-----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, AUOk7VNZ1ldevyiHiG3Gv2qNsIpQP6btxJOXHqgKKutqhHJISgyaksF3tmBdla+8 vSfv0N8GNIHXKNmJ+M8xgA== 0000950131-02-001170.txt : 20020415 0000950131-02-001170.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950131-02-001170 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24630 FILM NUMBER: 02587457 BUSINESS ADDRESS: STREET 1: P.O. BOX 1104 CITY: OSKALOOSA STATE: IA ZIP: 52577 BUSINESS PHONE: 5156738448 MAIL ADDRESS: STREET 1: 222 FIRST AVDNUE EAST CITY: OSKALOOSA STATE: IA ZIP: 52577 10-K 1 d10k.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 2001 0-24630 MAHASKA INVESTMENT COMPANY Incorporated in Iowa I.R.S. Employer Identification No. 42-1003699 222 First Avenue East, Oskaloosa, Iowa 52577 Registrant's telephone number, including area code: 641-673-8448 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No. ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 11, 2002, was $43,332,710. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date, March 11, 2002. 3,867,594 shares Common Stock, $5 par value DOCUMENTS INCORPORATED BY REFERENCE The Annual Report to Shareholders for the 2001 fiscal year is incorporated by reference into Part II hereof to the extent indicated in such Part. The definitive proxy statement of Mahaska Investment Company for the 2002 annual meeting of shareholders is incorporated by reference into Part II and Part III hereof to the extent indicated in such Parts. ================================================================================ TABLE OF CONTENTS PART I
Page ----- Item 1. Business............................................................................. 3 A. General Description................................... 3 B. Subsidiaries.......................................... 3 C. Loan Pool Participations.............................. 4 D. Competition........................................... 7 E. Supervision and Regulation............................ 8 F. Employees............................................. 10 G. Statistical Disclosure................................ 10 Item 2. Properties........................................................................... 19 Item 3. Legal Proceedings.................................................................... 19 Item 4. Submission of Matters to a Vote of Security Holders.................................. 20 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............ 20 Item 6. Selected Financial Data.............................................................. 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7a. Market Risk Disclosure............................................................... 20 Item 8. Financial Statements and Supplementary Data.......................................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 20 PART III Item 10. Directors and Executive Officers of the Registrant................................... 21 Item 11. Executive Compensation............................................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 21 Item 13. Certain Relationships and Related Transactions....................................... 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 21
2 PART I Item 1. Business A. General Description Mahaska Investment Company (the "Company") is a financial services holding company headquartered in Oskaloosa, Mahaska County, Iowa. The Company was incorporated in Iowa in 1973 and is a bank holding company registered under the Bank Holding Company Act of 1956 and a savings and loan holding company under the Savings and Loan Holding Company Act. The Company owns 100% of the stock of four bank subsidiaries (collectively referred to as the "Banks"). These four banks are Mahaska State Bank ("MSB"), Central Valley Bank ("CVB"), Pella State Bank ("PSB") and Midwest Federal Savings and Loan Association of Eastern Iowa ("MFS"). The Company also owns 100% of the stock of a commercial finance company MIC Financial, Inc. ("MIC Financial"). The Bank subsidiaries engage in retail and commercial banking and related financial services, providing the usual products and services such as deposits, commercial, real estate, and consumer loans, and trust services. MSB also provides data processing services to affiliated and non-affiliated banks. MIC Financial has provided factoring, equipment leasing and accounts receivable financing to small business clients. The Company is no longer offering these services and is in the process of collecting the remaining assets of MIC Financial. Since 1988, the Company, either directly or through the Banks, has invested in loan pool participations that have been purchased by certain non-affiliated independent service corporations (collectively, the "Servicer") from the Federal Deposit Insurance Corporation ("FDIC") or from other sources. These loan pool investments generally consist of performing, nonperforming, or distressed loans, that have been sold at prices reflecting varying discounts from the aggregate outstanding principal amount of the underlying loans depending on the credit quality of the portfolio. The Servicer collects these loans from the borrowers. The Company provides services to the Banks including management assistance, auditing services, human resources administration, marketing assistance and coordination, assistance with respect to accounting and operating systems and procedures, and loan review. Effective January 1, 2002, the Company began providing data processing and check processing services to the Banks. These functions were previously performed by MSB. Charges for these services are based on the nature and extent of these services. The Company also provides data processing services to two non-affiliated banks. This service was previously performed by MSB. B. Subsidiaries Mahaska State Bank--MSB is a full-service, commercial bank that was chartered as an Iowa state bank in 1931. The Bank operates in south central Iowa and serves all of Mahaska county from its main bank and two branch offices in Oskaloosa and serves portions of Keokuk and Iowa counties from its branch office in North English. The Bank provides a wide array of retail and commercial banking services, including demand, savings and time deposits, loans, and trust services. The Bank also provides full-service brokerage services to its customers through an affiliation with an independent broker. Central Valley Bank--CVB is a full-service, federally-chartered savings bank which was formed as a de novo institution by the Company in June 1994. CVB operates in south central Iowa from its main office in Ottumwa, which serves Wapello County, and from its two branches located in Fairfield and one branch in Sigourney, which serve Jefferson and Keokuk counties, respectively. CVB provides retail deposit services including demand, savings, and time deposit products and offers commercial, agricultural, real estate, and consumer loans. The Bank wholly-owns a service corporation, Valley Financial Services, Inc., that provides crop insurance products and investment brokerage services to its customers. 3 Pella State Bank--PSB is a full-service, Iowa state chartered commercial bank which the Company formed as a de novo institution in December 1997. PSB mainly serves the community of Pella, Iowa and the surrounding area located in Marion County. The bank relocated its main office to a leased facility in downtown Pella early in 2001 and maintains a branch office on the south side of the community that the Company purchased and renovated in 1997. The Bank provides full retail and commercial banking services to its customers. The Bank also provides full-service brokerage services to its customers through an affiliation with an independent broker. Midwest Federal Savings and Loan Association of Eastern Iowa--MFS is a full-service federally-chartered savings bank which was acquired by the Company on September 30, 1999. MFS is headquartered in Burlington, located in the southeast part of Iowa. MFS serves the Des Moines county market through its main office and a branch in Burlington and a Wal-Mart Super Center branch in West Burlington. MFS also serves the Lee County market through a branch in Fort Madison and the Louisa County area through a branch in Wapello. MFS is a community-oriented financial institution that offers a variety of financial services to meet the needs of the communities it serves. MFS is primarily engaged in attracting retail deposits from the general public by offering checking accounts, savings accounts, and certificate of deposits. MFS offers residential real estate and construction loans, small-business commercial loans, consumer and other loans in its market area. Tax-deferred annuities and other financial products are sold by MFS through its wholly-owned subsidiary Midwest Financial Products, Inc. MIC Financial, Inc.--MIC Financial is an Iowa corporation that was formed by the Company in 1974 under the name of MIC Leasing Co. The company operated under the name of On-Site Commercial Services until June 1997 when the name was officially changed to On-Site Credit Services, Inc. Effective March 21, 2000, the name was changed to MIC Financial, Inc. In April 1999, the Company's Board of Directors determined that it would discontinue the activities of MIC Financial and subsequently sold, collected, or charged-off a substantial portion of the entities' assets. Management continues to evaluate the options and/or alternatives related to the remaining assets of the company. MIC Financial originated and serviced machinery and equipment leases to small businesses and farmers and also provided accounts receivable financing and factoring services to small businesses mainly in the state of Iowa. C. Loan Pool Participations The Company, directly and through the Banks, has participation interests in pools of loans purchased at varying discounts from the aggregate outstanding principal amount of the underlying loans. The Company has been purchasing participation interests in discounted loans since 1988. These pools of loans are currently held and serviced by a separate independent servicing corporation (referred to as the "Servicer") known as States Resources Corporation. The Company does not have any ownership interest in or control over States Resources Corporation. States Resources Corporation was founded in 1998 and is owned by Randal Vardaman. Prior to the formation of States Resources Corporation, Mr. Vardaman owned various other independent loan servicing corporations. The Company has maintained a business relationship with Mr. Vardaman and the various predecessor corporations owned by him since 1988. Mr. Vardaman has been engaged in credit analysis and loan portfolio management in various positions since 1970. The Company has invested in loan pools purchased by the Servicer from the FDIC acting as receiver of failed banks and savings and loan institutions, and by other large nonaffiliated banking organizations. The loans comprising the pools were originated throughout the United States. As part of the agreement to purchase participation interests in the loan pools, the Company and its subsidiaries have contracted with the Servicer to service the underlying loans within the respective loan pools which are owned of record by the Servicer. The Servicer also evaluates various loan pools prior to purchase and makes recommendations to the Company concerning the creditworthiness of proposed loan pool purchases and proposes appropriate bids to the Company and any other potential loan pool participants. The Servicer and its predecessor organizations have bid on loan pools from various regional offices of the FDIC and from other sources since 1988. The Company and the Banks have purchased participation interests in 4 such pools of loans. The purchase prices paid by the Company for loan pool participations have ranged from 5.5% to 97.7% of the aggregate outstanding principal amount of the loans comprising such pools at the time of purchase. The Servicer acquires the loan pools without recourse against the sellers and, accordingly, the risk of noncollectibility is, for the most part, assumed by the Company and any other investors in a particular pool. Each pool has a different composition and different characteristics. The composition of a loan pool is generally determined by the seller based on its desire to maximize the price it receives for all loans among the various pools. Many of the pools consist of loans primarily secured by single-family, multi-family, and small commercial real estate. Some pools may consist of a large number of small consumer loans that are secured by other assets such as automobiles or mobile homes, while other pools may consist of small to medium balance commercial loans. Some may contain a mixture of such loans and other types of loans. Most of the pools the Company is currently investing in are comprised primarily of performing loans, although some may contain a number of past-due nonperforming loans. The price bid and paid for such a loan pool is determined based on the composition of the particular pool, the amounts the Servicer believes can be collected on such a pool, and the risks associated with the collection of such amounts. In considering an investment in a loan pool, the Servicer will evaluate loans owned and being offered and make recommendations to the Company and other prospective investors concerning the creditworthiness of the proposed loan pool purchase. The Servicer performs a comprehensive analysis of the loan pool in an attempt to ensure proper valuation and adequate safeguards in the event of default. The bid price on the loan pools will be reflective of the results of the Servicer's pre-acquisition review of the loan files. In many cases the loan files may not be current and substantial uncertainties may exist regarding the collectibility of the various loans in the pool. Management believes that in many instances the non-current loans can be brought current once the Servicer has an opportunity to contact the debtor. The Company makes its own decisions as to whether or not to participate in a particular loan pool that has been recommended by the Servicer, based on the Company's experience with the various categories and qualities of loans. The sales of loan pools by the FDIC and by other sellers is generally conducted by sealed bid auction. A sealed bid auction requires each bidder to submit a confidential bid on the subject loan pool and the loan pool is awarded to the highest bidder. In recent years, the Servicer and the Company have faced increasing competition in bidding for loan pools. Since 1988, the Servicer and its predecessor organizations, on behalf of the Company and other investors, have bid on a large number of loan pools and have been successful in purchasing 106 loan pools. The Company and other investors in the loan pools fund the purchase by the Servicer and each investor receives a percentage interest in the loan pool based on its proportional investment relative to the total purchase price of the pool. Each investor receives a loan pool participation certificate reflecting this interest. The purchased loan pools consist, for the most part, of loans evidenced by promissory notes and secured by either real property or personal property. The value of the collateral may range from nominal to substantial and often may be impossible to establish prior to acquisition of the pools with the level of certainty that is typically required in a financial institution. Upon the acquisition of a participation interest in a loan pool, the Company assumes the risk that the Servicer will be unable to recover an amount equal to the purchase price plus the carrying costs, if any, collection costs and expected profits on such accounts. The extent of such risk is dependent on a number of factors, including the Servicer's ability to locate the debtors, the debtors' financial condition, the possibility that a debtor may file for protection under applicable bankruptcy laws, the Servicer's ability to locate the collateral, if any, for the loan and to obtain possession of such collateral, the value of such collateral, and the length of time it takes to realize the ultimate recovery either through collection procedures or through a resale of the loans following a restructure. 5 A "cost basis" is assigned to each individual loan acquired on a cents per dollar (discounted price) based on the Servicer's assessment of the recovery potential of each such loan. This methodology assigns a higher basis to performing loans with greater potential collectibility and a lower basis to those loans identified as having little or no potential for collection. Loan pool participations are presented on the Company's balance sheet as a separate asset category. The original carrying value of loan pool participations represents the discounted price paid by the Company to acquire its participation interests in various loan pools purchased by the Servicer. The Company's investment balance is reduced as the Servicer collects principal payments on the loans and remits the proportionate share of such payments to the Company. The investment in loan pools is accounted for on a nonaccrual (or cash) basis in one of three methods, depending on the circumstances. First, if a borrower makes regular payments on a loan, the payment received is first applied to interest income in the amount of interest due at the contract rate. Further payments are applied to principal in a ratio reflecting the proportion of cost basis to loan principal amount. Payments in excess of interest and this ratio are recorded as discount income. Discount income earned over the life of a loan represents loan principal collected in excess of the price originally paid to acquire the loan from the FDIC or any other sellers, which price constitutes the "cost basis" of the loan. Secondly, if the borrower fails to make regular payments, the Servicer evaluates the collateral supporting the loan. If the Servicer determines that the loan is well secured, then payments are applied as previously described. If the Servicer determines that the collateral is deficient, payments are applied to the principal balance of the loan with no recognition of interest due. The cost recovery method governs the application of payments received to the outstanding principal balance. Under this method, any amount received is initially applied to the "cost basis" of the loan and any additional amounts received are recognized as discount income. Third, where the Servicer negotiates a settlement of a loan for a lump sum, the payment is first applied to principal to the extent of the assigned "cost basis" with the excess treated as discount income up to the original principal value of the loan, and any remainder is treated as interest income on loan pool participations. In each case, where changed circumstances or new information lead the Servicer to believe that collection of the note or recovery of the basis through collateral would be less than originally determined, the cost basis assigned to the loan is written down or written off through a charge against discount income. Collection expenses incurred by the Servicer are netted against discount income. These costs include salary and benefits paid by the Servicer to its