IOWA FIRST BANCSHARES CORP.
ANNUAL REPORT
DECEMBER 31, 1996
Inside annual report cover
IOWA FIRST BANCSHARES CORP.
STOCKHOLDER INFORMATION AS OF DECEMBER 31, 1996
Market Makers
A market for Iowa First Bancshares Corp. common stock is made by the brokerage
firms of Piper Jaffray, Inc. and Howe Barnes Investments, Inc.
Stock Prices Information
The table below shows the reported high and low bid prices of the common stock
during the years ending December 31, 1996 and 1995. The stock prices listed
below were obtained from one of the market makers or, as of each year-end, an
independent appraisal of the stock if higher. All stock prices reflect a
three-for-one stock split which occurred in July 1996.
1996 High Low
- ----------------- -------- --------
First Quarter $ 16.67 $ 16.50
Second Quarter 16.92 16.67
Third Quarter 16.25 16.25
Fourth Quarter 20.00 16.25
1995 High Low
- ----------------- -------- --------
First Quarter $ 13.83 $ 13.08
Second Quarter 14.33 13.83
Third Quarter 15.50 14.33
Fourth Quarter 16.67 15.17
Annual Meeting of Stockholders
The Annual Meeting of the Stockholders of Iowa First Bancshares Corp. will be
held at 2:00 p.m., April 17, 1997 at the corporate offices located at 300 East
Second Street, Muscatine, Iowa, 52761. Stockholders are encouraged to attend.
Annual Report on Form 10-K
Copies of the Iowa First Bancshares Corp. annual report on Form 10-K and
exhibits, filed with the Securities and Exchange Commission, are available to
stockholders without charge by writing:
Iowa First Bancshares Corp.
300 East Second Street
Muscatine, Iowa 52761
Attention: Patricia R. Thirtyacre, Corporate Secretary
Investor Information
Stockholders, investors and analysts interested in additional information may
contact Mr. Kim K. Bartling, Executive Vice President, Chief Operating Officer
and Treasurer (319) 262-4216 or Mr. George A. Shepley, Chairman and Chief
Executive Officer (319) 262-4200.
To our Shareholders
For the full year of 1996, net income reached record levels of $3,465,000 or
$1.95 per share. This represents a $415,000 or 13.6% increase over 1995 net
income. Consolidated net income for the quarter ended December 31, 1996, totaled
$815,000 compared to $750,000 during the same quarter last year.
Contributing to the record performance was an increase in net interest income
and management's success in their continuing efforts to control operating
expenses. Net interest income for 1996 was $10,434,000 which represents a
$543,000 (5.5%) increase over 1995. FDIC insurance premiums decreased $257,000
and total operating expenses declined $20,000 in 1996. Provisions for loan
losses of $160,000 were higher than the prior year but still represent less than
one-tenth of one percent of loans outstanding. The efficiency ratio at year-end
was 56.2% versus 60.0% and 62.7% for 1995 and 1994, respectively. An explanation
of what constitutes the efficiency ratio can be found under "Key Ratios" on page
three.
The earnings noted above resulted in return on average equity for the year of
14.5% contrasted to 14.0% for the prior year. Return on average assets was 1.26%
for 1996 compared to 1.18% in 1995. Please refer to the Management's Discussion
and Analysis section of this report for a more detailed analysis of important
issues and trends.
Of particular importance to our success in 1996 was an increase in loan volume.
Net loans of $183,438,000 at year-end, increased $14,096,000 (8.3%) over the
prior year. Both subsidiaries experienced good loan growth despite intense
competition for all types of loans. Total deposits and repurchase agreements at
December 31, 1996, were $243,805,000, $1,038,000 higher than the previous year
total. More emphasis was placed on wholesale funding from the Federal Home Loan
Bank to assist in management of interest rate risk as evidenced by the increase
of more than $4,000,000 to $7,473,000 in this funding category. Total
shareholder equity at the end of 1996 was $25,198,000, an increase of 9.4% over
1995.
There continues to be little trading activity in Iowa First Bancshares Corp.
stock. A recent independent appraisal of the Company valued the stock at $20 per
share, approximately 140% of book value at December 31, 1996. This price
reflects the three-for-one stock split which occurred in July 1996. The reported
stock price increased approximately 20% during 1996. Please refer to the
following graph for a summary of the stock price performance over the last few
years.
The graphical presentation omitted herein displayed the stock annual stock price
by year for December 31, 1991 through December 31, 1996. The data points used
were as follows:
Stock Price
-----------
December 31:
1991 5.33
1992 7.75
1993 11.33
1994 13.00
1995 16.67
1996 20.00
All prices are stock split adjusted and are the highest outside broker bid or,
beginning 12/31/93, the appraisal price if higher.
The Board of Directors declared cash dividends during 1996 of approximately
$1,170,000, further evidence of the Director's commitment to enhance the return
to stockholders consistent with prudent administration of the Company. The
graphical presentation omitted herein summarized the cash dividends declared
per share for the past several years.
The data points used for the graph were as follows:
December 31:
1991 .14
1992 .283
1993 .383
1994 .450
1995 .533
1996 .680
All dividends are stock split adjusted and reflect the three-for-one stock split
which occured in July 1996.
The total annual investment return (change in stock price plus dividends) for
the past one, three, and five-year periods have been 24%, 24%, and 33%,
respectively.
While record financial results achieved during 1996 were partially a function of
continued favorable interest rates, nonrecurring income items and reduction in
FDIC insurance expense, special recognition for the overall performance of the
Banks is attributable to the excellent management at the respective banking
subsidiaries. One example of a major undertaking by management is the effort
being devoted to changing the culture at our Muscatine banking subsidiary. The
bank's culture modification is from one of relatively passive, customer order
processing to one of active, consultative employee interactions with the
customer so as to better serve the customer's financial needs and goals. While
this cultural change is an evolutionary process, results are beginning to be
evidenced by elevated morale and motivation of our empowered employees, positive
customer comments, as well as increased sales and cross sales of bank products
and services.
As we look to 1997, there is, as always, much uncertainty in forecasting the
future direction of interest rates. The 1997 budgets for the Company and its
subsidiaries project relatively stable market interest rates; if rates vary
significantly from this assumption it will become more challenging to maintain
or increase the net interest margin, and consequently, net income.
Increasing our market share and delivery systems is extremely important to the
long-term success of the Company. We are constantly looking for new, exciting,
and profitable business opportunities either through purchasing existing
organizations or expanding upon our internal strengths. During 1997 we will open
a new bank branch in Fairfield, Iowa, in a very high traffic part of the
community. This should allow management of the Fairfield subsidiary to compete
head-to-head with new and expanded competitors in their market area. The
Muscatine, Iowa, subsidiary is contemplating a new drive-in branch in downtown
Muscatine to replace its older downtown drive-in facility. We are also very
excited about our new branch which will be located in the Wal Mart Super Center
currently under construction in Muscatine. This outlet for our financial
services and products will be our first "nontraditional" bank branch and should
serve to help us reach a different market segment as well as emphasize and
enhance our marketing and retailing skills.
At the December 1996 Board of Directors meeting, Scott Ingstad, currently
President and Chief Executive Officer of First National Bank of Muscatine, was
elected to the additional position of President of Iowa First Bancshares Corp.
The Directors also elected Kim Bartling Executive Vice President, Chief
Operating Officer, and Treasurer of the Company. He previously was Senior Vice
President, Chief Financial Officer, and Treasurer. These promotions are intended
to identify successor management to assure continuity in the operations of Iowa
First Bancshares Corp.
Your continued support and confidence is appreciated.
/s/ George A. Shepley
- ---------------------
George A. Shepley
Chairman & CEO
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
BALANCE SHEET (at year end) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Net loans ................................................ $183,438,000 $169,342,000 $162,015,000
Allowance for loan losses ................................ 2,803,000 2,309,000 2,526,000
Deposits and securities sold under agreements
to repurchase ......................................... 243,805,000 242,767,000 231,271,000
Federal Home Loan Bank advances ......................... 7,473,000 3,398,000 --
Total assets ............................................. 280,461,000 272,830,000 253,800,000
Stockholders' equity ..................................... 25,198,000 23,033,000 20,672,000
STATEMENT OF INCOME (for the year)
- -----------------------------------------------------------------------------------------------------------------
Net interest income ...................................... $ 10,434,000 $ 9,891,000 $ 9,703,000
Provision for loan losses ................................ 160,000 45,000 65,000
Other income ............................................. 1,764,000 1,576,000 1,682,000
Other operating expense .................................. 6,857,000 6,877,000 7,141,000
Income before income taxes ............................... 5,181,000 4,545,000 4,179,000
Income taxes ............................................. 1,716,000 1,495,000 1,304,000
Net income ............................................... 3,465,000 3,050,000 2,875,000
PER SHARE DATA
- ------------------------------------------------------------------------------------------------------------------
Net income, primary ...................................... $ 1.95 $ 1.71 $ 1.63
Net income, fully diluted ................................ 1.95 1.70 1.63
Book value at year-end ................................... 14.48 13.42 11.93
Stock price at year-end (greater of bid or
appraised price) ...................................... 20.00 16.67 13.00
Cash dividends declared during the year .................. .68 0.53 0.45
Cash dividends declared as a percentage
of net income ......................................... 35% 31% 28%
KEY RATIOS
- ------------------------------------------------------------------------------------------------------------------
Return on average assets ................................. 1.26% 1.18% 1.12%
Return on average stockholders' equity ................... 14.46 13.97 14.82
Net interest margin-tax equivalent ....................... 4.25 4.28 4.22
Average stockholders' equity to average assets ........... 8.75 8.44 7.54
Total capital to risk-based assets ....................... 14.20 15.12 14.68
Efficiency ratio (all operating expenses,
excluding the provision for loan losses,
divided by the sum of net interest income
and other income) ..................................... 56.21 59.97 62.72
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Iowa First Bancshares Corp.
