-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uaud5LKgdiaJqVs+8WgHoSk4LqkxQIYo8uNzwscluTJDx/KDN/vYz+S30PNnEtEg TYQUl3zgHhPCEHAJP2So/g== 0000741390-97-000004.txt : 19970815 0000741390-97-000004.hdr.sgml : 19970815 ACCESSION NUMBER: 0000741390-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAHASKA INVESTMENT CO CENTRAL INDEX KEY: 0000741390 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 421003699 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24630 FILM NUMBER: 97663796 BUSINESS ADDRESS: STREET 1: 222 FIRST AVE E CITY: OSKALOOSA STATE: IA ZIP: 52577 BUSINESS PHONE: 5156738448 MAIL ADDRESS: STREET 1: P O BOX 1104 CITY: OSKALOOSA STATE: IA ZIP: 52577 10-Q 1 10Q FOR JUNE 30, 1997 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED COMMISSION FILE NUMBER JUNE 30, 1997 0-24630 MAHASKA INVESTMENT COMPANY (Exact Name of Registrant as Specified in its Charter) IOWA 42-1003699 (State of Incorporation) (I.R.S. Employer Identification No.) 222 First Avenue East, Oskaloosa, Iowa 52577 Telephone Number (515) 673-8448 Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of August 1, 1997, there were 2,172,456 shares of common stock $5 par value outstanding. PART 1 -- Item 1. Financial Statements MAHASKA INVESTMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
(unaudited) (dollars in thousands) June 30, December 31, 1997 1996 ASSETS Cash and due from bank $ 9,972 9,896 Interest-bearing deposits in banks 748 3,603 Federal funds sold 675 2,985 Cash and cash equivalents 11,395 16,484 Investment securities: Available for sale 27,607 26,483 Held to maturity 23,157 27,705 Loans 133,177 118,045 Less: Unearned discount (681) (629) Allowance for loan losses (1,619) (1,491) Net loans 130,877 115,925 Loan pool participations 47,021 50,687 Premises and equipment, net 3,291 3,102 Accrued interest receivable 2,443 2,518 Other assets 2,178 2,152 Goodwill 6,478 6,795 Total assets $ 254,447 251,851 LIABILITIES AND SHAREHOLDERS'EQUITY Deposits: Demand 17,797 19,353 NOW and Super NOW 32,469 33,124 Savings 57,564 57,831 Certificates of deposit 97,829 96,644 Total deposits 205,659 206,952 Note payable 11,350 8,500 Other liabilities 2,653 2,156 Total liabilities 219,662 217,608 Shareholders'equity: Common stock, $5 par value; authorized 4,000,000 shares; issued 2,284,506 shares 11,423 11,423 Capital surplus 7,787 7,787 Treasury stock at cost, 105,383 shares as of June 30, 1997, and 55,000 shares as of December 31, 1996 (2,081) (853) Retained earnings 17,649 15,926 Unrealized gain (loss) on investments available for sale 7 (40) Total shareholders' equity 34,785 34,243 Total liabilities and shareholders' equity $ 254,447 251,851 See accompanying notes to consolidated financial statements.
