665 0
Federal Home Loan Bank advances ........................ 59,986 7,595
Note payable ........................................... 16,250 17,000
Other liabilities ...................................... 4,237 2,829
--------- ---------
Total liabilities .................................. 430,881 260,157
--------- ---------
Shareholders' equity:
Common stock, $5 par value; authorized
20,000,000 shares; issued 4,912,849
shares as of September 30, 1999 and
3,636,345 as of December 31, 1998 .................. 24,564 19,038
Capital surplus ...................................... 13,281 17
Treasury stock at cost, 134,646 shares
as of September 30, 1999,and 171,156
shares as of December 31, 1998 ..................... (2,202) (2,799)
Retained earnings .................................... 21,880 21,806
Accumulated other comprehensive income
(loss) ............................................. (171) 170
--------- ---------
Total shareholders' equity ........................ 57,352 38,232
--------- ---------
Total liabilities and shareholders'
equity .......................................... $ 488,233 298,389
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended Nine Months Ended
(dollars in thousands, September 30 September 30
except per share) 1999 1998 1999 1998
----------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ......... $4,090 3,986 11,855 11,038
Interest and discount on
loan pools ...................... 2,162 1,527 5,710 6,182
Interest on bank deposits .......... 2 21 53 109
Interest on federal funds sold ..... 4 15 178 238
Interest on investment
securities:
Available for sale ............... 404 418 1,277 1,196
Held to maturity ................. 166 217 533 693
------ ------ ------ ------
Total interest income .......... 6,828 6,184 19,606 19,456
------ ------ ------ ------
INTEREST EXPENSE:
Interest on deposits:
NOW and Super NOW ................ 149 161 445 502
Savings .......................... 689 553 1,901 1,654
Certificates of deposit .......... 1,510 1,533 4,649 4,477
Interest on federal funds
purchased ........................ 57 10 61 11
Interest on Federal Home Loan
Bank advances .................... 134 101 351 280
Interest on note payable ........... 295 271 894 750
------ ------ ------ ------
Total interest expense ......... 2,834 2,629 8,301 7,674
------ ------ ------ ------
Net interest income ............ 3,994 3,555 11,305 11,782
Provision for loan losses .......... 462 307 2,094 594
------ ------ ------ ------
Net interest income
after provision for
loan losses .................... 3,532 3,248 9,211 11,188
------ ------ ------ ------
NONINTEREST INCOME:
Service charges .................... 318 329 935 917
Data processing income ............. 52 48 153 148
Other operating income ............. 70 138 294 307
Investment security gains .......... 0 0 0 26
------ ------ ------ ------
Total noninterest income .... 440 515 1,382 1,398
------ ------ ------ ------
NONINTEREST EXPENSE:
Salaries and employee
benefits expense ................. 1,239 1,210 3,830 3,540
Net occupancy expense .............. 363 348 1,062 1,003
Professional fees .................. 63 95 488 344
Other operating expense ............ 464 439 1,729 1,334
Goodwill amortization .............. 134 153 422 459
------ ------ ------ ------
Total noninterest expense ........ 2,263 2,245 7,531 6,680
------ ------ ------ ------
Income before income tax
expense ......................... 1,709 1,518 3,062 5,906
Income tax expense (benefit) ....... 622 541 1,137 2,125
------ ------ ------ ------
Net Income ................ $1,087 977 1,925 3,781
------ ------ ------ ------
Earnings per common
share - basic .................... $ 0.30 0.27 0.53 1.03
Earnings per common
share - diluted .................. $ 0.29 0.26 0.51 0.98
Dividends per common share ......... $ 0.15 0.14 0.45 0.42
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended Nine Months Ended
(in thousands, September 30 September 30
1999 1998 1999 1998
----------------- ----------------
<S> <C> <C> <C> <C>
Net Income ........................... $ 1,087 977 1,925 3,781
Other Comprehensive Income:
Unrealized gains (losses)
on securities available
for sale:
Unrealized holding gains
(losses) arising during
the period, net of tax ........... (64) 94 (341) 120
Less: reclassification
adjustment for net (gains)
losses included in net income,
net of tax ....................... 0 0 0 (17)
------- ------- ------- -------
Other comprehensive income
(loss), net of tax ................. (64) 94 (341) 103
------- ------- ------- -------
Comprehensive income (loss) .......... $ 1,023 1,071 1,584 3,884
------- ------- ------- -------
See accompanying notes to consolidated financial statements.
