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
MARCH 31, 2000 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 April 30, 2000, there were 4,024,514 shares of common stock $5 par value
outstanding.
<PAGE>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited)
(dollars in thousands, except for share amounts) March 31, December 31,
2000 1999
--------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 9,441 13,354
Interest-bearing deposits in banks 217 1,700
Federal funds sold 5,390 7,865
--------- -----------
Cash and cash equivalents 15,048 22,919
--------- -----------
Investment securities:
Available for sale 64,552 60,530
Held to maturity 28,682 29,445
Loans 290,734 282,091
Allowance for loan losses (3,550) (4,006)
--------- -----------
Net loans 287,184 278,085
--------- -----------
Loan pool participations 60,860 67,756
Premises and equipment, net 6,850 6,795
Accrued interest receivable 4,486 4,719
Goodwill and other intangible assets 12,569 12,850
Other assets 4,282 3,090
--------- -----------
Total assets $ 484,513 486,189
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 22,705 23,197
NOW and Super NOW 41,841 42,378
Savings 100,181 96,377
Certificates of deposit 186,833 186,720
--------- -----------
Total deposits 351,560 348,672
Federal funds purchased 0 2,965
Federal Home Loan Bank advances 63,954 63,421
Note payable 15,400 18,000
Other liabilities 3,865 2,896
--------- -----------
Total liabilities $ 434,779 435,954
========= ===========
Shareholders' equity:
Common stock, $5 par value; authorized
20,000,000 shares; issued 4,269,514 shares
as of March 31, 2000 and December 31, 1999 $ 24,564 24,564
Capital surplus 13,192 13,192
Treasury stock at cost, 643,335 shares as
of March 31, 2000, and 577,735 shares as
of December 31, 1999 (9,302) (8,525)
Retained earnings 21,987 21,511
Accumulated other comprehensive loss (707) (507)
--------- -----------
Total shareholders' equity 49,734 50,235
--------- -----------
Total liabilities and shareholders' equity $ 484,513 486,189
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
(dollars in thousands, except per share) March 31,
------------------------
2000 1999
--------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 5,865 3,774
Interest and discount on loan pools 2,094 2,209
Interest on bank deposits 32 36
Interest on federal funds sold 73 97
Interest on investment securities:
Available for sale 1,028 446
Held to maturity 460 187
--------- -----------
Total interest income 9,552 6,749
--------- -----------
Interest expense:
Interest on deposits:
NOW and Super NOW 186 147
Savings 923 562
Certificates of deposit 2,433 1,579
Interest on federal funds purchased 35 0
Interest on Federal Home Loan Bank advances 1,005 108
Interest on note payable 367 305
--------- -----------
Total interest expense 4,949 2,701
--------- -----------
Net interest income 4,603 4,048
Provision for loan losses 151 167
Net interest income after
provision for loan losses 4,452 3,881
--------- -----------
Noninterest income:
Service charges 400 304
Data processing income 50 50
Other operating income 152 138
Investment security gains 34 0
--------- -----------
Total noninterest income 636 492
--------- -----------
Noninterest expense:
Salaries and employee benefits expense 1,637 1,337
Net occupancy expense 435 357
Professional fees 135 86
Other operating expense 915 626
Goodwill amortization 281 149
--------- -----------
Total noninterest expense 3,403 2,555
--------- -----------
Income before income tax expense 1,685 1,818
Income tax expense 572 661
--------- -----------
Net income $ 1,113 1,157
========= ===========
Earnings per common share - basic $ 0.26 0.32
Earnings per common share - diluted 0.26 0.31
Dividends per common share 0.15 0.15
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I -- Item 1. Financial Statements, continued.