PART I Item 1 . Financial Statements, Continued SKA INVESTMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months (unaudited) Ended June 30, Ended June 30, (dollars in thousands, except per share) 1997 1996 1997 1996 INTEREST INCOME: Interest and fees on loans $2,998 2,495 5,718 4,669 Interest and discount on loan pools 1,977 1,917 4,417 3,855 Interest on bank deposits 15 42 56 112 Interest on federal funds sold 12 20 61 76 Interest on investment securities: Available for sale 460 323 897 554 Held to maturity 329 409 678 834 Total interest income 5,791 5,206 11,827 10,100 INTEREST EXPENSE: Interest on deposits: NOW and Super NOW 168 139 333 280 Savings 567 472 1,105 929 Certificates of deposit 1,358 1,105 2,684 2,185 Interest on federal funds purchased 7 4 11 4 Interest on note payable 208 217 368 422 Total interest expense 2,308 1,937 4,501 3,820 Net interest income 3,483 3,269 7,326 6,280 Provision for loan losses 39 47 167 112 Net interest income after provision for loan losses 3,444 3,222 7,159 6,168 NONINTEREST INCOME: Service charges 272 218 535 401 Data processing income 61 59 114 116 Other operating income 97 98 212 201 Investment security losses (8) (8) (8) (12) Total noninterest income 422 367 853 706 NONINTEREST EXPENSE: Salaries and employee benefits expense 985 780 1,949 1,659 Net occupancy expense 302 262 587 506 FDIC assessment 12 23 18 44 Professional fees 93 99 189 250 Other operating expense 403 402 896 759 Goodwill amortization 159 101 317 202 Total noninterest expense 1,954 1,667 3,956 3,420 Income before income tax expense 1,912 1,922 4,056 3,454 Income tax expense 685 660 1,451 1,186 NET INCOME $1,227 1,262 2,605 2,268 Earnings per common share $ 0.56 0.56 1.18 1.00 Dividends per common share $ 0.20 0.1825 0.40 0.365 See accompanying notes to consolidated financial statements.
PART 1 -- Item 1. Financial Statements, Continued MAHASKA INVESTMENT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six Months Ended (dollars in thousands) June 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 2,605 2,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 555 427 Provision for loan losses 167 112 Investment securities losses 8 12 (Gain) loss on sale of bank premises and equipment (7) 1 Amortization of investment securities premiums 123 172 Accretion of investment securities and loan discounts (242) (174) Decrease (increase) in other assets 50 (75) Increase in other liabilities 465 1,494 Total adjustments 1,119 1,969 Net cash provided by operating activities 3,724 4,237 CASH FLOWS FROM INVESTING ACTIVITIES: Investment securities available for sale: Proceeds from sales 994 1,988 Proceeds from maturities 3,468 2,026 Purchases (5,540) (11,355) Investment securities held to maturity: Proceeds from maturities 5,008 3,826 Purchases (548) (3,828) Purchases of loan pool participations (8,641) (22,541) Principal recovery on loan pool participations 12,307 12,004 Net increase in loans (14,886) (13,570) Purchases of bank premises and equipment (428) (366) Proceeds from sale of bank premises and equipment 7 0 Proceeds from branch acquisition 0 14,246 Net cash used in investing activities (8,259) (17,570) CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits (1,293) 5,369 Advances on note payable 5,600 5,500 Principal payments on note payable (2,750) (750) Dividends paid (882) (824) Purchases of treasury stock (1,376) (307) Proceeds from stock issued 147 0 Net cash (used in) provided by financing activities (554) 8,988 Net decrease in cash and cash equivalents (5,089) (4,345) Cash and cash equivalents at beginning of period 16,484 20,821 Cash and cash equivalents at end of period $11,395 16,476 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,504 3,651 Income taxes $ 1,245 770 See accompanying notes to consolidated financial statements.