<PAGE>
PART 1 -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Nine Months Ended
(dollars in thousands) September 30,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 1,925 3,781
-------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization .................. 912 918
Provision for loan losses ...................... 2,094 594
Investment securities gains .................... 0 (26)
Loss on sale of bank premises and
equipment .................................... 4 0
Amortization of investment securities
premiums ..................................... 144 115
Accretion of investment securities and
loan discounts ............................... (369) (323)
Increase in other assets ....................... (729) (487)
Decrease in other liabilities .................. (3) (184)
-------- --------
Total adjustments ............................ 2,053 607
-------- --------
Net cash provided by operating
activities ............................. 3,978 4,388
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales ............................ 0 175
Proceeds from maturities ....................... 9,024 3,479
Purchases ...................................... (7,177) (7,137)
Investment securities held to maturity:
Proceeds from maturities ....................... 3,606 6,902
Purchases ...................................... (2,221) (3,849)
Purchases of loan pool participations ............ (31,670) (21,029)
Principal recovery on loan pool
participations ................................. 20,252 19,105
Net increase in loans ............................ (20,924) (22,145)
Purchases of bank premises and equipment ......... (318) (420)
Proceeds from acquisition ........................ 3,403 0
-------- --------
Net cash used in investing activities ........ (26,025) (24,919)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ......................... 1,846 5,249
Net increase in federal funds purchased .......... 8,665 3,775
Federal Home Loan Bank advances .................. 3,500 6,300
Repayment of Federal Home Loan Bank advances ..... (24) (1)
Advances on note payable ......................... 3,300 7,200
Principal payments on note payable ............... (4,050) (4,500)
Dividends paid ................................... (1,644) (1,542)
Purchases of treasury stock ...................... 0 (1,768)
Proceeds from exercise of stock
options ........................................ 373 605
-------- --------
Net cash provided by financing
activities ................................. 11,966 15,318
-------- --------
Net decrease in cash
and cash equivalents ....................... (10,081) (5,213)
Cash and cash equivalents at beginning
of period ...................................... 22,121 19,195
-------- --------
Cash and cash equivalents at end of period ....... $ 12,040 13,982
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................... $ 8,359 7,627
-------- --------
Income taxes ................................. $ 1,378 2,061
-------- --------
</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. Basis of Presentation
The accompanying consolidated statement of condition as of December 31, 1998,
the consolidated statements of income, the consolidated statements of
comprehensive income, and the consolidated statements of cash flow for the nine
months ended September 30, 1998 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. The consolidated
statement of condition as of September 30, 1999 includes the accounts of the
Company and its aforementioned subsidiaries plus Midwest Federal Savings and
Loan Association of Eastern Iowa ("Midwest Federal"). Midwest Federal was
acquired as a result of the merger with Midwest Bancshares, Inc.("Midwest"),
which closed on September 30, 1999. The consolidated statement of cash flows for
the nine months ended September 30, 1999 presents the transactions of the
Company and the original four subsidiaries for the nine months and includes the
results of the merger transaction with Midwest. All material intercompany
balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements 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 be read in conjunction with the
Company's most recent audited financial statements and notes thereto. In the
opinion of management, the accompanying consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of September 30, 1999, and the
results of operations for the three months and the nine months ended September
30, 1999 and 1998, and cash flows for the nine months ended September 30, 1999
and 1998.
The results for the three months and the nine months ended September 30, 1999
may not be indicative of results for the year ended December 31, 1999, or for
any other period.
2. Consolidated Statements of Cash Flows
In the consolidated 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, 1999 and 1998 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, 1999 and 1998 was 3,679,991 and 3,654,768, respectively. The weighted
average number of shares for the nine-month periods ended September 30, 1999 and
1998 was 3,656,397 and 3,669,414, 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 3,768,483 and 3,832,830 for the three months ended
September 30, 1999 and 1998, respectively, and 3,751,594 and 3,864,608 for the
nine months ended September 30, 1999 and 1998, respectively.
5. Effect of New Financial Accounting Standards
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") 131, "Disclosure about Segments of an Enterprise and Related
Information" effective January 1, 1998. SFAS No. 131 establishes disclosure
requirements for segment operations. The adoption had no effect on the Company's
financial statement disclosures because the Company operates as a single
business segment.
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.
SFAS No. 137 has subsequently deferred implementation of SFAS 133 until January
1, 2001.
6. 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 reported period. Actual
results could differ from those estimates. A significant estimate that is
particularly sensitive to change is the allowance for loan losses.
7. Sale of On-Site Credit Services, Inc.
On April 23, 1999, the Company announced that it had elected to seek a buyer for
On-Site Credit Services, Inc. ("On-Site"), its wholly-owned commercial finance
subsidiary. A letter of intent was executed with a potential buyer for On-Site
on July 28, 1999. It was anticipated that a closing on the sale would occur in
the fourth quarter of 1999. In October of 1999, it became apparent that a
satisfactory agreement would not be reached with the potential buyer due to the
proposed structure of the transaction (not due to pricing issues). Management is
currently evaluating a number of other alternatives related to On-Site,
including a modified transaction with the original potential buyer. As of
September 30, 1999, On-Site's loan and lease portfolio totaled $8,394,000, or
approximately 3 percent of the Company's total loans as of that date. The
Company's financial results for the nine months ended September 30, 1999 include
costs and charges related to the proposed sale of the On-Site activity
consisting of a loan loss provision of $1,243,000, estimated loss on sale of
$220,000, and $21,000 in severance benefits paid to employees.
8. Acquisition of Midwest Bancshares, Inc.
The Company announced on February 2, 1999, that it entered into a definitive
agreement to acquire all the outstanding shares of Midwest Bancshares, Inc.
("Midwest") of Burlington, Iowa. Midwest Bancshares is the parent company of
Midwest Federal Savings and Loan Association of Eastern Iowa ("Midwest
Federal"), a community-oriented thrift institution, with locations in
Burlington, West Burlington, Fort Madison, and Wapello, Iowa. The transaction
with Midwest was accounted for using the purchase method of accounting.
On July 22, 1999, the Federal Reserve Bank of Chicago approved the acquisition.
The acquisition was approved by shareholders of both companies on September 22,
1999, with the closing occurring on September 30, 1999. Following the merger,
Midwest Federal became a wholly-owned subsidiary of the Company, retaining its
separate thrift charter. As of September 30, 1999, Midwest Federal had total
assets of $176,929,000, loans of $100,239,000 and deposits of $107,164,000. The
purchase price for Midwest totaled $19,237,000 including transaction expenses
for attorney fees, investment banking fees, accounting, employment agreement
settlements, and stock registration costs totaling $640,000. The purchase price
was determined based on the Company's average share price at the announcement
date times the 1,105,348 shares of Company common stock that were issued to the
former shareholders of Midwest on September 30, 1999. The excess of the purchase
price over the identifiable fair value of the tangible and identifiable
intangible assets acquired and the liabilities assumed of $6,234,000 was
recorded as goodwill and will be amortized over 25 years on a straight- line
basis. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the income and earnings results of Midwest Federal
are not included with the results of the Company for the periods ending
September 30. The balance sheet data as of September 30, 1999, does include the
amounts acquired from Midwest.