Muscatine, Iowa
We have audited the accompanying consolidated balance sheets of Iowa First
Bancshares Corp. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1996, 1995, and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Iowa First
Bancshares Corp. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years ended December
31, 1996, 1995, and 1994, in conformity with generally accepted accounting
principles.
/s/ McGLADREY & PULLEN
Davenport, Iowa
February 3, 1997
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------
Cash and due from banks .............................................. $ 14,363,000 $ 10,963,000
Interest-bearing deposits at financial institutions .................. 551,000 - -
Investment securities available for sale (Note 2) .................... 67,622,000 60,728,000
Federal funds sold and other overnight investments ................... 7,263,000 24,700,000
Loans, net (Note 3) .................................................. 183,438,000 169,342,000
Bank premises and equipment, net (Note 4) ............................ 4,526,000 4,342,000
Accrued interest receivable .......................................... 2,333,000 2,283,000
Other assets ......................................................... 365,000 472,000
--------------------------
Total assets ........................................... $280,461,000 $272,830,000
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing ............................................ $ 43,445,000 $ 35,076,000
Interest-bearing ............................................... 194,907,000 200,877,000
--------------------------
Total deposits (Note 5) ................................ $238,352,000 $235,953,000
Securities sold under agreements to repurchase (Note 6) ........... 5,453,000 6,814,000
Federal Home Loan Bank advances (Note 6) .......................... 7,473,000 3,398,000
Dividends payable ................................................. 331,000 246,000
Treasury tax and loan open note (Note 6) .......................... 1,944,000 1,525,000
Other liabilities ................................................. 1,710,000 1,861,000
--------------------------
Total liabilities ...................................... $255,263,000 $249,797,000
--------------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, stated value of $1.00 per share; shares authorized
1996 and 1995, 500,000; shares issued 1996 and 1995, none
Common stock, no par value; shares authorized 1996 and 1995 ....... $ -- $ --
2,000,000; shares issued 1996 and 1995, 1,800,000 .............. 200,000 200,000
Additional paid-in capital ........................................ 3,872,000 3,800,000
Retained earnings ................................................. 21,621,000 19,326,000
--------------------------
25,693,000 23,326,000
Unrealized gains on securities available for sale, net ............ 81,000 229,000
Less cost of common shares acquired for the treasury, 1996,
59,452 and 1995, 84,237 ........................................ 576,000 522,000
--------------------------
Total stockholders' equity ............................. $ 25,198,000 $ 23,033,000
--------------------------
Total liabilities and stockholders' equity ............. $280,461,000 $272,830,000
==========================
See Notes to Consolidated Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
- --------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans:
Taxable ....................................... $ 14,981,000 $ 14,322,000 $ 12,499,000
Nontaxable .................................... 264,000 322,000 372,000
Interest and dividends on investment securities:
Taxable ....................................... 3,237,000 3,189,000 3,619,000
Nontaxable .................................... 605,000 520,000 350,000
Interest on federal funds sold and other overnight
investments ................................... 921,000 588,000 297,000
Interest on deposits at financial institutions
and other interest income ..................... 24,000 1,000 18,000
--------------------------------------
Total interest income ................. $ 20,032,000 $ 18,942,000 $ 17,155,000
--------------------------------------
Interest expense:
Interest on deposits ............................. $ 8,980,000 $ 8,727,000 $ 7,264,000
Interest on securities sold under agreements
to repurchase and other interest expense ...... 618,000 324,000 139,000
Interest on note payable ......................... -- 49,000 --
---------------------------------------
Total interest expense ................ $ 9,598,000 $ 9,051,000 $ 7,452,000
---------------------------------------
Net interest income ................... $ 10,434,000 $ 9,891,000 $ 9,703,000
Provision for loan losses (Note 3) .................. 160,000 45,000 65,000
--------------------------------------
Net interest income after provision
for loan losses ....................... $ 10,274,000 $ 9,846,000 $ 9,638,000
--------------------------------------
Other income:
Trust department ................................. $ 340,000 $ 308,000 $ 273,000
Service fees ..................................... 1,017,000 941,000 970,000
Investment securities gains, net ................. 4,000 3,000 9,000
Other ............................................ 403,000 324,000 430,000
--------------------------------------
Total other income .................... $ 1,764,000 $ 1,576,000 $ 1,682,000
--------------------------------------
Operating expenses:
Salaries and employee benefits ................... $ 4,077,000 $ 4,012,000 $ 3,995,000
Occupancy expenses, net .......................... 579,000 526,000 548,000
Equipment expenses ............................... 373,000 422,000 410,000
Office supplies and postage ...................... 399,000 371,000 342,000
Computer costs ................................... 374,000 340,000 382,000
FDIC insurance ................................... 8,000 265,000 525,000
Legal fees ....................................... 36,000 21,000 26,000
Other operating expenses ......................... 1,011,000 920,000 913,000
--------------------------------------
Total operating expenses .............. $ 6,857,000 $ 6,877,000 $ 7,141,000
--------------------------------------
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
- ------------------------------------------------------------------------------------------
Income before income taxes .... $ 5,181,000 $ 4,545,000 $ 4,179,000
Income taxes (Note 9) ....................... 1,716,000 1,495,000 1,304,000
------------------------------------------
Net income .................... $ 3,465,000 $ 3,050,000 $ 2,875,000
==========================================
Weighted average common and common equivalent
shares ................................... 1,776,680 1,779,021 1,760,205*
Weighted average common and common equivalent
shares, assuming full dilution ........... 1,781,061 1,789,923 1,760,205*
Earnings per common and common equivalent
share:
Primary:
Net income .................... $ 1.95 $ 1.71 $ 1.63*
===========================================
Fully diluted:
Net income .................... $ 1.95 $ 1.70 $ 1.63*
===========================================
Dividends declared per share ................ $ 0.68 $ 0.53 $ 0.45
<FN>
* Excludes the effects of common stock equivalents as resulting dilution was
less than 3%.
</FN>
See Notes to Consolidated Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995, and 1994
Common Stock Additional
--------------------- Paid-In
Number Amount Capital
- --------------------------------------------------------------------------------------------
Balance, December 31, 1993 ........................... 1,800,000 $ 200,000 $ 3,800,000
Net income ........................................ -- -- --
Cash dividends declared, $.45 per share ........... -- -- --
Purchase of common stock for the treasury ......... -- -- --
Sale of common stock from the treasury to the
ESOP............................................ -- -- --
Unrealized gain on securities available for sale,
net............................................. -- -- --
-----------------------------------
Balance, December 31, 1994 ........................... 1,800,000 $ 200,000 $ 3,800,000
Net income ........................................ -- -- --
Cash dividends declared, $.53 per share ........... -- -- --
Purchase of common stock for the treasury ......... -- -- --
Issuance of 3,o00 shares of treasury stock upon
exercise of stock options ...................... -- -- --
Change in unrealized (loss) on securities available
for sale, net .................................. -- -- --
-----------------------------------
Balance, December 31, 1995 ........................... 1,800,000 $ 200,000 $ 3,800,000
Net income ........................................ -- -- --
Cash dividends declared, $.68 per share ........... -- -- --
Purchase of common stock for the treasury ......... -- -- --
Sale of common stock from the treasury
to the ESOP .................................... -- -- 50,000
Issuance of 45,885 shares of treasury stock upon
exercise of stock options ...................... -- -- 22,000
Change in unrealized gain on securities available
for sale, net .................................. -- -- --
-----------------------------------
Balance, December 31, 1996 ........................... 1,800,000 $ 200,000 $ 3,872,000
===================================
See Notes to Consolidated Financial Statements.