employees, legal fees, costs to maintain and insure real estate owned, and other operating expenses. Discount income is added to interest income and reflected as one amount on the Company's consolidated statement of income. Profit (or loss) from collection activities is determined on a monthly basis for each servicing corporation from which loan pool participation interests have been purchased. The Company does not recognize as income any accrued interest receivable on the loan pools. Interest income is only recognized when collected and actually remitted to the Company by the Servicer. Many of the pools that have been purchased by the Servicer do not include purchased interest in the cost basis; thus, interest collected does not have a cost basis and represents profit. Interest income collected by the Servicer is reflected in the Company's consolidated financial statements as interest income included as part of interest income and discount on loan pool participations. The Servicer provides the Company with monthly reports detailing collections of principal and interest, face value of loans collected and those written off, actual operating expenses incurred, remaining asset balances (both in terms of cost basis and principal amount of loans), a comparison of actual collections and expenses with target collections and budgeted expenses, and summaries of remaining collection targets. The Servicer also provides aging reports and "watch lists" for the loan pools purchased by States Resources. Monthly meetings are held between the Company and representatives of the Servicer to review collection efforts and results, to discuss 6 future plans of action, and to discuss potential opportunities. Additionally, the Company's and the Servicer's personnel communicate via telephone, fax, and electronic mail on a regular basis to discuss various issues regarding the loan pools. Company management personnel visit the Servicer's operation in Omaha, Nebraska on a regular basis; and the Company's loan review officer and its internal auditor perform asset reviews and audit procedures on a regular basis. Beginning in 1998, all purchases of loan pools were made by the servicing organization called States Resources Corporation. This corporation was created to enable the Company and the Servicer to invest in higher-quality performing assets and still provide both parties with an acceptable return. Under the terms of the States Resources agreement, the Servicer receives a servicing fee based on one percent of the gross monthly collections of principal and interest, net of collection costs. Additionally, the Servicer receives a tiered percentage share of the recovery profit in excess of the investors' required return on investment on each individual loan pool. In the event that the return on a particular pool does not exceed the required return on investment, the Servicer does not receive a percentage share. The Company's overall cost basis in its loan pool participations represents a discount from the aggregate outstanding principal amount of the loans underlying the pools. For example, as of December 31, 2001 and 2000, such cost basis was $110,393,000 and $74,755,000, respectively, while the contractual outstanding principal amounts of the underlying loans as of such dates were approximately $138,826,000 and $87,648,000, respectively. Because this discounted cost basis inherently reflects the assessed collectibility of the underlying loans and thus creates a built-in reserve against the risk of nonpayment in the loan pools, the Company has not established an allowance for loan losses relating to the loan pool participations. The Company does not include any amounts related to the loan pool participations in its totals of nonperforming loans. As part of the on-going collection process, the servicer may, from time-to-time, foreclose on real estate mortgages and acquire title to property in satisfaction of such debts. This real estate may be held by the servicer as "real estate owned" for a period of time until it can be sold. Since the Company's investment in loan pools are classified as participations in pools of loans, the Company does not include the real estate owned that is held by the servicer with the amount of any other real estate it may hold directly as a result of its own foreclosure activities. The underlying loans in the loan pool participations include both fixed rate and variable rate instruments, but are accounted for on a nonaccrual basis, and no amounts for interest due are reflected in the carrying value of the loan pool participations. Based on historical experience, the average period of collectibility for loans underlying the Company's loan pool participations, many of which have exceeded contractual maturity dates, is approximately three to five years. Management has reviewed the recoverability of the underlying loans and believes that the carrying value does not exceed the net realizable value of its investment in loan pool participations. D. Competition The Company competes in the commercial banking and thrift industries through its subsidiary banks. These industries are highly competitive, and all the bank subsidiaries face strong direct competition for deposits, loans, and other financial-related services. The Banks in Des Moines, Iowa, Jefferson, Keokuk, Lee, Louisa, Mahaska, Marion, and Wapello counties in south central and south east Iowa compete with other commercial banks, other thrifts, credit unions, stockbrokers, finance divisions of auto and farm equipment companies, agricultural suppliers, and other agricultural-related lenders. Some of these competitors are local, while others are statewide or nationwide. The Banks compete for deposits principally by offering depositors a wide variety of deposit programs, convenient office locations, hours and other services, and for loan originations primarily through interest rates and loan fees they charge, the efficiency and quality of services they provide to borrowers and the variety of their loan products. Some of the financial institutions and financial service organizations with which the Banks compete are not subject to the same degree of regulation as that imposed on bank and thrift holding companies, federally insured Iowa-chartered banks, and federal savings banks. As a result, such competitors have advantages over the Banks in providing certain services. As of December 31, 2001, there were approximately 45 7 other banks having 110 offices or branches operating within the 9 counties that the Company has locations. Based on deposit information collected by the FDIC as of June 30, 2001, the Company maintained approximately 12 percent of the bank deposits within the 9 counties. New competitors may develop that are substantially larger and have significantly greater resources than any of the Banks. Currently, major competitors in certain of the Company's markets include banking subsidiaries of Wells Fargo & Company, U.S. Bancorp, and Commercial Federal Bank, FSB. As a result of federal legislation to allow unlimited interstate branching, the Company may experience heightened competition from these and other major financial institutions seeking to expand their regional banking presence in Iowa. The Company also faces competition with respect to its investments in loan pool participations. The Company's financial success to date is largely attributable to the Servicer's ability to determine the loan pools to bid on and ultimately purchase, the availability of assets to fund the purchases and the Servicer's ability to collect on the underlying assets. Investments in loan pools have become increasingly popular in recent years, leading financial institutions and other competitors to become active at loan pool auctions conducted by the FDIC and other sellers. There is no assurance that the Company, through the Servicer, will be able to bid successfully in the future. Certain existing competitors of the Company are substantially larger and have significantly greater financial resources than the Company. Increased participation by new institutions or other investors may also create increased buying interest which could also result in higher bid prices for the type of loan pools considered for investment by the Company. In addition, new and existing competitors may develop due diligence procedures comparable to the Servicer's procedures. The emergence of such competition could have a material adverse effect on the Company's business and financial results. The Company expects that its success in the future will depend more on the performance of its bank subsidiaries and less on the investment in loan pool participations. E. Supervision and Regulation Bank holding companies, banks, savings and loan holding companies, and savings and loan associations are extensively regulated under federal and state law. References under this heading to applicable statutes or regulations are brief summaries of the portions thereof which do not purport to be complete and which are qualified in their entirety by reference to those statutes and regulations. Any change in applicable laws or regulation may have a material adverse effect on the business of the Company and the Banks. The Company, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956 (the "Act") and is registered with the Board of Governors of the Federal Reserve System. Under the Act, the Company is prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to affiliated banks, except that the Company may engage in and own shares of companies engaged in certain businesses found by the Board of Governors to be so closely related to banking "as to be proper incident thereto," such as owning a savings association. The Act does not place territorial restrictions on the activities of bank-related subsidiaries of bank holding companies. The Company is required by the Act to file periodic reports of its operations with the Board of Governors and is subject to examination by the Board of Governors. Under the Act and Federal Reserve Board regulations, the Company and the Bank are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, lease, sale of property, or furnishing of services. Iowa law permits bank holding companies domiciled in Iowa to make acquisitions throughout the state. Iowa law also permits bank holding companies located in the Midwestern Region (defined to include Illinois, Iowa, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin) to acquire banks or bank holding companies located in Iowa subject to approval by the Iowa Division of Banking and subject to certain statutory limitations. In addition, the Company may acquire banks or bank holding companies located in the Midwestern Region or outside the Midwestern Region, provided the Company's principal place of business remains in the Midwestern Region and the acquisition is authorized by the laws of the state in which the acquisition is to be made. 8 As a savings and loan holding company, the Company is subject to federal regulation and examination by the Office of Thrift Supervision (the "OTS"). The OTS has enforcement authority over the Company. This authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. Generally, the activities for a bank holding company are more limited than the authorized activities for a savings and loan holding company. The Company and its subsidiaries are affiliates within the meaning of the Federal Reserve Act and OTS regulations. As affiliates, they are subject to certain restrictions on loans by an affiliated bank or thrift (collectively "affiliated banks") to the Company, other affiliated banks or such other subsidiaries, on investments by an affiliated bank in their stock or securities and on an affiliated bank taking such stock and securities as collateral for loans to any borrower. The Company is also subject to certain restrictions with respect to direct issuance, flotation, underwriting, public sale or distribution of certain securities. Under Iowa law, Mahaska State Bank and Pella State Bank are subject to supervision and examination by the Iowa Division of Banking. As an affiliate of these banks, the Company is also subject to examination by the Iowa Division of Banking. The deposits of the Banks are insured by the Federal Deposit Insurance Corporation (the "FDIC") and the Banks are, therefore, also subject to the supervision and examination by the FDIC. The Banks are required to maintain certain minimum capital ratios established by these regulators. The Banks are assessed fees based on the institutions' deposits by the FDIC, to insure the funds of customers on deposit with the institutions. In addition, Iowa state law imposes restrictions on the operations of the state-chartered banks including limitations on the amount a bank can lend to a single borrower and limitations on the nature and amount of securities in which it may invest. Among other things, Iowa law imposes restrictions on certain types of loans made by a bank, limiting the bank from making loans (or purchasing participation interests in loan pools) secured by real estate located outside Iowa and its contiguous states in amounts exceeding 25% of its regulatory capital. There can be no assurance that the Iowa or federal regulators will not in the future impose further restrictions or limits on the Company's loan pool activities. Iowa law strictly regulates the establishment of bank offices and thus may affect the Company's future plans to establish additional offices of its banks. Under Iowa law, a state bank may not establish a bank office outside the boundaries of the counties contiguous to or cornering upon the county in which the principal place of business of the state bank is located. The number of offices a state bank may establish in a particular municipality is also limited depending upon the municipality's population. Central Valley Bank and Midwest Federal Savings are subject to the supervision of and are regularly examined by the OTS and are assessed fees by the OTS based upon their individual asset totals. As savings institutions, both CVB and MFS must maintain certain minimum capital ratios established by the OTS and are required to meet a qualified thrift lender test (the "QTL") to avoid certain restrictions upon its operations. The QTL was modified by the passage of the Economic Growth and Regulatory Paperwork Reduction Act of 1996. On December 31, 2001, both CVB and MFS complied with the current minimum capital guidelines and met the QTL test. OTS regulations permit federally chartered savings associations to branch nationwide to the extent allowed by federal statute, enabling federal savings associations with interstate networks to diversify their loan portfolios and lines of business. The Company operates within a regulatory structure that continuously evolves. In the last several years significant changes have occurred that affect the Company. The FDIC Improvement Act of 1991 (the "FDICIA") was primarily designed to recapitalize the FDIC's Bank Insurance Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF"). To accomplish this 9 purpose the FDIC was granted additional borrowing authority, granted the power to levy emergency special assessments on all insured depository institutions, granted the power to change the BIF and SAIF rates on deposits on a semiannual basis, and directed to draft regulations that provided for a "Risk-Based Assessment System" that was implemented on January 1, 1994. The FDICIA also imposed additional regulatory safety and soundness standards upon depository institutions and granted additional authority to the FDIC. The FDICIA generally requires that all institutions be examined by the FDIC annually. Under the provisions of the FDICIA, all regulatory authorities are required to examine their regulatory accounting standards and, to the extent possible, are required to conform to generally accepted accounting principles. Finally, the FDICIA requires the federal banking regulators to take prompt corrective action with respect to depository institutions that fall below certain capital standards and prohibits any depository institution from making any capital distribution that would cause it to be undercapitalized. Legislation became effective on September 30, 1995, which served to lessen or remove certain legal barriers to interstate banking and branching by financial institutions. The legislation has resulted in an increase in the nationwide consolidation activity occurring among financial institutions by facilitating interstate bank operations and acquisitions. On November 2, 1999, the Gramm-Leach-Bliley Act was enacted into law. This legislation provides for significant financial services reform by repealing key provisions of the Glass Steagall Act thereby permitting commercial banks to affiliate with investment banks, it substantially modifies the Bank Holding Company Act of 1956 to permit companies that own banks to engage in any type of financial activity, and it allows subsidiaries of banks to engage in a broad range of financial activities that are not permitted for banks themselves. The effects of this legislation, both from the opportunities for new activities that the Company may undertake and from the changes in competitors' activities, have not been fully ascertained at this time. The earnings of the Company are affected by the policies of regulatory authorities, including the Federal Reserve System. Federal Reserve System monetary policies have had a significant effect on the operating results of banks and thrifts in the past and are expected to do so in the future. Because of changing conditions in the economy and in the money markets as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of the Company. Future policies of the Federal Reserve System and other authorities cannot be predicted, nor can their effect on future earnings be predicted. F. Employees On December 31, 2001, the Company had 154 full-time employees and 24 part-time employees of which 58 full-time and 10 part-time employees were employed by MSB, 28 full-time and 5 part-time employees were employed by CVB, 12 full-time and 3 part-time employees were employed by PSB, 42 full-time and 5 part-time employed by MFS, and 14 full-time and 1 part-time employees were employed directly by the Company. The Company provides its employees with a comprehensive program of benefits, some of which are on a contributory basis, including comprehensive medical and dental plans, life insurance, long-term and short-term disability coverage, a 401(k) plan, and an employee stock ownership plan. None of the employees are represented by unions. Management considers its relationship with its employees to be excellent. G. Statistical Disclosure The following statistical disclosures relative to the consolidated operations of the Company have been prepared in accordance with Guide 3 of the Guides for the Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934. Average balances were primarily calculated on a daily basis. 10 I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential The following table details average balances, interest income/expense and average rates/yield for the Company's earning assets and interest bearing liabilities for the years ended December 31, 2001, 2000 and 1999 reported on a fully tax-equivalent basis assuming a 34% tax rate.