The following unaudited proforma financial information presents the combined
results of operations of the Company and Midwest Federal as if the acquisition
had been effective January 1, 1998, after giving effect to certain adjustments,
including amortization and accretion of discounts, premiums, goodwill and
deposit base intangibles and related income tax effects. The proforma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and Midwest Federal constituted a single entity
during such periods.
<TABLE>
<CAPTION>
Pro Forma
Proforma Condensed Acquisition Pro Forma
Statement of Income Mahaska Midwest Adjustment Consolidated
- ------------------- ------- ------- ---------- ------------
Nine Months ended
September 30, 1999:
(in thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 19,608 8,531 455 28,592
Interest expense 8,301 5,392 (61) 13,632
------- ------ ----- ------
Net interest income 11,305 3,139 516 14,960
Provision for loan
losses 2,094 36 - 2,130
Noninterest income 1,382 451 - 1,833
Noninterest expense 7,531 2,520 467 10,518
------- ------ ----- ------
Income before income
tax expense 3,062 1,034 49 4,145
Income tax expense 1,137 382 - 1,519
------- ------ ----- ------
Net income 1,925 652 49 2,626
------- ----- ----- ------
Earnings per common
share - basic 0.53 0.59 0.55
Earnings per common
share - diluted 0.51 0.59 0.54
Nine Months ended
September 30, 1998:
Interest income $ 19,456 8,521 455 28,432
Interest expense 7,674 5,399 (61) 13,012
-------- ----- ----- ------
Net interest income 11,782 3,122 516 15,420
Provision for loan
losses 594 36 - 630
Noninterest income 1,398 543 - 1,941
Noninterest expense 6,680 2,123 467 9,270
-------- ----- ----- ------
Income before income
tax expense 5,906 1,506 49 7,461
Income tax expense 2,125 456 - 2,581
------- ----- ----- ------
Net income 3,781 1,050 49 4,880
------- ----- ----- ------
Earnings per common
share - basic 1.03 1.01 1.04
Earnings per common
share - diluted 0.98 0.95 0.98
</TABLE>
<PAGE>
PART I -- Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
QUARTER ENDED SEPTEMBER 30, 1999
On September 30, 1999, the Company acquired all of the outstanding common stock
of Midwest Federal Savings and Loan Association of Eastern Iowa ("Midwest
Federal") as a result of an exchange of Company stock with the shareholders of
Midwest Bancshares, Inc. ("MWBI"), the thrift holding company for Midwest
Federal. A total of 1,105,348 shares of Company common stock were issued to the
former shareholders of MWBI in a transaction valued at $19,237,000, including
transaction expenses. The acquisition of Midwest Federal is being accounted for
using the purchase method of accounting as of September 30, 1999, Midwest
Federal had total assets of $176,929,000, deposits of $107,164,000 and total
loans of $100,239,000. Midwest Federal will remain a separate wholly-owned
subsidiary of the Company.
The Company recorded net income of $1,087,000 for the quarter ended September
30, 1999, compared with net income of $977,000 for the three months ended
September 30, 1998, an increase of $110,000 (11 percent). Net income and
earnings results for the quarter do not include results from Midwest Federal,
since the acquisition was accounted for using the purchase method of accounting.
Basic earnings per share for the third quarter of 1999 was $.30 versus $.27 per
share for the third quarter of 1998. Diluted earnings per share for the third
quarter of 1999 was $.29 versus diluted earnings per share of $.26 for the third
quarter of 1998. Actual weighted average shares outstanding were 3,679,991 and
3,654,768 for the third quarter of 1999 and 1998, respectively. The issuance of
1,105,348 shares on September 30, 1999, to shareholders of MWBI as a result of
the merger into the Company did not materially change the average for the
quarter, but will increase the average shares outstanding in future periods. The
Company's return on average assets for the quarter ended September 30, 1999 was
1.41 percent compared with a return of 1.39 percent for the quarter ended
September 30, 1998. The Company had a return on average equity of 11.24 percent
for the three months ended September 30, 1999 versus 10.15 percent for the three
months ended September 30, 1998.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is computed by subtracting total interest expense from total
interest income. Fluctuations in net interest income can result from the 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, 1999
increased $439,000 (12 percent) to $3,994,000 from $3,555,000 for the three
months ended September 30, 1998. This increase was mainly due to increased
interest income and discount recovery on loan pool participations and increased
interest income earned on higher loan volumes. Increased interest expense on
deposits and borrowed funds somewhat offset the higher interest income. Total
interest income increased $644,000 (10 percent) in the third quarter of 1999
compared with the same period in 1998. The Company's total interest expense for
the quarter increased $205,000 (8 percent) compared with the same period in
1998. The Company's net interest margin (on a federal tax-equivalent basis) for
the third quarter of 1999 rose to 5.62 percent from 5.54 percent in the third
quarter of 1998. Net interest margin is a measure of the 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. The
Company's overall yield on earning assets was 9.56 percent for the third quarter
of 1999 compared to 9.58 percent for the third quarter of 1998. The rate on
interest-bearing liabilities also decreased in the third quarter of 1999 to 4.62
percent compared with 4.76 percent for the third quarter of 1998.
