UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001
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OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______ to _______
Commission file number 2-89283
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IOWA FIRST BANCSHARES CORP.
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(Exact name of registrant as specified in its charter)
STATE OF IOWA 42-1211285
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(State or other jurisdiction (IRS Employer of
incorporation or organization) Identification No.)
300 East Second Street
Muscatine, Iowa 52761
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(Address of principal executive offices)
319-263-4221
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_____
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At March 31, 2001 there were 1,490,531 shares of the registrant's common stock
outstanding.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE NO.
PART 1 Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
March 31, 2001 and December 31, 2000
Consolidated Condensed Statements of
Income, Three Months Ended
March 31, 2001 and 2000
Consolidated Condensed Statements of
Cash Flows, Three Months Ended
March 31, 2001 and 2000
Notes to Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
PART II Other Information
Item 4. Submission of Matters to a Vote of
Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
(In Thousands)
------------------------
(Unaudited)
March 31, December 31,
2001 2000
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ASSETS
Cash and due from banks ................................ $ 11,762 $ 16,182
Investment securities available for sale ............... 58,344 63,059
Federal funds sold ..................................... 11,750 14,650
Loans, net of allowance for possible loan losses
March 31, 2001, $3,265; December 31, 2000, $3,268 ... 277,612 270,539
Bank premises and equipment, net ....................... 5,086 4,936
Life insurance contracts ............................... 3,228 3,184
Restricted investment securities ....................... 3,831 3,831
Other assets ........................................... 4,003 4,033
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TOTAL ASSETS ........................................ $ 375,616 $ 380,414
======================
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES
Noninterest bearing deposits ........................... $ 39,654 $ 48,649
Interest bearing deposits .............................. 233,387 222,831
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TOTAL DEPOSITS ...................................... 273,041 271,480
Notes payable .......................................... 6,107 6,276
Securities sold under agreements to
repurchase .......................................... 3,406 3,950
Federal Home Loan Bank advances ........................ 61,495 71,531
Treasury tax and loan open note ........................ 460 1,187
Company obligated mandatorily redeemable preferred
securities of subsidiary trust ...................... 4,000 --
Other liabilities ...................................... 2,543 2,240
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TOTAL LIABILITIES ................................... 351,052 356,664
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Redeemable common stock held by employee stock
ownership plan with 401(k) provisions (KSOP) ........ 2,118 2,118
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STOCKHOLDERS' EQUITY
Common stock ........................................... 200 200
Additional paid-in capital ............................. 4,309 4,309
Retained earnings ...................................... 30,377 29,852
Accumulated other comprehensive income ................. 964 290
Less net cost of common shares acquired for the treasury (11,286) (10,901)
Less maximum cash obligation related to KSOP shares .... (2,118) (2,118)
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TOTAL STOCKHOLDERS' EQUITY .......................... 22,446 21,632
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $ 375,616 $ 380,414
=====================
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three
Months Ended
March 31,
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2001 2000
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INTEREST INCOME:
Interest and fees on loans .............................. $5,688 $5,493
Interest on investment securities available for sale .... 872 897
Interest on federal funds sold .......................... 159 97
Dividends on restricted investment securities ........... 53 57
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Total interest income ................................... 6,772 6,544
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INTEREST EXPENSE:
Interest on deposits .................................... 2,789 2,464
Interest on notes payable ............................... 120 128
Interest on other borrowed funds ........................ 1,142 1,063
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Total interest expense .................................. 4,051 3,655
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Net interest income ..................................... 2,721 2,889
Provision for loan losses .................................. 39 42
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Net interest income after provision for
loan losses .......................................... 2,682 2,847
Investment securities gains, net ........................... 61 8
Other income ............................................... 557 516
Other expense .............................................. 2,057 2,083
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Income before income taxes .............................. $1,243 $1,288
Applicable income taxes .................................... 391 404
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Net income ................................................. $ 852 $ 884
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Net income per common share, basic and diluted ............. $ 0.57 $ 0.58
================
Dividends declared per common share ........................ $ 0.22 $ 0.21
================
Comprehensive income ....................................... $1,526 $ 817
================
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 2001 and 2000
(In Thousands)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 852 $ 884
Adjustments to reconcile net income to net cash provided by
operating activities:
Proceeds from real estate loans sold ............................ 642 --
Real estate loans underwritten and sold ......................... (635) --
Provision for possible loan losses .............................. 39 42
Investment securities (gains), net .............................. (61) (8)
Depreciation .................................................... 157 160
Amortization of premiums and accretion of discounts
on investment securities available for sale, net .............. (2) 16
Net (increase) decrease in other assets ......................... (192) 126
Net increase in other liabilities ............................... 308 100
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Net cash provided by operating activities .......................... $ 1,101 $ 1,320
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CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold .............................. $ 2,900 $ 12,325
Proceeds from sales, maturities, calls and paydowns of available
for sale securities ............................................. 8,306 2,698
Purchases of available for sale securities ...................... (2,464) (6,426)
Net (increase) in loans ......................................... (7,112) (3,523)
Purchases of bank premises and equipment ........................ (307) (43)
Increase in cash value of life insurance contracts .............. (44) --
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Net cash provided by investing activities ....................... $ 1,279 $ 5,031
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CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in noninterest bearing deposits .................. $ (8,995) $ (4,767)
Net increase (decrease) in interest bearing deposits ............ 10,556 (1,161)
Net (decrease) in securities sold under
agreements to repurchase ...................................... (544) (859)
Repayment of notes payable ...................................... (44) (41)
Net decrease in line of credit .................................. (125) --
Net (decrease) in treasury tax and loan open note ............... (727) (1,263)
Advances from Federal Home Loan Bank ............................ 1,400 2,000
Payments of advances from Federal Home Loan Bank ................ (11,436) (1,626)
Net proceeds from issuance of company obligated mandatorily
redeemable preferred securities of subsidiary trust ........... 3,832 --
Cash dividends paid ............................................. (332) (321)
Purchases of common stock for the treasury ...................... (385) (85)
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Net cash (used in) financing activities ......................... $ (6,800) $ (8,123)
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Net (decrease) in cash and due from banks ....................... (4,420) (1,772)
Cash and due from banks:
Beginning ....................................................... $ 16,182 $ 15,304
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Ending .......................................................... $ 11,762 $ 13,532
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Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest ...................................................... $ 4,149 $ 3,638
Income taxes .................................................. 11 44
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in accumulated other comprehensive income, unrealized
gains (losses) on securities available for sale, net ............. 674 (67)
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
Iowa First Bancshares Corp. (the "Company") is a bank holding company
headquartered in Muscatine, Iowa. The Company owns the outstanding stock of two
national banks, First National Bank of Muscatine (Muscatine) and First National
Bank in Fairfield (Fairfield). First National Bank of Muscatine has a total of
five locations in Muscatine, Iowa. First National Bank in Fairfield has two
locations in Fairfield, Iowa. Each bank is engaged in the general commercial
banking business and provides full service banking to individuals and
businesses, including checking, savings and other deposit accounts, commercial
loans, consumer loans, real estate loans, safe deposit facilities, transmitting
of funds, trust services, and such other banking services as are usual and
customary for commercial banks. The Company also owns the outstanding stock of
Iowa First Capital Trust I, which was capitalized in March 2001 for the purpose
of issuing Company Obligated Manditorily Redeemable Preferred Securities.
Note 2. Capital Stock and Earnings Per Share
Common shares and preferred stock authorized total 6,000,000 shares and 500,000
shares, respectively. Basic earnings per share is arrived at by dividing net
income by the weighted average number of shares of common stock outstanding for
the respective period. Diluted earnings per share is arrived at by dividing net
income by the weighted average number of common stock and common stock
equivalents outstanding for the respective period. The average number of shares
of common stock outstanding for the first three months of 2001 and 2000 were
1,495,714 and 1,536,538, respectively. There were no common stock equivalents in
2001 or 2000.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion and Analysis of Financial Condition
The Company's total assets at March 31, 2001, were $375,616,000. Muscatine's
total assets were $276,226,000 which reflects a $4,728,000 (1.7%) decrease from
December 31, 2000, total assets. Fairfield's total assets were $96,918,000 at
March 31, 2001, which is a decrease of $2,015,000 (2.0%) when compared to
December 31, 2000, total assets. Total consolidated assets decreased by 1.3%
during the first three months of 2001.
Net loans totaled $277,612,000 at March 31, 2001. Net loans at Muscatine
increased by $5,545,000 (2.8%) during the first three months. Net loans
increased at Fairfield by $1,528,000 (2.2%) during the first three months.
Consolidated net loans increased by $7,073,000 (2.6%) year-to-date.
Total available for sale securities decreased $4,715,000 during the first three
months of 2001 while federal funds sold also decreased $2.9 million. The Banks
emphasize purchase of securities with maturities of five years and less as such
purchases offer reasonable yields with little credit risk as well as limited
interest rate risk. Additionally, selected securities with longer maturities are
owned in order to enhance overall portfolio yield without significantly
increasing risk. Securities sold during the year of $2,893,000 have resulted in
gains recognized totaling $61,000.