PART I -- Item 1. Financial Statements, continued. MAHASKA INVESTMENT COMPANY Notes to Consolidated Financial Statements (Unaudited) 1. Adjustments and Reclassifications The accompanying consolidated financial statements (unaudited) include the accounts and transactions of the Company and its three wholly-owned subsidiaries, Mahaska State Bank, Central Valley Bank, and On-Site Credit Services, Inc.(formerly known as MIC Leasing Co.). All material inter-company balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements (unaudited) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim consolidated financial statements (unaudited) be read in conjunction with the Company's most recent audited financial statements and notes thereto. In the opinion of management, the accompanying consolidated financial statements (unaudited) contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 1997, and the results of operations for the three and six months ended June 30, 1997 and 1996, and changes in cash flows for the six months ended June 30, 1997 and 1996. 2. Statements of Cash Flows In the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, and federal funds sold. 3. Income Taxes Federal income tax expense for the three and six months ended June 30, 1997 and 1996 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the subsidiary bank and thrift. 4. Earnings Per Common Share Earnings per common share computations are based on the weighted average number of shares of common stock outstanding during the period. The weighted average number of shares for the three-month periods ended June 30, 1997 and 1996 was 2,190,467 and 2,256,759, respectively. The weighted average number of shares for the six-month periods ended June 30, 1997 and 1996 was 2,209,348 and 2,258,957, respectively. Part I -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Net income for the Company was $1,227,000 for the quarter ended June 30, 1997, compared with $1,262,000 for the three months ended June 30, 1996. Earnings per share for the second quarter of 1997 of $.56 were equal to the earnings per share for the second quarter of 1996. Weighted average shares outstanding were 2,190,467 and 2,256,759 for the second quarter of 1997 and 1996, respectively. Return on average assets for the quarter ended June 30, 1997 was 1.95% compared with a return of 2.35% for the quarter ended June 30, 1996. The Company had a return on average equity of 14.17% for the three months ended June 30, 1997 versus 15.79% for the three months ended June 30, 1996. The Company earned net income of $2,605,000 for the six months ended June 30, 1997. This is an increase of $337,000 (15%) compared with the $2,268,000 earned by the Company during the first six months of 1996. On an earnings per share basis, the Company earned $1.18 for the first six months of 1997 compared with $1.00 for the first six months of 1996. Weighted average shares outstanding declined slightly to 2,209,348 for the first six months of 1997, compared to an average of 2,258,957 for the first half of 1996. The return on average assets decreased to 2.09% for the six months ended June 30, 1997, down from 2.16% for the six-month period ended June 30, 1996. Return on average equity rose to 15.05% for the first half of 1997 compared with 14.10% for the first half of 1996. RESULTS OF OPERATIONS Net Interest Income Net interest income for the quarter ended June 30, 1997 increased 7% to $3,483,000 from $3,269,000 for the three months ended June 30, 1996. This was mainly due to increased interest income earned on greater loan volumes. A portion of the increased interest income earned on loans was due to the acquisition by Central Valley Bank ("CVB") of a branch office on June 21, 1996. This acquisition resulted in increased average outstanding loans in the second quarter of 1997 compared with the second quarter of 1996. The Company's overall loan volumes were also higher in the second quarter of 1997 due to increased loan originations in the current and prior periods which contributed to the increased interest income. The increase in total interest income was offset, in part, by additional interest expense related to increased deposit levels. Total interest income increased $586,000 (11%) in the second quarter of 1997 compared with the same period in 1996. The Company's total interest expense for the quarter increased $372,000 (19%) compared with the same period in 1996 following the increase in average deposits attributable to the branch office acquisition. The Company's net interest margin (on a federal tax-equivalent basis) for the second quarter of 1997 decreased to 6.07% from 6.71% in the second quarter of 1996 as the composite yield on interest-earning assets declined while the overall rate paid on interest-bearing liabilities remained approximately constant. The Company's overall yield on earning assets