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
(in thousands) March 31,
------------------------
2000 1999
--------- -----------
<S> <C> <C>
Net income $ 1,113 1,157
Other Comprehensive Income:
Unrealized gains (losses) on securities
available for sale; Unrealized holding
gains (losses) arising during the period,
net of tax (179) (100)
Less: reclassification adjustment of net (gains)
losses included in net income, net of tax (21) 0
--------- -----------
Other comprehensive loss, net of tax (200) (100)
--------- -----------
Comprehensive income $ 913 1,057
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
(dollars in thousands) March 31,
------------------------
2000 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,113 1,157
--------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 445 314
Provision for loan losses 151 167
Investment securities gains (34) 0
Amortization of investment securities premiums 50 46
Accretion of investment securities and
loan discounts (48) (120)
Increase in other assets (959) (138)
Increase in other liabilities 1,076 424
--------- -----------
Total adjustments 681 693
--------- -----------
Net cash provided by operating activities 1,794 1,850
--------- -----------
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales 3,104 0
Proceeds from maturities 469 3,383
Purchases (7,865) (4,373)
Investment securities held to maturity:
Proceeds from maturities 2,073 644
Purchases (1,293) (1,826)
Net increase in loans (9,213) (6,964)
Purchases of loan pool participations (4,602) (1,628)
Principal recovery on loan pool participations 11,498 5,602
Purchases of premises and equipment (266) (117)
Proceeds from sale of premises and equipment 12 0
--------- -----------
Net cash used in investing activities (6,083) (5,279)
--------- -----------
Cash flows from financing activities:
Net increase in deposits 2,912 796
Net decrease in federal funds purchased (2,965) 0
Federal Home Loan Bank advances 26,000 0
Repayment of Federal Home Loan Bank advances (25,515) (7)
Advances on note payable 0 150
Principal payments on note payable (2,600) (950)
Dividends paid (637) (545)
Purchases of treasury stock (777) 0
--------- -----------
Net cash used in financing activities (3,582) (556)
--------- -----------
Net decrease in cash and cash equivalents (7,871) (3,985)
Cash and cash equivalents at beginning of period 22,919 22,121
--------- -----------
Cash and cash equivalents at end of period $ 15,048 18,136
========= ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 4,838 2,732
========= ===========
Income taxes $ (300) 229
========= ===========
</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 statements of income, the consolidated
statements of comprehensive income, and the consolidated statements of cash
flow for the three months ended March 31, 1999 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 statements of condition as of March 31,
2000 and December 31, 1999, the consolidated statement of income, the
consolidated statement of comprehensive income, and the consolidated
statement of cash flow for the three months ended March 31, 2000 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.
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 March 31, 2000, and the results of operations
for the three months ended March 31, 2000 and 1999, and cash flows for the
three months ended March 31, 2000 and 1999.
The results for the three months ended March 31, 2000 may not be indicative
of results for the year ending December 31, 2000, 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 ended March 31, 2000 and
1999 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 March 31, 2000 and 1999 was 4,288,826 and 3,636,345, 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 4,314,801 and
3,757,646 for the three months ended March 31, 2000 and 1999, respectively.
5. Effect of New Financial Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was scheduled to become effective for the Company beginning
January 1, 2000. SFAS No. 137 subsequently deferred implementation of SFAS
133 until January 1, 2001. 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.
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. As of March 31, 2000,
On-Site's loan and lease portfolio totaled $3,304,000, or approximately 1
percent of the Company's total loans as of that date. Effective March 21,
2000, the name of On-Site was formally changed to MIC Financial, Inc.
8. Acquisition of Midwest Bancshares, Inc.
The Company acquired 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 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 is being amortized over
25 years on a straight-line basis. The acquisition has been accounted using
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 period ended March 31, 1999.
<PAGE>
PART I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
QUARTER ENDED MARCH 31, 2000
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 was accounted for using
the purchase method of accounting and, accordingly, the Company's results of
operations for the three months ended March 31, 1999 do not include the results
of Midwest Federal.
The Company recorded net income of $1,113,000 for the quarter ended March 31,
2000, compared with net income of $1,157,000 for the three months ended March
31, 1999, a decrease of $44,000 (4 percent). Basic earnings per share for the
first quarter of 2000 was $.26 versus $.32 per share for the first quarter of
1999. Diluted earnings per share for the first quarter of 2000 was $.26 versus
diluted earnings per share of $.31 for the first quarter of 1999. Actual
weighted average shares outstanding were 4,288,826 and 3,636,345 for the first
quarter of 2000 and 1999, 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 increased the average shares outstanding in the first quarter of 2000.
The Company's return on average assets for the quarter ended March 31, 2000
declined to .92 percent compared with a return of 1.59 percent for the quarter
ended March 31, 1999 due to the increase of average assets from Midwest Federal.
