AMENDED FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
JUNE 30, 2000 0-24630
MAHASKA INVESTMENT COMPANY
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1003699
(State of Incorporation) (I.R.S. Identification No.)
222 First Avenue East, Oskaloosa, Iowa 52577
Telephone Number (515) 673-8448
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
As of July 31, 2000, there were 3,939,314 shares of common stock $5 par value
outstanding.
PART I -- Item 1. Financial Statements
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(dollars in thousands, except for share amounts)
June 30, December 31,
2000 1999
---------- -----------
ASSETS
Cash and due from banks .......................... $ 9,324 $ 13,354
Interest-bearing deposits in banks ............... 1,063 1,700
Federal funds sold ............................... 1,620 7,865
---------- -----------
Cash and cash equivalents ................... 12,007 22,919
---------- -----------
Investment securities:
Available for sale .......................... 63,956 60,530
Held to maturity ............................ 27,641 29,445
Loans ............................................ 305,249 282,091
Allowance for loan losses ........................ (3,616) (4,006)
---------- ---------
Net loans ................................... 301,633 278,085
---------- ---------
Loan pool participations ......................... 60,048 67,756
Premises and equipment, net ...................... 6,875 6,795
Accrued interest receivable ...................... 4,705 4,719
Goodwill and other intangible assets ............. 12,287 12,850
Other assets ..................................... 5,091 3,090
--------- ---------
Total assets ................................ $ 494,243 $ 486,189
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand ........................................ $ 21,990 $ 23,197
NOW and Super NOW ............................. 42,220 42,378
Savings ....................................... 91,590 96,377
Certificates of deposit ....................... 193,297 186,720
---------- ----------
Total deposits ..................................... 349,097 348,672
Federal funds purchased ............................ 7,200 2,965
Federal Home Loan Bank advances .................... 70,986 63,421
Note payable ....................................... 15,100 18,000
Other liabilities .................................. 4,363 2,896
---------- ----------
Total liabilities .................................. 446,746 435,954
---------- ----------
Shareholders' equity:
Common stock, $5 par value; authorized
20,000,000 shares; 4,912,849 shares as
of June 30, 2000 and December 31, 1999 ...... 24,564 24,564
Capital surplus ............................... 13,127 13,192
Treasury stock at cost, 973,535 shares as
of June 30, 2000, 577,735 shares as of
December 31, 1999 ........................... (11,869) (8,525)
Retained earnings ............................. 22,371 21,511
Accumulated other comprehensive loss .......... (696) (507)
----------- ---------
Total shareholders' equity ......................... 47,497 50,235
----------- ---------
Total liabilities and shareholders' equity ......... $ 494,243 $ 486,189
=========== =========
See accompanying notes to consolidated financial statements.
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended Six Months Ended
(dollars in thousands, except June 30, June 30,
per share) ------------------ -----------------
2000 1999 2000 1999
------- ------- -------- --------
Interest Income:
Interest and fees on loans $ 6,170 $ 3,991 $12,035 $ 7,765
Interest and discount on loan pools 1,814 1,339 3,908 3,548
Interest on bank deposits 27 15 59 51
Interest on federal funds sold 54 77 127 174
Interest on investment securities:
Available for sale 1,080 427 2,108 873
Held to maturity 445 180 905 367
------- ------- -------- --------
Total interest income 9,590 6,029 19,142 12,778
------- ------- -------- --------
Interest expense:
Interest on deposits:
NOW and Super NOW 199 149 385 296
Savings 961 650 1,884 1,212
Certificates of deposit 2,569 1,560 5,002 3,139
Interest on federal funds purchased 45 4 80 4
Interest on Federal Home Loan
Bank advances 1,061 109 2,066 217
Interest on note payable 343 294 710 599
------- ------- -------- --------
Total interest expense 5,178 2,766 10,127 5,467
------- ------- -------- --------
Net interest income 4,412 3,263 9,015 7,311
Provision for loan losses 270 1,465 421 1,632
------- ------- -------- --------
Net interest income after
provision for loan losses 4,142 1,798 8,594 5,679
Noninterest income:
Service charges 424 313 824 617
Data processing income 59 51 109 101
Other operating income 156 86 308 224
Investment security gains (losses) (17) 0 17 0
-------- ------- -------- --------
Total noninterest income 622 450 1,258 942
-------- ------- -------- --------
Noninterest expense:
Salaries and employee benefits expense 1,594 1,254 3,231 2,591
Net occupancy expense 434 342 869 699
Professional fees 179 339 314 425
Other operating expense 809 639 1,724 1,265
Goodwill amortization 282 139 563 288
------- ------- -------- --------
Total noninterest expense 3,298 2,713 6,701 5,268
------- ------- -------- --------
Income (loss) before income
tax expense 1,466 (465) 3,151 1,353
Income tax expense (benefit) 495 (146) 1,067 515
------- ------- -------- --------
Net income (loss) $ 971 $ (319) $ 2,084 $ 838
======= ======= ======== ========
Earnings (loss) per common share-basic $ 0.24 $(0.09) $ 0.50 $ 0.23
Earnings (loss) per common share-diluted $ 0.24 $(0.09) $ 0.50 $ 0.22
Dividends per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30
See accompanying notes to consolidated financial statements.
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited) Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
------- ------- ------- -------
Net income (loss) $ 971 $ (319) $ 2,084 $ 838
Other Comprehensive Income:
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during the period, net
of tax 0 (177) (176) (277)
Less: reclassification adjustment
for net (gains) losses included in
net income, net of tax 11 0 (13) 0
------- ------- ------- -------
Other comprehensive income (loss),
net of tax 11 (177) (189) (277)
------- ------- ------- -------
Comprehensive income (loss) $ 982 $ (496) $ 1,895 $ 561
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
PART I -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six Months Ended
(dollars in thousands) June 30,
-------------------------
2000 1999
----------- ----------
Cash flows from operating activities:
Net income $ 2,084 $ 838
----------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 857 618
Provision for loan losses 421 1,632
Investment securities gains (17) 0
(Gain) loss on sale of premises and equipment (4) 2
Amortization of investment securities premiums 140 97
Accretion of investment securities and loan discounts (111) (227)
(Increase) decrease in other assets (1,987) 240
Increase (decrease) in other liabilities 1,575 (375)
----------- ----------
Total adjustments 874 1,987
----------- ----------
Net cash provided by operating activities 2,958 2,825
----------- ----------
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales 4,884 0
Proceeds from maturities 2,867 7,262
Purchases (11,418) (5,400)
Investment securities held to maturity:
Proceeds from maturities 4,049 2,178
Purchases (2,211) (2,024)
Net increase in loans (23,924) (12,555)
Purchases of loan pool participations (15,211) (19,999)
Principal recovery on loan pool participations 22,919 12,063
Purchases of premises and equipment (486) (207)
Proceeds from sale of premises and equipment 17 0
----------- ----------
Net cash used in investing activities (18,514) (18,682)
----------- ----------
Cash flows from financing activities:
Net increase in deposits 473 2,415
Net increase in federal funds purchased 4,235 2,898
Federal Home Loan Bank advances 33,000 0
Repayment of Federal Home Loan Bank advances (25,531) (14)
Advances on note payable 1,900 150
Principal payments on note payable (4,800) (2,550)
Dividends paid (1,224) (1,094)
Purchases of treasury stock (3,433) 0
Proceeds from exercise of stock options 24 252
----------- ----------
Net cash provided by financing activities 4,644 2,057
----------- ----------
Net decrease in cash and cash equivalents (10,912) (13,800)
Cash and cash equivalents at beginning of period 22,919 22,121
----------- ----------
Cash and cash equivalents at end of period $ 12,007 $ 8,321
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 10,074 $ 5,477
=========== ==========
Income taxes $ 298 $ 1,179
=========== ==========
See accompanying notes to consolidated financial statements.
PART I -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying consolidated statements of income and the consolidated
statements of comprehensive income for the three and six months ended June
30, 1999 and the consolidated statements of cash flow for the six months
ended June 30, 1999 include the accounts and transactions of the Company
and its four wholly-owned subsidiaries, Mahaska State Bank, Central Valley
Bank, Pella State Bank and MIC Financial, Inc. The consolidated statements
of condition as of June 30, 2000 and December 31, 1999, the consolidated
statement of income and the consolidated statement of comprehensive income
for the three and six month periods ended June 30, 2000 and the
consolidated statement of cash flow for the six months ended June 30, 2000
includes the accounts of the Company and its aforementioned subsidiaries
plus Midwest Federal Savings and Loan Association of Eastern Iowa ("Midwest
Federal"). Midwest Federal was acquired as a result of the merger with
Midwest Bancshares, Inc. ("Midwest"), completed on September 30, 1999. All
material intercompany balances and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. Although management believes that the
disclosures are adequate to make the information presented not misleading,
it is suggested that these interim consolidated financial statements be
read in conjunction with the Company's most recent audited financial
statements and notes thereto. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of June 30, 2000, and the results of operations
for the three months and the six months ended June 30, 2000 and 1999, and
cash flows for the six months ended June 30, 2000 and 1999.
The results for the three months and the six months ended June 30, 2000 may
not be indicative of results for the year ending December 31, 2000, or for
any other period.
2. Consolidated Statements of Cash Flows
In the consolidated statements of cash flows, cash and cash equivalents
include cash and due from banks, interest- bearing deposits with banks, and
federal funds sold.
3. Income Taxes
Federal income tax expense for the three months and the six months
ended June 30, 2000 and 1999 was computed using the consolidated effective
federal tax rate. The Company also recognized income tax expense pertaining
to state franchise taxes payable individually by the subsidiary banks.
4. Earnings Per Common Share
Basic earnings per common share computations are based on the weighted
average number of shares of common stock actually outstanding during the
period. The weighted average number of shares for the three-month periods
ended June 30, 2000 and 1999 was 4,042,690 and 3,652,376, respectively. The
weighted average number of shares for the six-month periods ended June 30,
2000 and 1999 was 4,165,758 and 3,644,405, respectively. Diluted earnings
per share amounts are computed by dividing net income by the weighted
average number of shares and all dilutive potential shares outstanding
during the period. The dilutive potential shares are the dilutive effect of
additional potential common shares issuable under stock options. The
computation of diluted earnings per share used a weighted average number of
diluted shares outstanding of 4,046,428 and 3,728,534 for the three months
ended June 30, 2000 and 1999, respectively. For the six months ended June
30, 2000 and 1999, the diluted earnings per share computation was based on
weighted average number of diluted shares outstanding of 4,177,683 and
3,743,010, respectively.
5. Effect of New Financial Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was scheduled to become effective for the Company beginning
January 1, 2000. SFAS No. 137 subsequently deferred implementation of SFAS
133 until January 1, 2001. SFAS No. 138 amends the accounting and reporting
requirements of SFAS No. 133. Management is evaluating the impact the
adoption of SFAS No. 133 and SFAS No. 138 will have on the Company's
consolidated financial statements and expects to adopt SFAS No. 133 and
SFAS No. 138 when required.
The American Institute of Certified Public Accountants has issued a
proposed Statement of Position ("SOP") which addresses the accounting for
differences between contractual and expected future cash flows from an
investor's initial investment in certain loans and debt securities. It
includes such loans acquired in purchase business combinations and would
apply to all enterprises. The proposed SOP would limit the yield that may
be accreted (accretable yield) to the excess of the investor's estimate of
undiscounted expected future principal and interest cash flows (expected
future cash flows) over the investor's initial investment in the loan. The
provisions of this proposed SOP would be effective for financial statements
issued for fiscal years beginning after June 15, 2000. Management of the
Company does not expect the adoption of this SOP to have a material effect
on its financial statements.
6. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates. A significant estimate that is particularly sensitive to change
is the allowance for loan losses.