decreased to 10.04% for the second quarter of 1997 compared to 10.62% for the second quarter of 1996. The rate on interest-bearing liabilities was essentially unchanged in the second quarter of 1997 at 4.66% versus 4.68% for the second quarter of 1996. For the six months ended June 30, 1997, net interest income increased $1,046,000 (17%) to $7,325,000 compared to $6,280,000 for the first half of 1996. This increase was primarily due to additional interest income from increased loan and loan pool volumes in 1997 compared to 1996, which were offset, in part, by an increased level of deposits in 1997. The Company's net interest margin for the first half of 1997 declined to 6.47% compared with 6.61% for the first six months of 1996. Interest income and fees on loans increased $503,000 (20%) in the second quarter of 1997 compared to the same period in 1996 due to higher loan volumes. Average loans outstanding increased to $128,246,000 for the second three months of 1997 compared with $98,583,000 for the second quarter of 1996, an increase of $29,664,000 (30%). Approximately $14,218,000 of the increase in average loans outstanding is attributable to the Sigourney branch of CVB, which was acquired in June 1996. The majority of the remaining average loan volume growth occurred in agricultural and real estate loans at Mahaska State Bank ("MSB") and CVB. On-Site Credit Services, Inc. ("On-Site") also experienced an increase in lease volumes. The average yield on loans decreased to 9.38% for the second three months of 1997, down from 10.18% for the three months ended June 30, 1996. Loan pool investments provided the Company with a modest increase in revenue during the second quarter of 1997 compared to the same period in 1996. Interest income and discount collected on the loan pools increased 3% in the second quarter of 1997 to $1,977,000 compared with $1,917,000 earned in the second quarter of 1996. The yield on loan pool investments declined to 15.81% for the second quarter of 1997 compared with 17.42% for the quarter ended June 30, 1996. Loan pool earnings may vary from period to period reflecting fluctuations in the level of collections by the Company's servicer, the basis (or purchase investment) relative to loan principal collected, and the amount of interest collected. The average loan pool participation investment balance was $5,891,000 (13%) greater in the second quarter of 1997 than in the second quarter of 1996. Interest income and discount collected on the Company's loan pool investments increased $562,000 (15%) for the half of 1997 in comparison with the first six months of 1996. The overall yield on loan pool investments rose slightly to 18.01% for the first half of 1997, up from 17.76% in the 1996 comparable period. The loan pool investment balance averaged $49,459,000 during the six months ended June 30, 1997, compared with $43,658,000 for the same period in 1996. Interest income on investment securities available for sale increased $136,000 (42%) for the second quarter of 1997 compared to the same period in the prior year. This increase is primarily due to the increased level of securities held as "available for sale" since management has elected to classify most of the new securities being purchased in this category. Interest income on investment securities held to maturity has declined $80,000 (19%) for the second quarter of 1997 compared to the second quarter of 1996 as the funds from maturing securities have been reinvested in the available for sale category, thus reducing the held to maturity volume. The interest income on securities available for sale for the first half of 1997 increased $343,000 (62%) compared with that earned in the first half of 1996 due to the same increases in volume. Interest expense for the first quarter of 1997 increased $371,000 (19%) compared with the first quarter of 1996 as a result of an increase in total deposits (much of which was attributable to the deposits acquired by CVB). Average interest-bearing deposits for the second quarter of 1997 increased $33,010,000 (21%) from the same period in 1996 with the greatest increase occurring in the time deposit category. Average short-term borrowings decreased during the second quarter of 1997 by $670,000 compared with the second quarter of 1996 with a resultant decrease in interest expense on these funds. Interest rates on interest-bearing liabilities in the second quarter of 1997 were generally consistent with those in the second quarter of 1996. Total interest expense for the Company increased by $681,000 (18%) for the first half of 1997 compared to 1996. Most of this increase resulted from the higher average balance of interest-bearing liabilities in 1997. The average rate paid on interest-bearing liabilities declined slightly to 4.62% for the first half of 1997, compared with 4.76% in the first half of 1996. Provision for