FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 2001 0-24630
MAHASKA INVESTMENT COMPANY
(Exact Name of Registrant as Specified in its Charter)
IOWA 42-1003699
(State of Incorporation) (I.R.S. Employer Identification No.)
222 First Avenue East, Oskaloosa, Iowa 52577
Telephone Number (641) 673-8448
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No__________
-------
As of April 30, 2001, there were 3,971,168 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) March 31, December 31,
2001 2000
---------------- ----------------
ASSETS
Cash and due from banks...................................................... $ 9,217 $ 10,544
Interest-bearing deposits in banks........................................... 2,760 3,818
Federal funds sold........................................................... 8,650 1,155
---------------- ----------------
Cash and cash equivalents................................................. 20,627 15,517
---------------- ----------------
Investment securities:
Available for sale........................................................ 69,858 60,758
Held to maturity.......................................................... 24,810 25,921
Loans........................................................................ 312,714 312,081
Allowance for loan losses.................................................... (3,062) (2,933)
---------------- ----------------
Net loans................................................................. 309,652 309,148
---------------- ----------------
Loan pool participations..................................................... 69,192 74,755
Premises and equipment, net.................................................. 7,387 6,890
Accrued interest receivable.................................................. 5,027 5,201
Goodwill and other intangible assets......................................... 11,462 11,725
Other assets................................................................. 5,041 5,297
---------------- ----------------
Total assets........................................................... $ 523,056 $ 515,212
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand.................................................................... $ 22,377 $ 26,031
NOW and Super NOW......................................................... 43,725 43,380
Savings................................................................... 93,887 88,378
Certificates of deposit................................................... 219,883 212,355
---------------- ----------------
Total deposits......................................................... 379,872 370,144
Federal funds purchased...................................................... - 2,345
Federal Home Loan Bank advances.............................................. 74,081 75,050
Note payable................................................................. 12,700 13,200
Other liabilities............................................................ 5,662 5,178
---------------- ----------------
Total liabilities...................................................... 472,315 465,917
---------------- ----------------
Shareholders' equity:
Common stock, $5 par value; authorized 20,000,000 shares; issued
4,912,849 shares as of March 31, 2001 and December 31, 2000............ 24,564 24,564
Capital surplus........................................................... 13,040 13,127
Treasury stock at cost, 941,681 shares as of March 31, 2001,
and 973,535 shares as of December 31, 2000............................. (11,481) (11,869)
Retained earnings......................................................... 23,499 23,102
Accumulated other comprehensive income.................................... 1,119 371
---------------- ----------------
Total shareholders' equity............................................. 50,741 49,295
---------------- ----------------
Total liabilities and shareholders' equity............................ $ 523,056 $ 515,212
================ ================
See accompanying notes to consolidated financial statements.
PART I -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended
(dollars in thousands, except per share) March 31,
-------------------------
2001 2000
------------ ------------
Interest income:
Interest and fees on loans.................................................................... $ 6,467 $ 5,850
Interest and discount on loan pools........................................................... 1,991 2,094
Interest on bank deposits..................................................................... 11 32
Interest on federal funds sold................................................................ 75 73
Interest on investment securities:
Available for sale......................................................................... 1,014 1,028
Held to maturity........................................................................... 405 460
--------- ----------
Total interest income.................................................................... 9,963 9,537
--------- ----------
Interest expense:
Interest on deposits:
NOW and Super NOW.......................................................................... 168 187
Savings.................................................................................... 867 923
Certificates of deposit.................................................................... 3,122 2,433
Interest on federal funds purchased........................................................... 9 35
Interest on Federal Home Loan Bank advances................................................... 1,207 1,005
Interest on note payable...................................................................... 273 367
--------- ----------
Total interest expense................................................................... 5,646 4,950
--------- ----------
Net interest income...................................................................... 4,317 4,587
Provision for loan losses........................................................................ 147 151
--------- ----------
Net interest income after provision for loan losses...................................... 4,170 4,436
--------- ----------
Noninterest income:
Service charges............................................................................... 473 423
Data processing income........................................................................ 53 50
Other operating income........................................................................ 226 141
Investment security (losses) gains............................................................ (2) 34
--------- ----------
Total noninterest income................................................................. 750 648
--------- ----------
Noninterest expense:
Salaries and employee benefits expense........................................................ 1,635 1,637
Net occupancy expense......................................................................... 527 422
Professional fees............................................................................. 194 135
Other operating expense....................................................................... 798 925
Goodwill amortization......................................................................... 263 281
--------- ----------
Total noninterest expense................................................................ 3,417 3,400
--------- ----------
1,503 1,684
Income tax expense............................................................................... 511 571
--------- ----------
Net income............................................................................... $ 992 $ 1,113
========= ==========
Earnings per common share - basic................................................................ $ 0.25 $ 0.26
Earnings per common share - diluted.............................................................. $ 0.25 $ 0.26
Dividends per common share....................................................................... $ 0.15 $ 0.15
See accompanying notes to consolidated financial statements.