Year ended December 31, -------------------------------------------------------------------------------- 2001 2000 1999 ------------------------ ------------------------ ---------------------------- Interest Interest Income Average Income Average Interest Average Average (2)/ Rate/ Average (2)/ Rate/ Average Income (2)/ Rate/ Balance Expense Yield Balance Expense Yield Balance Expense Yield -------- -------- ------- -------- -------- ------- -------- ----------- ------- (dollars in thousands) Average earning assets: Loans (1)............... $316,033 $25,172 7.96% $302,153 $25,298 8.37% $202,733 $17,577 8.67 Loan pool participations......... 87,970 9,595 10.91 61,553 7,275 11.82 69,564 7,668 12.87 Interest-bearing deposits............... 2,389 56 2.38 2,206 116 5.23 1,868 82 4.37 Investment securities available for sale: Taxable investments.... 52,952 3,258 6.15 55,942 3,786 6.77 34,617 2,094 6.05 Tax exempt investments........... 5,703 430 7.54 7,171 600 8.37 2,249 182 8.11 Investment securities held to maturity: Taxable investments.... 15,207 1,106 7.27 19,918 1,423 7.14 10,639 696 6.54 Tax exempt investments........... 8,148 580 7.11 8,007 557 6.96 7,595 505 6.65 Federal funds sold...... 6,838 252 3.69 2,748 164 5.98 5,368 260 4.86 -------- ------- -------- ------- -------- ------- Total earning assets............... $495,240 $40,449 8.17 $459,698 $39,219 8.53 $324,633 $29,064 8.95 ======== ======= ======== ======= ======== ======= Average interest-bearing liabilities: Interest-bearing demand deposits............... $ 42,556 $ 521 1.22 $ 43,861 $ 782 1.78 $ 35,477 $ 637 1.80 Savings deposits........ 94,762 2,961 3.12 92,656 3,779 4.08 74,609 2,837 3.80 Certificates of deposit. 216,328 11,920 5.51 194,225 10,788 5.55 132,656 7,060 5.32 Federal funds purchased.............. 1,485 57 3.80 3,181 191 6.00 1,683 94 5.56 Federal Home Loan Bank advances.......... 82,317 5,166 6.28 67,873 4,484 6.61 21,522 1,287 5.98 Notes payable........... 12,135 802 6.61 15,473 1,403 9.07 16,621 1,280 7.70 -------- ------- -------- ------- -------- ------- Total interest- bearing liabilities.......... $449,583 $21,427 4.77 $417,269 $21,427 5.14 $282,568 $13,195 4.67 ======== ======= ======== ======= ======== ======= Net interest income....... $19,022 3.40 $17,792 3.40 $15,869 4.28 ======= ======= ======= Net interest margin (3)... 3.84% 3.87% 4.89 ===== ===== =====
- -------- (1) Average loans outstanding includes the daily average balance of non-performing loans. Interest on these loans does not include additional interest of $356,000, $418,000, and $258,000 for 2001, 2000 and 1999, respectively, which would have been accrued based on the original terms of these loans compared to the interest that was actually recorded. Interest earned on loans includes loan fees (which are not material in amount). (2) Includes interest income and discount realized on loan pool participations. (3) Net interest margin is net interest income divided by average total earning assets. 11 The following table sets forth an analysis of volume and rate changes in interest income and interest expense of the Company's average earning assets and average interest-bearing liabilities reported on a fully tax-equivalent basis assuming a 34% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the initial interest rate constant) and the changes related to average interest rates (changes in average rate holding the initial outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Year ended December 31, ---------------------------------------------------- 2001 Compared to 2000 2000 Compared to 1999 Increase/(Decrease) Due to Increase/(Decrease) Due t ------------------------- ------------------------- Volume Rate Net Volume Rate Net ------ ------- ------ ------- ------- ------- (in thousands) Interest income from average-earning assets: Loans................................................. $1,135 $(1,261) $ (126) $ 8,343 $ (622) $ 7,721 Loan pool participations (1).......................... 2,918 (598) 2,320 250 (643) (393) Interest-bearing deposits............................. 8 (68) (60) 16 18 34 Investment securities available for sale: Taxable investments............................... (195) (333) (528) 1,418 274 1,692 Tax exempt investments............................ (115) (55) (170) 412 6 418 Investment securities held to maturity: Taxable investments............................... (342) 25 (317) 658 69 727 Tax exempt investments............................ 10 13 23 28 24 52 Federal funds sold.................................... 170 (82) 88 (147) 51 (96) ------ ------- ------ ------- ------- ------- Total income from earning assets............... 3,589 (2,359) 1,230 10,978 (823) 10,155 ------ ------- ------ ------- ------- ------- Average expense of average interest-bearing liabilities: Interest-bearing demand deposits...................... (22) (239) (261) 149 (4) 145 Savings deposits...................................... 84 (902) (818) 725 217 942 Certificates of deposit............................... 1,218 (86) 1,132 3,408 320 3,728 Federal funds purchased............................... (79) (55) (134) 89 8 97 Federal Home Loan Bank advances....................... 916 (234) 682 3,049 148 3,197 Notes payable......................................... (267) (334) (601) (93) 216 123 ------ ------- ------ ------- ------- ------- Total expense form interest-bearing liabilities.................................. 1,850 (1,850) -- 7,327 905 8,232 ------ ------- ------ ------- ------- ------- Net interest income...................................... $1,739 $ (509) $1,230 $ 3,651 $(1,728) $ 1,923 ====== ======= ====== ======= ======= =======
- -------- (1) Includes interest income and discount realized on loan pool participations. 12 Interest Rate Sensitivity Analysis The following table sets forth the scheduled repricing or maturity of the Company's assets and liabilities as of December 31, 2001, based on the assumptions described below. The effect of these assumptions is to quantify the dollar amount of items that are interest rate-sensitive and can be repriced within each of the periods specified. The table does not necessarily indicate the impact of general interest rate movements on the Company's net interest margin because the repricing of certain categories of assets and liabilities is subject to competitive and other pressures beyond the Company's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may, in fact, mature or reprice at different times and at different volumes.
Three Over Three One to Three Months Months to Three Years or or Less One Year Years More Total --------- ---------- -------- -------- -------- (dollars in thousands) Interest earning assets: Loans............................................ $ 42,485 $ 61,675 $ 79,358 $139,163 $322,681 Loan pool participations......................... 9,200 27,598 73,595 -- 110,393 Interest-bearing deposits in banks............... 2,965 -- -- -- 2,965 Investment securities: Available for sale........................... 9,565 4,883 23,446 12,312 50,206 Held to maturity............................. 631 3,440 7,281 9,980 21,332 --------- --------- -------- -------- -------- Total interest earning assets............. 64,846 97,596 183,680 161,455 507,577 --------- --------- -------- -------- -------- Interest-bearing liabilities: Now accounts..................................... 45,372 -- -- -- 45,372 Savings deposits................................. 97,989 -- -- -- 97,989 Certificates of deposit.......................... 43,601 85,449 73,030 6,243 208,323 Federal funds purchased.......................... 10,650 -- -- -- 10,650 Federal Home Loan Bank advances.................. 1,967 22,901 25,736 40,570 91,174 Notes payable.................................... 2,500 1,350 2,700 2,650 9,200 --------- --------- -------- -------- -------- Total interest-bearing liabilities........ 202,079 109,700 101,466 49,463 462,708 --------- --------- -------- -------- -------- Interest sensitivity gap per period................. $(137,233) $ (12,104) $ 82,214 $111,992 ========= ========= ======== ======== Cumulative Interest Sensitivity gap................. $(137,233) $(149,337) $(67,123) $ 44,869 ========= ========= ======== ======== Interest sensitivity gap ratio...................... 0.32% 0.89% 1.81% 3.26% Cumulative Interest sensitivity gap ratio........... 0.32% 0.52% 0.84% 1.10%
In the table above, NOW accounts and savings deposits are included as interest-bearing liabilities in the three months or less category. Loan pool participations are included in the interest rate sensitivity analysis using an estimated three-year average life. The historical average for the return of original investment on the pools is approximately 36 months. Given the non-performing aspect of the loan pool portfolio, management feels that the use of contractual weighted-average maturity data is inappropriate. 13 II. Investment Portfolio The following table sets forth certain information with respect to the book value of the Company's investment portfolio as of December 31, 2001, 2000 and 1999.
December 31, ----------------------- 2001 2000 1999 ------- ------- ------- (in thousands) Securities available for sale: U.S. government securities....................... $ -- $ 1,005 $ 5,021 U.S. government agency securities................ 20,579 35,656 35,302 Obligations of states and political subdivisions. 3,450 6,669 7,780 Other investment securities...................... 26,177 17,428 12,427 ------- ------- ------- Total securities available for sale.......... 50,206 60,758 60,530 ------- ------- ------- Securities held to maturity: U.S. government agency securities................ 12,047 16,263 19,685 Obligations of states and political subdivisions. 9,098 8,968 7,573 Other investment securities...................... 187 690 2,187 ------- ------- ------- Total securities held to maturity............ 21,332 25,921 29,445 ------- ------- ------- Total investment securities......................... $71,538 $86,679 $89,975 ======= ======= =======
The following table sets forth the contractual maturities of investment securities as of December 31, 2001, and the weighted average yields (for tax-exempt obligations on a fully tax-equivalent basis assuming as 34% tax rate) of such securities. As of December 31, 2001, the Company held no securities with a book value exceeding 10% of shareholders' equity.
Maturity -------------------------------------------------------------- Within One After One but After Five but Year Within Five Years Within Ten Years After Ten Years ----------- ---------------- --------------- -------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------- ----- ------ ----- ------- ----- (dollars in thousands) Securities available for sale: U.S. government agency securities................ $ 758 6.54% $14,088 5.01% $1,013 6.66% $ 4,720 6.51% Obligations of states and political subdivisions. 288 7.72 2,240 6.71 922 7.70 -- -- Other investment securities...................... 1,276 6.59 18,568 6.48 781 5.50 5,552 3.75 ------ ------- ------ ------- Total securities available for sale............. 2,322 6.71 34,896 5.90 2,716 6.68 10,272 5.02 ------ ------- ------ ------- Securities held to maturity: U.S. government agency securities................ -- -- 2,404 6.60 234 7.78 9,409 6.56 Obligations of states and political subdivisions. 1,241 6.75 4,382 6.49 2,272 7.77 1,203 7.93 Other investment securities...................... 99 7.26 -- -- 88 7.15 -- -- ------ ------- ------ ------- Total securities held to maturity............... 1,340 6.79 6,786 6.53 2,594 7.75 10,612 6.72 ------ ------- ------ ------- Total investment securities........................ $3,662 6.74% $41,682 6.00% $5,310 7.20% $20,884 5.88% ====== ======= ====== =======
14 III. Loan Portfolio The Company's loan portfolio largely reflects the profile of the communities in which it operates. Approximately two-thirds of the total loans as of December 31, 2001, were agricultural, commercial or residential real estate loans. The following table shows the composition of the Company's loan portfolio as of the dates indicated.
December 31, ------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 -------------- -------------- -------------- -------------- -------------- % of % of % of % of % of Amount Total Amount Total Amount Total Amount Total Amount Total -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- (dollars in thousands) Agricultural.............. $ 41,084 12.7% $ 45,404 14.5% $ 42,022 14.9% $ 27,504 16.6% $ 24,779 17.2% Commercial................ 40,180 12.5 39,081 12.5 38,238 13.6 38,959 23.6 31,198 21.6 Real Estate: 1-4 family residences... 138,900 43.0 139,098 44.6 131,925 46.7 38,087 23.0 32,341 22.4 5+ residential property. 3,712 1.2 3,675 1.2 4,064 1.4 240 0.1 251 0.2 Agricultural............ 28,075 8.7 23,855 7.6 21,677 7.7 21,297 12.9 19,647 13.6 Construction............ 12,555 3.9 10,007 3.2 5,593 2.0 5,956 3.6 4,430 3.1 Commercial.............. 39,884 12.4 30,239 9.7 23,613 8.4 17,007 10.3 15,634 10.8 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Real estate total...... 223,126 69.2 206,874 66.3 186,872 66.2 82,587 49.9 72,303 50.1 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Installment............... 17,854 5.5 20,196 6.5 13,866 4.9% 12,847 7.8 13,268 9.2 Lease financing........... 437 0.1 526 0.2 1,093 0.4 3,530 2.1 2,785 1.9 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans (1)....... $322,681 100.0% $312,081 100.0% $282,091 100.0% $165,427 100.0% $144,333 100.0% ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Total assets.............. $545,795 $515,212 $486,189 $298,389 $274,873 ======== ======== ======== ======== ======== Loans to total assets..... 59.1% 60.6% 58.0% 55.4% 52.5%
- -------- (1) Total loans do not include the Company's investments in loan pool participations. The following table sets forth the remaining maturities for certain loan categories as of December 31, 2001.