Loan Losses The Company's provision for loan loss expense in the second quarter of 1997 was $8,000 lower than in the second quarter of 1996. For the first half of 1997, the provision for loan loss expense was $54,000 greater than in the same period of 1996. Other Income Total noninterest income increased $56,000 (15%) in the second quarter of 1997 compared with 1996, mainly due to higher service charge income at both Mahaska State Bank and Central Valley Bank. Noninterest income for the first half of 1997 increased $148,000 (21%) over the amount recorded in the same period of 1996 mainly due to higher service charge income. Other Expense Total noninterest expense for the quarter ended June 30, 1997 increased $288,000 (17%) compared to noninterest expense for the second quarter of 1996. Salaries and benefits expense for the second quarter of 1997 increased $205,000 (26%) over the second quarter of 1996, primarily as a result of the increase in the number of employees at CVB and at On-Site. Net occupancy expenses for the second quarter of 1997 increased $40,000 in comparison to the second quarter of 1996 with most of the increase due to the additional facilities of CVB. The FDIC assessment expense incurred by the Company during the second quarter of 1997 decreased by $11,000 compared with the second quarter of 1996 reflecting the reduced assessment rate paid by CVB as a result of the one-time SAIF assessment in September 1996 which reduced the FDIC deposit insurance rate charged to thrift institutions. Goodwill amortization expense increased $57,000 (57%) in the second quarter of 1997 versus 1996 due to the additional goodwill created by the Sigourney branch acquisition. For the six-month period ended June 30, 1997, total other expense increased by $537,000 (16%) in comparison with that incurred during the first half of 1996. Salaries and benefits rose by $289,000 (17%) reflecting the increase in number of employees. Net occupancy expense increased $81,000 (16%) due to the additional Sigourney facility costs. The FDIC assessment declined due to the reduced SAIF assessment. Professional fees were reduced by $61,000 (24%) as the Company did not incur the legal and accounting costs associated with the CVB Sigourney acquisition in 1997 that were experienced in 1996. Goodwill amortization increased $115,000 (57%) in the first half of 1997 compared with the same period in 1996, all of which was attributable to the bank office acquisition. Income Tax Expense Income tax expense for the three months ended June 30, 1997, increased $25,000 compared to the amount for the three months ended June 30, 1996, primarily due to a decrease in the amount of tax-exempt income for the 1997 period. The average volume of tax-exempt municipal investments declined $1,027,000 for the quarter ended June 30, 1997, compared with the same period in 1996. The effective income tax rate rose slightly in the second quarter of 1997 to 35.83% compared with 34.33% in the second quarter of 1996. Year-to-date income tax expense was $265,000 (22%) higher in 1997 compared with the first six months of 1996 due to the overall increase in income before taxes and also due to the reduced level of tax-exempt interest income. FINANCIAL CONDITION The Company's total assets as of June 30, 1997 were $254,447,000, an increase of $2,596,000 (1%) from December 31, 1996. Total deposits declined $1,293,000 (1%) during this time period with the largest decrease noted in the demand deposit accounts. Time certificates of deposits increased by $1,185,000 from December 31, 1996 to June 30, 1996. The Company had federal funds sold of $675,000 on June 30, 1997, compared with funds sold of $2,985,000 on December 31, 1996. Total notes payable increased to $11,350,000 on June 30, 1997 from $8,500,000 on December 31, 1996 as CVB and MSB borrowed funds from the Federal Home Loan Bank. Loan Pool Participations As of June 30, 1997, the Company had investments in loan pool participations of $47,021,000. There were no new loan pool investments during the quarter, but the Company was scheduled to fund a loan pool purchase settlement on July 1, 1997 totaling $3,644,000. The loan pool participation investment as of December 31, 1996 was $50,687,000. Average loan pool participation investments increased to $50,156,000 for the second three months of 1997 from $44,265,000 for the second quarter of 1996. Loans Loan volumes continued to increase, with total loans as of June 30, 1997 reflecting growth of $15,080,000 (13%) from December 31, 1996. Most of this growth was in the commercial, agricultural, and real estate loan categories, with some increase occurring in lease financing. The Company's subsidiary banks have continued to emphasize and focus on loan growth in their own markets throughout the year. Nonperforming Loans The Company's nonperforming loans totaled $1,370,000 (1.03% of total loans) as of June 30, 1997, compared to $2,102,000 (1.79% of total loans) as of December 31, 1996. This is a decrease of 35% from December 31, 1996 to June 30, 1997. All nonperforming loan totals and related ratios exclude the loan pool investments. The following table presents the categories of nonperforming loans as of June 30, 1997: 90 days past due $ 130 Renegotiated 350 Nonaccrual 878 Other real estate owned 12 ------ $1,370