PART I -- Item 1. Financial Statements, Continued
MAHASKA INVESTMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited) Three Months Ended
(in thousands) March 31,
-------------------------
2000 1999
----------- ----------
Net income................................................................................... $ 992 $ 1,113
Other Comprehensive Income:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising
during the period, net of tax........................................................ 747 (179)
Less: reclassification adjustment for net losses (gains)
included in net income, net of tax................................................... 1 (21)
------------ ----------
Other comprehensive income (loss), net of tax................................................ 748 (200)
------------ ----------
Comprehensive income......................................................................... $ 1,740 $ 913
============ ==========
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) Three Months Ended
(dollars in thousands) March 31,
--------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income............................................................. $ 992 $ 1,113
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................................... 454 445
Provision for loan losses........................................... 147 151
Investment securities losses (gains)................................ 2 (34)
Amortization of investment securities and loans premiums............ 51 50
Accretion of investment securities and loan discounts............... (64) (48)
Decrease (increase) in other assets................................. 430 (959)
Increase in other liabilities....................................... 40 1,076
------------- ------------
Total adjustments................................................. 1,060 681
------------- ------------
Net cash provided by operating activities......................... 2,052 1,794
------------- ------------
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales................................................. 4,098 3,104
Proceeds from maturities............................................ 1,518 469
Purchases........................................................... (13,505) (7,865)
Investment securities held to maturity:
Proceeds from maturities............................................ 1,133 2,073
Purchases........................................................... - (1,293)
Net increase in loans.................................................. (628) (9,213)
Purchases of loan pool participations.................................. (601) (4,602)
Principal recovery on loan pool participations......................... 6,164 11,498
Purchases of premises and equipment.................................... (717) (266)
Proceeds from sale of premises and equipment........................... - 12
------------- ------------
Net cash used in investing activities............................. (2,538) (6,083)
------------- ------------
Cash flows from financing activities:
Net increase in deposits............................................... 9,752 2,912
Net decrease in federal funds purchased................................ (2,345) (2,965)
Federal Home Loan Bank advances........................................ 2,500 26,000
Repayment of Federal Home Loan Bank advances........................... (3,517) (25,515)
Principal payments on note payable..................................... (500) (2,600)
Dividends paid......................................................... (595) (637)
Purchases of treasury stock............................................ - (777)
Proceeds from exercise of stock options................................ 301 -
------------- ------------
Net cash provided by (used in) financing activities............... 5,596 (3,582)
------------- ------------
Net increase (decrease) in cash and cash equivalents.............. 5,110 (7,871)
Cash and cash equivalents at beginning of period.......................... 15,517 22,919
------------- ------------
Cash and cash equivalents at end of period................................ $ 20,627 $ 15,04
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 5,540 $ 4,838
============ ============
Income taxes........................................................ $ 133 $ (300)
============ ============
See accompanying notes to consolidated financial statements.