Total for Loans Due After One Year Having: ---------------- Due in Due Within One to Due After Fixed Variable One Year Five Years Five Years Total Rates Rates ---------- ---------- ---------- ------- ------- -------- (in thousands) Agricultural............. $28,699 $ 8,962 $3,423 $41,084 $ 9,440 $2,945 Commercial............... 24,426 14,763 991 40,180 14,453 1,301 Real estate--construction 12,039 516 -- 12,555 8 508 ------- ------- ------ ------- ------- ------ Total................. $65,164 $24,241 $4,414 $93,819 $23,901 $4,754 ======= ======= ====== ======= ======= ======
The following table provides information on the Company's non-performing loans as of the dates indicated.
December 31, -------------------------------------- 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (dollars in thousands) 90 days past due............................ $ 926 $ 910 $1,426 $ 663 $ 522 Restructured................................ -- -- 515 164 387 Nonaccrual.................................. 2,559 2,042 2,874 561 927 ------ ------ ------ ------ ------ Total non-performing loans............... $3,485 $2,952 $4,815 $1,388 $1,836 ====== ====== ====== ====== ====== Ratio of non-performing loans to total loans 1.08% 0.95% 1.71% 0.84% 1.27%
15 IV. Summary of Loan Loss Experience The following table sets forth loans charged off and recovered by the type of loan and an analysis of the allowance for loan losses for the years ended December 31, 2001, 2000, 1999, 1996 and 1997.
Year ended December 31, ------------------------------------------------ 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (dollars in thousands) Amount of loans outstanding at end of period (net of unearned interest) (1)...................... $322,681 $312,081 $282,091 $165,427 $144,333 ======== ======== ======== ======== ======== Average amount of loans outstanding for the period (net of unearned interest).............. $316,033 $302,153 $202,733 $157,712 $131,081 ======== ======== ======== ======== ======== Allowance for loan losses at beginning of period. $ 2,933 $ 4,006 $ 2,177 $ 1,816 $ 1,491 -------- -------- -------- -------- -------- Charge-offs: Agricultural.................................. 1,130 695 303 135 19 Commercial.................................... 166 1,125 1,724 638 14 Real estate--construction..................... -- -- -- -- -- Real estate--mortgage......................... 114 131 229 -- 30 Installment................................... 76 92 56 63 63 Lease financing............................... -- 143 63 4 11 -------- -------- -------- -------- -------- Total charge-offs......................... 1,486 2,186 2,375 840 137 -------- -------- -------- -------- -------- Recoveries: Agricultural.................................. 3 -- 26 1 11 Commercial.................................... 52 182 2 8 18 Real estate--construction..................... -- -- -- -- -- Real estate--mortgage......................... 92 1 6 -- 1 Installment................................... 11 22 12 13 15 Lease financing............................... -- 16 14 -- -- -------- -------- -------- -------- -------- Total recoveries.......................... 158 221 60 22 45 -------- -------- -------- -------- -------- Net loans charged off............................ 1,328 1,965 2,315 818 92 Provision for loan losses........................ 1,776 892 3,628 1,179 417 Allowance at date of acquisition................. -- -- 516 -- -- -------- -------- -------- -------- -------- Allowance for loan losses to end of period....... $ 3,381 $ 2,933 $ 4,006 $ 2,177 $ 1,816 ======== ======== ======== ======== ======== Net loans charged off to average loans........... 0.42% 0.65% 1.14% 0.52% 0.07% Allowance for loan losses to total loans at end of period...................................... 1.05% 0.94% 1.42% 1.32% 1.26%
- -------- (1) Loans do not include, and the allowance for loan losses does not include any reserve for investments in loan pool participations. 16 The Company has allocated the allowance for loan losses to provide for loan losses being incurred within the categories of loans set forth in the the table below. The allocation of the allowance and the ratio of loans within each category to total loans as of the dates indicated are as follows:
December 31, ---------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------------- ---------------- ---------------- ---------------- ---------------- Percent Percent Percent Percent Percent of of of of of Loans Loans Loans Loans Loans to to to to to Allowance Total Allowance Total Allowance Total Allowance Total Allowance Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- (dollars in thousands) Agricultural... $ 916 12.7% $ 593 14.5% $ 597 14.9% $ 361 17.2% $ 310 17.2% Commercial..... 497 12.5 791 12.5 545 13.6 514 21.6 392 21.6 Real estate mortgage...... 1,642 69.2 1,329 66.3 2,652 66.2 1,086 50.1 912 50.1 Installment.... 273 5.5 194 6.5 196 4.9 170 9.2 167 9.2 Lease financing 53 0.1 26 0.2 16 0.4 46 1.9 35 1.9 ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Total....... $3,381 100.0% $2,933 100.0% $4,006 100.0% $2,177 100.0% $1,816 100.0% ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
V. Deposits The following table sets forth the average amount of and the average rate paid on deposits by deposit category for the years ended December 31, 2001, 2000 and 1999.
Year ended December 31, ------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- Average Average Average Balance Rate Balance Rate Balance Rate -------- ---- -------- ---- -------- ---- (dollars in thousands) Non-interest bearing demand deposits.......... $ 23,511 N/A $ 22,886 N/A $ 21,052 N/A Interest-bearing demand (NOW and money market) 42,556 1.22% 43,861 1.78% 35,477 1.80% Savings deposits.............................. 94,762 3.12 92,656 4.08 74,609 3.80 Certificates of deposit....................... 216,328 5.51 194,225 5.55 132,656 5.32 -------- -------- -------- Total deposits............................. $377,157 4.08% $353,628 4.34% $263,794 3.99% ======== ==== ======== ==== ======== ====
The following table summarizes certificates for deposit in amounts of $100,000 or more by time remaining until maturity as of December 31, 2001. These times deposits are made by individuals, corporations and public entities, all of which are located in the Company's market area or are State of Iowa public funds.
December 31, 2001 -------------- (in thousands) Three months or less............ $11,226 Over three through six months... 4,822 Over six months through one year 7,727 Over one year................... 5,802 ------- Total........................ $29,577 =======
17 VI. Return on Equity and Assets Various operating and equity ratios for the years indicated are presented below:
Year ended December 31, ---------------------- 2001 2000 1999 ----- ----- ------ Return on average total assets........ 0.82% 0.81% 0.64% Return on average equity.............. 8.59 8.18 5.29 Dividend payout ratio................. 54.55 60.61 103.45 Average equity to average assets...... 9.57 9.90 12.04 Equity to assets ratio (at period end) 9.31 9.57 10.33 ===== ===== ======
VII. Borrowed Funds The following table summaries the outstanding amount of and the average rate on borrowed funds as of December 31, 2001, 2000 and 1999.
December 31, ----------------------------------------------- 2001 2000 1999 --------------- -------------- -------------- Average Average Average Balance Rate Balance Rate Balance Rate -------- ------- ------- ------- ------- ------- (dollars in thousands) Notes payable (1).............. $ 9,200 3.95% $13,200 9.13% $18,000 8.13% Federal Home Loan Bank advances 91,174 5.56 75,050 6.27 63,421 5.79 Federal funds purchased........ 10,650 2.10 2,345 6.72 2,965 5.22 -------- ------- ------- Total....................... $111,024 5.09% $90,595 6.70% $84,386 6.27% ======== ==== ======= ==== ======= ====
(1) The notes payable balance at December 31, 2001, consists of $2,500,000 in advances on a revolving line of credit and $6,700,000 on a term note, both with an unaffiliated bank. Both notes have a variable interest rate at 0.80 percent below the lender's prime rate. Interest is payable quarterly. The revolving line of credit has a maximum limit of $9,000,000 and matures June 30, 2002. The term note calls for annual payments of $1,350,000 for the next two years with a final payment of $4,000,000 due at maturity on December 31, 2004. The maximum amount of borrowed funds outstanding at any month end for the years ended December 31, 2001, 2000 and 1999 were as follows:
2001 2000 1999 ------- ------- ------- (in thousands) Notes payable.................. $13,200 $18,000 $19,860 Federal Home Loan Bank advances 91,174 75,050 65,410 Federal funds purchased........ 10,650 8,460 8,665 ======= ======= =======
The following table sets forth the average amount of and the average rate paid on borrowed funds for the years ended December 31, 2001, 2000 and 1999.
Year ended December 31, ---------------------------------------------- 2001 2000 1999 -------------- -------------- -------------- Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate ------- ------- ------- ------- ------- ------- (dollars in thousands) Notes payable.................. $12,135 6.61%. $15,473 9.07%. $16,621 7.70%. Federal Home Loan Bank advances 82,317 6.28. 67,873 6.61. 21,522 5.98. Federal funds purchased........ 1,485 3.80. 3,181 6.00. 1,683 5.56. ------- ------- ------- Total....................... $95,937 6.28% $86,527 7.02% $39,826 6.68% ======= ==== ======= ==== ======= ====
18 Item 2. Properties The Company's headquarters are located at 222 First Avenue East, Oskaloosa, Iowa. This building is a two-story combination office, data processing facility, and motor bank that was constructed in 1975. The Company's offices are located on the second floor and the data processing area is located on the first floor. MSB rents the first floor motor bank area, which includes four drive-up lanes and two walk-up windows and the basement from the Company. The basement contains a meeting room, kitchen, and storage. MSB's lease runs through the year 2005. The principal offices of Mahaska State Bank are located at 124 South First Street, Oskaloosa, Iowa, in a two-story building owned by MSB that contains a full banking facility. MSB also owns a second building in Oskaloosa located at 301 A Avenue West. This one-story, full-banking facility, including two drive-up lanes, is located five blocks northwest of the bank's principal offices. In addition, MSB owns a 24-hour automatic teller machine located at 211 South First Street, Oskaloosa, Iowa. MSB also has a branch office located in North English, Iowa that is 40 miles northeast of Oskaloosa. The branch is a one-story building with a full banking facility, including two drive-up lanes and a 24-hour automatic teller machine. Central Valley Bank owns four facilities in the communities of Ottumwa, Fairfield, and Sigourney, Iowa. The Ottumwa building is a single-story brick structure constructed in 1981. The approximately 4,200 square foot building has several offices and a potential for three drive-up lanes, with two presently in operation. The building is located at 116 West Main in Ottumwa's downtown business district. The Fairfield facility is a two-story building located at 58 East Burlington on the southeast corner of the downtown square. The building's 8,932 square feet is all utilized by CVB. In 2001, CVB occupied a new 3,500 square foot branch facility at 2408 West Burlington Street in Fairfield. This facility replaced a leased grocery store branch that was closed. The Sigourney facility located at 112 North Main Street is one-half block northwest of the community's courthouse square in the downtown business district. The 4,596 square foot one-story masonry building was constructed in 1972 as a banking facility with one drive-up window. Pella State Bank's main office is a leased facility in Pella's downtown business district that opened on January 29, 2001. The 5,700 square foot facility is located in a newly-constructed retail/office complex and is leased for a period of ten years with options to renew. PSB owns a branch facility at 500 Oskaloosa Street in Pella, Iowa. The facility is located approximately six blocks south of the community's main business district. The building was acquired in the summer of 1997 and was completely renovated to become a modern banking facility containing approximately 1,860 square feet of usable space with two drive-up teller lanes. Midwest Federal Savings owns its main office in Burlington, Iowa and three of its branch office facilities. The main office located at 3225 Division Street, on the western side of the community, is adjacent to one of the major highways through Burlington. It is a one-story facility of approximately 10,300 square feet, constructed in 1974, with four drive-up lanes and one ATM. MFS also owns a branch facility located in Burlington's main downtown business district at 323 Jefferson Street. This facility is approximately 2,400 square feet and was the main office until 1974. The branch located in Fort Madison, Iowa at 926 Avenue G was acquired in 1975, has one drive-up window, and contains approximately 3,300 square feet on one level. The 960 square foot Wapello, Iowa branch is located on Highway 61 and was acquired in 1974. MFS leases a 540 square foot branch facility located in the Wal-Mart Super Center at 324 W. Agency Road in West Burlington. The branch was opened in 1997 under an initial lease term of 5 years, with a 5 year option to extend. Item 3. Legal Proceedings Mahaska Investment Company and its subsidiaries are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations. 19 Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information appearing on page 17 of the Company's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. There were approximately 462 holders of record of the Company's $5 common stock as of March 11, 2002. Additionally, there are an estimated 750 beneficial holders whose stock was held in street name by brokerage houses as of that date. The closing price of the Company's common stock was $12.60 on March 11, 2002. The Company paid dividends to common shareholders in 2001 of $.60 per share, which is the same amount paid in 2000. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis. In February 2002, the Board of Directors declared a dividend of $.16 per common share. The Company's loan agreement requires that the Company not pay any dividends in excess of sixty percent of net income without the lenders' permission. Except for certain regulatory restrictions that may affect dividend payments, there are no other restrictions on the Company's present or future ability to pay dividends. Item 6. Selected Financial Data The information appearing on page 3 of the Company's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information appearing on pages A-1 through A-12 of the Appendix to the Company's definitive proxy Statement, is incorporated herein by reference. Item 7a. Market Risk Disclosure The information appearing on pages A-8 and A-9 of the Appendix to the Company's definitive proxy statement, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The information appearing on pages A-13 through A-37 of the Appendix to the Company's definitive proxy statement, is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Within the twenty-four months prior to the date of the most recent financial statements, there have been no changes in or disagreements with accountants of the Company. 20 PART III Item 10. Directors and Executive Officers of the Registrant The definitive proxy statement of Mahaska Investment Company is incorporated herein by reference. Item 11. Executive Compensation The definitive proxy statement of Mahaska Investment Company is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The definitive proxy statement of Mahaska Investment Company is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The definitive proxy statement of Mahaska Investment Company is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K The following exhibits and financial statement schedules are filed as part of this report: (a) 1. Financial Statements: See the financial statements on pages A-13 through A-37 of the Appendix to the Company's definitive proxy statement, which are incorporated by reference herein. 