Unrealized
Gain (Loss)
Treasury Stock On Securities
Retained ---------------------------- Available
Earnings Number Amount For Sale, Net Total
- --------------------------------------------------------------------------------
$ 15,092,000 91,881 592,000 248,000 18,748,000
2,875,000 -- -- -- 2,875,000
(774,000) -- -- -- (774,000)
-- 2,700 32,000 -- (32,000)
-- (27,384) (336,000) -- 336,000
-- -- -- (481,000) (481,000)
- --------------------------------------------------------------------------------
17,193,000 67,197 $ 288,000 $ (233,000) $20,672,000
3,050,000 -- -- -- 3,050,000
(917,000) -- -- -- (917,000)
-- 20,040 261,000 -- (261,000)
-- (3,000) (27,000) -- 27,000
-- -- -- 462,000 462,000
- -------------------------------------------------------------------------------
$ 19,326,000 84,237 $ 522,000 $ 229,000 $23,033,000
3,465,000 -- -- -- 3,465,000
(1,170,000) -- -- -- (1,170,000)
-- 25,500 483,000 -- (483,000)
-- (4,400) (38,000) -- 88,000
-- (45,885) (391,000) -- 413,000
-- -- -- (148,000) (148,000)
- -------------------------------------------------------------------------------
$ 21,621,000 59,452 $ 576,000 $ 81,000 $25,198,000
================================================================================
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 3,465,000 $ 3,050,000 $ 2,875,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from loans sold to FHLMC ............................................... 5,526,000 2,972,000 2,932,000
Loans underwritten for FHLMC .................................................... (5,515,000) (2,962,000) (2,901,000)
Gains on loans sold to FHLMC .................................................... (11,000) (10,000) (31,000)
Provision for loan losses ....................................................... 160,000 45,000 65,000
Investment securities gains, net ................................................ (4,000) (3,000) (9,000)
Depreciation .................................................................... 376,000 371,000 407,000
Deferred income taxes ........................................................... (269,000) 2,000 (5,000)
Amortization of premiums and accretion of
discounts on investment securities, net ....................................... 223,000 251,000 426,000
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable ............................ (50,000) (245,000) (20,000)
Net (increase) decrease in other assets ....................................... 212,000 (37,000) (177,000)
Increase (decrease) in other liabilities ...................................... 99,000 (250,000) (477,000)
-----------------------------------------
Net cash provided by operating
activities .............................................................. $ 4,212,000 $ 3,184,000 $ 3,085,000
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing deposits at
financial institutions .......................................................... $ (551,000) $ -- $ --
Net (increase) decrease in federal funds sold and
other overnight deposits ........................................................ 17,437,000 (21,363,000) 9,093,000
Proceeds from maturities and paydowns of held
to maturity securities .......................................................... -- 13,464,000 12,295,000
Proceeds from sales, maturities, and paydowns
of available for sale securities ................................................ 21,167,000 11,946,000 16,586,000
Purchase of held to maturity securities ............................................ -- (1,860,000) (11,922,000)
Purchase of available for sale securities .......................................... (28,514,000) (13,961,000) (13,684,000)
Proceeds from sale of other real estate owned ...................................... -- 260,000 114,000
Net (increase) in loans ............................................................ (14,256,000) (7,372,000) (7,374,000)
Purchases of bank premises and equipment ........................................... (560,000) (168,000) (193,000)
-----------------------------------------
Net cash provided by (used in)
investing activities .................................................... $(5,277,000) $(19,054,000) $ 4,915,000
=========================================
(Continued)
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits .......................................... $ 8,369,000 $ (260,000) $ 690,000
Net increase (decrease) in interest-bearing
deposits .......................................... (5,970,000) 7,190,000 (5,080,000)
Net increase (decrease) in securities sold under
agreements to repurchase .......................... (1,361,000) 4,566,000 720,000
Net increase in TT&L borrowings ...................... 419,000 1,525,000 --
Net increase in FHLB advances ........................ 4,075,000 3,398,000 --
Principal payments on note payable ................... -- -- (1,300,000)
Cash dividends paid .................................. (1,085,000) (1,072,000) (714,000)
Reissuance of treasury stock ......................... 501,000 27,000 336,000
Purchases of common stock for the treasury ........... (483,000) (261,000) (32,000)
-----------------------------------------
Net cash provided by (used in)
financing activities ...................... $ 4,465,000 $15,113,000 $(5,380,000)
-----------------------------------------
Net increase (decrease) in cash and
due from banks ............................ $ 3,400,000 $ (757,000) $ 2,620,000
Cash and due from banks:
Beginning ............................................ 10,963,000 11,720,000 9,100,000
-----------------------------------------
Ending ............................................... $14,363,000 $10,963,000 $11,720,000
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH Flow Information:
Cash payments for:
Interest .......................................... $ 9,596,000 $ 8,890,000 $ 7,371,000
Income taxes ...................................... 1,483,000 1,147,000 870,000
Supplemental Schedule of Noncash Investing and
Financing Activities:
Securities available for sale adjustment, net ........ (148,000) 462,000 (481,000)
Investment securities transferred from held to
maturity portfolio to available for sale portfolio,
at fair value ..................................... -- 41,603,000 --
See Notes to Consolidated Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 and First National Bank in
Fairfield. First National Bank of Muscatine has a total of four locations in
Muscatine, Iowa. First National Bank in Fairfield has one location 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.
Significant accounting policies:
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount 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
reporting period. Actual results could differ from those estimates.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, First
National Bank of Muscatine and First National Bank in Fairfield (Banks). All
material intercompany accounts and transactions have been eliminated in
consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and due
from banks include cash on-hand and amounts due from banks, including cash items
in process of clearing. Cash flows from demand deposits, NOW accounts, savings
accounts, federal funds sold, interest bearing deposits at financial
institutions, securities sold under agreements to repurchase, Federal Home Loan
Bank advances, TT&L open note, certificates of deposits, and loans are reported
net.
Cash and due from banks: The Banks are required by federal banking regulations
to maintain certain cash and due from bank reserves. The reserve requirement was
approximately $1,625,000 at December 31, 1996.
Investment securities available for sale: Securities available for sale are
accounted for at fair value and the unrealized holding gains or losses are
presented as a separate component of stockholders' equity, net of their deferred
income tax effect.
Realized gains and losses, determined using the specific-identification method,
are included in earnings.
Declines in the fair value of individual available-for-sale securities below
their cost that are other than temporary would result in write-downs of the
individual securities to their fair value. The related write-downs would be
included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity. There were no investments held to maturity
or for trading purposes as of December 31, 1996 or 1995.
Pursuant to a FASB Special Report "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" the Banks
transferred at fair value all investment securities from held to maturity to
available for sale prior to December 31, 1995.
Loans: Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. The Banks record impaired loans at
the present value of expected future cash flows discounted at the loan's
effective interest rate, or as an expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement.
The allowance for loan losses is maintained at the level considered adequate by
management of the Banks to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to operating
expense and reduced by net charge-offs. In determining the adequacy of the
allowance balance the Banks make continuous evaluations of the loan portfolio
and related off-balance sheet commitments, consider current economic conditions,
historical loan loss experience, review of specific problem loans and other
factors.
Unearned interest on discounted loans is amortized to income over the life of
the loans, using the interest method. For all other loans, interest is accrued
daily on the outstanding balances. Accrual of interest is discontinued on a loan
when management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection of
interest is doubtful. Generally this occurs when the collection of interest or
principal has become 90 days past due.
Direct loan origination fees and costs are generally being deferred and the net
amount amortized as an adjustment of the related loan's or lease's yield. The
Banks generally amortize these amounts over the contractual life. Commitment
fees based upon a percentage of customers' unused lines of credit and fees
related to standby letters of credit are not significant.
Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed primarily by the
straight-line method based on the estimated useful lives.
Other assets: Other real estate (ORE), which is included in other assets,
represents properties acquired through foreclosure, in-substance foreclosure or
other proceedings. ORE is recorded at the lower of the amount of the loan or
fair value of the properties. Any write-down to fair value at the time of
transfer to ORE is charged to the allowance for loan losses. Property is
evaluated regularly to ensure that the recorded amount is supported by the
current fair value.
Income taxes: The Company files its tax return on a consolidated basis with its
subsidiary banks. The entities follow the direct reimbursement method of
accounting for income taxes under which income taxes or credits which result
from the subsidiary banks' inclusion in the consolidated tax return are paid to
or received from the parent company.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Deferred income taxes have not been provided on the equity in undistributed net
income of the subsidiaries as the entities file a consolidated income tax
return.
Trust assets: Trust assets (other than cash deposits) held by the Banks in
fiduciary or agency capacities for its customers are not included in the
accompanying consolidated balance sheets since such items are not assets of the
Banks.
Earnings per share: Earnings per share is arrived at by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents outstanding for the respective period. The computations prior to
December 31, 1994 were based on weighted average common stock outstanding only
because the dilutive effect of the common stock equivalents was not material.
Current accounting developments:
The Financial Accounting Standards Board has issued Statement No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" and Statement No. 127 "Deferral of the Effective Date of Certain
Provisions of statement No. 125". Statement 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. Statement 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The provisions of Statement 125 applicable to servicing
of financial assets are effective for servicing of financial assets occurring
after December 31, 1996. The provisions of Statement 125 applicable to transfers
of financial assets and extinguishment of liabilities are effective for
transfers and extinguishments occurring after December 31, 1997. Management
believes that adoption of this Statement will not have a material effect on the
Company's financial statements.
Note 2. Investment Securities Available For Sale
The amortized cost and fair value of investment securities as of December 31,
1996 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-----------------------------------------------------------
Securities available for sale:
U.S. Treasury securities ....... $ 20,985,000 $ 124,000 $ (71,000) $ 21,038,000
U.S. government agencies ....... 15,822,000 93,000 (43,000) 15,872,000
Mortgage-backed securities ..... 9,889,000 11,000 (62,000) 9,838,000
State and political subdivisions 13,448,000 141,000 (62,000) 13,527,000
Corporate obligations .......... 7,348,000 8,000 (9,000) 7,347,000
-----------------------------------------------------------
$ 67,492,000 $ 377,000 $ (247,000) $ 67,622,000
===========================================================
The amortized cost and fair value of investment securities as of December 31,
1995 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------
Securities available for sale:
U.S. Treasury securities ................... $20,081,000 $ 196,000 $ (20,000) $20,257,000
U.S. government agencies ................... 16,914,000 144,000 (59,000) 16,999,000
Mortgage-backed securities ................. 7,562,000 6,000 (27,000) 7,541,000
State and political subdivisions ........... 11,364,000 113,000 (1,000) 11,476,000
Corporate obligations ...................... 4,443,000 12,000 -- 4,455,000
----------------------------------------------------
$60,364,000 $ 471,000 $ (107,000) $60,728,000
====================================================
The amortized cost and fair value of investment securities as of December 31,
1996, by contractual maturity, are shown below. Most mortgage-backed securities
are included in the one year through five year maturity category as the vast
majority mature within such period.