1. Basis of Presentation
The accompanying consolidated statements of income, the consolidated
statements of comprehensive income, and the consolidated statements of cash
flow for the three months ended March 31, 2001 and 2000 and the
consolidated statements of condition as of December 31, 2000 and March 31,
2001 include the accounts and transactions of the Company and its five
wholly-owned subsidiaries, Mahaska State Bank, Central Valley Bank, Pella
State Bank, Midwest Federal Savings and Loan, and MIC Financial, Inc. All
material intercompany balances and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. Although management believes that the
disclosures are adequate to make the information presented not misleading,
it is suggested that these interim consolidated financial statements be
read in conjunction with the Company's most recent audited financial
statements and notes thereto. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of March 31, 2001, and the results of operations
for the three months ended March 31, 2001 and 2000, and cash flows for the
three months ended March 31, 2001 and 2000.
The results for the three months ended March 31, 2001 may not be indicative
of results for the year ending December 31, 2001, or for any other period.
2. Consolidated Statements of Cash Flows
In the consolidated statements of cash flows, cash and cash equivalents
include cash and due from banks, interest-bearing deposits with banks, and
federal funds sold.
3. Income Taxes
Federal income tax expense for the three months ended March 31, 2001 and
2000 was computed using the consolidated effective federal tax rate. The
Company also recognized income tax expense pertaining to state franchise
taxes payable individually by the subsidiary banks.
4. Earnings Per Common Share
Basic earnings per common share computations are based on the weighted
average number of shares of common stock actually outstanding during the
period. The weighted average number of shares for the three-month periods
ended March 31, 2001 and 2000 was 3,953,471 and 4,288,826, respectively.
Diluted earnings per share amounts are computed by dividing net income by
the weighted average number of shares and all dilutive potential shares
outstanding during the period. The computation of diluted earnings per
share used a weighted average number of shares outstanding of 3,980,934 and
4,314,801 for the three months ended March 31, 2001 and 2000, respectively.
5. Effect of New Financial Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - An Amendment to FASB Statement No. 133," were
adopted by the Company beginning January 1, 2001. The adoption of the
standards did not have a material effect on the Company's consolidated
financial statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities (a replacement of FASB Statement No.
125)," was issued in September 2000. The statement revises the standards
for accounting for securitizations and other transfers of financial assets
and collateral and requires certain disclosures, but it carries over most
of the provisions of Statement No. 125 without reconsideration. The
statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Management
does not expect the adoption of the standard will have a significant impact
on the financial condition or results of operation of the Company.
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. ("MIC Financial"), its wholly-owned
commercial finance subsidiary. A satisfactory agreement could not be
reached with any potential buyers, so the decision was made to sell groups
of leases and assets. As of March 31, 2001, MIC Financial's loan and lease
portfolio totaled $1,306,000, less than 1 percent of the Company's total
loans as of that date. Management continues to evaluate options on the
remaining assets of MIC Financial.
PART I -- Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
QUARTER ENDED MARCH 31, 2001
The Company recorded net income of $992,000 for the quarter ended March 31,
2001, compared with net income of $1,113,000 for the quarter ended March 31,
2000, a decrease of $121,000 or 11 percent. The reduction in net income was
primarily due to a reduction in net interest income and a decline in the
Company's net interest margin in the first quarter of 2001 compared with 2000.
Basic and diluted earnings per share for the first quarter of 2001 were $.25
versus $.26 per share basic and diluted for the first quarter of 2000. Actual
weighted average shares outstanding were 3,953,471 and 4,288,826 for the first
quarter of 2001 and 2000, respectively. The Company's return on average assets
for the quarter ended March 31, 2001 was .78 percent compared with a return of
.92 percent for the quarter ended March 31, 2000. The Company's return on
average equity was 8.06 percent for the three months ended March 31, 2001 versus
8.93 percent for the three months ended March 31, 2000.