7. Sale of MIC Financial, Inc.
On April 23, 1999, the Company announced that it had elected to seek a
buyer for MIC Financial, Inc. (formerly known as On-Site Credit Services,
Inc.), its wholly-owned commercial finance subsidiary. The Company has now
sold a significant amount of the assets in several transactions. As of June
30, 2000, MIC Financial's loan and lease portfolio totaled $2,764,000,
approximately 1 percent of the Company's total loans as of that date.
8. Acquisition of Midwest Bancshares, Inc.
The Company acquired Midwest Federal Savings and Loan Association of
Eastern Iowa ("Midwest Federal"), a community-oriented thrift institution,
with locations in Burlington, West Burlington, Fort Madison, and Wapello,
Iowa on September 30, 1999.
The excess of the purchase price over the identifiable fair value of the
tangible and identifiable intangible assets acquired and the liabilities
assumed of $6,234,000 was recorded as goodwill and is being amortized over
25 years on a straight-line basis. The acquisition has been accounted using
the purchase method of accounting and, accordingly, the income and earnings
results of Midwest Federal are not included with the results of the Company
for the three months or the six month period ended June 30, 1999.
PART I -- Item 2. Management's Discussion and Analysis of Condition and Results
of Operations.
QUARTER ENDED JUNE 30, 2000
On September 30, 1999, the Company acquired all of the outstanding common stock
of Midwest Federal Savings and Loan Association of Eastern Iowa ("Midwest
Federal") as a result of an exchange of Company stock with the shareholders of
Midwest Bancshares, Inc. ("MWBI"), the thrift holding company for Midwest
Federal. A total of 1,105,348 shares of Company common stock were issued to the
former shareholders of MWBI in a transaction valued at $19,237,000, including
transaction expenses. The acquisition of Midwest Federal was accounted for using
the purchase method of accounting and, accordingly, the Company's results of
operations for the three and six months ended June 30, 1999 do not include the
results of Midwest Federal.
The Company recorded net income of $971,000 for the quarter ended June 30, 2000,
compared with a net loss of $319,000 for the three months ended June 30, 1999, a
net change of $1,290,000. Basic and diluted earnings per share for the second
quarter of 2000 were $.24 versus a loss of $.09 per share for the second quarter
of 1999. Actual weighted average shares outstanding were 4,042,690 and 3,652,376
for the second quarter of 2000 and 1999, respectively. The issuance of 1,105,348
shares on September 30, 1999, to shareholders of MWBI as a result of the merger
into the Company increased the average shares outstanding in the second quarter
of 2000. The Company's return on average assets for the quarter ended June 30,
2000 was .80 percent compared with a negative return of .42 percent for the
quarter ended June 30, 1999. The Company's return on average equity increased to
7.99 percent for the three months ended June 30, 2000 compared with - 3.30
percent for the three months ended June 30, 1999.
During the second quarter of 1999, management and the board of directors of the
Company determined that it would seek a buyer for its wholly-owned commercial
finance subsidiary MIC Financial, Inc., then known as On-Site Credit Services,
Inc. Included in the financial results for the second quarter of 1999 were costs
and charges related to discontinuing the MIC Financial activity consisting of a
loan loss provision of $1,243,000, an estimated loss on sale of $220,000, and
severance benefits to employees of $21,000. These charges and costs were major
factors in the reported loss for the period.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is computed by subtracting total interest expense from total
interest income. Fluctuations in net interest income can result from the changes
in the volumes of assets and liabilities as well as changes in interest rates.
The additional earning assets and interest-bearing liabilities of Midwest
Federal included in the second quarter of 2000 significantly increased both
interest income on investments and loans and interest expense on deposits and
borrowed funds in comparison to the second quarter of 1999. The Company's net
interest income for the quarter ended June 30, 2000 increased $1,149,000 (35
percent) to $4,412,000 from $3,263,000 for the three months ended June 30, 1999.
This increase was mainly due to increased interest income earned on higher loan
and investment volumes. Increased interest expense on deposits and borrowed
funds somewhat offset the higher interest income. Total interest income
increased $3,561,000 (59 percent) in the second quarter of 2000 compared with
the same period in 1999. Exclusive of the additional $3,264,000 interest income
generated by Midwest Federal in the second quarter of 2000, total interest
income would have increased by $297,000 in comparison to the 1999 second quarter
primarily due to increased interest income on loans and greater interest income
and discount on loan pool participations. The Company's total interest expense
for the second quarter of 2000 increased $2,412,000 (87 percent) compared with
the same period in 1999. Total interest expense, excluding the $2,059,000
related to Midwest Federal, increased $353,000 in the second quarter of 2000
compared with 1999, primarily due to higher market interest rates. The Company's
net interest margin (on a federal tax-equivalent basis) for the second quarter
of 2000 decreased to 4.07 percent (4.56 percent excluding Midwest Federal) from
4.67 percent in the second quarter of 1999. Net interest margin is a measure of
the net return on interest- earning assets and is computed by dividing
annualized net interest income by the average of total interest-earning assets
for the period. The Company's overall yield on earning assets was 8.65 percent
(8.98 percent without Midwest Federal) for the second quarter of 2000 compared
to 8.78 percent for the second quarter of 1999. The rate on interest-bearing
liabilities increased in the second quarter of 2000 to 5.03 percent (5.00
percent without Midwest Federal) compared to 4.66 percent for the second quarter
of 1999.
Interest income and fees on loans (excluding the $1,999,000 contributed by
Midwest Federal) increased $180,000 (4 percent) in the second quarter of 2000
compared to the same period in 1999, mainly due to higher loan volumes. The
average yield on loans exclusive of Midwest Federal declined to 8.68 percent for
the second quarter of 2000, compared to 9.28 percent in the second quarter of
1999. The average yield on loans including Midwest Federal in the second quarter
of 2000 was 8.32 percent. The yield on the Company's loan portfolio is effected
by the amount of nonaccrual loans, the mix of the portfolio (real estate loans
generally have a lower overall yield than commercial and agricultural loans),
the effects of competition and the interest rate environment on the amounts and
volumes of new loan originations, and the mix of variable rate versus fixed rate
loans in the Company's portfolio. Recent moves by the Federal Reserve to
increase interest rates may benefit the Company in future periods as variable
rate loans tied to prime have been adjusted upward. Competition for loans in the
market areas served by the Company remains strong. Average loans outstanding
were $298,307,000 for the second quarter of 2000 compared with $177,314,000 for
the second quarter of 1999, an increase of $120,933,000 (68 percent). Excluding
the increase in average loan volume attributable to Midwest Federal, the
Company's average loans outstanding were $15,974,000 (9 percent) greater in the
second quarter of 2000 than in 1999.
Overall, the Company recognized $475,000 more in interest and discount income on
loan pool participations in the second quarter of 2000 compared with 1999,
mainly due to higher collections and the sale of some loans. Interest income and
discount collected on the loan pool participations for the three months ended
June 30, 2000 was $1,814,000 compared with $1,339,000 collected in the second
quarter of 1999. The yield on loan pool participations was 12.49 percent for the
second quarter of 2000 compared with 10.14 percent for the quarter ended June
30, 1999. The average loan pool participation investment balance was $5,429,000
(10 percent) greater in the second quarter of 2000 than in 1999 as a result of
new purchases of pools. Newly purchased loan pools typically do not produce
income for a period of up to 120 days from date of purchase which significantly
impacts the yield on the investment. These loan pool participations are pools of
performing and distressed and nonperforming loans that the Company has purchased
at a discount from the aggregate outstanding principal amount of the underlying
loans. Income is derived from this investment in the form of interest collected
and the repayment of the principal in excess of the purchase cost which is
herein referred to as "discount recovery." The Company recognizes interest
income and discount recovery on its loan pool participations on a cash basis.
The loan pool participations have traditionally been a high-yield activity for
the Company, but this yield has fluctuated from period to period based on the
amount of cash collections, discount recovery, and net collection expenses of
the servicer in any given period. The income and yield on loan pool
participations may vary in future periods due to the volume and discount rate on
loan pools purchased.
For the second quarter, interest income on investment securities increased
$918,000 compared with the quarter ended June 30, 1999 due to the additional
securities held by Midwest Federal. Without Midwest Federal, interest income
from investment securities was $23,000 lower in the 2000 quarter than in 1999,
generally due to decreased volume in the portfolio.
The $1,370,000 increase in interest expense on deposits in the second quarter of
2000 compared with 1999 was attributable to the additional deposits of Midwest
Federal, generally higher market interest rates and to some increase in
deposits. Excluding the $1,169,000 deposit interest expense for Midwest Federal,
the Company's interest expense on deposits increased $201,000.
Average interest-bearing deposits for the first quarter of 2000 increased
$112,248,000 (51 percent) from the same period in 1999. Excluding Midwest
Federal, average interest-bearing deposits were $3,504,000 greater in the second
quarter of 2000 than in 1999. Interest expense on Federal Home Loan Bank
advances was $952,000 higher in the second quarter of 2000 reflecting Midwest
Federal's utilization of this alternative funding method. Interest expense on
notes payable was up $49,000 in the second quarter of 2000 compared with 1999
due to higher interest rates on the Company's commercial bank line of credit
reflecting the increased prime rate.
Provision for Loan Losses
The Company recorded a provision for loan losses of $270,000 in the second
quarter of 2000, of which $12,000 was recorded by Midwest Federal. MIC Financial
did not have any provision for loan losses in the second quarter of 2000. One of
the Company's subsidiary banks increased its provision for loan losses during
the period due to continued deterioration in the financial position of a large
agricultural line of credit. In the second quarter of 1999, the Company recorded
a provision for loan losses of $1,465,000 ($1,243,000 for MIC Financial).
Management determines an appropriate provision based on its evaluation of the
adequacy of the allowance for loan losses in relationship to a continuing review
of problem loans, the current economic conditions, actual loss experience and
industry trends. Management believes that the allowance for loan losses is
adequate based on the inherent risk in the portfolio as of June 30, 2000,
however, continued growth in the loan portfolio and the uncertainty of the
agricultural economy require that management continue to evaluate the adequacy
of the allowance for loan losses and make additional provisions in future
periods as deemed necessary.
Noninterest Income
Noninterest income results from the charges and fees collected by the Company
from its customers for various services performed, data processing income
received from nonaffiliated banks, miscellaneous other income and gains (or
losses) from the sale of investment securities held in the available for sale
category. Total noninterest income was $172,000 (38 percent) greater in the
second quarter of 2000 compared with 1999. Excluding the contribution of Midwest
Federal of $153,000, most of the increase was due to higher service charges
collected on nonsufficient funds checks written by bank customers.
Noninterest Expense
Total noninterest expense for the quarter ended June 30, 2000 increased $585,000
(22 percent) compared to noninterest expense for the second quarter of 1999.
Excluding the $875,000 expense for the operation of Midwest Federal, the
Company's noninterest expense actually decreased $290,000 (11 percent).
Noninterest expense includes all the costs incurred to operate the Company
except for interest expense, the loan loss provision and income taxes. Salaries
and benefits expense for the second quarter of 2000 increased $340,000 (27
percent) over 1999 as a result of $350,000 in additional expense for Midwest
Federal, which was partially offset by the reduction in staff at MIC Financial.
Net occupancy and equipment expenses increased $91,000 (27 percent) in the
second quarter of 2000 compared to 1999. Excluding the $123,000 increase due to
Midwest Federal, second quarter 2000 net occupancy expense was down $31,000 in
comparison with 1999 mainly reflecting lower depreciation expense. Professional
fees in the second quarter of 2000 decreased by $160,000 (47 percent) compared
to 1999 as a result of lower legal and annual report costs. Other operating
expense increased by $170,000 (27 percent) in the second quarter of 2000
compared with the three months ended June 30, 1999. Excluding Midwest Federal,
other operating expense decreased $69,000 in the 2000 period. Included in the
other operating expense decrease was the refund in full of the one-time $80,000
assessment made by the Treasurer of the State of Iowa in February 2000 to cover
the losses on uninsured public fund deposits incurred when a bank in Carlisle,
Iowa was declared insolvent and closed by the Iowa Superintendent of Banking.