Interest income and fees on loans increased $104,000 (3 percent) in the third
quarter of 1999 compared to the same period in 1998, mainly due to higher real
estate loan volumes. The average yield on loans declined to 8.94 percent for the
third quarter of 1999, compared to 9.67 percent in the third quarter of 1998 as
competition for loans forced the Company to reduce some of its loan rates to
remain competitive in its markets. Recent moves by the Federal Reserve to
increase interest rates may benefit the Company in future periods as variable
rate loans tied to prime have been adjusted upward. Competition for loans in the
market areas served by the Company remains strong. Average loans outstanding
were $181,547,000 for the third quarter of 1999 compared with $163,574,000 for
the third quarter of 1998, an increase of $17,973,000 (11 percent). The
Company's subsidiaries all experienced an increase in average loan volume
between the third quarter of 1999 and 1998. Average real estate loan volumes
increased $18,128,000 (26 percent), commercial loans averaged $633,000 (1
percent) lower, and agricultural loans increased $2,625,000 (8 percent) in
average volume for the third quarter of 1999 compared with 1998. Loans to
individuals declined an average of $1,782,000 (13 percent) in the third quarter
of 1999 compared with 1998 as the Company generally does not attempt to compete
for the consumer loan business (especially new car loans).
The Company recognized an additional $635,000 in interest and discount income on
loan pool participations in the third quarter of 1999 compared with 1998, mainly
due to higher loan pool volumes. Interest income and discount collected on the
loan pool participations for the three months ended September 30, 1999 was
$2,162,000 compared with $1,527,000 collected in the third quarter of 1998. The
yield on loan pool participations rose to 13.69 percent for the third quarter of
1999 compared with 12.51 percent for the quarter ended September 30, 1998. The
average loan pool participation investment balance was $14,230,000 (29 percent)
greater in the third quarter of 1999 than in 1998 as a result of new purchases
of pools. Newly purchased loan pools typically do not produce income for a
period of up to 120 days from date of purchase which significantly impacts the
yield on the investment. These loan pool participations are pools of performing
and distressed and nonperforming 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." The Company recognizes interest
income and discount recovery on its loan pool participations on a cash basis.
The loan pool participations have traditionally been a high-yield activity for
the Company, but this yield has fluctuated from period to period based on the
amount of cash collections, discount recovery, and net collection expenses of
the servicer in any given period. The income and yield on loan pool
participations may vary in future periods due to the volume and discount rate on
loan pools purchased.
The increase in interest expense in the third quarter of 1999 compared with 1998
was mainly attributable to growth in deposits and an increase in borrowed funds.
Average interest-bearing deposits for the third quarter of 1999 increased
$17,000,000 (9 percent) from the same period in 1998 with the largest increase
occurring in the savings deposit category. Borrowings on the Company's
commercial bank line of credit averaged $1,470,000 higher in the third quarter
of 1999 compared with 1998 as the Company borrowed funds to provide operating
cash to purchase loan pools. Federal Home Loan Bank advances during the third
quarter of 1999 averaged $2,438,000 greater than in 1998 as the Company utilized
these advances to fund asset growth. The higher average balance of these
borrowed funds resulted in increased interest expense in 1999 compared with
1998, even though the average rate on all interest-bearing liabilities declined.
The Company's overall rate on interest-bearing liabilities decreased to 4.62
percent for the third quarter of 1999 compared to 4.76 percent in 1998.
Provision for Loan Losses
The Company recorded a provision for loan losses of $462,000 in the third
quarter of 1999, of which $207,000 was recorded by On-Site Credit Services, Inc.
In the third quarter of 1998, the Company recorded a provision for loan losses
of $307,000. 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. In addition to the large provision at On-Site,
one of the Company's banks recorded a significant charge-off on an agricultural
loan which necessitated an additional provision of $100,000 during the period.
Management believes that the allowance for loan losses is adequate based on the
inherent risk in the portfolio as of September 30, 1999, however, continued
growth in the loan portfolio and the uncertainty of the agricultural economy
require that management continue to evaluate the adequacy of the allowance for
loan losses and make additional provisions in future periods as deemed
necessary.
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 was $74,000 (14 percent) lower in the third quarter of 1999
compared with 1998, mainly due a nonrecurring receipt in the 1998 quarter of a
settlement of an employee misappropriation of funds.
Other Expense
Total other noninterest expense for the quarter ended September 30, 1999
increased $19,000 (1 percent) compared to noninterest expense for the third
quarter of 1998. 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 1999 increased $29,000 (2
percent) over 1998, primarily as a result of higher salary levels. Net occupancy
and equipment expenses for the 1999 quarter increased $15,000 (4 percent) in
comparison to 1998 with most of the increase due to the additional facilities of
Pella State Bank and the increased depreciation expense incurred on the
Company's new mainframe computer. Professional fees in the September 30, 1999
quarter declined by $32,000 compared to 1998. Other operating expense increased
by $25,000 in the third quarter of 1999 compared with the three months ended
September 30, 1998.
Income Tax Expense
The Company incurred income tax expense of $621,000 for the three months ended
September 30, 1999. For the three months ended September 30, 1998, the Company
incurred income tax expense of $541,000. The increased tax expense for the
September 1999 quarter was mainly due to higher overall taxable income compared
to the same period in the prior year.
NINE MONTHS ENDED SEPTEMBER 30, 1999
The Company's net income for the nine months of 1999 was $1,925,000 compared
with $3,781,000 earned in the nine months of 1998. The losses attributable to
the On-Site operation and a decline in loan pool income in 1999 were primarily
responsible for the overall reduction in net income. The income and earnings
results for the period do not include Midwest Federal, since the acquisition was
required to be accounted for using the purchase method. Basic and diluted
earnings per share for the nine months of 1999 were $.53 and $.51, respectively,
compared with 1998 basic earnings per share of $1.03 and diluted earnings of
$.98 per share. Actual weighted- average shares outstanding were 3,656,397 in
the nine months of 1999 and 3,669,414 in 1998. The Company's return on average
assets was .85 percent in the nine months of 1999 and 1.83 percent in 1998.