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. Interest rates moved up throughout the year 2000. In order to retain and
attract deposits, the Company was forced to pay higher rates that caused the
cost of funds to increase throughout the year 2000. The first quarter of 2001
produced a series of interest rate reductions by the Federal Reserve. The
Company's net interest income for the quarter ended March 31, 2001 decreased
$270,000 or 6 percent to $4,317,000 from $4,587,000 for the three months ended
March 31, 2000. Total interest income was $426,000 or 4 percent higher in the
first quarter of 2001 compared with the same period in 2000. The Company's
total interest expense for the first quarter of 2001 increased $696,000 or 14
percent compared with the same period in 2000. The Company's net interest
margin on a federal tax-equivalent basis for the first quarter of 2001 decreased
to 3.73 percent from 4.18 percent in the first quarter of 2000. 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 8.51 percent for the first quarter of 2001 compared to 8.61 percent for the
first quarter of 2000. The rate on interest-bearing liabilities increased in
the first quarter of 2001 to 5.25 percent compared to 4.89 percent for the first
quarter of 2000.
Interest income and fees on loans increased $617,000 or 11 percent in the first
- ---------------------------------
quarter of 2001 compared to the same period in 2000, mainly due to higher loan
volumes. The average yield on loans increased to 8.42 percent for the first
quarter of 2001, compared to 8.22 percent in the first quarter of 2000. The
yield on the Company's loan portfolio is affected by the amount of nonaccrual
loans (which do not earn interest income), the mix of the portfolio (real estate
loans generally have a lower overall yield than commercial and agricultural
loans), the effects of competition and the interest rate environment on the
amounts and volumes of new loan originations, and the mix of variable rate
versus fixed rate loans in the Company's portfolio. The recent actions by the
Federal Reserve to lower interest rates were not beneficial to the Company in
the current period and will affect future periods as variable rate loans tied to
prime have been adjusted downward and will produce less interest income.
Competition for loans in the market areas served by the Company remains strong
as customers seek to refinance loans to obtain lower interest rates. Average
loans outstanding were $311,553,000 for the first quarter of 2001 compared with
$286,356,000 for the first quarter of 2000, an increase of $25,197,000 or 9
percent.
Interest and discount income on loan pool participations decreased $103,000 or 5
- --------------------------------------------------------
percent in the first quarter of 2001 compared with 2000, mainly due to reduced
collections. Interest income and discount collected on the loan pool
participations for the three months ended March 31, 2000 was $1,991,000 compared
with $2,094,000 collected in the first quarter of 2000. The yield on loan pool
participations was 11.4 percent for the first quarter of 2001 compared with 13.2
percent for the quarter ended March 31, 2000. The average loan pool
participation investment balance was $7,299,000 or 11 percent higher in the
first quarter of 2001 than in 2000 as a result of pool purchases in the fourth
quarter of 2000. 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 overall yield on pools. 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 collection, 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.
Interest income on investment securities decreased $69,000 or 5 percent in the
- ----------------------------------------
quarter ended March 31, 2001, compared with the quarter ended March 31, 2000
primarily due to decreased volume in the portfolio. Interest income on
investment securities totaled $1,419,000 for the first quarter of 2001 compared
with $1,488,000 in 2000. The average balance of investments in 2001 was
$88,492,000, down from $92,702,000 in the first quarter of 2000. The yield on
the Company's investment portfolio in the first quarter of 2001 increased to
6.94 percent from 6.89 percent in the comparable period of 2000.
Interest expense on deposits increased $614,000 in the first quarter of 2001
- ----------------------------
compared with 2000 was mainly attributable to the growth in deposits and to
increased interest rates on time certificates of deposit throughout 2000. The
rates paid on certificates of deposit are fixed at the time of issuance and do
not change until the certificate matures. Average interest-bearing deposits for
the first quarter of 2001 increased $23,997,000 or 7 percent from the same
period in 2000. All of the increase was in certificate of deposits. The
average balance of interest-bearing checking and savings accounts was lower in
the first quarter of 2001 than in 2000. The weighted average rate paid on
interest-bearing
deposits was 4.85 percent in the first quarter of 2001 compared with 4.41
percent in the first quarter of 2000. Reductions in interest rates should
benefit the Company in future periods as rates paid on deposits move downward.
Competition for deposits remains intense in the markets served by the Company.
The full benefit of the downward movement in deposit rates may not be realized
if the competitive environment forces the Company to pay above-market rates to
attract or retain deposits.