2. Exhibits (not covered by independent auditors' report). Exhibit 3.1 Articles of Incorporation, as amended through April 30, 1998, of Mahaska Investment Company. The Articles of Incorporation, as amended, of Mahaska Investment Company are incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1998. Exhibit 3.2 Bylaws of Mahaska Investment Company. The Amended and Restated Bylaws of Mahaska Investment Company dated July 23, 1998, are incorporated by reference to the Company's quarterly report on Form 10-Q for the Quarter ended September 30, 1998. Exhibit 10.1 Mahaska Investment Company Employee Stock Ownership Plan & Trust as restated and amended. This Plan & Trust is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Exhibit 10.2.1 1993 Stock Incentive Plan. This 1993 Stock Incentive Plan is incorporated by reference to Form S-1 Registration Number 33-81922 of Mahaska Investment Company. 21 Exhibit 10.2.2 1996 Stock Incentive Plan. This 1996 Stock Incentive Plan is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Exhibit 10.2.3 1998 Stock Incentive Plan. This 1998 Stock Incentive Plan is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Exhibit 10.3 States Resources Corp. Loan Participation and Servicing Agreement dated February 5, 1999 between States Resources Corp. and Mahaska Investment Company. This agreement is incorporated herein by reference to the Form 10-K report filed by Mahaska Investment Company for the Year ended December 31, 1999. Exhibit 10.5 Amended and Restated Credit Agreement dated June 30, 2000 between Mahaska Investment Company and Harris Trust and Savings Bank. This Amended and Restated Credit Agreement is incorporated herein by reference to the Form 10-Q report filed by Mahaska Investment Company for the Quarter ended September 30, 2000. Exhibit 10.5.1 First Amendment to Amended and Restated Credit Agreement dated June 30, 2001 between Mahaska Investment Company and Harris Trust and Savings Bank. This Amendment is incorporated herein by reference to the Form 10-Q report filed by Mahaska Investment Company for the Quarter ended September 30, 2001. Exhibit 10.6 Agreement and Plan of Merger By and Between Mahaska Investment Company and Midwest Bancshares, Inc. dated February 2, 1999. This agreement and plan of merger is incorporated herein by reference to Amendment No. 1 to the Form S-4 Registration number 333-79291 filed by Mahaska Investment Company on August 17, 1999. Exhibit 11 Computation of Per Share Earnings Exhibit 13 The Annual Report to Shareholders of Mahaska Investment Company for the 2001 calendar year. Exhibit 21 Subsidiaries Exhibit 23 Consent of Independent Auditor 22 The Company will furnish to any shareholder upon request and upon payment of a fee of $.50 per page, a copy of any exhibit. Requests for copies should be directed to Karen K. Binns, Secretary/Treasurer, Mahaska Investment Company, P.O. Box 1104, Oskaloosa, Iowa 52577-1104. (b) Reports on Form 8-K: No reports on Form 8-K were required to be filed during the last quarter of 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) /S/ CHARLES S. HOWARD By: _______________________________ Charles S. Howard Chairman, President, Chief Executive Officer and Director March 21, 2002 23 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ RICHARD R. DONAHUE Director March 21, 2002 - ----------------------------- Richard R. Donahue /S/ WILLIAM D. HASSEL Director March 21, 2002 - ----------------------------- William D. Hassel /S/ CHARLES S. HOWARD Director, Chairman of the March 21, 2002 - ----------------------------- Board, President and Chief Charles S. Howard Executive Officer /S/ DAVID A. MEINERT Director, Executive Vice March 21, 2002 - ----------------------------- President and Chief David A. Meinert Financial Officer (Principal Accounting Officer) /S JOHN P. POTHOVEN Director March 21, 2002 - ----------------------------- John P. Pothoven /S/ JOHN W. N. STEDDOM Director March 21, 2002 - ----------------------------- John W. N. Steddom /S/ JAMES G. WAKE Director March 21, 2002 - ----------------------------- James G. Wake /S/ MICHAEL R. WELTER Director March 21, 2002 - ----------------------------- Michael R. Welter /S/ EDWARD C. WHITHAM Director March 21, 2002 - ----------------------------- Edward C. Whitham 24 EX-11 3 dex11.txt COMPUTATION OF PER SHARE EARNINGS Exhibit 11 MAHASKA INVESTMENT COMPANY AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
2001 2000 1999 ---------- --------- --------- Earnings per Share Information: Weighted average number of shares outstanding during the year............ 3,951,271 4,052,163 3,864,108 Weighted average number of shares outstanding during the year including all dilutive potential shares 3,986,156 4,056,921 3,968,826 Net earnings............................. $4,355,664 4,000,633 2,222,483 Earnings per share--basic................ $ 1.10 0.99 0.58 Earnings per share--diluted.............. $ 1.09 0.99 0.56
EX-13 4 dex13.txt THE ANNUAL REPORT FOR 2001 MAHASKA ---------------------- INVESTMENT COMPANY ------------------ [GRAPHIC APPEARS HERE] [LOGO OF MAHASKA INVESTMENT COMPANY] - ------------------ 2001 ANNUAL REPORT - ------------------ VISION STATEMENT Mahaska Investment Company and Subsidiaries It is the vision of Mahaska Investment Company to remain an independent banking organization, expanding its presence through internal growth and the addition of strategically important branch locations. The Company will pursue attractive opportunities to enter related lines of business as well as the possibility of acquiring other financial institutions with complementary lines of business. The Company will distinguish itself from the competition by a commitment to efficient delivery of products and services in its target markets. The Company will strive to be identified as a "community bank" within those markets. MAHASKA INVESTMENT COMPANY WILL REMAIN COMMITTED TO CERTAIN CORE VALUES: . The Company exists to serve the financial needs of its customers. Customer needs must be the first consideration in everything that is done. It is important that everyone in the Company conduct themselves in an honest and ethical manner when dealing with customers as well as fellow employees. . The Company is a product of the communities it serves, and as such, must be a leader in those communities. The Company will always keep the communities' best interests in mind. The Company will support the charitable, cultural and economic needs of the communities. . The Company is a for-profit business that is committed to achieving profits from providing quality services to its customers and to providing continuous value to shareholders. . The Company's employees are a family who care for one another and for their customers. The Company is loyal to and protective of its employees. To achieve this vision, each employee, officer, and director will be challenged to work hard and utilize all skills while focused on the Company's long-term goals. We will create an environment in which each employee is encouraged to achieve his or her highest potential and one that facilitates innovation and creativity to drive performance. The Company is committed to ongoing training and development of its employees. To overcome the threats of a consolidating industry, we will maintain an excellence in banking that has been the tradition of Mahaska Investment Company and its people since it was founded. Each employee, officer, director and shareholder is asked to share this vision. MAHASKA ---------------------- INVESTMENT COMPANY ------------------ [LOGO OF MAHASKA INVESTMENT COMPANY] TABLE OF CONTENTS MESSAGE TO SHAREHOLDERS 1 2001 FINANCIAL HIGHLIGHTS 3 COMPANY FOCUS 5 CONSOLIDATED FINANCIAL STATEMENTS 14 COMPANY INFORMATION 17 AUDITORS' REPORT 18 OFFICERS & Directors 19 Please refer to the Mahaska Investment Company 2002 Proxy Statement for Management's Discussion and Analysis, Consolidated Financial Statements, and notes to Consolidated Financial Statements. Message [LOGO OF MAHASKA INVESTMENT COMPANY] [PHOTO APPEARS HERE] MESSAGE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Mahaska Investment Company is proud of its many accomplishments in 2001. Despite the unstable national markets and the uncertainty in the economy in general, the Company continued to show growth and improvement. The unified efforts of a dedicated and hardworking staff led to improved earnings and increased stock price. The Company's net income increased nine percent to $4,356,000 in 2001, with basic earnings per share of $1.10, an eleven percent increase from the year 2000. Lower interest rates on deposits, increased volume in loan pool participations, and additional non-interest income contributed to the Company's improved earnings in 2001. Total assets as of December 31, 2001, were $545,795,000, up six percent over last year. Both loans and deposits grew in comparison to the previous year-end totals. The improvement in earnings was reflected in our Company's stock price. Mahaska Investment Company stock closed at $11.70 per share on December 31, 2001, a 38 percent increase from last year's closing price of $8.50. Small bank stocks in general had a good year. The Nasdaq Bank Index rose ten percent by year-end to close at 2135 compared to 1885 at year-end 2000. The improvement in our stock's performance exceeded the market in general. Our stock now trades at a multiple of earnings of 10.6, which is in the range of other banking organizations our size. Early in 2001, the Company's board of directors and senior management determined that the long-term direction of the organization needed to be more focused. Management and staff, working with an outside consultant, developed priorities and established goals to improve business processes and performance. Our goal is a more efficient organization that will provide improved returns to our shareholders. As part of the strategic planning process, the board and management reaffirmed their commitment to maintain the Company's community bank identity. We believe that community banks provide the best personal service for customers and satisfactory returns for shareholders. Our beliefs are set down in a new Mission Statement. Communicating this important statement serves to reinforce the focus on our goals and to strengthen our commitment to our shareholders, customers, and employees. The Company's new Mission Statement and excerpts from the Vision Statement are included in this annual report. We also established new objectives that will help us strengthen relationships with existing customers, expand our relationships with small business customers, and improve customer service in all of our markets. We were pleased to have been one of the forty community bank organizations invited to make a presentation at the 2001 Community Bank Investor Conference hosted by the investment banking firm of Keefe, Bruyette & Woods, Inc. The conference, held in New York City, was an excellent opportunity to share this Company's successes and goals for the future with stock analysts, institutional investors, and other bankers. Our thoughts and prayers remain with the many families who lost loved ones in the shocking September 11 attack on America. Several of the industry's leading investment banking and brokerage firms located in the World Trade Center suffered tremendous losses. We had established relationships with two firms, Sandler O'Neill and Keefe, Bruyette & Woods, and were personally touched by their losses. While we take pride in past progress and accomplishments, we are determined to continue to improve earnings by enhancing performance, loan quality and customer service. We are committed to ongoing improvement and continue to seek new opportunities for your Company. Your continued support of Mahaska Investment Company is sincerely appreciated. /s/ Charles S. Howard /s/ David A. Meinert Charles S. Howard David A. Meinert Chairman, President & CEO Executive Vice President & CFO 1 MAHASKA INVESTMENT COMPANY -------- MOMENTUM -------- [GRAPHIC APPEARS HERE] - -------------------- FINANCIAL HIGHLIGHTS - --------------------
Year Ended December 31 (In thousands, except per share data) 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- SUMMARY OF INCOME DATA Interest income excluding loan pool participations ................. $ 30,510 31,551 21,162 17,996 15,483 Interest and discount on loan pool participations .................. 9,595 7,275 7,668 7,970 8,474 Total interest income .............................................. 40,105 38,826 28,830 25,966 23,957 Total interest expense ............................................. 21,427 21,427 13,195 10,490 9,312 Net interest income ................................................ 18,678 17,399 15,635 15,476 14,645 Provision for loan losses .......................................... 1,776 892 3,628 1,179 417 Other income ....................................................... 4,287 2,566 1,947 1,856 1,739 Other operating expenses ........................................... 14,467 13,313 10,462 8,947 8,315 Income before income tax ........................................... 6,722 5,760 3,492 7,206 7,652 Income tax expense ................................................. 2,366 1,759 1,270 2,583 2,594 Net income ......................................................... $ 4,356 4,001 2,222 4,623 5,058 ==================================================== PER SHARE DATA Net income - basic ................................................. $ 1.10 0.99 0.58 1.26 1.38 Net income - diluted ............................................... 1.09 0.99 0.56 1.20 1.33 Cash dividends declared ............................................ 0.60 0.60 0.60 0.56 0.48 Book value ......................................................... 13.12 12.51 11.59 10.51 10.03 Net tangible book value ............................................ 10.37 9.54 8.62 8.99 8.35 ==================================================== SELECTED FINANCIAL RATIOS Net income to average assets ....................................... 0.82% 0.81% 0.64% 1.65% 1.98% Net income to average equity ....................................... 8.59% 8.18% 5.29% 12.16% 14.47% Dividend payout ratio .............................................. 54.55% 60.61% 103.45% 44.44% 34.78% Average equity to average assets ................................... 9.57% 9.90% 12.04% 13.54% 13.69% Tier 1 capital to assets at end of period .......................... 9.95% 10.58% 11.42% 14.02% 14.74% Net interest margin ................................................ 3.84% 3.87% 4.89% 6.04% 6.31% Gross revenue of loan pools to total gross revenue ................. 21.61% 17.58% 24.91% 28.64% 32.98% Interest and discount income of loan pools to total interest income. 23.92% 18.74% 26.59% 30.69% 35.37% Allowance for loan losses to total loans ........................... 1.05% 0.94% 1.42% 1.32% 1.26% Non-performing loans to total loans ................................ 1.08% 0.95% 1.71% 0.84% 1.27% Net loans charged off to average loans ............................. 0.42% 0.65% 1.14% 0.52% 0.07% ==================================================== December 31 (In thousands) 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- SELECTED BALANCE SHEET DATA Total assets ....................................................... $545,795 515,212 486,189 298,389 274,873 Total loans net of unearned discount ............................... 322,681 312,081 282,091 165,427 144,333 Total loan pool participations ..................................... 110,393 74,755 67,756 54,510 54,326 Allowance for loan losses .......................................... 3,381 2,933 4,006 2,177 1,816 Total deposits ..................................................... 378,645 370,144 348,672 232,733 215,308 Total shareholders' equity ......................................... 50,827 49,295 50,235 38,232 36,754 ====================================================