Return on average equity was 6.68 percent in 1999 and 13.32 percent for the
first nine months of 1998.
On April 23, 1999, the Company announced that it had elected to seek a buyer for
On-Site Credit Services, Inc. ("On-Site"), its wholly-owned commercial finance
subsidiary. A letter of intent was executed with a potential buyer for On-Site
on July 28, 1999. It was anticipated that a closing on the sale would occur in
the fourth quarter of 1999. In October of 1999, it became apparent that a
satisfactory agreement would not be reached with the potential buyer due to the
proposed structure of the transaction (not due to pricing issues). Management is
currently evaluating a number of other alternatives related to On-Site,
including a modified transaction with the original potential buyer. As of
September 30, 1999, On-Site's loan and lease portfolio totaled $8,394,000, or
approximately 3 percent of the Company's total loans as of that date. The
Company's financial results for the nine months ended September 30, 1999 include
costs and charges related to the proposed sale of the On-Site activity
consisting of a loan loss provision of $1,243,000, estimated loss on sale of
$220,000, and $21,000 in severance benefits paid to employees. For the nine
months of 1999, net after-tax losses related to On-Site amounted to $877,000, or
$.24 per share basic and $.23 per share diluted. Without the On-Site losses, the
Company's year-to-date income from on-going operations would have been
$2,802,000, or $.77 per share basic.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the nine months ended September 30, 1999 declined
$477,000 (4 percent) compared with the prior year, mostly due to reduced
interest income and discount recovery on loan pools and increased interest
expense. Total interest income increased $150,000 (1 percent) in 1999 while
interest expense increased $627,000 (8 percent) in 1999 compared with 1998. The
Company's net interest margin for the first nine months of 1999 was 5.43 percent
compared with 6.25 percent in 1998. The overall yield on earning assets was 9.38
percent in 1999 and 10.29 percent in 1998. The rate on interest-bearing
liabilities decreased in 1999 to 4.63 percent compared with 4.75 percent in
1998.
Interest and fees on loans increased $817,000 (7 percent) in the nine months of
1999 compared with 1998 primarily due to increased loan volumes. Average loans
outstanding of $175,490,000 in 1999 were $21,033,000 greater than in 1998. The
overall yield on loans declined to 9.03 percent in 1999 compared with 9.55
percent in 1998 as market interest rates were lower on average.
The interest income and discount collected on loan pools decreased $472,000 (8
percent)in the first nine months of 1999 compared with 1998 as a result of
higher collection costs incurred by the servicer on loans that had been
purchased in 1996 and 1997, and the reduced overall profit margin attributable
to the purchase of higher quality assets in more recent periods. The yield on
loan pool investments for the nine months of 1999 was 13.57 percent compared
with 16.98 percent in 1998. Average loan pool investments in 1999 were
$56,263,000 compared with $48,663,000 for 1998.
Growth in deposits, additional advances from the Federal Home Loan Bank, and
increased borrowings on the Company's commercial bank line of credit were
responsible for the higher interest expense incurred by the Company in 1999.
Total interest expense on deposits increased $362,000 (5 percent) in 1999 while
interest on borrowed funds (including notes payable) increased $265,000 (26
percent) over 1998. Increased borrowings on the Company's bank line of credit
were primarily used to fund the On-Site activities and the purchase of loan pool
investments.
Provision for Loan Losses
The year-to-date loan loss provision for 1999 was $2,094,000, with $1,534,000
related to On-Site. The subsidiary banks' provision for loss totaled $560,000
for the first nine months of 1999. For the first nine months of 1998, the
Company's provision for loan losses was $594,000, with $180,000 of that amount
attributable to On-Site and $414,000 recorded by the bank subsidiaries.
Other Income
Non-interest income totaled $1,382,000 for the first nine months of 1999
compared with $1,398,000 in 1998, a decline of $16,000 in 1999. Minimal
increases were noted in service charges collected on deposit accounts and in
data processing income. The Company did record a gain on the sale of investment
securities totaling $26,000 in 1998 while there were no sales in 1999.
Other Expense
Total non-interest expense increased $851,000 (13 percent) in the first nine
months of 1999 compared with 1998. Salaries and benefits increased $290,000 (8
percent) mainly as a result of increased staffing at Mahaska State Bank and
Pella State Bank and higher salary levels. Occupancy and equipment expenses rose
$59,000 (6 percent) due to higher maintenance contract and licensing fees on
check processing equipment. Professional fees increased $144,000 (42 percent) in
1999 compared with 1998 mainly due to fees related to the sale of the On-Site
subsidiary totaling $220,000. A loss on the sale of real estate held by the
Company in the amount of $91,000 and liquidation costs associated with problem
credits at On-Site contributed to the $395,000 (30 percent) increase in Other
operating expenses in the nine months ended September 30, 1999 compared with
1998.
Income Tax Expense
The Company recognized income tax expense of $1,137,000 for the first nine
months of 1999 compared with $2,125,000 for the same period in 1998. The
Company's effective income tax rate for the 1999 period was 37.12 percent
compared with 35.98 percent in the nine months ended September 30, 1998.