Total deposits at March 31, 2001, were $273,041,000. Deposits, net of
intercompany deposits, at Muscatine increased $3,019,000 (1.6%) from the prior
year end. Fairfield's total deposits decreased $1,458,000 (1.8%) during the same
period. This represents a combined deposit increase of $1.56 million (0.6%) for
the Company during the first three months of 2001. Additionally, securities sold
under agreements to repurchase decreased $544,000 and advances borrowed from the
Federal Home Loan Bank decreased $10,036,000 to total $61.5 million at quarter
end.
On March 28, 2001, the Company issued 4,000 shares totaling $4,000,000 of
Company Obligated Mandatorily Redeemable Preferred Securities of Iowa First
Capital Trust I. The securities provide for cumulative cash distributions
calculated at a 10.18% annual rate. The Company may, at one or more times, defer
interest payments on the capital securities for up to 10 consecutive semi-annual
periods, but not beyond June 8, 2036. At the end of the deferral period, all
accumulated and unpaid distributions will be paid. The capital securities will
be redeemed on June 8, 2031; however, the Company has the option to shorten the
maturity date to a date not earlier than June 8, 2011. The redemption price
begins at 105.09% to par and is reduced 51 basis points each year until June 8,
2021 when the capital securities can be redeemed at par. Holders of the capital
securities have no voting rights, are unsecured, and rank junior in priority of
payment to all of the Company's indebtedness and senior to the Company's capital
stock. For regulatory purposes, the entire amount of the capital securities is
allowed in the calculation of Tier 1 capital. The capital securities are
included in the balance sheet as a liability with the cash distributions
included in interest expense.
Results of Operation
Consolidated net income was $852,000, or $.57 per share, for the first quarter
of 2001. This was $32,000 or 3.6% less than the same period last year. Net
interest income declined from the first quarter of 2000 to the first quarter of
2001 by $168,000 (5.8%), other income increased over the same period by $41,000
(7.9%), and operating expenses decreased $26,000 (1.2%).
Management has expressed concern for several quarters as to the ability to
continue increasing net interest income each successive quarter. Net interest
income did indeed decline during the first quarter of 2001. The prime lending
rate has dropped a precipitous 150 basis points during the first three months of
2001. This rapid, substantial decline in the prime lending rate causes
short-term downward pressure on the Company's net interest margin. Additionally,
the usage of wholesale funding sources, while mitigating intermediate and
long-term interest rate risk, increases interest expense. The interest expense
associated with the debt incurred to purchase treasury shares also adds pressure
to the net interest income. Finally, the intense competition for all types of
loans does not afford the Company much pricing power when dealing with
borrowers.
Provisions for loan losses were $39,000 for the three months ended March 31,
2001, this was $3,000 less than the first quarter of 2000. Net loan charge-offs
totaled $42,000 compared to net charge-offs of $5,000 for the first quarter of
2000.
Nonaccrual loans totaled $709,000 at March 31, 2001, $257,000 more than the end
of the first quarter in 2000. Other real estate owned totaled $207,000, a
reduction of $204,000, and loans past due 90 days or more and still accruing
totaled $936,000 which was $898,000 more than at the end of the first quarter of
2000. The reserve for loan losses of $3,265,000 represents 1.2% of net loans and
176% of total nonaccrual loans, other real estate owned, and loans past due 90
days or more and still accruing.
The efficiency ratio, defined as noninterest expense as a percent of net
interest income plus noninterest income, was 61.6% for the first three months of
2001 compared to 59.5% for all of 2000. The primary reason for this change is
the reduced net interest income.
Interest Rate Sensitivity
The Company manages its balance sheet to minimize the impact of interest rate
movements on its earnings. The term "rate sensitive" refers to those assets and
liabilities which are "sensitive" to fluctuations in rates and yields. When
interest rates move, earnings may be affected in many ways. Interest rates on
assets and liabilities may change at different times or by different amounts.
Maintaining a proper balance between rate sensitive earning assets and rate
sensitive liabilities is the principal function of asset and liability
management of a banking organization.
A positive repricing gap for a given period exists when total interest-earning
assets exceed total interest-bearing liabilities and a negative gap exists when
total interest-bearing liabilities are in excess of interest-earning assets.
Generally a positive repricing gap will result in increased net interest income
in a rising rate environment and decreased net interest income in a falling rate
environment. A negative repricing gap tends to produce increased net interest
income in a falling rate environment and decreased net interest income in a
rising rate environment. At March 31, 2001, rate sensitive liabilities exceeded
rate sensitive assets within a one year maturity range and, thus, the Company is
theoretically positioned to benefit from a decline in interest rates within the
next year. However, over shorter periods of three to six months, rising rates
tend to be more beneficial for the Company.