The Company's return on average equity also decreased to 8.98 percent for the
three months ended March 31, 2000 versus 12.22 percent for the three months
ended March 31, 1999 as a result of the additional equity following the Midwest
merger.
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 additional earning assets and interest-bearing liabilities of Midwest
Federal included in the first quarter of 2000 significantly increased both
interest income on investments and loans and interest expense on deposits and
borrowed funds in comparison to the first quarter of 1999. The Company's net
interest income for the quarter ended March 31, 2000 increased $555,000 (14
percent) to $4,603,000 from $4,048,000 for the three months ended March 31,
1999. This increase was mainly due to increased interest income earned on higher
loan and investment volumes. Increased interest expense on deposits and borrowed
funds somewhat offset the higher interest income. Total interest income
increased $2,803,000 (42 percent) in the first quarter of 2000 compared with the
same period in 1999. Exclusive of the additional $3,279,000 interest income
generated by Midwest Federal in the first quarter of 2000, total interest income
would have decreased by $476,000 in comparison to the 1999 first quarter
primarily due to a reduction in interest income and discount recovery on loan
pool participations. The Company's total interest expense for the first quarter
of 2000 increased $2,248,000 (83 percent) compared with the same period in 1999.
Total interest expense, excluding the $1,991,000 related to Midwest Federal,
increased $257,000 in the first quarter of 2000 compared with 1999. The
Company's net interest margin (on a federal tax-equivalent basis) for the first
quarter of 2000 decreased to 4.20 percent (4.82 percent excluding Midwest
Federal) from 6.04 percent in the first quarter of 1999. 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
8.68 percent (9.06 percent without Midwest Federal) for the first quarter of
2000 compared to 10.02 percent for the first quarter of 1999. The rate on
interest-bearing liabilities increased in the first quarter of 2000 to 4.93
percent (4.84 percent without Midwest Federal) compared to 4.68 percent for the
first quarter of 1999.
Interest income and fees on loans (excluding the $1,953,000 contributed by
Midwest Federal) increased $138,000 (4 percent) in the first quarter of 2000
compared to the same period in 1999, mainly due to higher loan volumes. The
average yield on loans exclusive of Midwest Federal declined to 8.58 percent for
the first quarter of 2000, compared to 9.14 percent in the first quarter of
1999. The average yield on loans including Midwest Federal in the first quarter
of 2000 was 8.31 percent. The yield on the Company's loan portfolio is effected
by the amount of nonaccrual loans (which do not earn interest income), the mix
of the portfolio (real estate loans generally have a lower overall yield than
commercial and agricultural loans), the effects of competition and the interest
rate environment on the amounts and volumes of new loan originations, and the
mix of variable rate versus fixed rate loans in the Company's portfolio. 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 $286,357,000 for the first quarter of
2000 compared with $167,455,000 for the first quarter of 1999, an increase of
$118,902,000 (71 percent). Excluding the increase in average loan volume
attributable to Midwest Federal, the Company's average loans outstanding were
$16,034,000 (10 percent) greater in the first quarter of 2000 than in 1999.
Overall, the Company recognized $115,000 less in interest and discount income on
loan pool participations in the first quarter of 2000 compared with 1999, mainly
due to reduced collections. Interest income and discount collected on the loan
pool participations for the three months ended March 31, 2000 was $2,094,000
compared with $2,209,000 collected in the first quarter of 1999. The yield on
loan pool participations was 13.30 percent for the first quarter of 2000
compared with 17.66 percent for the quarter ended March 31, 1999. The average
loan pool participation investment balance was $13,097,000 (26 percent) greater
in the first quarter of 2000 than in 1999 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.
For the first quarter of 2000, interest income on investment securities
increased $855,000 compared with the quarter ended March 31, 1999 due to the
additional securities held by Midwest Federal. Without Midwest Federal, interest
income from investment securities was $66,000 lower in the 2000 quarter than in
1999, generally due to decreased volume in the portfolio.
The $1,254,000 increase in interest expense on deposits in the first quarter of
2000 compared with 1999 was mainly attributable to the additional deposits of
Midwest Federal. Excluding the $1,112,000 deposit interest expense for Midwest
Federal, the Company's interest expense on deposits increased $142,000 primarily
due to some growth in deposits in the first quarter of 2000 compared with 1999.