FINANCIAL CONDITION
The Company's total assets as of September 30, 1999 were $488,233,000, an
increase of $189,844,000 from December 31, 1998. The consummation of the merger
with Midwest Bancshares, Inc. (MWBI) on September 30, 1999 added assets of
$176,929,000 to the Company total. As of September 30, 1999, the Company had
$1,000,000 in federal funds sold and $8,665,000 in federal funds borrowed
compared with $9,270,000 sold as of December 31, 1998. The Company's liquidity
needs are usually highest in the second and third quarters of each year due to
seasonal loan demand and minimal deposit growth in the first nine months of the
year. Federal funds are borrowed on a short-term basis to meet this liquidity
need.
Investment Securities
Investment securities available for sale increased $33,805,000 from December 31,
1998 to the September 30, 1999 total of $63,460,000. Midwest Federal's total of
$36,285,000 was added while the Company's securities maturing were not
reinvested. Investment securities classified as held to maturity rose to
$32,025,000 as of September 30, 1999, compared with $13,679,000 on December 31,
1998, with the net increase due to the addition of Midwest Federal.
Loans
Overall loan volumes continued to increase, with total loans outstanding of
$285,492,000 on September 30, 1999, reflecting growth of $19,003,000 (11
percent) from December 31, 1998 in the Company's originated loans, and loans
totaling $100,239,000 attributable to the acquisition of Midwest Federal. As of
September 30, 1999, the Company's loan to deposit ratio (excluding loan pool
investments) was 83.5 percent. This compares with a year-end 1998 loan to
deposit ratio of 71.1 percent. As of September 30, 1999, On-Site had total loans
outstanding of $8,394,000, mostly in the commercial loan category. This compares
with a December 31, 1998 loan total for On-Site of $13,246,000.
Loan Pool Participations
As of September 30, 1999, the Company had investments in loan pool
participations of $70,707,000, an increase of $16,197,000 (30 percent) from the
December 31, 1998 balance. Included in the September 30, 1999 loan pool balance
is $4,779,000 of pools purchased by Midwest Federal prior to the quarter end.
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 Company actively continued to evaluate and bid on loan pool packages in the
third quarter of 1999 and was successful in investing $11,848,000 during the
period (plus $5,000,000 invested by Midwest Federal). The loan pool
participation investment as of December 31, 1998 was $54,510,000. During 1999,
the Company has invested $31,670,000 in loan pool participations compared with
$21,029,000 in the first nine months of 1998. The average loan pool
participation investment of $56,262,000 for the first nine months of 1999 was
$7,599,000 (16 percent) higher than the average balance of $48,663,000 for 1998.
Deposits
Total deposits as of September 30, 1999 were $341,743,000 compared with
$232,733,000 as of December 31,1998. Midwest Federal had deposits of
$107,164,000 as of the merger date while deposits at the other bank subsidiaries
increased minimally during the nine months of 1999.
Borrowed Funds/Notes Payable
The Company had $8,665,000 in Federal Funds purchased on September 30, 1999.
There were no Federal Funds purchased on December 31, 1998. During the first
nine months of 1999, the Company had an average balance of Fed Funds purchased
of $1,493,000. Advances from the Federal Home Loan Bank totaled $59,986,000 as
of September 30, 1999 compared with $7,595,000 as of December 31, 1998. As of
September30, 1999, Midwest Federal had $48,915,000 in variable and fixed rate
advances from the Federal Home Loan Bank. Notes payable declined to
$16,250,000,000 on September 30, 1999 from $17,000,000 on December 31, 1998.
Nonperforming Assets
The Company's nonperforming assets totaled $3,059,000 (1.07 percent of total
loans) as of September 30, 1999, compared to $1,400,000 (.85 percent of total
loans) as of December 31, 1998. All nonperforming asset totals and related
ratios exclude the loan pool investments. The following table presents the
categories of nonperforming assets for the bank subsidiaries and for On-Site
Credit Services, Inc. as of September 30, 1999 compared with December 31, 1998:
<TABLE>
<CAPTION>
Nonperforming Assets
(dollars in thousands)
September 30, 1999
<S> <C> <C> <C>
Banks On-Site Total
------ ------ ------
Nonaccrual $ 592 $1,082 $1,674
Loans 90 days past due 735 643 1,378
Other real estate owned 7 0 7
------ ------ ------
$1,334 $1,725 $3,059
December 31, 1998
Banks On-Site Total
------ ------ ------
Nonaccrual $ 423 $ 138 $ 561
Loans 90 days past due 244 419 663
Restructured loans 164 0 164
Other real estate owned 12 0 12
------ ------ ------
$ 843 $ 557 $1,400
</TABLE>
From December 31, 1998 to September 30, 1999, nonaccrual loans increased
$1,113,000 primarily due to concerns related to commercial finance lines which
have experienced financial difficulties resulting in them being placed on a
nonaccrual classification. Additionally, on September 30, 1999, Midwest Federal
had $207,000 in loans on a nonaccrual status which increased the Company's
overall totals. As of that date, Midwest Federal had no other loans in
nonperforming categories. Loans ninety days past due increased $715,000,
primarily related to a Mahaska State Bank loan to a cattle feeding operation.
Restructured loans decreased $164,000 as these loans were paid off and other
real estate owned decreased by $5,000. The Company's allowance for loan losses
as of September 30, 1999 was $3,349,000, which was 1.17 percent of total loans
as of that date. This compares with an allowance for loan losses of $2,177,000
as of December 31, 1998, which was 1.32 percent of total loans. The allowance
acquired from Midwest Federal totaled $516,000 which accounted for a portion of
the $1,172,000 increase between December 31, 1998 and September 30, 1999 with
the remainder related to On-Site. As of September 30, 1999, the allowance for
loan losses was 109.70 percent of nonperforming loans compared with 156.80
percent as of December 31, 1998. Based on the inherent risk in the loan
portfolio, management believes that as of September 30, 1999, the allowance for
loan losses is adequate. For the three months ended September 30, 1999, the
Company recognized a net loan charge-off of $359,000 compared with a net
charge-off of $170,000 during the quarter ended September 30, 1998. For the nine
months ended September 30, 1999, the Company charged off net loans of $1,438,000
compared with net charge-offs of $536,000 in the first nine months of 1998.