Interest expense on borrowed funds increased a total of $82,000 in the first
- ----------------------------------
quarter of 2001 compared with 2000. Interest expense on Federal Home Loan Bank
advances was $202,000 higher in the first quarter of 2001 reflecting the
Company's greater utilization of this alternative funding method. The reduction
in rates should benefit the Company as Federal Home Loan Bank Advances reprice.
Interest expense on notes payable decreased $94,000 in the first quarter of 2001
compared with 2000 reflecting lower average borrowings on the Company's
commercial bank line of credit and decreased interest rates. The Company's
notes payable line is variable with the national prime rate and reductions in
this rate will lower the amount of interest expense incurred in the future.
Provision for Loan Losses
The Company recorded a provision for loan losses of $147,000 in the first
quarter of 2001 compared with $151,000 in the first quarter of 2000. Management
determines an appropriate provision based on its evaluation of the adequacy of
the allowance for loan losses in relationship to a continuing review of problem
loans, the current economic conditions, actual loss experience and industry
trends. Management believes that the allowance for loan losses is adequate
based on the inherent risk in the portfolio as of March 31, 2001, however,
continued growth in the loan portfolio and the uncertainty of the general
economy require that management continue to evaluate the adequacy of the
allowance for loan losses and make additional provisions in future periods as
deemed necessary.
Other Income
Other income results from the charges and fees collected by the Company from its
customers for various services performed, data processing income received from
nonaffiliated banks, miscellaneous other income and gains (or losses) from the
sale of investment securities held in the available for sale category. Total
other income was $102,000 or 16 percent greater in the first quarter of 2001
compared with 2000. Most of the increase was due to higher service charge
income and other operating income.
Other Expense
Total other noninterest expense for the quarter ended March 31, 2001 increased
$17,000 compared to noninterest expense for the first quarter of 2000. Other
expense includes all the costs incurred to operate the Company except for
interest expense, the loan loss provision and income taxes. Salaries and
benefits expense for the first quarter of 2001 decreased $2,000 from 2000 as a
result of a reduction in the number of employees. Net occupancy and equipment
expenses for the first quarter of 2001 increased $105,000 or 25 percent in
comparison to 2000 with much of the increase due to additional facilities at
Pella State Bank and also due to higher gas and electric utility costs.
Professional fees for the quarter ended March 31, 2001 increased by $59,000
compared to 2000. Other operating expense decreased by $127,000 in the first
quarter of 2001 compared with the three months ended March 31, 2000. Included
in the other operating expense for the first quarter of 2000 was a one-time
assessment in February 2000 of $80,000 made by the Treasurer of the State of
Iowa to cover the losses on uninsured public fund deposits incurred when a bank
in Carlisle, Iowa was declared insolvent and closed by the Iowa Superintendent
of Banking. The assessment was made on all Iowa banks based on the proportion
of the average uninsured public funds on deposit in 1999. This assessment did
not occur in 2001 and was fully refunded to the Company in the second quarter of
2000.
Income Tax Expense
The Company incurred income tax expense of $511,000 for the three months ended
March 31, 2001 compared with $571,000 for the three months ended March 31, 2000.
The decreased tax expense for the March 2001 quarter was mainly due to lower
overall taxable income compared to the same period in the prior year. The
effective income tax rate as a percent of income before taxes for the three
months ended March 31, 2001 and 2000 was 34.0 percent and 33.9 percent,
respectively.
FINANCIAL CONDITION
Total assets as of March 31, 2001 were $523,056,000, an increase of $7,844,000
or 2 percent from December 31, 2000. As of March 31, 2001, the Company had
$8,650,000 in federal funds sold and no federal funds purchased compared with
$1,155,000 sold and $2,345,000 purchased as of December 31, 2000. The Company's
liquidity needs are usually highest in the second and third quarters of each
year due to seasonal loan demand and minimal deposit growth in the first nine
months of the year. Federal funds are purchased on a short-term basis to meet
this liquidity need.