3 MAHASKA INVESTMENT COMPANY -------- STRATEGY -------- [GRAPHIC APPEARS HERE] Focus [LOGO OF MAHASKA INVESTMENT COMPANY] COMPANY FOCUS - -------------------------------------------------------------------------------- Mahaska Investment Company has always operated on the philosophy that the best way to enhance value to its primary constituencies--shareholders, customers, communities and employees--is to remain an independent company committed to service-focused community banking. The Company endeavors to achieve value for shareholders through continuing focus on its customers, leadership and support for its communities, and an ongoing investment in its employees. Commitment to those core values has proven itself over time, as the Company grew from one institution and $185 million in assets at year-end 1993 to four independent operating subsidiaries and assets of more than $545 million at year-end 2001. These values were reaffirmed when directors and officers gathered in late 2000 and early 2001 to take a critical look at what was needed to ensure the Company's continued growth and profitability. This group realized operational and procedural changes were needed to maintain--and manage--success in a rapidly changing environment. Both the Company and the times are much different today than they were seven years ago when the first shares of Mahaska Investment Company stock were traded on the Nasdaq National Market System. By every measure--total assets, number of subsidiaries, number of locations, number of employees and even geographic territory--the Company has doubled in size. Meanwhile, the tremendous economic expansion that characterized the 1990s began to sputter as the 21st century arrived. In Iowa, uneasiness about the farm economy served to heighten concerns about a volatile stock market and a possible recession. At the same time, the financial services market is more competitive than ever before. Many of the Company's former community and regional bank competitors are now branches of huge corporations that do business nationwide. Non-bank companies also offer traditional bank products and services. Changes in legislation have turned credit unions into direct competitors. The prevalence of services like direct deposit and Internet and telephone banking make physical proximity to a bank office increasingly less important--and at times, the Company competes with institutions whose branch offices are found only in cyberspace. With the amount of time customers spend in a traditional bank office decreasing, each of the Company's interactions with customers becomes more important. The Company must work effectively with its customers to maintain the strong and lasting relationships that have been responsible for its continuing growth. As directors and senior managers identified strategies to ensure that the Company can compete effectively and profitably in all types of economic environments, it became clear that a turning point had been reached. The Company needed to take better advantage of its size and resources to improve customer service, efficiency and profitability without affecting the sensitivity and responsiveness to customers and communities that have played such a significant role in the Company's previous successes. By addressing those issues within the framework of the Company's values, directors and senior management ultimately determined that they could best fulfill their commitment to shareholders, customers, communities, and employees by creating an environment that makes it possible for each subsidiary and its employees to spend more time focusing on customers and establishing those important relationships. CONSOLIDATED TOTAL ASSETS (In thousands) [GRAPHIC APPEARS HERE] 2001 2000 1999 1998 1997 $545,795 $515,212 $486,189 $298,389 $274,873 5 MAHASKA INVESTMENT COMPANY - ------------------ MAHASKA STATE BANK - -------------------------------------------------------------------------------- Mahaska State Bank, the Company's first bank subsidiary, is the largest financial institution in its market. Total assets continued to grow throughout 2001, reaching $186 million by year-end. The bank, which enjoyed growth in both its brokerage and trust areas during 2001, maintains the largest deposit base in Mahaska County. It also enjoyed increased market share in 2001. Mahaska State Bank has long been the dominant lender in Oskaloosa, particularly for agricultural and commercial loans. Real estate loans continue to play a significant role in the bank's growth. Multiple reductions in market interest rates sparked substantial increases in applications for mortgages, as well as home equity loans. Financing for commercial real estate purchases, new residential mortgages and refinancing of existing mortgages accounted for significant loan growth. Through its secondary market mortgage program, the bank also offered customers long-term, fixed-rate real estate loans. During 2001, Mahaska State Bank began making changes that will enhance customer service and efficiency. One of the most significant was the decision to consolidate the bank's data processing and check processing departments into a separate operating division of the holding company effective January 1, 2002. Both departments, which operate as MIC Data Services, serve all four subsidiaries, as well as some non-affiliated institutions. By moving responsibility for these functions to the holding company, Mahaska State Bank can devote more time and resources to its own customers. The bank is always alert for opportunities to strengthen relationships with customers, through new products--such as Commercial Internet Banking, which will be introduced in 2002--and by offering customers the quality service they've come to expect from Mahaska State Bank. One of the primary reasons for Mahaska State Bank's success in both Oskaloosa and North English is its friendly, knowledgeable and professional staff. Employees also exemplify the bank's commitment to its communities and donate time, talent and money to a variety of causes. Mahaska State Bank is confident that its commitment to quality products and quality service will continue to contribute to the bank's growth. - ---------------------------- SELECTED BALANCE SHEET DATA: - ---------------------------- Year Ended December 31 (In thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Total assets .............................. $186,418 179,327 165,188 Total loans net of unearned discount ...... 111,848 113,192 104,116 Total loan pool participations ............ 38,257 30,613 26,421 Total deposits ............................ 149,405 150,719 145,379 Total shareholders' equity ................ 15,660 15,727 15,158 MAHASKA INVESTMENT COMPANY 6 Focus [LOGO OF MAHASKA INVESTMENT COMPANY] The Company has always endeavored to improve efficiency and reduce expenses by consolidating services such as data processing, accounting, Internet Banking operations, human resources, loan review and audit functions. However, given the increasingly critical importance of building and maintaining customer loyalty, the Company needed to do even more to reduce the amount of time and effort the subsidiaries were spending on activities that did not directly affect customer relationships. To allow the Company to efficiently and cost-effectively provide additional support services, the four independent subsidiaries needed to adopt some standardized products, processes and procedures. At the same time, every strategy and initiative had to be evaluated in terms of its potential impact on the Company's customers and communities. Consequently, the re-engineering process made 2001 an exciting and often challenging year. In establishing a long-term direction for the Company, directors and senior managers outlined three key strategies for enhancing shareholder value: EFFICIENT DELIVERY OF PRODUCTS AND SERVICES As directors and senior managers scrutinized the Company's operations, it became apparent that standardizing products and processes between the four subsidiaries could greatly improve efficiency. At the same time, the Company did not want to compromise the ability of the subsidiaries to meet the needs of their own customers and communities. The Company's solution was the establishment of a formal Project Management Committee to foster coordinated implementation of process improvements throughout the Company. The Project Management Committee is responsible for identifying challenges that impact the entire organization, prioritizing needs, and recommending solutions. To ensure that all stakeholders are represented, the committee consists of a senior executive from each subsidiary and the Company's managers for operations, data processing, accounting, human resources and marketing. All subsidiary representatives and department managers have the opportunity to voice opinions about issues under discussion and communicate how an issue affects their particular area of influence. This process was designed to make sure the needs and concerns of each department and subsidiary--as well as its customers and communities--are taken into consideration when changes are proposed. The project management process is also enhancing communication and cooperation among departments and subsidiaries throughout the organization. To find solutions to specific challenges, the Project Management Committee forms subcommittees comprised of a Project Management Committee member and representatives from each subsidiary and any affected department. Typically, these representatives are employees who are either extremely knowledgeable about the issue or those whose jobs will be most affected. For example, tellers from each subsidiary and data processing personnel will select the new teller software that all four institutions will use. Recommendations for best practice solutions are forwarded to the senior executives for review. If approved, the Project Management Committee is responsible for smooth implementation of any changes. Individual committee members are responsible for making sure their own subsidiary or department meets its specific obligations and communicating any issues that might affect implementation. Some of the initiatives the Project Management Committee is working on include: . Standardization of the data processing codes used to classify different types of products, transactions, collateral and other data to make the accounting and reporting processes more efficient; . Upgrading the loan documentation, teller and deposit software and migrating all four subsidiaries to the same platforms; . Purchase of an MCIF (Marketing Customer Information File) system, a tool that will enhance the Company's ability to identify customer needs; and . Ongoing analysis of the profitability of the Company's products and services. Change is rarely easy, but the Company is optimistic that by providing a forum for open communication between the subsidiaries and by involving employees at all levels of the organization, the Project Management Committee can effectively implement changes that will improve efficiency and productivity throughout the Company. Another change that should improve efficiency and customer service is the establishment of MIC Data Services as a separate operating division, comprised of what had been Mahaska State Bank's data processing and check processing departments. This consolidation was effective January 1, 2002. Placing these two related functions under common management at the holding company level will improve internal efficiency and make MIC Data Services even more CONSOLIDATED TOTAL LOANS/*/ (In thousands) [GRAPHIC APPEARS HERE] 2001 2000 1999 1998 1997 $322,681 $312,081 $282,091 $165,427 $144,333 /*/ EXCLUDING LOAN POOLS 7 MAHASKA INVESTMENT COMPANY - ------------------- CENTRAL VALLEY BANK - -------------------------------------------------------------------------------- Central Valley Bank enjoyed another highly successful year in 2001, achieving significant increases in both assets and total loans. As of December 31, 2001, assets were approaching $120 million, compared with $108.3 million at year-end 2000. Total loans increased by $8.6 million to $78.6 million as of December 31, 2001. An established real estate lender, Central Valley Bank benefited from multiple reductions in market interest rates. The real estate loan portfolio grew significantly as customers took advantage of the lower rates to purchase or refinance homes. Secondary market mortgages were offered to customers desiring long-term, fixed-rate real estate loans. Lower market interest rates also contributed to an increase in commercial real estate purchases, furthering the bank's efforts to expand its commercial customer base. The bank also achieved increases in other types of commercial and ag loans, particularly in the Ottumwa market. Central Valley Bank reported only a slight increase in total deposits at the end of 2001. However, it did enjoy more significant deposit growth than most of its competitors. Market share in all three communities--Ottumwa, Fairfield, and Sigourney--increased during 2001. One of the most visible accomplishments of 2001 was the opening of a new facility in Fairfield, which replaced a small grocery store branch. The new branch office, which is in a highly visible location, offers real estate, consumer and commercial loan services, brokerage services, extended hours, drive-up service and 24-hour drive-up ATM. Central Valley Bank continues to enjoy steady, consistent growth, despite the economic uncertainty and numerous competitors found in its markets. Central Valley Bank is able to offer customers the selection and pricing usually available only from larger competitors and the caring, personal service associated with hometown banking. It strives to provide customers with professional expertise, a variety of competitive products, and one-on-one customer service. Central Valley Bank takes great pride in being a community bank and is expanding its leadership role in its communities, supporting numerous civic and charitable organizations. As a community bank, Central Valley Bank consistently explores ways to strengthen its relationships with its customers and its communities, thus ensuring its continued growth. - ---------------------------- SELECTED BALANCE SHEET DATA: - ---------------------------- Year Ended December 31 (In thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Total assets ............................... $119,730 108,344 97,064 Total loans net of unearned discount ....... 78,577 69,953 54,906 Total loan pool participations ............. 20,879 17,974 16,519 Total deposits ............................. 85,618 85,205 77,892 Total shareholders' equity ................. 