This assessment was returned to the banks in June. Goodwill amortization
increased in 2000 due to the amortization of the core deposit intangible and the
goodwill attributable to the acquisition of Midwest Federal.
Income Tax Expense
The Company incurred income tax expense of $495,000 for the three months ended
June 30, 2000. For the three months ended June 30, 1999, the Company reported an
income tax credit of $146,000 due to the loss incurred during the period. The
effective income tax rate as a percent of income before taxes for the three
months ended June 30, 2000 was 33.8 percent.
SIX MONTHS ENDED JUNE 30, 2000
The Company earned $2,084,000 during the first half of 2000 compared with net
income of $838,000 in the same period of 1999. Basic and diluted earnings per
share were $.50 for the six months ended June 30, 2000 compared with basic
earnings per share of $.23 and diluted earnings per share of $.22 for the first
half of 1999. Actual weighted-average shares outstanding in the first six months
of 2000 were 4,165,758 compared with 3,644,405 in the first half of 1999.
Weighted-average diluted shares outstanding were 4,177,683 and 3,743,010 for the
first half of 2000 and 1999, respectively. The return on average assets for the
first half of 2000 was .86 percent compared with .56 percent in 1999. Return on
average shareholders' equity was 8.49 percent in 2000 compared with 4.38 percent
for the first half of 1999.
RESULTS OF OPERATION
Net Interest Income
Net interest income increased $1,704,000 in the first half of 2000 compared with
the same period in 1999 reflecting the additional net interest income generated
by Midwest Federal in 2000. Excluding the $2,493,000 net interest income of
Midwest Federal, the Company's net interest income for the first six months of
2000 was down $789,000 primarily due to higher interest expense on
interest-bearing liabilities and a lower overall yield on earning assets. The
Company's net interest margin for the first half of 2000 was 4.09 percent (4.72
percent excluding Midwest Federal) compared with 5.34 percent in the first half
of 1999. The yield on earning assets for the first half of 2000 was 8.59 percent
(9.05 percent excluding Midwest Federal) compared with 9.29 percent in 1999. The
overall rate on interest-bearing liabilities rose to 4.96 percent for the first
half of 2000 from 4.63 percent in 1999.
Interest and fees on loans increased $4,270,000 (55 percent) in the first half
of 2000 compared with the same period in 1999. The additional interest income on
loans attributable to Midwest Federal was $3,953,000, with the Company's
previously existing subsidiaries having a net increase in interest income on
loans totaling $317,000 (4 percent). The net increase was due to the higher
average volume of loans outstanding since the average rate earned on loans for
the first half of 2000 (8.28 percent) was lower than in 1999 (9.08 percent). The
average rate on loans excluding Midwest Federal was 8.63 percent in the first
half of 2000.
The amount of interest income and discount collected on loan pool participations
increased 10 percent in the first half of 2000 to $3,908,000 from the first six
months of 1999 total of $3,548,000. This increase was largely due to the higher
average volume of loan pool participations in 2000 compared with 1999. The yield
on loan pool participations decreased to 12.86 percent for the first half of
2000 compared with 13.50 percent in 1999.
Interest income on investments increased $1,773,000 (143 percent) in the first
half of 2000 compared to 1999 as a result of the acquired securities portfolio
of Midwest Federal. The average balance of investment securities more than
doubled to $92,827,0000 in 2000 compared with $44,200,000 in 1999. The average
yield on the portfolio increased from 6.08 percent for 1999 to 6.97 percent in
2000. Without the addition of the Midwest Federal securities, the average
balance of investments would have declined in 2000 as the proceeds from maturing
securities were used to fund loan demand.
Total interest expense on paying liabilities increased $4,660,000 in the first
half of 2000 over 1999 due to the liabilities assumed with the acquisition of
Midwest Federal, increases in average deposits at existing banks, and the need
to pay higher market interest rates to retain and attract deposits. The rates
paid on borrowed funds such as fed funds purchased, FHLB advances, and
borrowings on the Company's bank line of credit all increased in 2000 as a
result of higher market rates, thereby increasing the interest expense of the
Company compared to 1999. Excluding the interest expense on the paying
liabilities of Midwest Federal, the Company's total interest expense increased
$608,000 (11 percent) in the first half of 2000 compared with 1999.
Provision for Loan Losses
The year-to-date 2000 provision for loan losses was $1,211,000 less than the
$1,632,000 for the first six months of 1999. The loss provision by MIC Financial
of $1,327,000 in 1999 was not repeated in 2000. Of the $421,000 year-to-date
provision for losses in 2000, only $27,000 was attributable to MIC Financial.
Noninterest Income
Total noninterest income for the first six months of 2000 increased $316,000
over that recorded in 1999. Of that increase, $255,000 was due to noninterest
income for Midwest Federal. The remaining $61,000 increase was largely due to
increased service charges and gains on the sale of investment securities
classified as "available for sale" that were sold to meet liquidity needs.
Noninterest Expense
The Company's noninterest expense increased $1,433,000 during the first six
months of 2000 over 1999. The noninterest expense incurred by Midwest Federal
for the first half of 2000 totaled $1,764,000. Excluding Midwest Federal, the
Company's noninterest expense decreased $331,000 in 2000 compared to 1999 with
reductions noted in professional fees (31 percent), salaries and benefits
expense (4 percent), and occupancy expense (11 percent). Much of this reduction
was due to the down-sizing of the MIC Financial operation.
Income Tax Expense
The Company's income tax expense of $1,067,000 for the first half of 2000 was
$552,000 greater than the $515,000 tax expense for 1999. Taxable income was
substantially higher in 2000. The effective income tax rate as a percent of
income before taxes for the six months ended June 30, 2000 was 33.8 percent.
FINANCIAL CONDITION
Total assets as of June 30, 2000 were $494,243,000, an increase of $8,054,000 (2
percent) from December 31, 1999. As of June 30, 2000, the Company had $1,620,000
in federal funds sold and $7,200,000 federal funds borrowed compared with
$7,865,000 sold and $2,965,000 borrowed as of December 31, 1999. The Company's
liquidity needs are usually highest during the second and third quarters of each
year due to seasonal loan demand and minimal deposit growth in the first nine
months of the year. Federal funds are borrowed on a short-term basis to meet
this liquidity need.
Investment Securities
Investment securities available for sale increased $3,426,000 from December 31,
1999 to the June 30, 2000 total of $63,956,000 as securities were purchased for
the portfolio. Investment securities classified as held to maturity declined to
$27,641,000 as of June 30, 2000, compared with $29,445,000 on December 31, 1999,
with the net decrease of $1,804,000 due to the maturity of securities.
Loans
Overall loan volumes continued to increase, with total loans outstanding of
$305,249,000 on June 30, 2000, reflecting growth of $23,158,000 (8 percent) from
December 31, 1999. As of June 30, 2000, the Company's loan to deposit ratio
(excluding loan pool investments) was 87.4 percent. This compares with a year-
end 1999 loan to deposit ratio of 81.0 percent. As of June 30, 2000, MIC
Financial had total loans outstanding of $2,764,000, mostly in the commercial
loan category. This compares with a December 31, 1999 loan total for MIC
Financial of $5,081,000.
Loan Pool Participations
As of June 30, 2000, the Company had loan pool participations of $60,048,000, a
decrease of $7,708,000 (11 percent) from the December 31, 1999 balance. The
reduction in the loan pool participations is due to collections made in the
normal course of business and the sale of most of the loans still held by the
Central States Resources Corporation, Midstates Resources Corporation and All
States Resources Corporation servicing entities. The sale of the majority of the
assets of these servicing corporations was completed in May 2000 with minimal
profits recognized at that time. The collection of proceeds from the remaining
assets is expected to continue through the third quarter with the recognition of
any additional income deferred until the receipt of all remaining settlements.
Management of the Company and the servicer determined that it was in the best
interest of all parties to sell these remaining assets in order to maximize the
potential return on investment and to reduce credit risk. The assets in these
servicing corporations were purchased from various sources between 1988 and
1997. These remaining assets were becoming increasingly costly to service and
the cash flow from them was projected to decline. The assets were felt to be
subject to greater than average credit risk in the event of deterioration in the
national economy.
The Company's involvement in the loan pool participations continues through
States Resources Corporation which was created by the servicer in 1998. All pool
purchases since then have been through this entity. The loan pool investment
balance shown as an asset on the Company's Statement of Condition represents the
discounted purchase cost of the loan pool participations. During the second
quarter of 2000 the Company was successful in purchasing three loan pool
packages totaling $10,575,000. For the first six months of 2000, the Company has
purchased loan pools totaling $15,211,000. This compares with purchases of
$19,999,000 in the first half of 1999. The average loan pool participation
balance of $61,136,000 for the first six months of 2000 was $8,132,000 (15
percent) higher than the average balance of $53,003,000 for the first half of
1999.
Deposits
Total deposits as of June 30, 2000 were $349,097,000 compared with $348,672,000
as of December 31,1999. The Company typically experiences minimal growth in
total deposits from December to June. Competition for deposits has been intense
in many of the markets served by the Company with management electing not to pay
the highest rates in order to attract depositor funds.
Borrowed Funds
The Company had $7,200,000 in Federal Funds purchased on June 30, 2000. There
was $2,965,000 in Federal Funds purchased on December 31, 1999. During the first
half of 2000, the Company had an average balance of Fed Funds purchased of
$3,159,000. Advances from the Federal Home Loan Bank totaled $70,986,000 as of
June 30, 2000 compared with $63,421,000 as of December 31, 1999. The increases
in Federal Funds purchased and Federal Home Loan Bank advances provided the
funds to meet loan demand by customers.
Note Payable
The note payable balance was reduced to $15,100,000 on June 30, 2000 from a
balance of $18,000,000 on December 31, 1999. The Company's note matured on June
30, 2000 and was rewritten into a $9,000,000 term loan with one payment of
$900,000 due December 31, 2000, three annual payments of $1,350,000, and a final
payment of $4,050,000 due on December 31, 2004. Under the new loan agreement,
the Company maintains a revolving line of credit of up to $9,000,000 (of which
the Company had utilized $6,100,000 as of June 30, 2000) that matures June 30,
2001. The interest rate for both the term loan and the revolving line remain at
prime rate less .375%.
Nonperforming Assets
The Company's nonperforming assets totaled $5,165,000 (1.69 percent of total
loans) as of June 30, 2000, compared to $4,965,000 (1.76 percent of total loans)
as of December 31, 1999. All nonperforming asset totals and related ratios
exclude the loan pool investments. The following table presents the categories
of nonperforming assets for the bank subsidiaries and for MIC Financial, Inc. as
of June 30, 2000 compared with December 31, 1999:
Nonperforming Assets
(dollars in thousands)
June 30, 2000
MIC
Banks Financial Total
------- ------ -----
Nonaccrual $1,700 $1,187 $2,887
Loans 90 days past due 1,295 414 1,709
Other real estate owned 569 0 569
------- ------ -----
$3,564 $1,601 $5,165
December 31, 1999
MIC
Banks Financial Total
------- ------ -----
Nonaccrual $1,969 $ 905 $2,874
Loans 90 days past due 1,025 401 1,426
Restructured loans 0 515 515
Other real estate owned 150 0 150
------- ------ -----
$3,144 $1,821 $4,965
From December 31, 1999 to June 30, 2000, nonaccrual loans increased $13,000.