From December 31, 1996 to June 30, 1997, loans ninety days past due decreased $495,000, restructured and renegotiated loans decreased $30,000, nonaccrual loans decreased $207,000, and other real estate owned remained unchanged. The Company's allowance for loan losses as of June 30, 1997 was $1,619,000, which was 1.22% of total loans as of that date. This compares with an allowance for loan losses of $1,491,000 as of December 31, 1996, which was 1.27% of total loans. As of June 30, 1997, the allowance for loan losses was 118.21% of nonperforming loans compared with 70.91% as of December 31, 1996. Management believes that as of June 30, 1997 the allowance for loan losses is adequate. For the three months ended June 30, 1997, the Company recognized a recovery of loans perviously charged-off of $2,000 compared with a recovery of $12,000 during the quarter ended June 30, 1996. The Company experienced a net loan charge-off of $38,000 for the first six months of 1997 compared with a net charge-off of loans totaling $16,000 for the first half of 1996. Capital Resources As of June 30, 1997, total shareholders' equity as a percentage of total assets was 13.67% compared with 13.60% as of December 31, 1996. The Company held 105,383 shares of treasury stock at a cost of $2,081,000 as of June 30, 1997. These shares were repurchased in order to satisfy options granted under the Company's Stock Incentive Plan. During the second quarter of 1997, a total of 45,000 shares were repurchased at a cost of $1,074,000 in accordance with the authorization from the Board of Directors to repurchase up to 200,000 shares through January 31, 1998. Also in the second quarter of 1997, the Company reissued 5,584 shares of treasury stock as options were exercised. Under risk-based capital rules, the Company's total capital was 15.58% of risk-weighted assets as of June 30, 1997, and was 16.23% of risk-weighted assets as of December 31, 1996, compared to an 8.00% minimum requirement. Liquidity Liquidity management involves meeting the cash flow requirements of depositors and borrowers. The Company conducts liquidity management on both a daily and long-term basis. It adjusts its investments in liquid assets based on expected loan demand, projected loan maturities and payments,estimated cash flows from the loan pool participations, expected deposit flows, yields available on interest-bearing deposits, and the objectives of its asset/liability management program. The Company had liquid assets (cash and cash equivalents) of $11,395,000 as of June 30, 1997, compared with $16,484,000 as of December 31, 1996. Most of this decrease is attributable to the increase in loans which utilized liquid assets. Investment securities classified as available for sale could be sold to meet liquidity needs, if necessary. Additionally, the bank subsidiaries maintain lines of credit with correspondent banks and the Federal Home Loan Bank that would allow them to borrow federal funds on a short-term basis if necessary. The Company also maintains a line of credit with Harris Trust & Savings Bank of Chicago, Illinois that provides liquidity for the purchase of loan pool participation investments and other corporate needs. Management believes that the Company has sufficient liquidity as of June 30, 1997 to meet the needs of borrowers and depositors. Pella, Iowa Expansion On June 23, 1997, the Company announced that it intends to open a de novo, wholly-owned, subsidiary bank in Pella, Iowa. Management anticipates the opening of the new bank sometime in the fourth quarter of 1997, subject to federal and state regulatory approval. The proposed bank will be called the Pella State Bank and will be a full-service, state-chartered, commercial bank. Management feels that Pella represents a very attractive, expanding market in south-central Iowa that will provide the Company with growth potential for both loans and deposits. The Company anticipates that it will capitalize the proposed bank with $5,000,000 from available cash on hand and from an advance on the revolving line of credit with Harris Trust & Savings Bank. This will increase the Company's interest expense on notes payable in future periods, but this should be offset by additional interest income from loans and investments as the new bank grows. Interest expense on deposits will also increase as the bank's deposits grow in future periods. Operating expenses for salaries and benefits, and general