Amortized Fair
Cost Value
---------------------------
Securities available for sale:
Due in one year or less ..................... $19,360,000 $19,406,000
Due after one year through five years ....... 41,183,000 41,252,000
Due after five years through ten years ...... 5,479,000 5,488,000
Due after ten years ......................... 1,470,000 1,476,000
---------------------------
$67,492,000 $67,622,000
===========================
Investment securities with a carrying value of $37,670,000 as of December 31,
1996 are pledged on public deposits, trust deposits and for other purposes as
required by law.
Investment securities with a carrying value of $10,516,000 as of December 31,
1996 are pledged as collateral for securities sold under agreements to
repurchase.
Proceeds from the sale of securities were $1,005,000 during 1996, $5,507,000
during 1995, and $11,775,000 during 1994. All 1996, 1995, and 1994 sales were
from securities identified as available for sale. Securities called by the
issuer totaled $1,600 000, $356,000, and $1,188,000, for 1996, 1995, and 1994,
respectively. Gross gains and losses realized on sales in 1996 were $4,000 and
$0, respectively. Gross gains and losses realized on sales in 1995 were $30,000
and $27,000, respectively. Gross gains and losses realized on sales in 1994 were
$67,000 and $58,000, respectively.
The Company transferred securities with an amortized cost of $41,391,000 and an
unrealized gain of $212,000 from the held to maturity portfolio to the available
for sale portfolio prior to December 31, 1995, based on management's
reassessment of their previous designations of securities giving consideration
to liquidity needs, management of interest rate risk and other factors.
Note 3. Loans
The composition of loans is summarized as follows:
December 31,
--------------------------
1996 1995
--------------------------
Commercial ............................... $ 73,681,000 $ 62,399,000
Agricultural ............................. 17,555,000 16,792,000
Real estate:
Construction .......................... 2,970,000 1,187,000
Mortgage .............................. 60,241,000 56,475,000
Tax exempt, mortgage .................. 3,485,000 3,735,000
Installment .............................. 29,126,000 32,972,000
Lease financing, net ..................... 369,000
Other .................................... 209,000 335,000
--------------------------
Total loans ................ $187,267,000 $174,264,000
Less:
Allowance for loan losses ............. 2,803,000 2,309,000
Unearned discount ..................... 1,026,000 2,613,000
--------------------------
$183,438,000 $169,342,000
==========================
Loans considered to be impaired under the provisions of FAS No. 114, as amended
by FAS No. 118, are as follows:
December 31,
-----------------
1996 1995
-----------------
Impaired loans for which an allowance has been provided .... $254,000 $368,000
Impaired loans for which no allowance has been provided .... 601,000 515,000
-----------------
Total loans determined to be impaired ........ $855,000 $883,000
=================
Allowance provided for impaired loans, included in the
allowance for loan losses ............................... $ 25,000 $ 47,000
=================
The average recorded investment in impaired loans during 1996 and 1995 was
$633,000 and $985,000, respectively. Interest income on impaired loans of
$19,000 and $26,000 was recognized for cash payments received in 1996 and 1995,
respectively.
Nonaccruing loans totaled $855,000 and $883,000 at December 31, 1996 and 1995,
respectively. Interest income in the amount of $66,000, $74,000, and $109,000
would have been earned on the nonaccrual loans had they been performing loans in
accordance with their original terms during the years ended December 31, 1996,
1995, and 1994, respectively. The interest collected on loans designated as
nonaccrual loans and included in income for the years ended December 31, 1996,
1995, and 1994 totaled $19,000, $26,000, and none, respectively.
Changes in the allowance for loan losses are summarized as follows:
Year Ended December 31,
----------------------------------
1996 1995 1994
----------------------------------
Beginning balance .............. $2,309,000 $ 2,526,000 $ 2,654,000
Provisions charged to expense 160,000 45,000 65,000
Recoveries .................. 496,000 176,000 225,000
----------------------------------
2,965,000 2,747,000 2,944,000
Loans charged off ........... 162,000 438,000 418,000
----------------------------------
Ending balance ................. $2,803,000 $ 2,309,000 $ 2,526,000
==================================
The allowance for loan losses for income tax purposes is $2,195,000 and
$1,841,000 as of December 31, 1996 and 1995, respectively. The amounts that were
deducted for income tax purposes for the years ended December 31, 1996, 1995,
and 1994 were $20,000, $92,000, and $151,000, respectively, which were the
maximum allowable deductions as computed by the experience method.
The Company retains mortgage loan servicing on loans sold into the secondary
market which are not included in the accompanying consolidated balance sheets.
The unpaid principal balance on these loans was $14,735,000 as of December 31,
1996, $11,044,000 as of December 31, 1995, and $9,097,000 as of December 31,
1994. Custodial escrow balances maintained in connection with these loans were
approximately $89,000, $61,000 and $51,000 at December 31, 1996, 1995 and 1994,
respectively. All loans sold are without recourse.
Note 4. Bank Premises and Equipment
Bank premises and equipment are summarized as follows:
Years Of December 31,
Useful ----------------------
Lives 1996 1995
------------------------------
Bank premises (including land of $537,000) ... 10-40 $6,630,000 $6,232,000
Leasehold improvements ....................... 5-15 80,000 80,000
Furniture and equipment ...................... 5-15 1,650,000 1,576,000
----------------------
$8,360,000 $7,888,000
Accumulated depreciation .................... 3,834,000 3,546,000
----------------------
$4,526,000 $4,342,000
======================
Note 5. Deposits
The composition of deposits is summarized as follows:
December 31,
--------------------------
1996 1995
--------------------------
Demand ......................... $ 74,849,000 $ 70,877,000
NOW accounts ................... 31,112,000 32,502,000
Savings ........................ 22,005,000 22,494,000
Time certificates .............. 110,386,000 110,080,000
--------------------------
$238,352,000 $235,953,000
==========================
Included in interest-bearing deposits are certificates of deposit with a minimum
denomination of $100,000 totaling $20,557,000 and $22,445,000 at December 31,
1996 and 1995, respectively. Maturities of these certificates are summarized as
follows:
December 31,
-----------------------
1996 1995
---------- ----------
One to three months ........ 7,409,000 10,023,000
Three to six months ........ 2,628,000 3,687,000
Six to twelve months ....... 5,970,000 4,894,000
Over twelve months ......... 4,550,000 3,841,000
---------- ----------
20,557,000 22,445,000
========== ==========
At December 31, 1996, the scheduled maturities of all certificates of deposit
are as follows:
1997 $ 78,175,000
1998 26,278,000
1999 4,088,000
2000 1,387,000
2001 and thereafter 458,000
------------
$110,386,000
============
Note 6. Other Borrowed Funds
Company borrowings consist of the following:
Securities sold under agreements to repurchase ............... $5,453,000
Federal Home Loan Bank advances .............................. 7,473,000
Treasury tax and loan open note .............................. 1,944,000
The treasury tax and loan open note represents overnight borrowings from the
Federal Reserve Bank system. The securities sold under agreements to repurchase
represent agreements with customers of the Banks which are collateralized with
securities of the Banks held by the Federal Home Loan Bank of Des Moines. The
Federal Home Bank may sell, loan, or otherwise dispose of such securities to
other parties in the normal course of their operations with prior written
approval of the Banks, and have agreed to resell to the Banks substantially
identical securities at the maturities of the agreements. All but $602,000 of
the securities sold under agreements to repurchase mature within twelve months,
with the $602,000 maturing June 30, 1999.
Securities sold under agreements to repurchase totaled $5,453,000 at December
31, 1996. The average and maximum amount outstanding along with the rates of
interest related to securities sold under agreements to repurchase are as
follows:
1996 1995
----------- -----------
Daily average amount outstanding during the year $ 5,658,000 $ 3,451,000
Maximum outstanding as of any month end ........ 6,545,000 6,814,000
Weighted average interest rate during the year . 4.70% 5.81%
Securities underlying the agreements at the end
of the year: Carrying value ................... $10,491,000 $10,917,000
Fair value ................ 10,515,000 10,910,000
Advances from the Federal Home Loan Bank as of December 31, 1996 bear interest
and are due as follows:
Interest Rate Balance Due
---------------------------------------
Year ending December 31:
1998 5.80% $ 300,000
1999 6.99% 250,000
2000 6.15% to 6.52% 1,900,000
2001 5.32% to 6.44% 1,950,000
2002 and thereafter 5.83% to 7.19% 2,150,000
Amortizing through 2012 6.79% to 7.02% 923,000
-------------------
$ 7,473,000
===================
First mortgage loans of approximately $41,000,000 and investment securities of
$2,000,000 as of December 31, 1996 are pledged as collateral on these advances.