Loans ninety days past due increased $283,000. Restructured loans decreased
$515,000 as the performance on one MIC Financial credit deteriorated and it was
reclassified as nonaccrual. Other real estate owned increased by $419,000 as a
residential real estate loan was foreclosed on and a hotel in which one of the
bank subsidiaries participated in a loan on was foreclosed. The Company's
allowance for loan losses as of June 30, 2000 was $3,616,000, which was 1.18
percent of total loans as of that date. This compares with an allowance for loan
losses of $4,006,000 as of December 31, 1999, which was 1.42 percent of total
loans. As of June 30, 2000, the allowance for loan losses was 78.68 percent of
nonperforming loans compared with 83.20 percent as of December 31, 1999. Based
on the inherent risk in the loan portfolio, management believes that as of June
30, 2000, the allowance for loan losses is adequate. For the three months ended
June 30, 2000, the Company recognized net charge-offs of $204,000 compared with
net charge-offs of $772,000 during the quarter ended June 30, 1999. Net
charge-offs recorded by MIC Financial totaled $69,000 while the bank
subsidiaries charged off $135,000 during the quarter ended June 30, 2000. For
the six months ended June 30, 2000, the Company recognized net charge-offs of
$811,000 compared with $1,079,000 for the first half of 1999. During the first
half of 2000, MIC Financial has $419,000 versus a net charge-off of $791,000 in
the 1999 period.
Capital Resources
As of June 30, 2000, total shareholders' equity as a percentage of total assets
was 9.61 percent compared with 10.33 percent as of December 31, 1999. During the
second quarter of 2000, the Company repurchased a total of 77,500 shares of
stock on the open market as part of the 130,000 share repurchase authorized by
the Company's board of directors on January 21, 2000. An additional 250,000
shares of common stock were repurchased by the Company during the second quarter
as authorized by the board of directors on April 27, 2000. The average price per
share of all stock repurchased by the Company on the open market in 2000 was
$8.21. Under risk-based capital rules, the Company's tier 1 capital ratio was
10.25 percent of risk-weighted assets as of June 30, 2000, and was 11.42 percent
of risk-weighted assets as of December 31, 1999, compared to a 4.00 percent
requirement. Risk- based capital guidelines require the classification of assets
and some off-balance-sheet items in terms of credit-risk exposure and the
measuring of capital as a percentage of the risk-adjusted asset totals. Tier 1
capital is the Company's total common shareholders' equity reduced by goodwill.
Management believes that, as of June 30, 2000, the Company and its subsidiary
banks meet all capital adequacy requirements to which they are subject. As of
that date, all the bank subsidiaries were "well capitalized" under regulatory
prompt corrective action provisions.
Liquidity
Liquidity management involves meeting the cash flow requirements of depositors
and borrowers. The Company conducts liquidity management on both a daily and
long-term basis; and it adjusts its investments in liquid assets based on
expected loan demand, projected loan maturities and payments, estimated cash
flows from the loan pool participations, expected deposit flows, yields
available on interest-bearing deposits, and the objectives of its
asset/liability management program. The Company had liquid assets (cash and cash
equivalents) of $12,007,000 as of June 30, 2000, compared with $22,919,000 as of
December 31, 1999. Much of the decrease during the period was utilized to fund
loan growth and to purchase investment securities. Investment securities
classified as available for sale could be sold to meet liquidity needs, if
necessary. Additionally, the bank subsidiaries maintain lines of credit with
correspondent banks and the Federal Home Loan Bank that would allow them to
borrow federal funds on a short-term basis if necessary. The Company also
maintains a line of credit with a major commercial bank that provides liquidity
for the purchase of loan pool participation investments and other corporate
needs. Management believes that the Company has sufficient liquidity as of June
30, 2000 to meet the needs of borrowers and depositors.
Market Risk Management
Market risk is the risk of earnings volatility that results from adverse changes
in interest rates and market prices. The Company's market risk is primarily
comprised of interest rate risk arising from its core banking activities of
lending and deposit taking. Interest rate risk is the risk that changes in
market interest rates may adversely affect the Company's net interest income.
Management continually develops and applies strategies to mitigate this risk.
Management does not believe that the Company's primary market risk exposures and
how those exposures were managed in the first six months of 2000 changed when
compared to 1999.
The Company uses a third-party computer software simulation modeling program to
measure its exposure to potential interest rate changes. For various assumed
hypothetical changes in market interest rates, numerous other assumptions are
made such as prepayment speeds on loans and securities backed by mortgages, the
slope of the Treasury yield curve, the rates and volumes of the Company's
deposits and the rates and the volumes of the Company's loans. This analysis
measures the estimated change in net interest income in the event of
hypothetical changes in interest rates. This analysis of the Company's interest
rate risk was presented in the Form 10-K filed by the Company for the year ended
December 31, 1999.
Commitments and Contingencies
In the ordinary course of business, the Company is engaged in various
litigation. Management believes that none of this litigation is material to the
Company's results of operations.
Board of Directors
R. Spencer Howard resigned as a director and Vice President of the Company and
President of MIC Financial effective February 29, 2000. James F. Mathew, a
director of the Company since February 1979, passed away on March 28, 2000
following a long illness. Another long-term director of the Company, Martin L.
Bernstein, passed away very unexpectedly on April 28, 2000. The vacancies on the
Company's board of directors created by these events were filled at the June 21,
2000 meeting of the board. Elected to serve as directors until the Company's
annual meeting of shareholders in 2001 were James G. Wake, Michael R. Welter and
Edward C. Whitham, Jr. These gentlemen are all currently serving as outside
directors on boards of three of the Company's subsidiary financial institutions.
ESOP Merger
The Company has maintained an Employee Stock Ownership Plan ("ESOP") for its
employees since 1984. Midwest Federal employees were also covered by an ESOP. As
part of the merger agreement with Midwest Bancshares, Inc., it was agreed that
the Midwest ESOP would be merged into the Company's ESOP as soon as practicable.
The Company has submitted notification to and received approval from the Federal
Reserve Bank of Chicago to merge the two ESOP's. Upon completion of the merger,
the Company ESOP will own 575,950 shares, or 14.62 percent of the outstanding
shares of the Company as of July 31, 2000.
The ESOP has borrowed funds from the Company to purchase additional shares of
Company stock. The Company's board of directors approved a loan of up to
$700,000 to the ESOP to purchase Company stock. This loan is at the same rate of
interest as the Company's bank line of credit (prime less .375%). As of June 30,
2000, the ESOP had borrowed $82,450 from the Company to purchase shares.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these forward-
looking statements.
Part II - Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on April 27, 2000. The
record date for determination of shareholders entitled to vote at the meeting
was February 22, 2000. There were 4,287,014 shares outstanding as of that date,
each such share being entitled to one vote. At the shareholders' meeting the
holders of 3,551,892 shares of stock (82.85 percent of the outstanding shares)
were represented in person or by proxy, which constituted a quorum. The
following proposals were voted on at the meeting:
Proposal 1 - Election of Directors:
The following members of the Company's board of directors were elected to serve
for the specified term or until their successors shall have been elected and
qualified. Such persons received the number of votes set opposite their names:
VOTE
FOR WITHHELD
----- --------
One-year term (2001):
Richard R. Donahue 3,402,261 149,631
Three-year term (2003):
Martin L. Bernstein 3,292,906 258,986
William D. Hassel 3,390,088 161,804
Proposal 2 - Ratification of Auditors' Appointment:
A vote was also taken on the ratification of the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending December 31,
2000. The results of the vote were as follows:
DEALER
FOR AGAINST ABSTAIN NON-VOTES
3,342,608 28,389 180,895 0
Part II -- Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this Report or, if so indicated,
incorporated by reference:
Exhibits
3.1 Articles of Incorporation of Mahaska Investment Company. (e)
3.2 Bylaws of Mahaska Investment Company. (e)
10.1 Mahaska Investment Company Employee Stock Ownership Plan & Trust as
restated and amended. (b)
10.2.1 1993 Stock Incentive Plan. (a)
10.2.2 1996 Stock Incentive Plan. (c)
10.2.3 1998 Stock Incentive Plan. (d)
10.3.1 Midstates Resources Corp. Loan Participation and Servicing Agreement
dated December 9, 1992 between Midstates Resources Corp., Mahaska
Investment Company, and Mahaska State Bank. (a)
10.3.2 Central States Resources Corp. Liquidation Agreement dated April 18,
1988 between Central States Resources Corp., Mahaska State Bank,
National Bank & Trust Co., and Randal Vardaman. (a)
10.3.3 All States Resources Corp. Loan Participation and Servicing
Agreement dated September 13, 1993 between All States Resources
Corp., Mahaska Investment Company, and West Gate Bank. (a)
10.3.4 States Resources Corp. Loan Participation and Servicing Agreement
dated February 5, 1999 between States Resources Corp. and Mahaska
Investment Company. (g)
10.5.1 Amended and Restated Credit Agreement dated June 30, 2000 between
Mahaska Investment Company and Harris Trust & Savings Bank.
10.6 Agreement and Plan of Merger By and Between Mahaska Investment
Company and Midwest Bancshares, Inc. dated February 2, 1999. (f)
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(a) Incorporated by reference to the Form S-1 Registration Number
33-81922 of Mahaska Investment Company.
(b) Incorporated by reference to the Form 10-K for the year ended
December 31, 1994 filed by Mahaska Investment Company.
(c) Incorporated by reference to the Form 10-K for the year ended
December 31, 1996 filed by Mahaska Investment Company.
(d) Incorporated by reference to the Form 10-K for the year ended
December 31, 1997 filed by Mahaska Investment Company.
(e) Incorporated by reference to the Form 10-Q for the quarter
ended September 30, 1998 filed by Mahaska Investment Company.
(f) Incorporated by reference to the Amendment No. 1 to the Form
S-4 Registration number 333-79291 filed by Mahaska Investment
Company on August 17, 1999.
(g) Incorporated by reference to the Form 10-K for the year ended
December 31, 1999 filed by Mahaska Investment Company.
(b) Reports on Form 8-K -- The Company filed one report on Form 8-K during the
three months ended June 30, 2000 to report the election of three
individuals to fill vacancies on its board of directors. This report was
filed June 28, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAHASKA INVESTMENT COMPANY
(Registrant)
August 7, 2000 /s/ Charles S. Howard
- --------------------- ---------------------------------------
Dated Charles S. Howard
President
August 7, 2000 /s/ David A. Meinert
- --------------------- ---------------------------------------
Dated David A. Meinert
Executive Vice President and Chief
Financial Officer (Principal Accounting
Officer)
Exhibit 10.5.1
Amended and Restated Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, Mahaska Investment Company, an Iowa corporation (the
"Borrower"), refers to the Credit Agreement dated as of January 31, 1996, as
amended and currently in effect between the Borrower and you (the "Bank") (such
Credit Agreement as so amended being hereinafter referred to as the "Present
Credit Agreement") pursuant to which the Bank has extended, subject to the terms
and conditions thereof, a revolving credit facility available to the Borrower in
a principal amount not to exceed $20,000,000 at any one time outstanding. The
Borrower issued to the Bank under the Present Credit Agreement its Revolving
Credit Note dated as of December 29, 1998, payable to the order of the Bank in
the principal amount of $20,000,000 (the "Present Revolving Credit Note") to
evidence the indebtedness outstanding on said revolving credit. The Borrower has
requested that the Bank modify the terms and conditions applicable to the
indebtedness evidenced by the Present Revolving Credit Note (the indebtedness
evidenced by the Present Revolving Credit Note being hereinafter referred to as
the "Present Revolving Credit Loans"), extend the maturity thereof, make
available to the Borrower a term loan in the amount of $9,000,000, and thus
provide to the Borrower a restructured revolving credit facility and a new term
loan facility covering the Present Revolving Credit Loans, all on and subject to
the terms and conditions set forth below. Accordingly, this Agreement is
executed and delivered by the Borrower to the Bank to set forth and confirm the
terms and conditions applicable to such credit facilities and the covenants,
representations and warranties of the Borrower to be made in connection
therewith.