Investment Securities
Investment securities available for sale increased $9,100,000 from December 31,
2000 to the March 31, 2001 total of $69,858,000 as securities were purchased for
the portfolio. Investment securities classified as held to maturity declined to
$24,810,000 as of March 31, 2001, compared with $25,921,000 on December 31,
2000, as the proceeds from maturities were reinvested in available for sale
securities.
Loans
Loan volumes remained constant in the first quarter of 2001, with total loans
outstanding of $312,714,000 on March 31, 2001, reflecting growth of $633,000
from December 31, 2000. As of March 31, 2001, the Company's loan to deposit
ratio (excluding loan pool investments) was 82.3 percent compared with a year-
end 2000 loan to deposit ratio of 84.3 percent. The decrease in the loan to
deposit ratio is attributable to growth in deposits since December 31, 2000.
Loans secured by real estate (including 1 to 4 family, multi-family, commercial
and agricultural) comprised the largest category in the portfolio at
approximately 66 percent of total loans. Agricultural loans were the next
largest category at approximately 15 percent of total loans and commercial loans
represented approximately 12 percent. Loans to individuals and other loans
constituted approximately 7 percent. The March 31, 2001 percentage distribution
by loan category is consistent with December 31, 2000.
Loan Pool Participations
As of March 31, 2001, the Company had loan pool participations of $69,192,000, a
decrease of $5,563,000 or 7 percent from the December 31, 2000 balance of
$74,755,000. The reduction in the loan pool participations is primarily due to
collections made in the normal course of business. 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. The Company was the
winning bidder on one loan pool package that was funded shortly after the close
of the first quarter of 2001 totaling $5,513,000. Two additional packages were
purchased in April 2001. The average loan pool participation balance of
$71,138,000 for the first three months of 2001 was $7,299,000 or 11 percent
higher than the average balance of $63,839,000 for the first quarter of 2000.
Deposits
Total deposits as of March 31, 2001 were $379,872,000 compared with $370,144,000
as of December 31, 2000. Certificates of deposit are the largest category of
deposits at March 31, 2001 representing approximately 58 percent of total
deposits. Deposits grew 3 percent during the first quarter of 2001.
Borrowed Funds/Notes Payable
The Company had no Federal Funds purchased on March 31, 2001. There was
$2,345,000 in Federal Funds purchased on December 31, 2000. During the first
quarter of 2001, the Company had an average balance of Federal Funds purchased
of $566,000. Advances from the Federal Home Loan Bank totaled $74,081,000 as of
March 31, 2001 compared with $75,050,000 as of December 31, 2000. Notes payable
declined to $12,700,000 on March 31, 2001 from $13,200,000 on December 31, 2000
as a result of principal payments made by the Company.
Nonperforming Assets
The Company's nonperforming assets totaled $4,080,000 (1.30 percent of total
loans) as of March 31, 2001, compared to $3,523,000 (1.13 percent of total
loans) as of December 31, 2000. All nonperforming asset totals and related
ratios exclude the loan pool participations. The following table presents the
categories of nonperforming assets as of March 31, 2001 compared with December
31, 2000:
Nonperforming Assets
(dollars in thousands)
March 31, December 31,
2001 2000
---- ----
Nonaccrual $2,683 $2,042
Loans 90 days past due 958 910
Other real estate owned 439 571
------ ------
$4,080 $3,523
====== ======
From December 31, 2000 to March 31, 2001, nonaccrual loans increased $641,000 as
the result of concerns with the quality of a large agricultural line of credit.
Loans ninety days past due increased $48,000. Other real estate owned decreased
by $132,000 as property held in this category was sold. The Company's allowance
for loan losses as of March 31, 2001 was $3,062,000, which was .98 percent of
total loans as of that date. This compares with an allowance for loan losses of
$2,933,000 as of December 31, 2000, which was .94 percent of total loans. As of
March 31, 2001, the allowance for loan losses was 84.09 percent of nonperforming
loans compared with 99.35 percent as of December 31, 2000. Based on the
inherent risk in the loan portfolio, management believes that as of March 31,
2001, the allowance for loan losses is adequate. For the three months ended
March 31, 2001, the Company's net loan charge-offs were $18,000 compared with
net charge-offs of $607,000 during the quarter ended March 31, 2000. During the
first quarter of 2000, MIC Financial charged off $350,000 compared with a net
charge-off recovery of $9,000 in the first quarter of 2001.