Note 7. Regulatory Matters
The Company and Banks ("Entities") are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Entities must meet specific capital guidelines that involve quantitative
measures of the Entities' assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Entities' capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Entities to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Entities meet all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Banks must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institutions' category.
The Entities' actual capital amounts and ratios are presented in the following
table. No deduction was made from capital for interest-rate risk in 1996 or
1995.
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual: Purposes: Provisions:
------------------ ------------------ ----------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------
As of December 31, 1996
Total Capital (to Risk Weighted Assets):
Consolidated ................................ $26,779,000 14.2% $15,139,000 8% $18,924,000 10%
First National Bank of Muscatine ............ 17,578,000 13.7 10,298,000 8 12,873,000 10
First National Bank in Fairfield ............ 7,709,000 13.4 4,604,000 8 5,754,000 10
Tier 1 Capital (to Risk Weighted
Assets):
Consolidated ................................ 24,408,000 12.9 7,570,000 4 11,354,000 6
First National Bank of Muscatine ............ 15,961,000 12.4 5,149,000 4 7,724,000 6
First National Bank in Fairfield ............ 7,124,000 12.4 2,302,000 4 3,453,000 6
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual: Purposes: Provisions:
-------------------- --------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------
Tier 1 Capital (to Average Assets):
Consolidated 24,408,000 8.8 11,065,000 4 13,831,000 5
First National Bank of Muscatine 15,961,000 8.3 7,659,000 4 9,573,000 5
First National Bank in Fairfield 7,124,000 8.5 3,350,000 4 4,187,000 5
As of December 31, 1995
Total Capital (to Risk Weighted
Assets):
Consolidated 25,657,000 15.1 13,590,000 8 16,987,000 10
First National Bank of Muscatine 16,083,000 14.2 9,048,000 8 11,310,000 10
First National Bank in Fairfield 7,191,000 13.2 4,357,000 8 5,446,000 10
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 23,531,000 13.9 6,795,000 4 10,193,000 6
First National Bank of Muscatine 14,664,000 13.0 4,524,000 4 6,786,000 6
First National Bank in Fairfield 6,746,000 12.4 2,179,000 4 3,268,000 6
Tier 1 Capital (to Average Assets):
Consolidated 23,531,000 8.9 10,583,000 4 13,228,000 5
First National Bank of Muscatine 14,664,000 7.9 7,387,000 4 9,233,000 5
First National Bank in Fairfield 6,746,000 8.5 3,175,000 4 3,968,000 5
Current banking law limits the amount of dividends banks can pay. As of December
31, 1996, amounts available for payment of dividends were $3,202,000 and
$932,000 for First National Bank of Muscatine and First National Bank in
Fairfield, respectively. Regardless of formal regulatory restrictions the Banks
may not pay dividends which would result in their capital levels being reduced
below the minimum requirements shown above.
Note 8. Employee Benefits
The Company and bank subsidiaries sponsor an Employee Stock Ownership Plan with
401(k) provisions. This plan covers substantially all employees who work at
least 1,000 hours per year. The Company and subsidiary banks match 50% of the
amount an employee contributes to the plan up to a maximum of 6% of the
employee's pay. Additionally the Company and subsidiary banks may make profit
sharing contributions to the plan which are allocated to the accounts of
participants in the plan on the basis of total relative compensation. The
amounts expensed for the years ended December 31, 1996, 1995, and 1994 were
$266,000, $262,000, and $303,000, respectively.
The Company has an Incentive Stock Option and Nonstatutory Stock Option Plan
(hereinafter "Plan") for directors and senior officers. The purpose of the Plan
is to promote the interests of the Company and its stockholders by strengthening
its ability to attract and retain key officers and directors by furnishing
additional incentives whereby such officers and directors may be encouraged to
acquire, or to increase their acquisition of, the Company's common stock, thus
maintaining their personal and proprietary interest in the Company's continued
success and progress. The Plan is administered by the Human Resource Committee
of the Company. The option price is 100% of the fair market value of the common
stock ($9 per share) of the Company at the grant date. All options granted under
the Plan vest ratably over five years and must be exercised within five years of
the grant date. The Company retains Right of First Refusal on all shares issued
pursuant to the Plan. The activity of the Plan for the years ended December 31,
is as follows:
1996 1995 1994
---------------------------------
Number of Shares
---------------------------------
Options, beginning of year .............. 143,250 150,750 150,750
Granted
Terminated and canceled .............. 4,500
Exercised ............................ (45,885) 3,000
------- ------- -------
Options, end of year .................... 97,365 143,250 150,750
======= ======= =======
Options exercisable, end of year ........ 68,115 84,750 60,300
======= ======= =======
All figures in the above schedule have been adjusted to reflect the
three-for-one stock split which occurred in July 1996.
Note 9. Income Taxes
The components of income tax expense are as follows:
Year Ended December 31,
-------------------------------------
1996 1995 1994
-------------------------------------
Currently paid or payable ............. $1,985,000 $1,493,000 $1,309,000
Deferred income taxes ................. (269,000) 2,000 (5,000)
-------------------------------------
$1,716,000 $1,495,000 $1,304,000
=====================================
Income tax expense differs from the amount computed by applying the federal
income tax rate to income before income taxes. The reasons for this difference
are as follows:
Year Ended December 31,
------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------
% Of % Of % Of
Dollar Pretax Dollar Pretax Dollar Pretax
Amount Income Amount Income Amount Income
------------------------------------------------------------------------------------------
Computed "expected"
income tax expense $ 1,813,000 35.0% $ 1,591,000 35.0% $ 1,463,000 35.0%
Effect of graduated tax rate (52,000) (1.0) (45,000) (1.0) (42,000) (1.0)
Tax exempt interest
income, net (269,000) (5.2) (260,000) (5.7) (230,000) (5.5)
State income taxes, net 171,000 3.3 150,000 3.3 137,000 3.3
Other 53,000 1.0 59,000 1.3 (24,000) (0.6)
------------------------------------------------------------------------------------------
$ 1,716,000 33.1% $ 1,495,000 32.9% $ 1,304,000 31.2%
==========================================================================================
Net deferred taxes, included in other assets or other liabilities on the
consolidated balance sheets, consist of the following components as of December
31:
1996 1995
----------------------
Deferred tax assets:
Allowance for loan losses ...................... $ 226,000 $ 174,000
----------------------
Deferred tax liabilities:
Direct lease financing ......................... -- (243,000)
Securities available for sale .................. (49,000) (135,000)
Bank premises and equipment .................... (5,000) (13,000)
Unrealized bond accretion ...................... (22,000) (21,000)
Net deferred loan origination fees ............. (45,000) (12,000)
----------------------
(121,000) (424,000)
----------------------
Net deferred tax assets (liabilities) $ 105,000 (250,000)
======================
The net change in 1996 and 1995 deferred income taxes includes $86,000 and
$272,000, respectively, which is reflected in stockholders' equity.
Note 10. Commitments and Contingencies
Financial instruments with off-balance sheet risk: The Banks are parties to
financial instruments with off-balance sheet risk made in the normal course of
business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets.
The Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amounts of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet instruments.
Contract
Amount
-----------
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit ............................. $26,531,000
Standby letters of credit ................................ 1,446,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon and some of the commitments will be sold to other
financial intermediaries if drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's credit worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements and extend
for no more than one year. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
The Banks are undertaking plans for future growth. Installation of a new local
area network computer system as well as other computer hardware and software,
modernized item processing equipment, construction of two branches, and
expansion into supermarket banking has been planned or is currently in process.
The Banks have entered into commitments or have budgeted approximately $2
million for completion of these projects.
Concentration of credit risk: The Banks grant commercial, real estate,
installment, and agricultural loans to customers in the Banks' primary market
area which includes Muscatine and Jefferson Counties in Iowa. The Banks have
diversified loan portfolios, as set forth in Note 3. The Banks' policies for
requiring collateral are consistent with prudent lending practices and
anticipate the potential for economic fluctuations. Collateral varies but may
include accounts receivable, inventory, property and equipment, residential real
estate properties and income producing commercial properties. It is the Banks'
policies to file financing statements and mortgages covering collateral pledged.
Contingencies: In the normal course of business, the Banks are involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the Company's
financial statements.
Note 11. Related Party Matters
Senior officers and directors of the Company and the Banks, principal holders of
equity securities of the Company and their associates were indebted to the Banks
for loans made in the ordinary course of business. As of December 31, 1996, none
of these loans are classified as nonaccrual, past due, restricted or considered
potential problems.
The activity in such loans during the years ended December 31 are as follows:
1996 1995
----------------------------
Balance, beginning ........... $ 6,973,000 $ 6,256,000
Additions ................. 10,091,000 7,521,000
Deductions (payments) ..... (9,980,000) (6,804,000)
----------------------------
Balance, ending .............. $ 7,084,000 $ 6,973,000
============================
Note 12. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments in the table below:
Cash and due from banks: The carrying amounts reported in the balance sheets for
cash and due from banks approximate their fair values.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Federal funds sold and other overnight investments: The carrying amounts
reported in the balance sheets for federal funds sold and other overnight
investments approximate their fair value.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (i.e., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans (i.e., commercial real estate and rental
property mortgage loans, commercial and industrial loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality.