The Borrower acknowledges that it is justly and truly indebted to the Bank
on the Present Revolving Credit Loans as of June 30, 2000, in the principal
amount of $15,100,000 plus accrued and unpaid interest thereon. Substantially
concurrently herewith, the Borrower is executing and delivering to the Bank the
Notes hereinafter identified and defined. Upon satisfaction of the conditions
precedent to effectiveness set forth in Section 6 hereof, the Present Revolving
Credit Loans shall automatically, and without further action on the part of
either the Bank or the Borrower, become evidenced by the Notes and, to that
extent, the Notes are issued in renewal of, and evidence the same indebtedness
formerly evidenced by, the Present Revolving Credit Note, as well as evidencing
all additional Loans to be made pursuant hereto. Except as set forth in the
immediately following sentence, all of the Present Revolving Credit Loans shall,
for all purposes of this Agreement, be treated as though they constituted Loans
under this Agreement in an amount equal to the aggregate unpaid principal
balance of the Loans made on the date the conditions precedent to effectiveness
set forth in Section 6 hereof have been satisfied or duly waived in writing by
the Bank. Simultaneously with such satisfaction or waiver of such conditions
precedent, any commitment of the Bank under the Present Credit Agreement shall
terminate and the Borrower shall pay to the Bank all unpaid interest and
commitment fees accrued to such date on or in connection with the Present
Revolving Credit Loans.
Section 1. THE CREDIT.
Section 1.1. Revolving Credit. Subject to the terms and conditions hereof,
the Bank agrees to extend a revolving credit (the "Revolving Credit") to the
Borrower which may be availed of by the Borrower from time to time during the
period from and including the date hereof to but not including the Revolving
Credit Termination Date, at which time the commitment of the Bank to extend
credit under the Revolving Credit shall expire. The Revolving Credit may be
utilized by the Borrower in the form of loans (individually a "Revolving Loan"
and collectively the "Revolving Loans"), provided that the aggregate principal
amount of Revolving Loans outstanding at any one time shall not exceed
$9,000,000 (the "Revolving Credit Commitment", as such amount may be reduced
pursuant to Section 2.4 hereof). The Revolving Loans shall be made against and
evidenced by a single promissory note of the Borrower in the form (with
appropriate insertions) attached hereto as Exhibit A (the "Revolving Note").
Without regard to the principal amount of the Revolving Note stated on its face,
the actual principal amount at any time outstanding and owing by the Borrower on
account of the Revolving Note shall be the sum of all Revolving Loans made
hereunder less all payments of principal actually received by the Bank. During
the period from and including the date hereof to but not including the Revolving
Credit Termination Date, the Borrower may use the Revolving Credit Commitment by
borrowing, repaying and reborrowing Revolving Loans in whole or in part, all in
accordance with the terms and conditions of this Agreement.
Section 1.2. Term Loan. Subject to the terms and conditions hereof, the
Bank agrees to make a term loan (the "Term Loan") to the Borrower concurrently
herewith in the principal amount of $9,000,000. The Term Loan shall be made
against and evidenced by a promissory note of the Borrower in the form (with
appropriate insertions) attached hereto as Exhibit B (the "Term Note"). The
Borrower shall make principal payments on the Term Loan in installments on the
last day of each year, commencing with the year ending December 31, 2000, with
the amount of each such installment to equal the amount set forth in Column B
below shown opposite of the relevant due date as set forth in Column A below:
Column A Column B
Payment Date Mandatory Scheduled Principal
Payment on Term Loan
12/31/00 $ 900,000
12/31/01 $1,350,000
12/31/02 $1,350,000
12/31/03 $1,350,000
Term Loan Maturity Date $4,050,000
it being agreed that the final payment of both principal and interest not sooner
paid on the Term Loan shall be due and payable on the Term Loan Maturity Date.
Section 1.3. Manner and Disbursement of Loans. The Borrower shall give
written or telephonic notice to the Bank (which notice shall be irrevocable once
given) by no later than 11:00 a.m. (Chicago time) on the date the Borrower
requests the Bank to make a Loan hereunder. Each such notice shall specify the
date of the Loan requested (which must be a Business Day) and the amount of such
Loan. The Borrower agrees that the Bank may rely upon any written or telephonic
notice given by any person the Bank in good faith believes is an Authorized
Representative without the necessity of independent investigation. Subject to
the provisions of Section 6 hereof, the proceeds of each Loan shall be made
available to the Borrower at the principal office of the Bank in Chicago,
Illinois, in immediately available funds.
Section 2. INTEREST, FEES, PREPAYMENTS, TERMINATIONS AND APPLICATIONS.
Section 2.1. Interest. The outstanding principal balance of the Loans shall
bear interest (which the Borrower hereby promises to pay at the rates and at the
times set forth herein) prior to maturity (whether by lapse of time,
acceleration or otherwise) at the rate per annum determined by subtracting (but
not below zero) 3/8 of 1% per annum from the Prime Rate as in effect from time
to time and after maturity (whether by lapse of time, acceleration or
otherwise), whether before or after judgment, until payment in full thereof at
the rate per annum determined by adding 3% to the Prime Rate as in effect from
time to time. Any change in the interest rate on the Loans resulting from a
change in the Prime Rate shall be effective on the date of the relevant change
in the Prime Rate. Interest on the Loans shall be computed on the basis of a
year of 360 days for the actual number of days elapsed. Interest on the Loans
shall be payable quarterly in arrears on the last day of each calendar quarter
in each year (commencing June 30, 2000) and at maturity, and interest after
maturity shall be due and payable on demand.
Section 2.2. Revolving Credit Commitment Fee. For the period from and
including the date hereof to but not including the Revolving Credit Termination
Date, the Borrower shall pay to the Bank a commitment fee at the rate of 1/8 of
1% per annum (computed on the basis of a year of 360 days for the actual number
of days elapsed) on the average daily unused portion of the Revolving Credit
Commitment. Such commitment fee shall be payable quarterly in arrears on the
last day of each calendar quarter in each year (commencing June 30, 2000) and on
the Revolving Credit Termination Date.
Section 2.3. Prepayments. (a) Voluntary Prepayments. The Borrower shall
have the privilege of prepaying without premium or penalty and in whole or in
part any Note at any time upon notice to the Bank prior to 12:00 noon (Chicago
time) on the date fixed for prepayment. If such prepayment prepays the Term Note
(in whole or in part) or the Revolving Note in full accompanied by the
termination in whole of the Revolving Credit Commitment, each such prepayment
shall be made together with accrued interest thereon to the date of prepayment.
(b) Mandatory Prepayments. The Borrower shall, on each date the Revolving
Credit Commitment is reduced pursuant to Section 2.4 hereof, prepay the
Revolving Loans by the amount, if any, necessary to reduce the aggregate
principal amount of the Revolving Loans then outstanding to the amount to which
the Revolving Credit Commitment has been so reduced.
Section 2.4. Terminations. (a) Optional Terminations. The Borrower shall
have the right at any time and from time to time, upon one (1) Business Day
prior notice to the Bank, to terminate without premium or penalty and in whole
or in part (but if in part, then in an amount not less than $100,000) the
Revolving Credit Commitment, provided that the Revolving Credit Commitment may
not be so reduced to an amount less than the aggregate principal amount of the
Revolving Loans then outstanding. Any termination of the Revolving Credit
Commitment pursuant to this Section may not be reinstated.
(b) Mandatory Termination. After the occurrence of a Change of Control, the
Bank may, by written notice to the Borrower at any time on or before the date
occurring 90 days after the date the Borrower notifies the Bank of such Change
of Control, terminate the Revolving Credit Commitment and all other Obligations
of the Bank hereunder on the date stated in such notice (which shall in no event
be sooner than 30 days after the occurrence of such Change of Control). On the
date the Revolving Credit Commitment is so terminated, all Outstanding
Obligations (including, without limitation, all principal of and accrued but
unpaid interest on the Term Note, as well as the Revolving Note) shall forthwith
be due and payable without further demand, presentment, protest, or notice of
any kind.
Section 2.5. Place and Application of Payments. All payments of principal,
interest, and all other Obligations payable under the Loan Documents shall be
made to the Bank at its office at 111 West Monroe Street, Chicago, Illinois (or
at such other place as the Bank may specify) no later than 12:00 noon (Chicago
time) on the date any such payment is due and payable. Payments received by the
Bank after 12:00 noon (Chicago time) shall be deemed received as of the opening
of business on the next Business Day. All such payments shall be made in lawful
money of the United States of America, in immediately available funds at the
place of payment, without set-off or counterclaim. Any amount prepaid under the
Revolving Credit may, subject to the terms and conditions hereof, be borrowed,
repaid and borrowed again. No amount prepaid on the Term Note may be reborrowed,
and partial prepayments of the Term Note shall be applied to the several
installments thereof in the inverse order of maturity.
Section 2.6. Notations. All Loans made against a Note shall be recorded by
the Bank on its books and records or, at its option in any instance, endorsed on
the reverse side of such Note or on a schedule attached thereto and the unpaid
principal balance so recorded or endorsed by the Bank shall be prima facie
evidence in any court or other proceeding brought to enforce such Note of the
principal amount remaining unpaid thereon; provided that the failure of the Bank
to record any of the foregoing shall not limit or otherwise affect the
obligation of the Borrower to repay the principal amount of such Note together
with accrued interest thereon. Prior to any negotiation of any Note, the Bank
shall record on the reverse side thereof or on a schedule thereto the status of
all amounts evidenced thereby.
Section 3. COLLATERAL.
The payment and performance of the Obligations shall at all times be
secured by all of the issued and outstanding capital stock (except for
directors' qualifying shares as required by law) of each Subsidiary of the
Borrower, whether now owned or hereafter formed or acquired, pursuant to a
Pledge and Security Agreement dated as of October 17, 1997, as amended, between
the Borrower and the Bank (the Pledge and Security Agreement, and all other
instruments and documents as shall from time to time secure the Obligations or
any part thereof, being hereinafter referred to as the "Collateral Documents").
The Borrower agrees that it shall comply with all terms and conditions of each
of the Collateral Documents and that it shall, at any time and from time to time
as requested by the Bank, execute and deliver such further documents and do such
acts as the Bank may deem necessary or desirable to provide for or protect or
perfect the Lien of the Bank in the Collateral.
Section 4. DEFINITIONS.
The following terms when used herein shall have the following meanings
(capitalized terms defined elsewhere in this Agreement shall, unless otherwise
specified, have the meanings so ascribed to them in all other provisions of this
Agreement):
"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1 hereof or on any
update of any such list provided by the Borrower to the Bank, or any further or
different officer of the Borrower so named by any Authorized Representative of
such Borrower in a written notice to the Bank.
"Banking Subsidiary" means any Subsidiary of the Borrower which is a bank
or thrift organized under the laws of the United States of America or any state
thereof.
"Business Day" means any day other than a Saturday or Sunday on which the
Bank is not authorized or required to close in Chicago, Illinois.
"Change of Control" means any of (a) the acquisition by any "person" or
"group" (as such terms are used in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) at any time of beneficial ownership of 40% or
more of the outstanding capital stock of the Borrower on a fully-diluted basis,
(b) the failure of individuals who are members of the board of directors of the
Borrower on the date of this Agreement (together with any new or replacement
directors whose initial nomination for election was approved by a majority of
the directors who were either directors on the date of this Agreement or
previously so approved) to constitute a majority of the board of directors of
the Borrower, or (c) Charles Howard shall at any time and for any reason cease
to be actively involved in the management of the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests, and privileges from
time to time subject to the Liens granted to the Bank by the Collateral
Documents.
"Collateral Documents" is defined in Section 3 hereof.
"Consolidated Net Income" means, with reference to any period, the net
income (or net loss) of the Borrower and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Total Assets" means, at any time, the total assets of the
Borrower and its Subsidiaries at such time determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 8.1 hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, capital lease or other title
retention arrangement.