Capital Resources
At March 31, 2001, total shareholders' equity was 9.7 percent of total assets
compared with 9.6 percent as of December 31, 2000. As of March 31, 2001, the
Company's Tier 1 Capital Ratio was 11.0 percent of risk-weighted assets and was
10.6 percent as of December 31, 2000, compared to a 4.0 percent regulatory
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 percentage of the risk-adjusted asset totals. Tier 1
Capital is the Company's total common shareholders' equity reduced by goodwill.
Management believes that, as of March 31, 2001, 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. During the first quarter of 2001, the
Company issued 31,854 shares of stock upon the exercise of stock options
previously granted to employees.
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 $20,627,000 as of March 31, 2001, compared with $15,517,000 as
of December 31, 2000. Most of the increase during the quarter was in federal
funds sold. 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 participations and
other corporate needs. Management believes that the Company has sufficient
liquidity as of March 31, 2001 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.
The Company has not experienced any material changes to its market risk position
since December 31, 2000, from that disclosed in the Company's 2000 Form 10-K
Annual Report. Management does not believe that the Company's primary market
risk exposures and how those exposures were managed in the first three months of
2001 changed when compared to 2000.
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 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, 2000.
Commitments and Contingencies
In the ordinary course of business, the Company is engaged in various issues
involving litigation. Management believes that none of this litigation is
material to the Company's results of operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain forward-looking statements that involve risk
and uncertainties that individually or mutually impact the matters herein
described, including but not limited to financial projections, product demand
and market acceptance, the effect of economic conditions, the impact of
competitive products and pricing, governmental regulations, results of
litigation, technological difficulties and/or other factors outside the control
of the Company, which are detailed from time to time in the Company's SEC
reports. The Company disclaims any intent or obligation to update these
forward-looking statements.
Part II - Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits and financial statement schedules are filed as part
of this report:
Exhibits
--------
3.1 Articles of Incorporation, as amended through April 30, 1998, of
Mahaska Investment Company. The Articles of Incorporation, as
amended, of Mahaska Investment Company are incorporated by
reference to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1998.
3.2 Bylaws of Mahaska Investment Company. The Amended and Restated
Bylaws of Mahaska Investment Company dated July 23, 1998, are
incorporated by reference to the Company's quarterly report on
Form 10-Q for the Quarter ended September 30, 1998.
10.1 Mahaska Investment Company Employee Stock Ownership Plan & Trust
as restated and amended. This Plan & Trust is incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.2.1 1993 Stock Incentive Plan. This 1993 Stock Incentive Plan is
incorporated by reference to Form S-1 Registration Number 33-
81922 of Mahaska Investment Company.
10.2.2 1996 Stock Incentive Plan. This 1996 Stock Incentive Plan is
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.2.3 1998 Stock Incentive Plan. This 1998 Stock Incentive Plan is
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
10.3 States Resources Corp. Loan Participation and Servicing Agreement
dated February 5, 1999 between States Resources Corp. and Mahaska
Investment Company. This agreement is incorporated herein by
reference to the Form 10-K report filed by Mahaska Investment
Company for the Year ended December 31, 1999.
10.5 Amended and Restated Credit Agreement dated June 30, 2000 between
Mahaska Investment Company and Harris Trust and Savings Bank.
This Amended and Restated Credit Agreement is incorporated herein
by reference to the Form 10-Q report filed by Mahaska Investment
Company for the Quarter ended September 30, 2000.
11 Computation of Per Share Earnings.
(b) Reports on Form 8-K: No reports on Form 8-K were required to be filed
during the three months ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Mahaska Investment Company
--------------------------
(Registrant)
By:/s/ Charles S. Howard
---------------------
Charles S. Howard
Chairman, President, Chief Executive Officer
May 10, 2001
------------
Dated
By:/s/ David A. Meinert
--------------------
David A. Meinert
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
May 10, 2001
------------
Dated