operating expenses related to the operation of the new subsidiary, will increase in future periods as the institution becomes fully operational. PART II -- Item 4. Submission of Matters to a Vote of Security Holders. The Company's annual meeting of shareholders was held on April 30, 1997. The record date for determination of shareholders entitled to vote at the meeting was March 7, 1997. There were 2,230,539 shares outstanding as of that date, each such share being entitled to one vote. At the shareholders' meeting the holders of 1,957,654 shares of stock were represented in person or by proxy, which constituted a quorum. The following proposals were voted on at the meeting: Proposal 1 - Election of Directors: The following members of the Company's board of directors were elected to serve for the specified term or until their successors shall have been elected and qualified. Such persons received the number of votes set opposite their names:
VOTE FOR WITHHELD Three-year term (2000): Martin L. Bernstein 1,917,374 40,280 R. Spencer Howard 1,939,672 17,982
Proposal 2 - Ratification of Appointment of KPMG Peat Marwick LLP as independent auditor: A vote was also taken on the ratification of the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ending December 31, 1997. The results of the vote were as follows:
DEALER FOR AGAINST ABSTAIN NON-VOTES 1,944,823 12,631 200 0
PART II -- Item 5. Other Information On June 19, 1997, the Board of Directors of MIC Leasing Co., a wholly-owned subsidiary of the Company, approved an amendment to the Articles of Incorporation to authorize a change in the corporate name of the subsidiary to On-Site Credit Services, Inc. On June 19, 1997, the Company and Harris Trust & Savings Bank entered into a Second Amendment to the Revolving Loan Agreement dated January 31, 1996. This amendment to the loan agreement is included as Exhibit 10.5.2 to this 10-Q filing. Part II -- Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this Report or, if so indicated, incorporated by reference: Exhibits 3.1 Articles of Incorporation of Mahaska Investment Company. (d) 3.2 Bylaws of Mahaska Investment Company. (d) 10.1 Mahaska Investment Company Employee Stock Ownership Plan & Trust as restated and amended. (b) 10.2.1 1993 Stock Incentive Plan. (a) 10.2.2 1996 Stock Incentive Plan. (d) 10.3.1 Midstates Resources Corp. Loan Participation and Servicing Agreement dated December 9, 1992 between Midstates Resources Corp., Mahaska Investment Company, and Mahaska State Bank. (a) 10.3.2 Central States Resources Corp. Liquidation Agreement dated April 18, 1988 between Central States Resources Corp., Mahaska State Bank, National Bank & Trust Co., and Randal Vardaman. (a) 10.3.3 All States Resources Corp. Loan Participation and Servicing Agreement dated September 13, 1993 between All States Resources Corp., Mahaska Investment Company, and West Gate Bank. (a) 10.5.1 Revolving Loan Agreement dated January 31, 1996 between Mahaska Investment Company and Harris Trust & Savings Bank. (c) 10.5.2 Second Amendment to Revolving Loan Agreement and Revolving Loan Note between Mahaska Investment Company and Harris Trust & Savings Bank dated June l9, 1997. 10.6 Purchase and Assumption Agreement between Boatmen's Bank Iowa, National Association, and Central Valley Bank dated February 15, 1996. (c) 11 Computation of Per Share Earnings. 27 Financial Data Schedule. (a) Incorporated by reference to the Form S-1 Registration Number 33-81922 of Mahaska Investment Company. (b) Incorporated by reference to the Form 10-K for the year ended December 31, 1994 filed by Mahaska Investment Company. (c) Incorporated by reference to the Form 8-K filed by Mahaska Investment Company on February 29, 1996. (d) Incorporated by reference to the Form 10-K for the year ended December 31, 1996 filed by Mahaska Investment Company. (b) Reports on Form 8-K -- No reports on Form 8-K were filed during the three months ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAHASKA INVESTMENT COMPANY (Registrant) August 11, 1997 /s/ Charles S. Howard Dated Charles S. Howard President August 11, 1997 /s/ David A. Meinert Dated David A. Meinert Executive Vice President and Chief Financial Officer (Principal Accounting Officer) Exhibit 10.5.2 MAHASKA INVESTMENT COMPANY SECOND AMENDMENT TO CREDIT AGREEMENT Harris Trust and Savings Bank Chicago, Illinois Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of January 31, 1996, as amended (the "Credit Agreement"), between the undersigned, Mahaska Investment Company, an Iowa corporation (the "Borrower"), and you (the "Bank"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The Borrower has requested that the Bank extend the Termination Date to June 30, 1998, and make certain other amendments to the Credit Agreement, and the Bank is willing to do so under the terms and conditions set forth in this Amendment. 