"Loan Documents" means this Agreement, the Notes, and the Collateral
Documents.
"Loans" means the Revolving Loans and the Term Loan.
"MIC" means MIC Financial, Inc., an Iowa corporation formerly known as
On-Site Credit Services, Inc.
"Non-Performing Assets" means with reference to any Person, as of any time
the same is to be determined, the sum of all non-performing assets of such
Person as determined in accordance with regulatory accounting principles
applicable to such Person, but in any event including, without limitation,
(i) loans or other extensions of credit on which any payment (whether principal
or interest or otherwise) is not made within 90 days of its original due date,
(ii) loans which have been placed on a non-accrual basis, (iii) loans structured
so as to not bear interest at a then market rate or so that other terms thereof
have been compromised, and (iv) property acquired by repossession or foreclosure
and, without duplication, property acquired pursuant to in-substance
foreclosure.
"Notes" means the Revolving Note and the Term Note.
"Obligations" means all obligations of the Borrower to pay principal and
interest on the Loans, all fees and charges payable hereunder, and all other
payment obligations of the Borrower arising under or in relation to any Loan
Document, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof.
"Prime Rate" means, for any day, the rate of interest announced by the Bank
from time to time as its prime commercial rate, as in effect on such day, it
being understood and agreed that such rate may not be the Bank's best or lowest
rate.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Revolving Credit Termination Date" means June 30, 2001, or such earlier
date on which the Revolving Credit Commitment is terminated in whole pursuant to
Section 2.4, 8.2 or 8.3 hereof.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Borrower, by one or more subsidiaries
of the Borrower, or by the Borrower and one or more of its subsidiaries.
"Term Loan Maturity Date" means December 31, 2004.
"Tier I Leverage Ratio" of any Person means, at any time, the ratio of
regulatory "core" capital (Tier I) to total assets, all as defined and
determined from time to time by applicable bank or thrift regulatory
authorities.
"Tier I Risk Based Capital Ratio" means the ratio of regulatory "core"
capital (Tier I) to weighted-risk assets and off-balance sheet items, all as
defined and determined from time to time by applicable bank or thrift regulatory
authorities.
"Total Risk Based Capital Ratio" of any Person means, at any time, the
ratio of regulatory "core" capital (Tier I) and supplementary capital elements
(Tier II) to weighted-risk assets and off-balance sheet items, all as defined
and determined from time to time by applicable bank or thrift regulatory
authorities.
Section 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Bank as follows:
Section 5.1. Organization and Qualification. The Borrower is duly
organized, validly existing, and in good standing as a corporation under the
laws of the state of its incorporation. The Borrower has full and adequate
corporate power to own its Property and conduct its business as now conducted,
and is duly licensed or qualified and in good standing in each jurisdiction in
which the nature of the business conducted by it or the nature of the Property
owned or leased by it requires such licensing or qualifying. Without limiting
the generality of the foregoing, the Borrower is a bank holding company and, as
such, the Borrower has received all necessary approvals from, and has filed all
necessary reports with, all applicable federal and state regulatory authorities.
Section 5.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing, and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying. Schedule 5.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Borrower and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding. All of the outstanding shares of capital
stock and other equity interests of each Subsidiary are validly issued and
outstanding and fully paid and nonassessable, and all such shares and other
equity interests indicated on Schedule 5.2 as owned by the Borrower or a
Subsidiary are owned, beneficially and of record, by the Borrower or such
Subsidiary free and clear of all Liens other than the Liens granted in favor of
the Bank. There are no outstanding commitments or other obligations of any
Subsidiary to issue, and no options, warrants, or other rights of any Person to
acquire, any shares of any class of capital stock or other equity interests of
any Subsidiary.
Section 5.3. Authority and Validity of Obligations. The Borrower has full
right and authority to enter into the Loan Documents and to perform all of its
obligations thereunder; and the Loan Documents do not, nor does the performance
or observance by the Borrower of any of the matters and things therein provided
for, contravene or constitute a default under any provision of law or any
judgment, injunction, order or decree binding upon the Borrower or any provision
of its articles of incorporation or by-laws or any covenant, indenture or
agreement of or affecting the Borrower or any of its Properties, or result in
the creation or imposition of any Lien on any Property of the Borrower other
than Liens granted in favor of the Bank.
Section 5.4. Purpose; Margin Stock. The Borrower shall use a portion of the
proceeds of the Term Loan in accordance with Section 5.10 hereof and the balance
of the proceeds of the Term Loan and the initial borrowing of Revolving Loans to
refinance existing indebtedness of the Borrower under the Present Revolving
Credit Note. The Borrower shall use the proceeds of subsequent borrowings of
Revolving Loans during the term of this Agreement solely for the following
purposes: (a) to finance the purchase price of participation interests in loan
pools, (b) to finance acquisitions consented to by the Bank pursuant to Section
7.13 hereof, and (c) to finance its general working capital requirements. The
Borrower is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan made hereunder will be used to purchase or carry any margin stock,
or to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
Section 5.5. Financial Reports. All financial statements of the Borrower
and its Subsidiaries heretofore submitted to the Bank are true and correct in
all material respects, have been prepared in accordance with generally accepted
accounting principles or regulatory accounting principles, as the case may be,
consistently applied, and fairly present the financial condition of the Borrower
and its Subsidiaries and the results of operations and cash flows of the
Borrower and its Subsidiaries as of the dates thereof and for the periods
covered thereby. Neither the Borrower nor any Subsidiary has contingent
liabilities which are material to it other than as indicated on such financial
statements or, with respect to future periods, on the financial statements
furnished pursuant to Section 7.5 hereof. Since December 31, 1999, there has
been no change in the condition (financial or otherwise) or business prospects
of the Borrower or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate could reasonably be
expected to have a material adverse effect upon the operations, business,
Property, or condition (financial or otherwise) of the Borrower or of the
Borrower and its Subsidiaries taken as a whole.
Section 5.6. Litigation and Taxes. There is no litigation or governmental
proceeding or labor controversy pending, nor to the knowledge of the Borrower
threatened, against the Borrower or any Subsidiary which if adversely determined
would (a) impair the validity or enforceability of, or impair the ability of the
Borrower to perform its obligations under, any Loan Document or (b) result in
any material adverse change in the financial condition, Properties, business or
operations of the Borrower or any Subsidiary. All tax returns required to be
filed by the Borrower or any Subsidiary in any jurisdiction have, in fact, been
filed, and all taxes, assessments, fees and other governmental charges upon the
Borrower or any Subsidiary or upon any of their respective Properties, income or
franchises, which are shown to be due and payable in such returns, have been
paid. The Borrower has no knowledge of any proposed additional tax assessment
against it or any Subsidiary for which adequate provisions in accordance with
generally accepted accounting principles have not been made on its accounts.
Section 5.7. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Borrower or any other Person, is or will be necessary to the valid
execution, delivery or performance by the Borrower of the Loan Documents.
Section 5.8. Compliance with Laws. The Borrower and each Subsidiary are in
compliance with the requirements of all federal, state and local laws, rules,
and regulations applicable to or pertaining to their Properties or business
operations, non-compliance with which could have a material adverse effect on
the financial condition, Properties, business or operations of the Borrower or
any Subsidiary. Neither the Borrower (or any of its directors or officers) nor
any Banking Subsidiary (or any of its directors or officers) is a party to, or
subject to, any agreement with, or directive or order issued by, any federal or
state bank or thrift regulatory authority which imposes restrictions or
requirements on it which are not generally applicable to banks or thrifts, or
their holding companies; and no action or administrative proceeding is pending
or, to the Borrower's knowledge, threatened against the Borrower or any Banking
Subsidiary or any of their directors or officers which seeks to impose any such
restriction or requirement.
Section 5.9. Organization and Qualification of ESOT and ESOP. The Borrower
is a party to a Trust Agreement dated November 17, 1994, between Mahaska State
Bank, as trustee of the Mahaska Investment Company Employee Stock Ownership
Trust (the "ESOT") and the Borrower (the "Trust Agreement") entered into in
connection with the establishment of the Mahaska Investment Company Employee
Stock Ownership Plan (the "ESOP"). The ESOT is a duly organized, validly
existing employee stock ownership trust exempt from tax under Section 501(a) of
the Code. The ESOP is qualified under Section 401(a) of the Code. The ESOP and
the ESOT, taken together, constitute a valid employee stock ownership plan for
the purposes of Section 4975(e)(7) of the Code and is entitled to all the
benefits afforded to employee stock ownership plans thereunder. The ESOP and the
ESOT are in compliance in all material respects with ERISA and the Code, and the
Borrower has received no notice to the contrary.
Section 5.10. ESOP Loan Proceeds. Proceeds of the Loans in the approximate
amount of $700,000 shall be loaned by the Borrower on or before September 30,
2000, to the ESOT (herein, the "ESOP Loan") and applied by the ESOT to the
payment of the purchase price of approximately 2% of the equity securities of
the Borrower (herein, the "ESOP Shares"). The ESOP Shares being purchased with
the proceeds of ESOP Loan shall be acquired for no more than adequate
consideration within the meaning of Section 3(18) of ERISA and in accordance
with the other requirements of Section 408(e) of ERISA. The acquisition of the
ESOP Shares with the proceeds of the ESOP Loan will not, and consummation of the
transactions provided for in this Agreement shall not, constitute a prohibited
transaction for purposes of Section 406 of ERISA or Section 4975 of the Code.
The ESOP Shares are and will at all times continue to be qualifying employer
securities for purposes of ERISA and the Code.
Section 6. CONDITIONS PRECEDENT.
The obligation of the Bank to make any Loan under this Agreement is subject
to the following conditions precedent:
Section 6.1. Initial Loan. At or prior to the making of the initial Loan
hereunder, the following conditions precedent shall also have been satisfied:
(a) the Bank shall have received the following (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Bank:
(i) the Notes;
(ii) the Collateral Documents (including without limitation, the
Fourth Amendment to Pledge and Security Agreement), duly executed by
the Borrower, together with (a) the original stock certificates for
all the issued and outstanding shares of stock (exclusive of
directors' qualifying shares) of each Subsidiary of the Borrower and
(b) stock powers which are necessary or appropriate to perfect the
security interest of the Bank in such Collateral;
(iii) copies (executed or certified, as may be appropriate) of
all legal documents or proceedings taken in connection with the
execution and delivery of the Loan Documents to the extent the Bank or
its counsel may reasonably request; and
(iv) an incumbency certificate containing the name, title, and
genuine signatures of each of the Borrower's Authorized
Representatives;
(b) the Bank shall have received the initial fees, if any, called for
hereby;
(c) legal matters incident to the execution and delivery of the Loan
Documents and to the transactions contemplated thereby shall be
satisfactory to the Bank and its counsel, and the Bank shall have received
the favorable written opinion of counsel for the Borrower in form and
substance satisfactory to the Bank and its counsel;
(d) the Bank shall have received a certificate of existence for the
Borrower (dated as of the date no earlier than 30 days prior to the date
hereof, or otherwise acceptable to the Bank) from the office of the
secretary of state of the state of its incorporation and each state in
which it is qualified to do business as a foreign corporation; and
(e) the Bank shall have received such other agreements, instruments,
documents, certificates, and opinions as the Bank may reasonably request.
Section 6.2. All Loans. As of the time of the making of each Loan
hereunder: (a) each of the representations and warranties set forth in Section 5
hereof and in the other Loan Documents shall be true and correct as of such
time, except to the extent the same expressly relate to an earlier date; (b) the
Borrower shall be in full compliance with all of the terms and conditions of the
Loan Documents, and no Default or Event of Default shall have occurred and be
continuing or would occur as a result of making such extension of credit; and
(c) such extension of credit shall not violate any order, judgment or decree of
any court or other authority or any provision of law or regulation applicable to
the Bank (including, without limitation, Regulation U of the Board of Governors
of the Federal Reserve System) as then in effect. The Borrower's request for any
Loan shall constitute its warranty as to the facts specified in subsections (a)
and (b) above.