12,689 13,041 12,554 MAHASKA INVESTMENT COMPANY 8 Focus [LOGO OF MAHASKA INVESTMENT COMPANY] responsive to the needs of all four subsidiaries, as well as non-affiliated banks that contract for data processing services. In addition, by making MIC Data Services a division of the holding company, Mahaska State Bank can devote additional time and resources to serving customers. PROTECTING ASSET QUALITY Protecting the quality of the Company's assets is a continuous process. Improving loan quality continues to be a company-wide priority and all four subsidiaries are making progress in that area. The Company adopted a new credit policy that strengthened oversight and revamped existing procedures to provide more proactive monitoring of loan quality. Additional measures designed to keep the Company focused on this goal were also adopted. One was the addition of a Chief Credit Officer, who is responsible for credit administration on a daily basis, as well as leading and directing the Company's long-term strategic lending practices and policies. Other duties include loan policy administration, compliance, and when necessary, problem loan administration. The Chief Credit Officer also serves as the Company's liaison with regulatory agencies on loan-related matters. A second step was the formation of an Executive Loan Committee, which includes three representatives from Mahaska Investment Company and two senior managers from each of the four operating subsidiaries. This committee is now responsible for reviewing larger loan applications and participation requests. The active involvement of senior managers ensures that each subsidiary's interests, and those of its customers and community, are represented. A primary advantage is that Executive Loan Committee members have years of experience and a variety of expertise, including accounting, commercial lending and agricultural lending. This contributes to a much more detailed analysis of credit applications, and should result in more consistent loan quality. It has also allowed the Company to provide significantly faster and more responsive customer service. Since the Executive Loan Committee meets weekly--and can easily meet on short notice when necessary--credit decisions can be made more quickly, enhancing customer service. MAINTAINING A DIVERSIFIED BALANCE SHEET As in previous years, the Company continues to maintain a balance sheet that is a solid blend of loan pool participations, a conservative and liquid investment portfolio, and a diversified loan portfolio. This is a proven strategy that has minimized the Company's risk and, over time, returned value to shareholders. It is particularly effective in years like 2001, when several sectors of the economy slowed at once. In recent years, the Company's loan pool participations, which provide geographic diversification, have been higher quality assets than in the past and are less susceptible to economic downturns. These assets continue to perform well, despite falling interest rates throughout 2001. In response to falling interest rates, the Company reduced the size of its investment portfolio and increased its loan pool participations, which provide higher returns. Real estate loans contributed to increases in both total loans and other income during 2001. The Federal Reserve Board cut market interest rates eleven times during the year, creating enormous customer demand for mortgages and refinancings at all four subsidiaries. The subsidiaries retained some variable-rate mortgages, which will reprice in a few years. Most long-term, fixed-rate real estate loans were sold on the secondary market, generating fee income. Building commercial loan portfolios was a priority for all of the subsidiaries, particularly Midwest Federal Savings, which recently began making commercial loans. Since it established a commercial lending department in late 2000 and began offering secondary market mortgage loans, the bank has made consistent progress in diversifying its loan portfolio, which had been dominated by real estate loans. Of the four subsidiaries, Central Valley Bank achieved the most significant gains in its loan portfolio during 2001, helped by consistent commercial loan growth. To better serve its growing customer base, Central Valley Bank opened a new full-service office in Fairfield in early 2001. This new branch, which includes a drive-up facility, replaced a grocery store location that handled mainly deposit transactions. Pella State Bank also saw a sizeable increase in its loan portfolio. After opening a new larger office in downtown Pella, which now serves as the bank's headquarters, Pella State Bank hired an additional loan officer to better serve its commercial and farm customers. Mahaska State Bank, the dominant commercial lender in its markets, continues to explore new methods to increase commercial loan activity outside its traditional market boundaries. CONSOLIDATED TOTAL DEPOSITS (In thousands) [GRAPHIC APPEARS HERE] 2001 2000 1999 1998 1997 $378,645 $370,144 $348,672 $232,733 $215,308 9 MAHASKA INVESTMENT COMPANY - ---------------- PELLA STATE BANK - -------------------------------------------------------------------------------- With more than $44 million in assets as of December 31, 2001, Pella State Bank has enjoyed tremendous growth since it opened in December 1997. The bank's increases in three key measures--total assets, net loans and total deposits--have been among the largest reported by any financial institution in its market. Consequently, many of Pella State Bank's accomplishments in 2001 focused on ways to better serve a rapidly expanding customer base. In early 2001, the bank moved its headquarters to a more spacious facility in a highly visible downtown development. Executive offices, all lending activities and full-service brokerage are housed there, offering customers a complete range of financial services in one convenient location. Pella State Bank's original facility remains open as a branch, with extended hours and drive-up service for deposit customers. To ensure that customers continue to receive the same friendly, personal, and professional service that has been such a significant factor in its success, Pella State Bank also enlarged its staff. Some of the bank's more experienced employees, who exemplify the quality service the bank strives to provide, were promoted and now work to instill newer employees with that same commitment to customer satisfaction. Pella State Bank also hired an additional loan officer to better serve a growing number of farm and small business customers. Developing strong relationships with commercial customers is a priority. A favorable rate environment contributed to increased real estate lending activity throughout 2001, helping to increase Pella State Bank's loan portfolio. Secondary market mortgages were available to customers wanting long-term, fixed-rate real estate loans. The bank's full-service brokerage office continues to grow. In 2002, Pella State Bank will provide additional marketing support to help the brokerage service expand its customer base. Although the economic expansion in the market slowed somewhat during 2001, Pella State Bank is optimistic that 2002 will bring continued growth. Pella State Bank believes that its friendly, professional employees--most of whom have very strong community ties--its innovative mix of products and services, its competitive rates, and its strong commitment to its community will continue to contribute to its success. - ---------------------------- SELECTED BALANCE SHEET DATA: - ---------------------------- Year Ended December 31 (In thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Total assets ................................. $44,052 34,996 26,182 Total loans net of unearned discount ......... 23,192 20,761 16,268 Total loan pool participations ............... 9,666 7,028 5,604 Total deposits ............................... 36,218 28,221 19,506 Total shareholders' equity ................... 5,105 5,040 4,795 MAHASKA INVESTMENT COMPANY 10 Focus [LOGO OF MAHASKA INVESTMENT COMPANY] The subsidiaries experienced minimal increases in agricultural loans. The Company continues to keep a cautious eye on the farm economy. The slow progress on new farm legislation is a major concern. Successive years of low commodity prices have made producers increasingly dependent on government payments and any reduction in crop subsidies may have a detrimental effect on customers. Other income increased due to higher revenue from secondary market loan originations, overdraft and other service charges, and trust fees. The Company also saw an increase in fees generated from brokerage offices located at each subsidiary. Increasing core deposits remained a priority for all four subsidiaries in 2001. An erratic stock market helped increase liquid deposits. However, the low market interest rates that encouraged loan activity and improved the Company's net interest margin (the difference between what a bank pays for funds and what it earns on assets) put a damper on time deposit growth. Only Pella State Bank saw a noticeable increase in total deposits during 2001. Because deposit growth did not keep pace with demand for loans, the Company utilized borrowed funds. However, the Company was able to secure favorable long-term fixed rates on these advances resulting in acceptable net interest margins. Directors authorized a stock repurchase program in the third quarter of 2001 and later extended that authorization through June 30, 2002. Reducing the number of outstanding shares on the market should strengthen the return to shareholders. Thru December 31, 2001, the Company had repurchased 101,000 shares. To meet its commitment to quality customer service, the Company continues to invest in technology. The Company is now testing Commercial Internet Banking, which allows business customers to perform a variety of transactions. This service will be introduced in 2002. Retail Internet Banking has quickly gained popularity with customers. In 2001, the Company upgraded its Retail Internet Banking software, offering users an improved interface and new security features. As the number of Internet transactions grows, protecting customers' confidential information becomes a more critical component of service. During 2001, the Company revised its privacy policy, which is mailed to customers annually. Copies are now given to all new customers at the time an account is opened. The Company also plans to increase its efforts to educate customers about ways to protect themselves against identify theft. The Company is also investing in technology to help employees become more productive, including loan, deposit and teller software. Replacing older software with more functional versions provides an opportunity to migrate all four institutions to the same systems, allowing for procedure standardization and enhancing processing efficiency. The Company will also convert to a new payroll processing system that eliminates much of the paperwork for employees, supervisors and human resources personnel. The Company views employees as its most important asset and is committed to creating an environment that encourages creativity and innovation, allowing each employee to achieve his or her highest potential. Competitive salaries and benefits, particularly health insurance, help retain employees. Relatively low employee turnover contributes to consistent service quality and reduces the expense of recruiting and training new employees. During 2001, the Company began offering employees a cash match on 401(k) contributions. Company stock is not included in the 401(k) plan. However, the Company does contribute to an Employee Stock Ownership Plan (ESOP) set up to provide employees with an additional source of retirement income. The ESOP is the Company's single largest shareholder. Employees are encouraged to be involved in their communities and many have assumed leadership roles on local school, government, civic, and charity boards. Countless others donate time as volunteers for organizations ranging from youth sports to local economic development groups. As community banks, all four subsidiaries provide financial support for a variety of civic and charitable causes. Certainly, the banking industry is in a state of transition as consolidation and new competitors challenge the traditional thinking. However, the Company, with its continued commitment to excellence and strong customer focus, is in good position to increase its market share. The Company offers customers the best of both worlds: the quality customer service and commitment to its markets associated with community banks, and the wide selection of services and delivery systems usually offered by far larger bank competitors. The Company continues to implement practices that will improve operating efficiencies and enhance the quality of service offered to its customers and communities. The Company's strong commitment to traditional values and clear vision for the future position it to grow and prosper in the years ahead, thus returning even more value to its shareholders, customers, communities and employees. CONSOLIDATED NET INCOME (In thousands) [GRAPHIC APPEARS HERE] 2001 2000 1999 1998 1997 $4,356 $4,001 $2,222 $4,623 $5,058 11 MAHASKA INVESTMENT COMPANY - ----------------------- MIDWEST FEDERAL SAVINGS - -------------------------------------------------------------------------------- Midwest Federal Savings & Loan Association of Eastern Iowa (Midwest Federal), the Company's largest subsidiary, enjoyed a number of successes--highlighted by record earnings--during 2001. At year-end, Midwest Federal reported net earnings of $1.87 million, net interest income of more than $5.3 million and $718,000 in income from fees and service charges. A total-return approach to its investment portfolio resulted in realized gains of $948,000 on the sale of investments. The proceeds were reinvested in higher-earning assets, thereby increasing net interest margin for the long term. Midwest Federal reported total assets of $189 million at year-end, compared to $183 million at year-end 2000. Midwest Federal made the transition to full-service banking in 2001, adding products and services to better serve its customers and its communities--Burlington, West Burlington, Fort Madison and Wapello. Almost fifteen percent of all checking account customers have signed up for Retail Internet Banking, which was introduced on January 2, 2001. In 2002, Midwest Federal will introduce Commercial Internet Banking. A new commercial loan department completed its first full year of operation in 2001, adding $2.2 million to Midwest Federal's loan portfolio. Midwest Federal is encouraged by the many opportunities for commercial lending in Burlington and the surrounding area. Multiple reductions in market interest rates over the year created heavy demand for both in-house and secondary market real estate loans. Secondary market mortgages provided Midwest Federal customers with the ability to lock in long-term fixed rates on real estate loans. Midwest Federal is also excited about the opportunities to offer customers investment products, such as stocks, bonds and mutual funds, through Midwest Financial Products, Inc., a wholly owned subsidiary of Midwest Federal. To accommodate its expanded services and to provide a more customer-friendly environment, Midwest Federal's main office in Burlington was remodeled. New offices were added to the lobby area to provide visibility for the loan and brokerage services, and the reception area was improved to provide better access for customers. The teller area was also remodeled to provide a more inviting and modern look. By providing excellent service and an expanded selection of financial products and services, Midwest Federal can strengthen relationships with existing customers, attract new customers and return more value to shareholders. - ---------------------------- SELECTED BALANCE SHEET DATA: - ---------------------------- Year Ended December 31 (In thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Total assets .............................. $189,232 183,418 182,934 Total loans net of unearned discount ...... 107,375 105,848 101,566 Total loan pool participations ............ 38,499 14,571 10,861 Total deposits ............................ 108,073 106,131 107,114 Total shareholders' equity ................ 19,486 19,837 19,285 MAHASKA INVESTMENT COMPANY 12 --------- STABILITY --------- [GRAPHIC APPEARS HERE] - --------------------------- CONSOLIDATED BALANCE SHEETS - ---------------------------
December 31 (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks ....................................................... $ 12,872 10,544 Interest-bearing deposits in banks ............................................ 2,965 3,818 Federal funds sold ............................................................ -- 1,155 --------------------- Cash and cash equivalents ................................................... 15,837 15,517 --------------------- Investment securities: Available for sale .......................................................... 50,206 60,758 Held to maturity (fair value of $22,034 in 2001 and $26,234 in 2000) ...................................................... 21,332 25,921 Loans, net of unearned discount ............................................... 322,681 312,081 Allowance for loan losses ..................................................... (3,381) (2,933) --------------------- Net loans ................................................................... 319,300 309,148 --------------------- Loan pool participations ...................................................... 110,393 74,755 Premises and equipment, net ................................................... 8,355 6,890 Accrued interest receivable ................................................... 4,540 5,201 Goodwill and other intangible assets .......................................... 10,675 11,725 Other assets .................................................................. 5,157 5,297 --------------------- Total assets ................................................................ $ 545,795 515,212 ===================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand ...................................................................... $ 26,961 26,031 NOW and Super NOW ........................................................... 45,372 43,380 Savings ..................................................................... 97,989 88,378 Certificates of deposit ..................................................... 208,323 212,355 --------------------- Total deposits ............................................................ 378,645 370,144 Federal funds purchased ....................................................... 10,650 2,345 Federal Home Loan Bank advances ............................................... 91,174 75,050 Notes payable ................................................................. 9,200 13,200 Other liabilities ............................................................. 5,299 5,178 --------------------- Total liabilities ........................................................... 494,968 465,917 --------------------- SHAREHOLDERS' EQUITY Common stock, $5 par value; authorized 20,000,000 shares; issued 4,912,849 as of December 31, 2001 and December 31, 2000 ............................... 24,564 24,564 Capital surplus ............................................................... 13,033 13,127 Treasury stock at cost, 1,040,255 and 973,535 shares as of December 31, 2001 and 2000, respectively .................................... (12,595) (11,869) Retained earnings ............................................................. 25,082 23,102 Accumulated other comprehensive income ........................................ 743 371 --------------------- Total shareholders' equity .................................................. 50,827 49,295 --------------------- Total liabilities and shareholders' equity .................................. $ 545,795 515,212 =====================