Average interest-bearing deposits for the first quarter of 2000 increased
$113,108,000 (54 percent) from the same period in 1999. Excluding Midwest
Federal, average interest-bearing deposits were $7,587,000 greater in the first
quarter of 2000 than in 1999. Interest expense on Federal Home Loan Bank
advances was $897,000 higher in the first quarter of 2000 reflecting Midwest
Federal's utilization of this alternative funding method. Interest expense on
notes payable increased $62,000 in the first quarter of 2000 compared with 1999
reflecting slightly higher average borrowings on the Company's commercial bank
line of credit and increased interest rates.
Provision for Loan Losses
The Company recorded a provision for loan losses of $151,000 in the first
quarter of 2000, of which $27,000 was recorded by On- Site Credit Services, Inc.
and $12,000 by Midwest Federal. In the first quarter of 1999, the Company
recorded a provision for loan losses of $167,000 ($84,000 for On-Site).
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 believes that the allowance for loan losses is
adequate based on the inherent risk in the portfolio as of March 31, 2000,
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 $144,000 (29 percent) greater in the first quarter of 2000
compared with 1999. Excluding the contribution of Midwest Federal of $101,000,
most of the increase was due to the recognition of gains on the call of
investment securities.
Other Expense
Total other noninterest expense for the quarter ended March 31, 2000 increased
$848,000 (33 percent) compared to noninterest expense for the first quarter of
1999. Excluding the $889,000 other expense for the operation of Midwest Federal,
the Company's other expense actually decreased $41,000 (2 percent). 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 first quarter of 2000 increased $300,000 (22 percent)
over 1999 as a result of $381,000 in additional expense for Midwest Federal. Net
occupancy and equipment expenses for the 2000 quarter increased $78,000 (22
percent) in comparison to 1999 with $122,000 of increase due to Midwest Federal.
Professional fees in the March 31, 2000 quarter increased by $49,000 compared to
1999. Other operating expense increased by $289,000 ($64,000 without Midwest
Federal) in the first quarter of 2000 compared with the three months ended March
31, 1999. Included in the other operating expense increase was a one-time
assessment in February 2000 of $80,000 made by the Treasurer of the State of
Iowa to cover the losses on uninsured public fund deposits incurred when a bank
in Carlisle, Iowa was declared insolvent and closed by the Iowa Superintendent
of Banking. The assessment was made on all Iowa banks based on the proportion of
the average uninsured public funds on deposit in 1999. Recent developments
indicate that some or all of this assessment may be returned to the banks in the
near future.
Income Tax Expense
The Company incurred income tax expense of $572,000 for the three months ended
March 31, 2000. For the three months ended March 31, 1999, the Company incurred
income tax expense of $661,000. The decreased tax expense for the March 2000
quarter was mainly due to lower overall taxable income compared to the same
period in the prior year. The effective income tax rate as a percent of income
before taxes for the three months ended March 31, 2000 and 1999 was 33.9 percent
and 36.3 percent, respectively.
FINANCIAL CONDITION
Total assets as of March 31, 2000 were $484,513,000, a decrease of $1,676,000
from December 31, 1999. As of March 31, 2000, the Company had $5,390,000 in
federal funds sold and no federal funds borrowed compared with $7,865,000 sold
and $2,965,000 borrowed as of December 31, 1999. 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 $4,022,000 from December 31,
1999 to the March 31, 2000 total of $64,552,000 as securities were purchased for
the portfolio. Investment securities classified as held to maturity declined to
$28,682,000 as of March 31, 2000, compared with $29,445,000 on December 31,
1999, with the net decrease due to the maturity of securities.
Loans
Overall loan volumes continued to increase, with total loans outstanding of
$290,734,000 on March 31, 2000, reflecting growth of $8,643,000 (3 percent) from
December 31, 1999. As of March 31, 2000, the Company's loan to deposit ratio
(excluding loan pool investments) was 82.7 percent. This compares with a
year-end 1999 loan to deposit ratio of 80.7 percent. As of March 31, 2000,
On-Site had total loans outstanding of $3,304,000, mostly in the commercial loan
category. This compares with a December 31, 1999 loan total for On-Site of
$5,081,000.