Section 7. COVENANTS.
The Borrower agrees that, so long as any credit is available to or in use
by the Borrower hereunder, except to the extent compliance in any case or cases
is waived in writing by the Bank:
Section 7.1. Maintenance of Business. The Borrower shall, and shall cause
each Subsidiary to, preserve and keep in full force and effect its existence,
rights (charter or statutory), franchises, and licenses necessary for the proper
conduct of its business; provided, however, that nothing in this Section shall
prevent the Borrower from discontinuing the operations and terminating the legal
existence of MIC if such discontinuation or termination is in the reasonable
business judgment of the Borrower desirable in the proper conduct of its
business.
Section 7.2. Maintenance of Properties. The Borrower shall, and shall cause
each Subsidiary to, maintain, preserve and keep its property, plant and
equipment in good repair, working order, and condition (ordinary wear and tear
excepted), and shall from time to time make all needful and proper repairs,
renewals, replacements, additions, and betterments thereto so that at all times
the efficiency thereof shall be fully preserved and maintained it; provided,
however, that nothing in this Section shall prevent the Borrower from
discontinuing the operations and terminating the legal existence of MIC if such
discontinuation or termination is in the reasonable business judgment of the
Borrower desirable in the proper conduct of its business.
Section 7.3. Taxes and Assessments. The Borrower shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees, and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 7.4. Insurance. The Borrower shall insure and keep insured, and
shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Borrower shall insure, and shall cause each Subsidiary to
insure, against such other hazards and risks with good and responsible insurance
companies as and to the extent usually insured by Persons similarly situated and
conducting similar businesses.
Section 7.5. Financial Reports. The Borrower shall, and shall cause each
Subsidiary to, maintain a system of accounting in accordance with generally
accepted accounting principles and, where applicable, regulatory accounting
principles, and shall furnish to the Bank and its duly authorized
representatives such information respecting the business and financial condition
of the Borrower and the Subsidiaries (including non-financial information and
examination reports and supervisory letters to the extent permitted by
applicable regulatory authorities) as the Bank may reasonably request; and
without any request, the Borrower shall furnish to the Bank:
(a) within 45 days after the last day of each fiscal quarter, all call
reports and other financial statements required to be delivered by the
Borrower and by each Banking Subsidiary to any governmental authority or
authorities having jurisdiction over the Borrower or such Banking
Subsidiary and all schedules thereto;
(b) within 90 days after the last day of each fiscal year, a copy of
the consolidated and consolidating balance sheet of the Borrower and the
Subsidiaries as of the last day of such fiscal year and the consolidated
and consolidating statements of income, retained earnings and cash flows of
the Borrower and the Subsidiaries for the fiscal year then ended, and
accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year, accompanied by
an unqualified opinion thereon of a firm of independent public accountants
of recognized standing, selected by the Borrower and satisfactory to the
Bank, to the effect that the consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
present fairly the consolidated financial condition of the Borrower and the
Subsidiaries as of the close of such fiscal year and the results of their
operations and cash flows for the fiscal year then ended and that an
examination of such accounts in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) promptly upon the filing thereof (if any), copies of all
registration statements, Form 10-K, Form 10-Q, and Form 8-K reports and
proxy statements which the Borrower or any Subsidiary files with the
Securities and Exchange Commission;
(d) promptly upon the receipt or execution thereof, (i) notice by the
Borrower or any Banking Subsidiary that (1) it has received a request or
directive from any federal or state regulatory agency which requires it to
submit a capital maintenance or restoration plan or restricts the payment
of dividends by any Banking Subsidiary to the Borrower or (2) it has
submitted a capital maintenance or restoration plan to any federal or state
regulatory agency or has entered into a memorandum or agreement with any
such agency, including, without limitation, any agreement which restricts
the payment of dividends by any Banking Subsidiary to the Borrower or
otherwise imposes restrictions or requirements on it which are not
generally applicable to banks or thrifts or their holding companies, and
(ii) copies of any such plan, memorandum, or agreement, unless disclosure
is prohibited by the terms thereof and, after the Borrower or such Banking
Subsidiary has in good faith attempted to obtain the consent of such
regulatory agency, such agency will not consent to the disclosure of such
plan, memorandum, or agreement to the Bank; and
(e) promptly after knowledge thereof shall have come to the attention
of any responsible officer of the Borrower, written notice of any Change in
Control or of any threatened or pending litigation or governmental
proceeding or labor controversy against the Borrower or any Subsidiary
which, if adversely determined, would materially and adversely effect the
financial condition, Properties, business or operations of the Borrower or
any Subsidiary or of the occurrence of any Default or Event of Default
hereunder.
Section 7.6. Non-Performing Assets. The Borrower shall, as of the last day
of each fiscal quarter, maintain on a consolidated basis with its Subsidiaries
(excluding, for purposes of this determination only, MIC as a Subsidiary of the
Borrower), and shall cause each Banking Subsidiary to maintain as of such day on
an individual basis, a ratio of (a) Non-Performing Assets of the Borrower on
such consolidated basis or such Banking Subsidiary, as the case may be, to
(b) the sum of (i) stockholders' equity for the Borrower or core capital for
such Banking Subsidiary, as the case may be, plus loan loss reserves established
by the Borrower on such consolidated basis or such Banking Subsidiary, as the
case may be, in accordance with regulatory accounting principles applicable to
the Borrower or such Banking Subsidiary, in an amount less than .20 to 1.0.
Section 7.7. Regulatory Capital Requirements.
(a) The Borrower shall maintain on a consolidated basis with its
Banking Subsidiaries, and shall cause each Banking Subsidiary to maintain
on an individual basis:
(i) a Tier I Leverage Ratio of greater than 6% or, in the case of
any Banking Subsidiary, such greater amount as may be required to be
considered "well capitalized" by applicable regulatory authorities
from time to time;
(ii) a Total Risk Based Capital Ratio of greater than 10% or, the
case of any Banking Subsidiary, such greater amount as may be required
to be considered "well capitalized" by applicable regulatory
authorities from time to time; and
(iii) a Tier I Risk Based Capital Ratio of greater than 8% or, in
the case of any Banking Subsidiary, such greater amount as may be
required to be considered "well capitalized" by applicable regulatory
authorities from time to time.
(b) Each Banking Subsidiary shall at all times be at least "well
capitalized" as defined in the Federal Deposit Insurance Corporation
Improvement Act of 1991 and any regulations to be issued thereunder, as
such statute or regulations may each be amended or supplemented from time
to time.
(c) Each requirement described in subsections (a) and (b) above shall
be computed and determined in accordance with the rules and regulations as
in effect from time to time established by the appropriate governmental
authority having jurisdiction over the Borrower or such Banking Subsidiary.
In addition to the provisions set forth above, the Borrower shall, and
shall cause each Banking Subsidiary to, comply with any and all capital
guidelines and requirements as in effect from time to time established by
the relevant governmental authority or authorities having jurisdiction over
the Borrower or any Banking Subsidiary.
Section 7.8. Return on Assets. As of the last day of each June and December
in each year, the Borrower shall maintain a ratio of Consolidated Net Income for
the 12-month period then ended to Consolidated Total Assets as at the last day
of such 12-month period then ended of not less than (a) as of June 30, 2000,
.0045 to 1.0, and (b) as of December 31, 2000, and as of the last day of each
June and December thereafter, .0090 to 1.0.
Section 7.9. Indebtedness. The Borrower shall not issue, incur, assume,
create, or have outstanding any indebtedness for borrowed money (including as
such for all purpose of this Agreement any indebtedness representing the
deferred purchase price of property, any liability in respect of banker's
acceptances or letters of credit, any indebtedness, whether or not assumed,
secured by liens on property acquired by the Borrower existing at the time of
the acquisition thereof, and any liability under any lease which should be
capitalized under generally accepted accounting principles); provided, however,
that the foregoing shall not restrict nor operate to prevent:
(a) indebtedness of the Borrower on the Notes and any other
indebtedness of the Borrower from time to time owing to the Bank;
(b) trade accounts payable for property or services acquired by the
Borrower in the ordinary course of business and payable in accordance with
ordinary trade terms; and
(c) indebtedness not otherwise covered hereby in an aggregate
principal amount not exceeding $200,000 at any one time outstanding.
Section 7.10. Dividends and Certain Other Restricted Payments. The Borrower
shall not declare or pay any dividends on or make any other distributions in
respect of any class or series of its capital stock or directly or indirectly
purchase, redeem or otherwise acquire or retire any of its capital stock;
provided, however, that the Borrower may:
(a) declare and pay dividends and purchase or otherwise redeem its
capital stock during the fiscal year ending December 31, 2000, so long as
at the time of, and after giving effect to, the payment of any such
dividend, repurchase, or redemption no Default or Event of Default shall
exist and (i) the aggregate amount of all such dividends made during such
fiscal year ending December 31, 2000, does not exceed 60% of the Borrower's
year-to-date reported Consolidated Net Income for the then current fiscal
year, and (ii) in addition to amounts permitted under clause (a)(i) above,
the aggregate amount of repurchases and redemptions made during such fiscal
year ending December 31, 2000, does not exceed 70% of the Borrower's
year-to-date reported Consolidated Net Income for the then current fiscal
year; and
(b) declare and pay dividends and purchase or otherwise redeem its
capital stock during any fiscal year ending after December 31, 2000, so
long as at the time of, and after giving effect to, the payment of any such
dividend, repurchase, or redemption no Default or Event of Default exists,
and the aggregate amount of all such dividends, repurchases and redemptions
during any such fiscal year does not exceed 60% of the Borrower's
year-to-date reported Consolidated Net Income for the then current fiscal
year.
Section 7.11. Compliance with Laws. The Borrower shall, and shall cause
each Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations (including, without
limitation, the Code and ERISA with respect to the ESOP and the ESOT),
non-compliance with which could have a material adverse effect on the financial
condition, Properties, business or operations of such Borrower or any Subsidiary
or could result in a Lien upon any of their Property.
Section 7.12. Maintenance of Subsidiaries. The Borrower shall not assign,
sell, or transfer, or permit any Subsidiary to issue, assign, sell, or transfer,
any shares of capital stock or other equity interest of a Subsidiary; provided
that the foregoing shall not prevent (a) the issuance, sale, or transfer to any
person of any shares of capital stock or other equity interests of a Subsidiary
solely for the purpose of qualifying, and only to the extent legally necessary
to qualify, such person as a director of such Subsidiary and (b) the sale of MIC
to another Person not affiliated with the Borrower which sale is, in the
reasonable business judgment of the Borrower, desirable in the proper conduct of
its business.
Section 7.13. Acquisitions. The Borrower shall not, nor shall it permit any
of its Subsidiaries to, directly or indirectly, acquire all or any substantial
part of the assets or business of any other Person or division thereof without
the prior written consent of the Bank (which consent shall not be unreasonably
withheld).