Deposit liabilities: The fair values disclosed for demand deposits (i.e.,
interest and noninterest checking, passbook savings, and certain types of money
market accounts ) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities of time deposits.
Securities sold under agreements to repurchase and treasury tax and loan open
note: For such short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Federal Home Loan Bank advances: The fair value is estimated using discounted
cash flow analysis, employing interest rates currently being quoted by the
Federal Home Loan Bank.
Commitments to extend credit and standby letters of credit: The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at
the reporting date. As of December 31, 1996 and 1995, these items are immaterial
in nature.
The carrying amounts and fair values of financial instruments at December 31,
1996 and 1995 are summarized as follows:
Carrying Amounts Fair Values
---------------------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------------------
Financial Assets:
Cash and due from banks .................... $ 14,914,000 $ 10,963,000 $ 14,914,000 $ 10,963,000
Investment securities ...................... 67,622,000 60,728,000 67,622,000 60,728,000
Federal funds sold ......................... 7,263,000 24,700,000 7,263,000 24,700,000
Loans receivable ........................... 186,241,000 171,651,000 184,874,000 171,724,000
Less allowance for loan losses ............. 2,803,000 2,309,000 2,803,000 2,309,000
Loans, net of allowance .................... 183,438,000 169,342,000 182,071,000 169,415,000
Financial Liabilities:
Deposits ................................... $238,352,000 $235,953,000 $235,688,000 $233,519,000
Securities sold under
agreements to repurchase ................ 5,453,000 6,814,000 5,453,000 6,814,000
Federal Home Loan Bank
advances ................................ 7,473,000 3,398,000 7,501,000 3,418,000
Treasury tax and loan open
note .................................... 1,944,000 1,525,000 1,944,000 1,525,000
Note 13. Parent Company Only Condensed Financial Information
The following is condensed financial information of Iowa First Bancshares Corp.
(parent company only):
===============================================================================
BALANCE SHEETS
(Parent Company Only)
December 31,
------------------------
1996 1995
------------------------
ASSETS
Cash ...................................................... $ 2,096,000 $ 1,287,000
Investment in subsidiaries ................................ 23,874,000 22,405,000
Other assets .............................................. 44,000 23,000
------------------------
Total assets ................................ $26,014,000 $23,715,000
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES, other liabilities ........................... $ 816,000 $ 682,000
------------------------
STOCKHOLDERS' EQUITY
Common stock ........................................... 200,000 200,000
Additional paid-in capital ............................. 3,872,000 3,800,000
Retained earnings ...................................... 21,621,000 19,326,000
------------------------
25,693,000 23,326,000
Unrealized gains on securities available for sale, net 81,000 229,000
Less net cost of common shares acquired for the treasury 576,000 522,000
------------------------
Total stockholders' equity .................. 25,198,000 23,033,000
------------------------
Total liabilities and stockholders' equity .. $26,014,000 $23,715,000
========================
================================================================================
STATEMENTS OF INCOME
(Parent Company Only)
Year Ended December 31,
--------------------------------------
1996 1995 1994
--------------------------------------
Operating revenue:
Dividends received from subsidiaries ......... $2,000,000 $ 1,750,000 $ 2,250,000
Management fees and other income ............. 305,000 321,000 294,000
--------------------------------------
Total operating revenue ........... 2,305,000 2,071,000 2,544,000
Operating expenses .............................. 613,000 639,000 652,000
--------------------------------------
Income before income tax (credits),
and equity in subsidiaries'
undistributed net income .......... 1,692,000 1,432,000 1,892,000
Applicable income tax (credits) ................. (155,000) (96,000) (156,000)
--------------------------------------
1,847,000 1,528,000 2,048,000
Equity in subsidiaries' undistributed net income 1,618,000 1,522,000 827,000
--------------------------------------
Net income ........................ $3,465,000 $ 3,050,000 $ 2,875,000
=======================================
================================================================================
STATEMENTS OF CASH FLOWS
(Parent Company Only)
Year Ended December 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
CASH FLOWS from OPERATING Activities
Net income .................................... $ 3,465,000 $ 3,050,000 $ 2,875,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in subsidiaries' undistributed net
(income) ................................. (1,618,000) (1,522,000) (827,000)
Amortization and depreciation .............. 10,000 8,000 8,000
Change in assets and liabilities:
Increase (decrease) in other liabilities . 50,000 26,000 167,000
----------------------------------------
Net cash provided by operating
activities ......................... 1,907,000 1,562,000 2,223,000
----------------------------------------
CASH FLOWS (USED IN) INVESTING Activities,
purchases of other assets ..................... (31,000) (3,000) --
----------------------------------------
CASH FLOWS from FINANCING Activities
Principal payments on note payable ............ -- -- (1,300,000)
Cash dividends paid ........................... (1,085,000) (1,072,000) (714,000)
Reissuance of treasury stock .................. 501,000 27,000 336,000
Purchases of common stock for the treasury .... (483,000) (261,000) (32,000)
----------------------------------------
Net cash (used in) financing
activities ......................... (1,067,000) (1,306,000) (1,710,000)
----------------------------------------
Net increase in cash ............... 809,000 253,000 513,000
Cash:
Beginning ..................................... 1,287,000 1,034,000 521,000
----------------------------------------
Ending ........................................ $2,096,000 $ 1,287,000 $ 1,034,000
========================================
SUPPLEMENTAL DISCLOSURES OF CASH Flows Information
Cash payments for:
Interest ................................... $ -- $ -- $ 66,000
Income taxes ............................... (203,000) (118,000) (329,000)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Year
-------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------
Investment securities * .................................................. $ -- $ --
Investment securities held to maturity * ................................. -- --
Investment securities available for sale * ............................... 67,622,000 60,728,000
Loans, net ............................................................... 183,438,000 169,342,000
Total assets ............................................................. 280,461,000 272,830,000
Deposits ................................................................. 238,352,000 235,953,000
Note payable ............................................................. -- --
Other borrowings ......................................................... 14,870,000 11,737,000
Stockholders' equity ..................................................... 25,198,000 23,033,000
Interest income .......................................................... 20,032,000 18,942,000
Interest expense ......................................................... 9,598,000 9,051,000
Net interest income ...................................................... 10,434,000 9,891,000
Provision for loan losses ................................................ 160,000 45,000
Investment securities gains, net ......................................... 4,000 3,000
Other income ............................................................. 1,760,000 1,573,000
Operating expenses ....................................................... 6,857,000 6,877,000
Income before income taxes (credits) and cumulative effect of
a change in accounting principle ...................................... 5,181,000 4,545,000
Income taxes (credits) ................................................... 1,716,000 1,495,000
Income before cumulative effect of a change in
accounting principle .................................................. 3,465,000 3,050,000
Cumulative effect of a change in accounting principle .................... -- --
Net income ............................................................... 3,465,000 3,050,000
Per common share (**):
Income before cumulative effect of a change in accounting
principle:
Primary ............................................................ $ 1.95 $ 1.71
Fully dilutive ..................................................... 1.95 1.70
Cumulative effect of a change in accounting principle ................. -- --
Net income:
Primary ............................................................ 1.95 1.71
Fully dilutive ..................................................... 1.95 1.70
Cash dividends declared ............................................... 0.68 0.53
Cash dividends declared as a percentage of net income ................. 35% 31%
Weighted average common and common equivalent shares ..................... 1,776,680 1,779,021
Weighted average number of shares of common stock and common
stock equivalents outstanding during the year ......................... 1,781,061 1,789,923
<FN>
* Reflects adoption of FASB Statement No. 115 in 1993, see notes to
consolidated financial statements for further explanation. ** All per share
and weighted average common share information has been adjusted to reflect
the three-for-one stock split which occurred in July 1996.
</FN>
Ended December 31,
- --------------------------------------------------
1994 1993 1992
- --------------------------------------------------
$ -- $ -- $ 75,644,000
53,659,000 54,371,000 --
15,791,000 19,522,000 --
162,015,000 154,706,000 139,234,000
253,800,000 257,403,000 251,097,000
229,023,000 233,413,000 227,546,000
-- 1,300,000 3,000,000
2,248,000 -- --
20,672,000 18,748,000 16,279,000
17,155,000 17,200,000 18,271,000
7,452,000 7,681,000 9,286,000
9,703,000 9,519,000 8,985,000
65,000 56,000 278,000
9,000 -- 148,000
1,673,000 1,699,000 1,534,000
7,141,000 7,175,000 6,998,000
4,179,000 3,987,000 3,391,000
1,304,000 1,319,000 1,141,000
2,875,000 2,668,000 2,250,000
-- 300,000 --
2,875,000 2,968,000 2,250,000
$ 1.63 $ 1.56 $ 1.31
1.63 1.56 1.31
-- 0.18 --
1.63 1.74 1.31
1.63 1.74 1.31
0.45 0.38 0.28
28% 22% 22%
1,760,205 1,710,255 1,723,059
1,760,205 1,710,255 1,723,059
Iowa First Bancshares Corp. (Company) is a bank holding company providing bank
and bank related services through its wholly-owned subsidiaries, First National
Bank of Muscatine (Muscatine) and First National Bank in Fairfield (Fairfield).