During the nine months of 1999, net charge-offs recorded by On-Site totaled
$1,024,000 while the bank subsidiaries charged off $414,000. In comparison, for
the nine months ended September 30, 1998, On-Site recorded net charge-offs of
$307,000 versus bank net charge-offs of $229,000.
Capital Resources
As of September 30, 1999, total shareholders' equity as a percentage of total
assets was 11.75 percent compared with 12.81 percent as of December 31, 1998.
The Company held 134,646 shares of treasury stock at a cost of $2,202,000 as of
September 30, 1999. During the third quarter of 1999, the Company reissued
13,592 shares of treasury stock as a result of the exercise of stock options
previously granted to directors, officers, and employees. On September 30, 1999,
the Company issued a total of 1,105,348 shares of common stock to the
shareholders of Midwest Bancshares, Inc. in connection with the merger of the
companies. The Company did not repurchase any shares of its stock during the
third quarter of 1999. Under risk-based capital rules, the Company's tier 1
capital ratio was 12.97 percent of risk-weighted assets as of September 30,
1999, and was 14.02 percent of risk-weighted assets as of December 31, 1998,
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. Management believes that, as of
September 30, 1999, the Company and its subsidiary banks meet all capital
adequacy requirements to which they are subject. As of that date, all the bank
subsidiaries were "well capitalized" under regulatory prompt corrective action
provisions.
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 $12,040,000 as of September 30, 1999, compared with $22,121,000
as of December 31, 1998. Much of the decrease during the quarter was utilized to
fund loan growth and to purchase loan pool participations. 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 major 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, 1999 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 nine months of 1999 changed when
compared to 1998.
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 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, 1998.
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 the 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 scenario would result
in the short-term inability to update customer financial records due to
unforseen processing issues. This would result in customers being unable to
receive timely information regarding their account balances. In addition, a
worst-case scenario 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 completed for all currently used
hardware and software. Any new hardware or software acquired through
December 31, 1999 will be tested upon installation. The Company purchased a new
main-frame computer system in 1997 that is Year 2000 compliant 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 $35,000, exclusive of
costs associated with the new main-frame computer.
The acquisition of Midwest Federal does not significantly change the Company's
Year 2000 readiness or contingency planning. Midwest Federal will continue to
utilize a third party data processor until converting to the Company's data
system (currently planned for the second quarter of 2000). Midwest Federal has
developed, implemented and tested its own year 2000 readiness procedures which
have been evaluated and examined by regulators and as part of the Company's due
diligence prior to the acquisition.
Midwest Federal
The acquisition of Midwest Federal on September 30, 1999, increased the
Company's total assets 59 percent in comparison to December 31, 1998 and allowed
the entry into four new markets. Midwest Federal has been a community-based
thrift institution and it is managements' intention that it will remain as such
in the future. The Company expects that the acquisition of Midwest Federal will
enhance future revenues through improved interest rate margins and fee income as
a result of expanded product and service offerings to Midwest Federal's
customers. The Company also expects to achieve operating cost savings primarily
through the consolidation of certain functions such as data processing and back
office operations. The revenue enhancements and operating cost savings are
expected to be achieved in various amounts at various times during the years
subsequent to the acquisition of Midwest Federal and not ratably over, or at the
beginning or end of, such periods.
"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 4. Submission of Matters to a Vote of Security Holders.
A special meeting of shareholders was held on September 22, 1999. The record
date for determination of shareholders entitled to vote at the meeting was
August 11, 1999. There were 3,670,380 shares outstanding as of that date, each
such share being entitled to one vote. At the shareholders' meeting the holders
of 3,081,394 shares of stock were represented in person or by proxy, which
constituted a quorum. The following proposal was voted on at the meeting:
Proposal 1 - Agreement and Plan of Merger dated February 2, 1999, by and between
the Company and Midwest Bancshares, Inc.:
The merger whereby Midwest Bancshares, Inc. would merge with and into the
Company and the Midwest Shareholders would receive one share of Company common
stock for each share of Midwest common stock owned was approved by the Company
shareholders with the votes cast as follows:
<TABLE>
<CAPTION>
DEALER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C> <C>
2,994,869 73,454 13,071 0
</TABLE>
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. (f)
3.2 Bylaws of Mahaska Investment Company. (f)
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 Sixth Amendment to Revolving Loan Agreement and Revolving Loan
Note between Mahaska Investment Company and Harris Trust
& Savings Bank dated June 30, 1999.
10.6 Agreement and Plan of Merger By and Between Mahaska Investment
Company and Midwest Bancshares, Inc. dated February 2, 1999. (g)
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 September 30, 1998 filed by Mahaska Investment
Company.
(g) Incorporated by reference to the Amendment No. 1 to the
Form S-4 Registration number 333-79291 filed by Mahaska
Investment Company on August 17, 1999.
(b) Reports on Form 8-K -- The Company did not file any reports on Form 8-K
for the three months ended September 30, 1999.