The Company's repricing gap position is useful for measuring general relative
risk levels. However, even with perfectly matched repricing of assets and
liabilities, interest rate risk cannot be avoided entirely. Interest rate risk
remains in the form of prepayment risk of assets and liabilities, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates, and basis risk. Basis risk refers to the possibility that
the repricing behavior of variable-rate assets could differ from the repricing
characteristics of liabilities which reprice in the same time period. Even
though these assets are match-funded, the spread between asset yields and
funding costs could change.
Because the repricing gap position does not capture these risks, Management
utilizes simulation modeling to measure and manage the rate sensitivity exposure
of earnings. The Company's simulation model provides a projection of the effect
on net interest income of various interest rate scenarios and balance sheet
strategies.
Liquidity
For banks, liquidity represents ability to meet both loan commitments and
deposit withdrawals. Factors which influence the need for liquidity are varied,
but include general economic conditions, asset/liability mix, bank reputation,
future FDIC funding needs, changes in regulatory environment, and credit
standing. Assets which provide liquidity consist principally of loans, cash and
due from banks, investment securities, and short-term investments such as
federal funds. Maturities of securities held for investment purposes and loan
payments provide a constant flow of funds available for cash needs.
Additionally, liquidity can be gained by the sale of loans or securities prior
to maturity if such assets had previously been designated as available for sale.
Interest rates, relative to the rate paid by the security or loan sold, along
with the maturity of the security or loan, are the major determinates of the
price which can be realized upon sale.
The subsidiary banks do not have brokered deposits.
The stability of the Company's funding, and thus its ability to manage
liquidity, is greatly enhanced by its consumer deposit base. Consumer deposits
tend to be small in size, diversified across a large base of individuals, and
are government insured to the extent permitted by law. Total deposits at March
31, 2001, were $273,041,000 or 73% of total liabilities and equity.
Securities available for sale with a cost totaling $56,817,000 at quarter-end
included net unrealized gains of $1,527,000. These securities may be sold in
whole or in part to increase liquid assets, reposition the investment portfolio,
or for other purposes as defined by Management.
Capital
Stockholders' equity increased $814,000 during the three months ended March 31,
2001.
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a consistent system for
comparing capital positions of financial institutions and to take into account
the different inherent risks among financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a Financial Institution to maintain capital at higher levels.
A comparison of the Company's capital as of March 31, 2001 with the requirements
to be considered adequately capitalized is presented below.
For Capital
Actual Adequacy Purposes
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Tier 1 risk-based capital ..................... 10.13% 4.00%
Total risk-based capital ...................... 11.35% 8.00%
Tier 1 leverage ratio ......................... 7.23% 4.00%
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Company's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Trends, Events or Uncertainties
Officers and Directors of the Company and its subsidiaries have had, and may
have in the future, banking transactions in the ordinary course of business of
the Company's subsidiaries. All such transactions are on substantially the same
terms, including interest rates on loans and collateral, as those prevailing at
the time for comparable transactions with others, involve no more than normal
risk of collectibility, and present no other unfavorable features.
In the normal course of business, the Banks are involved in various legal
proceedings. In the current opinion of management, any liability resulting from
such proceedings would not have a material effect on the Company's financial
statements.
The Company has in the past and anticipates continuing to purchase shares of its
outstanding common stock for the treasury as they become available.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of the Company held at its offices on April 19, 2001, the
shareholders elected the following individuals to the Board of Directors for the
indicated terms:
Votes in Favor Votes Against Term
-------------------------------------------------------------
Roy J. Carver, Jr . 1,134,907 0 3 Years
Victor G. McAvoy .. 1,138,092 0 3 Years
John "Jay" S. McKee 1,138,312 0 3 Years
Dean H. Holst ..... 1,133,427 0 1 Year
ITEM 6. Exhibits and reports on Form 8-K.
Reports on Form 8-K. A current report on Form 8-K was filed with
the Securities and Exchange Commission on
March 29, 2001 to report the issuance of
4,000 shares, totaling $4,000,000, of Company
Obligated Manditorily Redeemable Preferred
Securities.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
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.
IOWA FIRST BANCSHARES CORP.
(Registrant)
May 15, 2001 /s/ George A. Shepley
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Date George A. Shepley, Chairman of
the Board
May 15, 2001 /s/ Kim K. Bartling
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Date Kim K. Bartling, Executive Vice
President, Chief Operating
Officer & Treasurer