Total average assets of the Company increased 5.9% in 1996, increased .6% in
1995, and increased 1.2% in 1994. The distribution of average assets,
liabilities and stockholders' equity and interest rates, and interest
differential was as follows (dollar amounts in thousands and income and rates on
a fully taxable equivalent basis using statutory tax rates in effect for the
year presented):
1996
----------------------------
Average
ASSETS Balance Interest Rate
- ---------------------------------------------------------------------------------------------------
Taxable loans, net ................................................ $168,970 $ 14,981 8.87%
Taxable investment securities held to maturity .................... -- -- --
Taxable investment securities available for sale .................. 53,531 3,237 6.05
Nontaxable investment securities and loans ........................ 16,442 1,317 8.01
Federal funds sold and other overnight investments ................ 16,902 945 5.59
--------------------
Total interest-earning assets ..................... 255,845 20,480 8.00
--------
Cash and due from banks ........................................... 11,110
Bank premises and equipment, net .................................. 4,298
Other assets ...................................................... 2,674
--------
Total ............................................. $273,927
========
LIABILITIES
Deposits:
Interest-bearing demand ........................................ $ 91,735 $ 2,803 3.06
Time ........................................................... 110,732 6,177 5.58
Other borrowings ............................................... 11,435 618 5.40
Note payable ................................................... -- -- --
--------------------
Total interest-bearing liabilities ................ 213,902 9,598 4.49
--------
Noninterest-bearing deposits ................................... 34,106
Other liabilities .............................................. 1,960
--------
Total liabilities .............................................. 249,968
STOCKHOLDERS' EQUITY .............................................. 23,959
--------
Total ............................................. $273,927
========
Net interest earnings .......................................... $ 10,882
========
Net yield (net interest earnings divided
by total interest-earning assets) ................. 4.25%
=====
1995 1994
- ---------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------
$162,432 $ 14,322 8.82% $153,547 $ 12,499 8.14%
36,475 2,103 5.77 45,516 2,531 5.56
17,331 1,086 6.27 20,045 1,088 5.43
14,878 1,276 8.58 12,220 1,094 8.95
10,072 589 5.85 7,610 315 4.14
- ------------------- ---------------------
241,188 19,376 8.03 238,938 17,527 7.34
-------- --------
10,336 10,855
4,447 4,677
2,695 2,739
- -------- --------
$258,666 $257,209
======== ========
$ 93,534 $ 2,951 3.16 $101,614 $ 2,741 2.70
104,657 5,776 5.52 100,319 4,523 4.51
5,685 324 5.70 2,829 139 4.91
-- -- -- 723 49 6.78
- ------------------- ---------------------
203,876 9,051 4.44 205,485 7,452 3.63
-------- --------
31,290 30,829
1,664 1,496
- -------- --------
236,830 237,810
21,836 19,399
- -------- --------
$258,666 $257,209
======== ========
$ 10,325 $ 10,075
======== ========
4.28% 4.22%
===== =====
The net interest margin decreased in 1996 (from 4.28% in 1995 to 4.25% in 1996).
The return on average interest-earning assets decreased three basis points (from
8.03% in 1995 to 8.00% in 1996) and interest paid on average interest-bearing
liabilities increased five basis points (from 4.44% in 1995 to 4.49% in 1996).
Average interest earning assets to total average assets increased to 93.4%
during 1996 compared to 93.2% the previous year.
The net interest margin increased in 1995 (from 4.22% in 1994 to 4.28% in 1995).
The return on average interest-earning assets increased 69 basis points (from
7.34% in 1994 to 8.03% in 1995) and interest paid on average interest-bearing
liabilities increased 81 basis points (from 3.63% in 1994 to 4.44% in 1995).
Average interest earning assets to total average assets increased to 93.2%
during 1995 compared to 92.9% the previous year.
FINANCIAL CONDITION:
Investment Securities
Investment securities at December 31, 1996 were approximately 31% U.S. Treasury
securities, 23% U.S. government agency securities, 15% mortgage-backed
securities, 20% states and political subdivisions, and 11% corporate
obligations. The 54% in U.S. Treasury and U.S. government agency securities are
a result of management's emphasis on high credit quality security purchases. The
1996 increase in the portfolio percentage devoted to states and political
subdivisions, mortgage-backed and corporate securities reflects the higher
yields which were available on these types of investments compared to treasuries
and agencies.
Investment securities at December 31, 1995 were 33% U.S. Treasury securities,
28% U.S. government agency securities, 13% mortgage-backed securities, 19%
states and political subdivisions, and 7% corporate obligations.
The amortized cost of investment securities held to maturity and fair value of
investment securities available for sale at the date indicated are summarized as
follows (dollar amounts in thousands):
December 31,
-----------------------------
1996 1995 1994
-----------------------------
Securities held to maturity:
U.S. Treasury ............................... $ -- $ -- $20,190
U.S. government agencies .................... -- -- 13,221
Mortgage-backed securities .................. -- -- 5,941
States and political subdivisions ........... -- -- 9,323
Corporate obligations ....................... -- -- 4,984
-----------------------------
$ -- $ -- $53,659
=============================
Securities available for sale:
U.S. Treasury ............................... $ 21,038 $ 20,257 $11,187
U.S. government agencies .................... 15,872 16,999 4,134
Mortgage-backed securities .................. 9,838 7,541 470
State and political subdivisions ............ 13,527 11,476 --
Corporate obligations ....................... 7,347 4,455 --
------------------------------
$ 67,622 $ 60,728 $ 15,791
==============================
The following table shows the maturities of investment securities available for
sale at December 31, 1996 and the weighted average yields of such securities
(dollar amounts in thousands):
Within One Year
--------------------
Amount Yield
------- -----
Investment securities available for sale:
U.S. Treasury .................................. $ 7,540 5.72%
U.S. government agencies ....................... 4,028 6.64
Mortgage-backed securities ..................... 1,593 5.95
States and political subdivisions .............. 1,265 7.49
Corporate obligations .......................... 4,980 5.60
-------
$19,406
=======
The weighted average yields in the previous tables are calculated on the basis
of the carrying value and effective yields weighted for the scheduled maturity
of each security. Weighted average yields on tax exempt securities have been
computed on a fully taxable equivalent basis using the federal statutory tax
rate of 34%, the rate in effect for the year ended December 31, 1996, and
excluding the interest expense allocated to carry certain tax-exempt securities.
After One, After Five,
But Within Five Years But Within Ten Years After Ten Years
- ---------------------------------------------------------------
Amount Yield Amount Yield Amount Yield
- ---------------------------------------------------------------
$13,498 6.06% $ -- --% $ -- --%
9,269 6.07 1,512 7.01 1,063 6.79
8,245 6.11 -- -- -- --
7,873 7.19 3,976 7.30 413 7.85
2,367 5.92 -- -- -- --
- ------- ------- -------
$41,252 $ 5,488 $ 1,476
======= ======= =======
In 1996, the yield on taxable investment securities increased twelve basis
points due to reinvesting matured, called, and sold securities in investments
yielding more than the taxable investments removed from the balance sheet. The
1996 yield on nontaxable investment securities and loans decreased 57 basis
points largely as a result of normal maturation of relatively high yield
nontaxable loans with reinvestment in obligations of states and political
subdivisions at rates higher than other comparable investment securities but
appreciably lower than the amortizing nontaxable loans.
At December 31, 1994, securities with an amortized cost of $16,160,000 and net
unrealized losses of $369,000 were designated available for sale. During
December 1995, all securities that had previously been classified as held to
maturity were reclassified as available for sale in response to a one-time
opportunity to do so offered by the Financial Accounting Standards Board to all
organizations utilizing FAS 115. This change in classification afforded
management more flexibility in managing the portfolio. At December 31, 1996, no
state or political subdivision securities amortized cost or market value
exceeded 10% of stockholders' equity.
Loans
Loans outstanding (net of unearned discount) at December 31, 1996 increased 8.5%
from December 31, 1995.
The amounts of loans outstanding, net of unearned discount, at the indicated
dates is shown in the following table according to the type of loans (dollar
amounts in thousands):
December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------------------
Commercial ............................... $ 73,681 $ 62,399 $ 55,948 $ 54,994 $ 48,675
Agricultural ............................. 17,555 16,792 15,264 14,139 13,774
Real estate, construction ................ 2,970 1,187 1,192 2,341 2,026
Real estate, mortgage .................... 60,241 56,475 53,447 46,306 46,562
Tax exempt, real estate mortgage ......... 3,485 3,735 4,201 5,013 5,377
Installment, net of unearned discount .... 28,100 30,359 33,496 32,770 24,144
Lease financing, net ..................... -- 369 919 1,718 1,293
Other .................................... 209 335 74 79 117
--------------------------------------------------------------------
$186,241 $171,651 $164,541 $157,360 $141,968
====================================================================
The following loan categories outstanding at December 31, 1996 mature as follows
(dollar amounts in thousands):
After One
Year, But
Within After
Amount One Year Five Five
Of Loans Or Less Years Years
----------------------------------
Commercial ............................... $73,681 $45,705 $20,334 $ 7,642
Agricultural ............................. 17,555 11,864 4,881 810
Real estate, construction ................ 2,970 2,961 9 --
----------------------------------
$94,206 $60,530 $25,224 $ 8,452
==================================
The interest rates on the amount due after one year are fixed or adjustable as
follows (dollar amounts in thousands):
Fixed Adjustable
----------------------
Commercial ....................................... $ 21,650 $ 6,326
Agricultural ..................................... 4,324 1,367
Real estate, construction ........................ 9 --
---------------------
$ 25,983 $ 7,693
=====================
During 1996 commercial loans increased by $11,282,000, construction real estate
loans increased by $1,783,000, mortgage real estate loans increased by
$3,766,000 (after approximately $5,000,000 were sold to the secondary market)
and net installment loans decreased by $2,259,000. Management continues to
search for quality growth in all loan categories. The Company continued to sell
real estate loans to the secondary market during 1996, however during the latter
part of the year management determined a higher return could be generated by
keeping more of the long term fixed rate real estate loans on the Company's
balance sheet. The Company anticipates continuing to sell some of these loans to
the secondary market, but more will likely be retained internally with the
inherent interest rate risk being mitigated with advances from the Federal Home
Loan Bank as well as other funding sources.