Loan Pool Participations
As of March 31, 2000, the Company had loan pool participations of $60,860,000, a
decrease of $6,896,000 (10 percent) from the December 31, 1999 balance. The
reduction in the loan pool participations is due to collections made in the
normal course of business and the sale of a group of nonperforming loans in
litigation. The loan pool investment balance shown as an asset on the Company's
Statement of Condition represents the discounted purchase cost of the loan pool
participations. There were few opportunities to bid on loan pools in the first
quarter of 2000, but the Company was successful in purchasing one loan pool
package totaling $4,602,000. The average loan pool participation balance of
$63,839,000 for the first three months of 2000 was $13,097,000 (26 percent)
higher than the average balance of $50,742,000 for the first quarter of 1999.
Deposits
Total deposits as of March 31, 2000 were $351,560,000 compared with $348,672,000
as of December 31,1999. The Company typically experiences a seasonal decline in
total deposits from December to March.
Borrowed Funds/Notes Payable
The Company had no Federal Funds purchased on March 31, 2000. There was
$2,965,000 in Federal Funds purchased on December 31, 1999. During the first
quarter of 2000, the Company had an average balance of Fed Funds purchased of
$3,696,000. Advances from the Federal Home Loan Bank totaled $63,954,000 as of
March 31, 2000 compared with $63,421,000 as of December 31, 1999. Notes payable
declined to $15,400,000 on March 31, 2000 from $18,000,000 on December 31, 1999.
Nonperforming Assets
The Company's nonperforming assets totaled $3,781,000 (1.30 percent of total
loans) as of March 31, 2000, compared to $4,965,000 (1.76 percent of total
loans) as of December 31, 1999. 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 March 31, 2000 compared with December 31, 1999:
<TABLE>
<CAPTION>
Nonperforming Assets
(dollars in thousands)
March 31, 2000
Banks On-Site Total
----- ------- ------
<S> <C> <C> <C>
Nonaccrual $1,833 $1,151 $2,984
Loans 90 days past due 586 31 617
Other real estate owned 180 0 180
----- ------- ------
$2,599 $1,182 $3,781
====== ====== ======
December 31, 1999
Banks On-Site Total
----- ------- ------
Nonaccrual $1,969 $ 905 $2,874
Loans 90 days past due 1,025 401 1,426
Restructured loans 0 515 515
Other real estate owned 150 0 150
----- ------- ------
$3,144 $1,821 $4,965
====== ====== ======
</TABLE>
From December 31, 1999 to March 31, 2000, nonaccrual loans increased $110,000.
Loans ninety days past due decreased $809,000, primarily as a result of
collection efforts. Restructured loans decreased $515,000 as the performance on
one On-Site credit deteriorated and it was reclassified as nonaccrual. Other
real estate owned increased by $30,000 as a residential real estate loan was
foreclosed on. The Company's allowance for loan losses as of March 31, 2000 was
$3,550,000, which was 1.22 percent of total loans as of that date. This compares
with an allowance for loan losses of $4,006,000 as of December 31, 1999, which
was 1.42 percent of total loans. As of March 31, 2000, the allowance for loan
losses was 98.57 percent of nonperforming loans compared with 83.20 percent as
of December 31, 1999. Based on the inherent risk in the loan portfolio,
management believes that as of March 31, 2000, the allowance for loan losses is
adequate. For the three months ended March 31, 2000, the Company recognized net
charge-offs of $607,000 compared with net charge-offs of $306,000 during the
quarter ended March 31, 1999. Net charge-offs recorded by On- Site totaled
$350,000 while the bank subsidiaries charged off $257,000 during the quarter
ended March 31, 2000.
Capital Resources
As of March 31, 2000, total shareholders' equity as a percentage of total assets
was 10.26 percent compared with 10.33 percent as of December 31, 1999. During
the first quarter of 2000, the Company repurchased a total of 52,500 shares of
stock on the open market as part of the 130,000 share repurchase authorized by
the Company's board of directors on January 21, 2000. Under risk- based capital
rules, the Company's tier 1 capital ratio was 11.27 percent of risk-weighted
assets as of March 31, 2000, and was 11.42 percent of risk-weighted assets as of
December 31, 1999, 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 March 31, 2000, 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 $15,048,000 as of March 31, 2000, compared with $22,919,000 as
of December 31, 1999. Much of the decrease during the quarter was utilized to
fund loan growth and to purchase investment securities. 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 March
31, 2000 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 three months of 2000 changed when
compared to 1999.