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 10, 1999 /s/ Charles S. Howard
Dated Charles S. Howard
President
November 10, 1999 /s/ David A. Meinert
Dated David A. Meinert
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 10.5.2
MAHASKA INVESTMENT COMPANY
SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1996, as amended (the "Credit Agreement"), between the undersigned,
Mahaska Investment Company, an Iowa corporation (the "Borrower"), and you (the
"Bank"). All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
The Borrower has requested that the Bank extend the Termination Date of the
credit facility to June 30, 2000, amend the dividend and restricted payment
covenant, and update the list of its Subsidiaries, and the Bank is willing to do
so under the terms and conditions set forth in this agreement (herein, the
"Amendment").
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be and hereby is amended as follows:
1.1 The definition of "Termination Date" appearing in Section 4 of the
Credit Agreement shall have be and hereby is amended as follows:
"Termination Date" means June 30, 2000, or such earlier date on which
the Commitment is terminated in whole pursuant to Section 2.4, 8.2 or
8.3 hereof.
1.2 Section 7.10 of the Credit Agreement shall be amended and restated
in its entirety to read as follows:
Section 7.10. Dividends and Certain Other Restricted Payments. The
Borrower shall not declare or pay any dividends on or make any other
distributions in respect of any class or series of its capital stock
or directly or indirectly , redeem or otherwise acquire or retire any
of its capital stock, except that the Borrower may, during any fiscal
year, declare and pay dividends and purchase or otherwise redeem its
capital stock, so long as at the time of, and after giving effect to,
the payment of any such dividend, repurchase, or redemption, (a) the
aggregate amount of all such dividends, repurchases and redemptions
during any fiscal year of the Borrower does not exceed 60% of the
Borrower's Consolidated Net Income from the immediately preceding
fiscal year (computed exclusive of the extraordinary loss booked by
the Borrower during the 1999 fiscal year relating to its sale of
On-Site Credit Services, Inc.) and (b) no Default or Event of Default
shall have occurred and be continuing or would occur as a result
thereof.
1.3 Schedule 5.2 of the Credit Agreement shall be updated and restated
to read as set forth on Annex A attached hereto.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
2.1 The Borrower and the Bank shall have executed and delivered this
Amendment.
2.2 Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Bank and its counsel.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Borrower hereby represents to the Bank that as of the date hereof the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Borrower delivered to the Bank) and the Borrower is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. MISCELLANEOUS.
4.1 The Borrower has heretofore executed and delivered to the Bank certain
Collateral Documents and the Borrower hereby acknowledges and agrees that,
notwithstanding the execution and delivery of this Amendment, the Collateral
Documents remain in full force and effect and the rights and remedies of the
Bank thereunder, the obligations of the Borrower thereunder and the liens and
security interests created and provided for thereunder remain in full force and
effect and shall not be affected, impaired or discharged hereby. Nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for by the Collateral Documents as to
the indebtedness which would be secured thereby prior to giving effect to this
Amendment.
4.2 Except as specifically amended herein or waived hereby, the Credit
Agreement shall continue in full force and effect in accordance with its
original terms. Reference to this specific Amendment need not be made in the
Credit Agreement, the Note, or any other instrument or document executed in
connection therewith, or in any certificate, letter or communication issued or
made pursuant to or with respect to the Credit Agreement, any reference in any
of such items to the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
4.3 The Borrower agrees to pay on demand all costs and expenses of or
incurred by the Bank in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Bank.
4.4 This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
This Sixth Amendment and Waiver to Credit Agreement is dated as of June 30,
1999.
MAHASKA INVESTMENT COMPANY
By \s\ David A. Meinert
Its Executive Vice President & CFO
Accepted and agreed to in Chicago, Illinois as of the date and year last above
written.
HARRIS TRUST AND SAVINGS BANK
By \s\ Patrick A. Horne
Its Vice President
<PAGE>
Exhibit 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
------------------ ----------------
Earnings per Share Information:
<S> <C> <C> <C> <C>
Weighted average number
of shares outstanding
during the year 3,679,991 3,654,768 3,656,397 3,669,414
Weighted average number
of shares outstanding
during the year including
all dilutive potential
shares 3,768,483 3,832,830 3,751,594 3,864,608
Net earnings 1,087,288 977,218 1,925,360 3,780,895
Earnings per share - basic $ 0.30 0.27 0.53 1.03
Earnings per share - diluted $ 0.29 0.26 0.51 0.98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1999 OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000741390
<NAME> MAHASKA INVESTMENT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,808
<INT-BEARING-DEPOSITS> 1,232
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 32,025
<INVESTMENTS-MARKET> 31,962
<LOANS> 285,492
<ALLOWANCE> (3,349)
<TOTAL-ASSETS> 488,233
<DEPOSITS> 341,743
<SHORT-TERM> 84,901
<LIABILITIES-OTHER> 4,237
<LONG-TERM> 0
0
0
<COMMON> 24,564
<OTHER-SE> 32,788
<TOTAL-LIABILITIES-AND-EQUITY> 488,233
<INTEREST-LOAN> 11,855
<INTEREST-INVEST> 1,810
<INTEREST-OTHER> 5,941
<INTEREST-TOTAL> 19,606
<INTEREST-DEPOSIT> 6,995
<INTEREST-EXPENSE> 8,301
<INTEREST-INCOME-NET> 11,305
<LOAN-LOSSES> 2,094
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,531
<INCOME-PRETAX> 3,062
<INCOME-PRE-EXTRAORDINARY> 1,925
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,925
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 9.38
<LOANS-NON> 1,674
<LOANS-PAST> 1,379
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (2,177)
<CHARGE-OFFS> 1,484
<RECOVERIES> (46)
<ALLOWANCE-CLOSE> (3,349)
<ALLOWANCE-DOMESTIC> (3,349)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (3,349)
</TABLE>