Section 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of the
Obligations payable by the Borrower under any Loan Document, or default in
the payment when due of any other indebtedness or liability of the Borrower
or any of its Subsidiaries owing to the Bank; or
(b) default in the observance or performance of any provision of any
Loan Document which is not remedied within ten (10) days after written
notice thereof is given to the Borrower by the Bank; or
(c) any representation or warranty made by the Borrower in any Loan
Document, or in any statement or certificate furnished by it pursuant
thereto, or in connection with any Loan made hereunder, proves untrue in
any material respect as of the date of the issuance or making thereof; or
(d) any event occurs or condition exists (other than those described
in subsections (a) through (c) above) which is specified as an event of
default in any other Loan Document, or any of the Loan Documents shall for
any reason not be or shall cease to be in full force and effect, or any of
the Loan Documents is declared to be null and void, or any of the
Collateral Documents shall for any reason fail to create a valid and
perfected first priority Lien in favor of the Bank in any Collateral
purported to be covered thereby except as expressly permitted by the terms
thereof; or
(e) the Borrower or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
inability to pay, its debts generally as they become due, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its Property, (v) institute any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code, as amended,
to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) take any corporate action in furtherance of any matter
described in parts (i) through (v) above, or (vii) fail to contest in good
faith any appointment or proceeding described in Section 8.1(f) hereof; or
(f) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any Subsidiary or any
substantial part of its Property, or a proceeding described in
Section 8.1(e)(v) shall be instituted against the Borrower or any
Subsidiary, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 30 days; or
(g) dissolution or termination of the existence of the Borrower or any
Banking Subsidiary; or
(h) Borrower or any Subsidiary shall fail to pay any of its
indebtedness to any other entity or shall default in the performance or
observance of the terms of any instrument pursuant to which such
indebtedness was created or securing such indebtedness, beyond any period
of grace applicable thereto, if the effect of such default is to
accelerate, or to give to the holder thereof the right to accelerate, the
maturity of any such indebtedness; or
(i) any judgment or judgments, writ or writs, or warrant or warrants
of attachment, or any similar process or processes, the aggregate amount of
which (after reduction by the amount covered by insurance) exceeds
$500,000, shall be entered or filed against the Borrower or any Subsidiary
or against any of their Property and which remains unvacated, unbonded,
unstayed or unsatisfied for a period of 30 days; or
(j) any conservator or receiver shall be appointed for the Borrower or
any Banking Subsidiary under applicable federal or state law applicable to
banks, thrifts, or their holding companies, or any Banking Subsidiary shall
suspend payment of its obligations, or any Banking Subsidiary shall cease
to be a federally insured depositary institution, or a cease and desist
order shall be issued against the Borrower or any Subsidiary pursuant to
applicable federal or state law applicable to banks, thrifts, or their
holding companies, or the Borrower or any Subsidiary shall enter into any
commitment to maintain the capital of an insured depository institution in
a required amount with any federal or state regulator or any such regulator
shall require the Borrower or any Subsidiary to submit a capital
maintenance or restoration plan; or
(k) any change occurs in the condition (financial or otherwise) or
business prospects of the Borrower or any Subsidiary which the Bank regards
as materially adverse.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default described
in Section 8.1 has occurred and is continuing (other than an Event of Default
described in subsection (e) or (f) of Section 8.1), the Bank may, by notice to
the Borrower, take one or more of the following actions: (a) terminate the
obligation of the Bank to extend any further credit hereunder on the date (which
may be the date thereof) stated in such notice; (b) declare the principal of and
the accrued interest on the Notes to be forthwith due and payable and thereupon
the Notes, including both principal and interest and all other Obligations
payable under the Loan Documents, shall be and become immediately due and
payable without further demand, presentment, protest or notice of any kind; and
(c) enforce any and all rights and remedies available to the Bank under the Loan
Documents or applicable law.
Section 8.3. Bankruptcy Defaults. When any Event of Default described in
subsection (e) or (f) of Section 8.1 has occurred and is continuing, then the
Notes, including both principal and interest, and all other Obligations payable
under the Loan Documents, shall immediately become due and payable without
presentment, demand, protest or notice of any kind, and the obligation of the
Bank to extend further credit pursuant to any of the terms hereof shall
immediately terminate. In addition, the Bank may exercise any and all remedies
available to it under the Loan Documents or applicable law.
Section 9. MISCELLANEOUS.
Section 9.1. Non-Business Day. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section 9.2. Amendments, Etc. No delay or failure on the part of the Bank
in the exercise of any power or right shall operate as a waiver thereof or as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies hereunder of the Bank are
cumulative to, and not exclusive of, any rights or remedies which it would
otherwise have. No amendment, modification, termination or waiver of any
provision of any Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Bank. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.
Section 9.3. Costs and Expenses. The Borrower agrees to pay on demand the
costs and expenses of the Bank in connection with the negotiation, preparation,
execution and delivery of the Loan Documents and the other instruments and
documents to be delivered thereunder, and in connection with the transactions
contemplated thereby, and in connection with any consents or waivers or
amendments thereto, including the fees and expenses of counsel for the Bank with
respect to all of the foregoing (whether or not the transactions contemplated
thereby are consummated). The Borrower further agrees to pay to the Bank all
costs and expenses (including court costs and attorneys' fees), if any, incurred
or paid by the Bank in connection with any Default or Event of Default or in
connection with the enforcement of any Loan Document or any other instrument or
document delivered thereunder. The obligations of the Borrower under this
Section shall survive the termination of this Agreement.
Section 9.4. Survival of Representations. All representations and
warranties made in the Loan Documents or in certificates given pursuant thereto
shall survive the execution and delivery of the Loan Documents, and shall
continue in full force and effect with respect to the date as of which they were
made as long as any credit is in use or available hereunder.
Section 9.5. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including notice by telecopy) and shall be given
to the relevant party at its address or telecopier number set forth below, or
such other address or telecopier number as such party may hereafter specify by
notice to the other given by United States certified or registered mail, by
telecopy or by other telecommunication device capable of creating a written
record of such notice and its receipt. Notices hereunder shall be addressed:
to the Borrower at: to the Bank at:
222 First Avenue East 111 West Monroe Street
Oskaloosa, Iowa 52577 Chicago, Illinois 60603
Attention: Mr. Charles Howard Attention: Mr. Robert G. Bomben
Telephone: (515) 673-1538 Telephone: (312) 461-7519
Telecopy: (515) 673-7836 Telecopy: (312) 765-8382
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section; provided that any notice given pursuant
to Section 1 hereof shall be effective only upon receipt.
Section 9.6. Construction, Etc. Nothing contained herein shall be deemed or
construed to permit any act or omission which is prohibited by the terms of any
of the other Loan Documents, the covenants and agreements contained herein being
in addition to and not in substitution for the covenants and agreements
contained in the other Loan Documents. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. Section headings
used in this Agreement are for convenience of reference only and are not a part
of this Agreement for any other purpose.
Section 9.7. Binding Nature, Governing Law, Etc. This Agreement may be
executed in any number of counterparts, and by different parties hereto on
separate counterpart signature pages, and all such counterparts taken together
shall be deemed to constitute on and the same instrument. This Agreement shall
be binding upon the Borrower and its successors and assigns, and shall inure to
the benefit of the Bank and the benefit of its successors and assigns, including
any subsequent holder of the Obligations. The Borrower may not assign its rights
hereunder without the written consent of the Bank. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby. This Agreement and the rights and duties of the parties
hereto shall be governed by, and construed in accordance with, the internal laws
of the State of Illinois without regard to principles of conflicts of laws.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 30th day of June, 2000.
MAHASKA INVESTMENT COMPANY
By /s/ Charles S. Howard
--------------------------------------
President
Accepted and agreed to at Chicago, Illinois, as of the day and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Robert G. Bomben
--------------------------------------
Vice President
Exhibit 10.5.1
Exhibit A
Revolving Credit Note
Chicago, Illinois
$9,000,000 June ___, 2000
On the Termination Date, for value received, the undersigned, Mahaska
Investment Company, an Iowa corporation (the "Borrower"), hereby promises to pay
to the order of Harris Trust And Savings Bank (the "Bank") at its office at
111 West Monroe Street, Chicago, Illinois, the principal sum of (i) Nine Million
Dollars ($9,000,000), or (ii) such lesser amount as may at the time of the
maturity hereof, whether by acceleration or otherwise, be the aggregate unpaid
principal amount of all Revolving Loans owing from the Borrower to the Bank
under the Revolving Credit provided for in the Credit Agreement hereinafter
mentioned.
This Note is issued in substitution and replacement for, and evidences the
indebtedness currently evidenced by, that certain Revolving Credit Note of the
Borrower dated December __, 1998 in the principal amount of $20,000,000. This
Note evidences additional Revolving Loans made or to be made to the Borrower by
the Bank under the Revolving Credit provided for under that certain Amended and
Restated Credit Agreement dated as of June __, 2000, between the Borrower and
the Bank (said Credit Agreement, as the same may be amended, modified or
restated from time to time, being referred to herein as the "Credit Agreement"),
and the Borrower hereby promises to pay interest at the office described above
on such Revolving Loans evidenced hereby at the rates and at the times and in
the manner specified therefor in the Credit Agreement.
This Note is issued by the Borrower under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents; and this Note is entitled to all of the benefits and security
provided for thereby or referred to therein, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity and voluntary prepayments may be made hereon,
all in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit Agreement.
The Borrower hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Borrower hereby
waives presentment for payment and demand. This Note shall be construed in
accordance with, and governed by, the internal laws of the State of Illinois
without regard to principles of conflicts of laws.
MAHASKA INVESTMENT COMPANY
By
--------------------------------------
Name----------------------------------
Title---------------------------------
Exhibit 10.5.1
Exhibit B
Term Note
Chicago, Illinois
$9,000,000.00 June ___, 2000
For Value Received, the undersigned, Mahaska Investment Company, an Iowa
corporation (the "Borrower"), promises to pay to the order of Harris Trust and
Savings Bank (the "Bank") at its office at 111 West Monroe Street, Chicago,
Illinois, the principal sum of Nine Million and no/100 Dollars ($9,000,000.00)
in five (5) consecutive annual principal installments in amounts and on dates
set forth in the hereinafter identified Credit Agreement, with a final
installment in the amount of all principal not sooner paid due on the Term Loan
Maturity Date, the final maturity hereof.
This Note evidences the Term Loan made to the Borrower by the Bank under
that certain Amended and Restated Credit Agreement dated as of June ___, 2000,
between the Borrower and the Bank (said Credit Agreement, as the same may be
amended, modified or restated from time to time, being referred to herein as the
"Credit Agreement"), and the Borrower hereby promises to pay interest at the
office described above on such Term Loan evidenced hereby at the rates and at
the times and in the manner specified therefor in the Credit Agreement.
This Note is issued by the Borrower under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents; and this Note is entitled to all of the benefits and security
provided for thereby or referred to therein, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity, voluntary prepayments may be made hereon, and
certain prepayments are required to be made hereon, all in the events, on the
terms and with the effects provided in the Credit Agreement. All capitalized
terms used herein without definition shall have the same meanings herein as such
terms are defined in the Credit Agreement.
The Borrower hereby promises to pay all reasonable costs and expenses
(including attorneys' fees) suffered or incurred by the holder hereof in
collecting this Note or enforcing any rights in any collateral therefor. The
Borrower hereby waives presentment for payment and demand. This Note shall be
construed in accordance with, and governed by, the internal laws of the State of
Illinois without regard to principles of conflicts of laws.
MAHASKA INVESTMENT COMPANY
By
--------------------------------------
Name----------------------------------
Title---------------------------------
Exhibit 10.5.1
Schedule 5.2
Subsidiaries
Jurisdiction Percentage
Name of Incorporation Ownership
---- ---------------- ---------
Mahaska State Bank Iowa 100%
Central Valley Bank United States
of America 100%
MIC Financial, Inc.,
f/k/a Credit Service, Inc. Iowa 100%
Pella State Bank Iowa 100%
Midwest Federal Savings & Loan Iowa 100%
Exhibit 11
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
Earnings per Share Information: 2000 1999 2000 1999
-------- ------- ------- -------
Weighted average number of shares
outstanding during the year 4,042,690 3,652,376 4,165,758 3,644,405
Weighted average number of shares
outstanding during the year
including all dilutive potential
shares 4,046,428 3,743,010 4,177,683 3,728,534
Net earnings $ 971,088 $ (319,172) $2,084,420 $ 838,072
Earnings per share - basic $ 0.24 $ (0.09) $ 0.50 $ 0.23
Earnings per share - diluted $ 0.24 $ (0.08) $ 0.50 $ 0.22