1. AMENDMENTS. Upon your acceptance hereof in the space provided for that purpose below, the Credit Agreement shall be and hereby is amended as follows: (a) The interest rate payable under Section 2.1 of the Credit Agreement shall be reduced and, accordingly, Section 2.1 of the Credit Agreement shall be amended by deleting the phrase "at the rate per annum equal to the Prime Rate as in effect from time to time" appearing in the third and fourth lines thereof and inserting the phrase "at the rate per annum determined by subtracting (but not below zero) 1/4 of 1% per annum from the Prime Rate as in effect from time to time" in lieu thereof. (b) The commitment fee payable under Section 2.2 of the Credit Agreement shall be reduced and, accordingly, Section 2.2 of the Credit Agreement shall be amended by deleting the phrase "at the rate of 1/4 of 1% per annum" appearing in the second and third lines thereof and inserting the phrase "at the rate of 1/8 of 1% per annum" in lieu thereof. (c) The definition of "Termination Date" appearing in Section 4 of the Credit Agreement shall be amended by deleting the date "June 19, 1997" and inserting the date "June 30, 1998" in lieu thereof. (d) Section 5.5 of the Credit Agreement shall be amended by deleting the date "September 30, 1995" appearing in the last sentence thereof and inserting the date "December 31, 1996" in lieu thereof. (e) The amount of Consolidated Net Income required to be maintained pursuant to Section 7.8 of the Credit Agreement shall be amended by deleting the amount "$1,650,000" appearing therein and inserting the amount "$1,900,000" in lieu thereof. (f) Section 7 of the Credit Agreement shall be amended by adding an additional covenant at the end thereof which shall read as follows: "Section 7.13. Minimum Tangible Net Worth of MIC Leasing Company. The Borrower shall at all times cause MIC Leasing Company to maintain Tangible Net Worth in an amount not less than $4,500,000. For purposes of this Section, "Tangible Net Worth" means, at any time the same is to be determined, the total shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock, but excluding minority interest in subsidiaries) which would appear on the balance sheet of MIC Leasing Company determined in accordance with generally accepted accouting principles, less the sum (i) the aggregate book value of all assets which would be classified as intangible assets under generally accepted accounting principles, including, without limitation, goodwill, patents, trademarks, trade names, copyrights, franchises, and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs and deferred research and development expense), and similar assets and (ii) the write-up of assets above cost". 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: (a) The Borrower and the Bank shall have executed and delivered this Amendment. (b) Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Bank and its counsel. 3. REPRESENTATIONS. In order to induce the Bank to execute and deliver this Amendment, the Borrower hereby represents to the Bank that as of the date hereof, the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.5 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Bank) and the Borrower is in full compliance with all of the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. 4. MISCELLANEOUS. (a) Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Note, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. (b) The Borrower agrees to pay on demand all costs and expenses of or incurred by the Bank in connection with the negotiation, preparation, execution and delivery of this Amendment, including the fees and expenses of counsel for the Bank. (c) This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. Dated as of June 19, 1997. MAHASKA INVESTMENT COMPANY By /s/ Charles S. Howard Its President Accepted and agreed to in Chicago, Illinois as of the date and year last above written. HARRIS TRUST AND SAVINGS BANK By /s/ Michael S. Cameli Its Vice President page 4 of 4 EXHIBIT 11 MAHASKA INVESTMENT COMPANY AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Earnings per Share Information: Weighted average number of shares outstanding during period 2,190,467 2,256,759 2,209,348 2,258,957 Net earnings $ 1,227,241 1,262,291 2,605,473 2,268,093 Earnings per share 0.56 0.56 1.18 1.00
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9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1997 OF MAHASKA INVESTMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000741390 MAHASKA INVESTMENT CO. 1,000 6-MOS DEC-31-1997 JUN-30-1997 9,972 748 675 0 0 23,157 23,099 132,496 (1,619) 254,447 205,659 11,350 2,653 0 0 0 11,423 23,362 254,447 2,998 789 2,004 5,791 2,093 2,308 3,483 39 (8) 1,954 1,912 1,227 0 0 1,227 .56 .56 10.04 878 130 350 0 (1,578) 10 (12) (1,619) (1,619) 0 (1,303)
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