MAHASKA INVESTMENT COMPANY 14 - --------------------------------- CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------
Year Ended December 31 (In thousands, except per share amounts) 2001 2000 1999 - ------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans ......................................... $25,172 25,298 17,577 Interest income and discount on loan pool participations ........... 9,595 7,275 7,668 Interest on bank deposits .......................................... 56 116 82 Interest on federal funds sold ..................................... 252 164 260 Interest on investment securities: Available for sale ............................................... 3,542 4,182 2,214 Held to maturity ................................................. 1,488 1,791 1,029 -------------------------- Total interest income .......................................... 40,105 38,826 28,830 -------------------------- INTEREST EXPENSE Interest on deposits: NOW and Super NOW ................................................ 521 782 637 Savings .......................................................... 2,961 3,779 2,837 Certificates of deposit .......................................... 11,920 10,788 7,060 Interest on federal funds purchased ................................ 57 191 94 Interest on Federal Home Loan Bank advances ........................ 5,166 4,484 1,287 Interest on notes payable .......................................... 802 1,403 1,280 -------------------------- Total interest expense ......................................... 21,427 21,427 13,195 -------------------------- Net interest income ............................................ 18,678 17,399 15,635 Provision for loan losses .......................................... 1,776 892 3,628 -------------------------- Net interest income after provision for loan losses ............ 16,902 16,507 12,007 -------------------------- OTHER INCOME Service charges .................................................... 2,117 1,821 1,332 Data processing income ............................................. 206 203 200 Other operating income ............................................. 946 502 443 Investment security gains (losses), net ............................ 1,018 40 (28) -------------------------- Total other income ............................................. 4,287 2,566 1,947 -------------------------- OTHER EXPENSE Salaries and employee benefits expense ............................. 7,157 6,378 5,144 Net occupancy expense .............................................. 2,162 1,877 1,517 Professional fees .................................................. 988 658 431 Goodwill and other intangible asset amortization ................... 1,050 1,125 711 Other operating expense ............................................ 3,110 3,275 2,659 -------------------------- Total other expense .............................................. 14,467 13,313 10,462 -------------------------- Income before income tax expense ................................. 6,722 5,760 3,492 Income tax expense ................................................. 2,366 1,759 1,270 -------------------------- Net income ..................................................... $ 4,356 4,001 2,222 ========================== Net income per share - basic ....................................... $ 1.10 0.99 0.58 ========================== Net income per share - diluted ..................................... $ 1.09 0.99 0.56 ==========================
15 MAHASKA INVESTMENT COMPANY - ---------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME - ----------------------------------------------------------------------------
Accumulated Other Common Capital Treasury Retained Comprehensive (In thousands, except share data) Stock Surplus Stock Earnings (Loss) Income Total - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 ............... $19,038 17 (2,799) 21,806 170 38,232 ========================================================================== Comprehensive income: Net income ................................ -- -- -- 2,222 -- 2,222 Unrealized gains arising during the year on securities available for sale ... -- -- -- -- (695) (695) Plus realized gains on securities available for sale, net of tax .......... -- -- -- -- 18 18 -------------------------------------------------------------------------- Total comprehensive income ................ -- -- -- 2,222 (677) 1,545 -------------------------------------------------------------------------- Dividends paid ($.60 per share) ............. -- -- -- (2,310) -- (2,310) Stock issued for acquisition of Midwest Bancshares, Inc. (1,105,348 shares) ....... 5,526 (13,281) -- -- -- 18,807 Stock options exercised (54,821 shares) ........................... -- (106) 868 (207) -- 555 Treasury stock purchased (461,400 shares) .......................... -- -- (6,594) -- -- (6,594) -------------------------------------------------------------------------- Balance at December 31, 1999 ................ 24,564 13,192 (8,525) 21,511 (507) 50,235 ========================================================================== Comprehensive income: Net income ................................ -- -- -- 4,001 -- 4,001 Unrealized gains arising during the year on securities available for sale ... -- -- -- -- 908 908 Less realized gains on securities available for securities, net of tax .... -- -- -- -- (30) (30) -------------------------------------------------------------------------- Total comprehensive income ................ -- -- -- 4,001 878 4,879 -------------------------------------------------------------------------- Dividends paid ($.60 per share) ............. -- -- -- (2,410) -- (2,410) Stock options exercised (7,300 shares) ............................ -- (65) 89 -- -- 24 Treasury stock purchased (403,100 shares) .......................... -- -- (3,433) -- -- (3,433) -------------------------------------------------------------------------- Balance at December 31, 2000 ................ 24,564 13,127 (11,869) 23,102 371 49,295 ========================================================================== Comprehensive income: Net income ................................ -- -- -- 4,356 -- 4,356 Unrealized gains arising during the year on securities available for sale ... -- -- -- -- 1,010 1,010 Less realized gains on securities available for sale, net of tax .......... -- -- -- -- (638) (638) -------------------------------------------------------------------------- Total comprehensive income ................ -- -- -- 4,356 372 4,728 -------------------------------------------------------------------------- Dividends paid ($.60 per share) ............. -- -- -- (2,376) -- (2,376) Stock options exercised (34,280 shares) ........................... -- (94) 418 -- -- 324 Treasury stock purchased (101,000 shares) .......................... -- -- (1,144) -- -- (1,144) -------------------------------------------------------------------------- Balance at December 31, 2001 ................ $24,564 13,033 (12,595) 25,082 743 50,827 ==========================================================================
MAHASKA INVESTMENT COMPANY 16 [LOGO OF MAHASKA INVESTMENT COMPANY] COMPANY INFORMATION - -------------------------------------------------------------------------------- Mahaska Investment Company's Common Stock trades on the Nasdaq National Market and the quotations are furnished by the Nasdaq system. There were 462 shareholders of record on December 31, 2001, and an estimated 750 additional beneficial holders whose stock was held in street name by brokerage houses. Nasdaq Symbol: OSKY Wall Street Journal and Other Newspapers: MahaskaInv Market Makers AnPac Securities Group, Inc. Transfer Agent/Dividend Howe Barnes Investments, Inc. Disbursing Agent Keefe, Bruyette & Woods, Inc. Illinois Stock Transfer Company Midwest Resources First Tennessee 209 West Jackson Boulevard, Sandler O'Neill & Partners, LP Suite 903 Spear, Leeds & Kellogg Chicago, IL 60606 (312) 427-2953 Corporate Headquarters (800) 757-5755 222 1st Avenue East P.O. Box 1104 Independent Auditor Oskaloosa, IA 52577 KPMG LLP (641) 673-8448 2500 Ruan Center www.mahaskainv.com Des Moines, IA 50309 Annual Shareholders' Meeting April 30, 2002, 10:30 a.m. Annual Report Design Elmhurst Country Club Designgroup, Inc. 2214 South 11th Street Des Moines, IA Oskaloosa, IA 52577 FORM 10-K Copies of Mahaska Investment Company's Annual Report to the Securities and Exchange Commission Form 10-K will be mailed when available without charge to shareholders upon written request to Karen K. Binns, Secretary/Treasurer, at the corporate headquarters. It is also available on the Securities and Exchange Commission's Internet web site at http://www.sec.gov/cgi-bin/srch-edgar. The following table sets forth the quarterly high and low sales per share for the Company's stock during 2001 and 2000: 2001 Quarter Ended High Low - -------------------------------------------------------------------------------- March 31 .............................................. $11.50 $ 8.25 June 30 ............................................... 11.00 9.76 September 30 .......................................... 12.50 10.75 December 31 ........................................... 11.70 10.40 2000 Quarter Ended High Low - -------------------------------------------------------------------------------- March 31 .............................................. $11.75 $ 8.50 June 30 ............................................... 9.38 6.75 September 30 .......................................... 9.13 7.56 December 31 ........................................... 8.88 7.50 As of December 31, 2001, the Company had 3,872,594 shares of Common Stock outstanding. On December 31, 2000, there were 3,939,314 shares outstanding. The Company has declared per share cash dividends with respect to its Common Stock as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter - -------------------------------------------------------------------------------- 2001 ................. $.15 $.15 $.15 $.15 2000 ................. .15 .15 .15 .15 17 MAHASKA INVESTMENT COMPANY [LOGO OF MAHASKA INVESTMENT COMPANY] AUDITORS' REPORT - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS OF MAHASKA INVESTMENT COMPANY: We have audited, in accordance with the auditing standards generally accepted in the United States of America, the consolidated balance sheets of Mahaska Investment Company as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 2001 (not presented herein); and in our report dated February 6, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the condensed consolidated financial information appearing on pages 14 through 16 is fairly presented, in all material respects, in relation to the consolidated financial statements from which it has been derived. /s/ KPMG LLP KPMG LLP Des Moines, Iowa February 6, 2002 BANK SUBSIDIARY LOCATIONS - -------------------------------------------------------------------------------- MAHASKA STATE BANK www.mahaskabank.com Main Bank A Avenue West Office 124 South 1st Street 301 A Avenue West Oskaloosa, IA 52577 Oskaloosa, IA 52577 (641) 673-8303 (641) 673-9444 Motor Bank North English Office 222 1st Avenue East 10030 Highway 149 Oskaloosa, IA 52577 North English, IA 52316 (641) 673-1563 (319) 664-3311 CENTRAL VALLEY BANK www.centralvalleybank.com Main Bank Fairfield 116 West Main Drive-up Branch Ottumwa, IA 52501 2408 West Burlington (641) 682-8355 Fairfield, IA 52556 (641) 472-2424 Fairfield Downtown Branch Sigourney Branch 58 East Burlington 112 North Main Fairfield, IA 52556 Sigourney, IA 52591 (641) 472-6511 (641) 622-2381 MIDWEST FEDERAL SAVINGS www.midwestfed.com Main Bank Fort Madison Branch 3225 Division Street 926 Avenue G Burlington, IA 52601 Fort Madison, IA 52627 (319) 754-6526 (319) 372-3991 Jefferson Street Branch Wapello Branch 323 Jefferson Street Highway 61 Burlington, IA 52601 Wapello, IA 52653 (319) 754-7553 (319) 523-8314 Wal-Mart Super Center Branch 324 West Agency Road West Burlington, IA 52655 (319) 752-6765 PELLA STATE BANK www.pellabank.com Main Bank 700 Main Street, Suite 100 Pella, IA 50219 (641) 628-4356 Oskaloosa Street Branch 500 Oskaloosa Street Pella, IA 50219 (641) 628-4356 MAHASKA INVESTMENT COMPANY 18 [LOGO OF MAHASKA INVESTMENT COMPANY] [PHOTO APPEARS HERE] OFFICERS & DIRECTORS - --------------------------------------------------------------------------------
CORPORATE OFFICERS BOARD OF DIRECTORS (SHOWN L TO R) Charles S. Howard Barbara J. Bone Richard R. Donohue Chairman, President & CEO Human Resources Officer Managing Partner, Theobald, Donohue & Thompson, P.C. David A. Meinert Sheila M. Davis-Welker Executive Vice President & CFO Marketing Director Edward C. Whitham Financial Management Accounting Karen K. Binns Barbara A. Finney Secretary/Treasurer Internet Banking Manager/ David A. Meinert & Administrative Assistant Operations Officer Executive Vice President & CFO Keith C. Comfort Steven G. Wickard John W. N. Steddom Vice President Finance & Controller Chief Credit Officer Civil Engineer, Retired Jeffrey L. Rhoads Roger A. Parlett Michael R. Welter Financial Reporting Officer Senior Vice President, General Contractor Data Processing Mark T. Gibbons John P. Pothoven Loan Review Officer T. Wayne Little Chairman & President, EDP Officer Mahaska State Bank Bryce C. Abbas Auditor Joyce C. Reed James G. Wake Second EDP Officer General Manager, Smith-Wake Investments William D. Hassel Vice Chairman & President, Midwest Federal Savings Charles S. Howard Chairman, President & CEO
19 MAHASKA INVESTMENT COMPANY [LOGO OF MAHASKA INVESTMENT COMPANY] MISSION STATEMENT Mahaska Investment Company and Subsidiaries At Mahaska Investment Company we believe that a true community bank is desired by our customers and provides the best avenue for shareholder value. We will continue to maximize shareholder value by a relentless focus on the customer, providing efficient support to our banks and employees, staying abreast of the product and service needs of our customers, and remaining open to growing our franchise in desirable markets. EX-21 5 dex21.txt SUBSIDIARIES Exhibit 21 ---------- Subsidiaries of Mahaska Investment Company State or Other Name Under Jurisdiction Which Doing in which Subsidiary Name Business Incorporated - --------------- -------- ------------ Mahaska State Bank -- Iowa Central Valley Bank -- United States MIC Financial, Inc. -- Iowa Pella State Bank -- Iowa Midwest Federal Savings and Loan -- United States Association of Eastern Iowa EX-23 6 dex23.txt CONSENT OF INDEPENDENT AUDITOR Exhibit 23 ---------- CONSENT OF INDEPENDENT AUDITORS The Board of Directors Mahaska Investment Company: We consent to incorporation by reference in the Mahaska Investment Company and subsidiaries Form 10-K, our report dated February 6, 2002, relating to the consolidated balance sheets of Mahaska Investment Company and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001 which report appears in the Proxy dated March 22, 2002. /s/ KPMG March 27, 2002 Des Moines, Iowa -----END PRIVACY-ENHANCED MESSAGE-----