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, 1999.
Year 2000 Compliance
A critical issue has emerged in the banking industry and for the economy overall
was how existing computer application software programs, operating systems and
hardware would accommodate the date value for the year 2000. The Company
established Year 2000 Committees and Plans at its subsidiary banks to minimize
the risk of potential disruption related to computers and other equipment with
date-sensitive software. Based on the Company's assessment of operations through
April 2000, no significant year 2000 issues have been experienced. The Company
has surveyed its larger clients, vendors and significant third parties and
believes they have experienced no significant year 2000 issues, which could
adversely affect the Company. The Company will continue to monitor year 2000
compliance issues.
Commitments and Contingencies
In the ordinary course of business, the Company is engaged in various
litigation. Management believes that none of this litigation is material to the
Company's results of operations.
Board of Directors
R. Spencer Howard resigned as a director and Vice President of the Company and
President of On-Site effective February 29, 2000. James F. Mathew, a director of
the Company since February 1979, passed away on March 28, 2000 following a long
illness. Another long-term director of the Company, Martin L. Bernstein, passed
away very unexpectedly on April 28, 2000. The vacancies on the Company's board
of directors created by these events have not been filled at this time.
"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.
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)
10.3.4 States Resources Corp. Loan Participation and Servicing
Agreement dated February 5, 1999 between States Resources Corp.
and Mahaska Investment Company. (i)
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. (h)
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.
(h) Incorporated by reference to the Form 10-Q for the
quarter ended September 30, 1999 filed by Mahaska
Investment Company.
(i) Incorporated by reference to the Form 10-K for the
year ended December 31, 1999 filed by Mahaska
Investment Company.
(b) Reports on Form 8-K -- The Company did not file any reports on Form 8-K for
the three months ended March 31, 2000.
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)
May 10, 2000 /s/ Charles S. Howard
- --------------- -----------------------------------------
Dated Charles S. Howard
President
May 10, 2000 /s/ David A. Meinert
- --------------- -----------------------------------------
Dated David A. Meinert
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibtit 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Earnings per Share Information: Three Months Ended
March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Weighted average number of shares
outstanding during the year $4,288,826 3,636,345
Weighted average number of shares
outstanding during the year
including all dilutive potential
shares $4,314,801 3,757,646
Net earnings $1,113,332 1,157,244
Earnings per share - basic 0.26 0.32
Earnings per share - diluted $ 0.26 0.31
</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 MARCH 31,
2000 OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000741390
<NAME> MAHASKA INVESTMENT COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,441
<INT-BEARING-DEPOSITS> 217
<FED-FUNDS-SOLD> 5,390
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 28,682
<INVESTMENTS-MARKET> 28,441
<LOANS> 290,734
<ALLOWANCE> (3,550)
<TOTAL-ASSETS> 484,513
<DEPOSITS> 351,560
<SHORT-TERM> 79,354
<LIABILITIES-OTHER> 3,865
<LONG-TERM> 0
0
0
<COMMON> 24,564
<OTHER-SE> 25,170
<TOTAL-LIABILITIES-AND-EQUITY> 484,513
<INTEREST-LOAN> 5,865
<INTEREST-INVEST> 1,488
<INTEREST-OTHER> 2,199
<INTEREST-TOTAL> 9,552
<INTEREST-DEPOSIT> 3,542
<INTEREST-EXPENSE> 4,949
<INTEREST-INCOME-NET> 4,603
<LOAN-LOSSES> 151
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<INCOME-PRETAX> 1,685
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,113
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 8.68
<LOANS-NON> 2,984
<LOANS-PAST> 617
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<ALLOWANCE-OPEN> (4,006)
<CHARGE-OFFS> 714
<RECOVERIES> (107)
<ALLOWANCE-CLOSE> (3,550)
<ALLOWANCE-DOMESTIC> (3,550)
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</TABLE>