We believe that some competitors are extending loans that exceed prudent
loan-to-value ratios and are offering terms, rates, and conditions that are
imprudent this late in the current economic cycle. While we must continue to
effectively compete for loan volume, asset quality remains a priority for the
Company as management believes that strong asset quality is the foundation for
strength in any financial institution and future growth and profitability is
dependent upon the ability to maintain and enhance that quality.
Loan Risk Elements Nonaccrual, Past Due and Restructured Loans
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans comprise (a) loans accounted for on a
nonaccrual basis; (b) accruing loans contractually past due 90 days or more as
to interest or principal payments (but not included in the nonaccrual loans in
(a) above; and (c) other loans whose terms have been renegotiated to provide a
reduction or deferral of interest or principal because of a deterioration in the
financial position of the borrower (exclusive of loans in (a) or (b) above)
(dollar amounts in thousands):
December 31,
-----------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------
Loans accounted for on a
nonaccrual basis .............. $ 855 $ 883 $1,201 $1,705 $1,623
Accrual loans
contractually past due
90 days or more ................ 329 111 191 133 94
Loans whose terms have
been renegotiated to
provide a reduction or
deferral of interest or
principal because of a
deterioration in the
financial position of
the borrower ................... 381 -- -- -- --
Total nonaccrual loans were $855,000 at December 31, 1996, a decrease of $28,000
or 3% from December 31, 1995. Total nonaccrual and accrual loans contractually
past due 90 days or more were $1,184,000 at December 31, 1996, an increase of
$190,000 or 19% from a year earlier. Additionally, loans renegotiated due to a
deterioration in the financial position of the borrower totaled $381,000 at
year-end 1996 compared to no such loans at the end of 1995.
When the full collectibility of principal or interest on any loan is considered
doubtful, previously accrued but uncollected interest remains as accrued if the
principal and interest is protected by sound collateral value based upon a
current independent, qualified appraisal. In practice, in the vast majority of
cases, the interest accrued but uncollected on loans transferred to nonaccrual
status is charged-off at the time of transfer. Interest income in the amount of
$66,000 would have been earned on the nonaccrual loans had they been performing
loans in accordance with their original terms during 1996. The interest
collected on loans designated as nonaccrual loans and included in income for the
years ended December 31, 1996 and 1995 was $19,000 and $26,000, respectively.
As of December 31, 1996, the Company had loans totaling $7,711,000 in addition
to those listed as nonaccrual, past due or renegotiated that were identified by
the Banks' internal asset rating systems as classified assets. This represents a
$3,037,000 or 65% increase from 1995. A significant portion of this increase is
due to two specific customers. Subsequent to year-end, events have occurred
which lead management to believe that these loans will be favorably resolved.
The Company is not aware of any single loan or group of loans, other than these
and those reflected above, of which full collectibility cannot reasonably be
expected. Management has committed resources and is focusing its attention on
efforts designed to control the amount of classified assets. The Company has
$17,555,000 in total agricultural loans outstanding. The Company does not have
any other substantial portion of its loans concentrated in one or a few
industries nor does it have any foreign loans outstanding as of December 31,
1996. The Company's loans are heavily concentrated geographically in the Iowa
counties of Muscatine and Jefferson.
In general, the agricultural loan portfolio risk is dependent on factors such as
governmental policies, weather conditions, agricultural commodities prices and
the mix of grain and livestock raised. Commercial loan risk can also vary widely
from period to period and is particularly sensitive to changing business and
economic conditions as well as governmental policies. Consumer loan risk is
substantially influenced by employment opportunities in the markets served by
the Company.
Other real estate owned was none, $106,000, and $187,000 at December 31, 1996,
1995, and 1994, respectively.
Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings in the
form of provisions for loan losses. Loan losses or recoveries are charged or
credited directly to the allowance for loan losses. The provision for loan
losses is determined based upon an evaluation of a number of factors by
management of the Banks including (i) loss experience in relation to outstanding
loans and the existing level of the allowance for loan losses, (ii) a continuing
review of problem loans and overall portfolio quality, (iii) regular
examinations and appraisals of loan portfolios conducted by federal supervisory
authorities, and (iv) current and expected economic conditions. In 1992, the
allowance for loan losses increased $143,000 as provisions for loan losses and
recoveries exceeded charge-offs. The allowance for loan losses decreased
$80,000, $128,000 and $217,000 in 1993, 1994, and 1995, respectively, as net
charge-offs exceeded provisions for loan losses. In 1996, the allowance for loan
losses increased $494,000 as a result of provisions of $160,000 and net
recoveries totaling $334,000. Management of the Banks continues to review the
loan portfolios and believes the allowance for loan losses is adequate to absorb
losses of existing loans which may become uncollectible.
The Banks allocate the allowance for loan losses according to the amount deemed
to be necessary to provide for possible losses being incurred within the
categories of loans set forth in the table below. The amount of such components
of the allowance for loan losses and the ratio of loans in such categories to
total loans outstanding are as follows (dollar amounts in thousands):
1996 1995
-----------------------------------------
Allowance Ratio Allowance Ratio
For Loan To Loans For Loan To Loans
Losses Total Losses Total
-----------------------------------------
Real estate loans:
Mortgage .................... $ 134 32.35% $ 124 32.90%
Construction ................ -- 1.59 -- 0.69
Commercial ..................... 1,837 39.56 1,342 36.35
Agricultural ................... 264 9.43 133 9.78
Installment .................... 568 15.09 710 17.69
Lease financing and other ...... -- 0.11 -- 0.41
Tax exempt, real estate mortgage -- 1.87 -- 2.18
------------------------------------------
$ 2,803 100.00% $ 2,309 100.00%
==========================================
1994 1993 1992
- ----------------------- ----------------------- ----------------------
Allowance Ratio Allowance Ratio Allowance Ratio
For Loan To Loans For Loan To Loans For Loan To Loans
Losses Total Losses Total Losses Total
- ----------------------- ----------------------- ----------------------
$ 141 32.48% $ 161 29.43% $ 259 32.74%
-- 0.72 1.49 1.42
1,714 34.05 1,873 34.95 1,935 34.46
282 9.28 308 8.99 306 10.08
389 20.36 312 20.82 234 16.61
-- 0.56 1.13 0.91
-- 2.55 3.19 3.78
- ------------------------------------------------------------------------
$ 2,526 100.00% $2,654 100.00% $2,734 100.00%
=========================================================================
Deposits
Total average deposits increased 3.1% in 1996, decreased 1.4% in 1995, and
increased 1.3% in 1994 The average deposits are summarized below (dollar amounts
in thousands):
1996 1995 1994
----------------------------------------------------------
Average Average Average
Interest Interest Interest
Expense Expense Expense
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------
Noninterest-bearing
demand ......... $ 34,106 --% $ 31,290 --% $ 30,829 --%
Savings ........... 23,244 2.5 23,501 2.6 24,550 2.4
Interest-bearing
demand ......... 68,491 3.2 70,033 3.3 77,064 2.8
Time .............. 110,732 5.6 104,657 5.5 100,319 4.5
-------- -------- --------
Total deposits .... $236,573 $229,481 $232,762
======== ======== ========
Included in interest-bearing time deposits is certificates of deposit with a
minimum denomination of $100,000 as follows (dollar amounts in thousands):
Year Ended December 31,
-------------------------
1996 1995
------- -------
One to three months ........................ $ 7,409 $10,023
Three to six months ........................ 2,628 3,687
Six to twelve months ...................... 5,970 4,894
Over twelve months ......................... 4,550 3,841
------- -------
$20,557 $22,445
======= =======
RESULTS OF OPERATIONS:
Changes in Fully Diluted Earnings Per Share
The increase in fully diluted earnings per share between 1996 and 1995 amounted
to $.25 The major sources of change are presented in the following table (all
figures have been adjusted to reflect the three-for-one stock split which
occurred in July 1996):
1996 1995
----------------
Net income per share, prior year ..................... $ 1.70 $ 1.63
----------------
Increase (decrease) attributable to:
Net interest income ............................... 0.30 0.11
Provision for loan losses ......................... (0.06) 0.01
Other income ...................................... 0.11 (0.06)
Salaries and employee benefits .................... (0.04) (0.01)
FDIC insurance .................................... 0.15 0.15
Other operating expenses .......................... (0.10) 0.01
Income taxes ...................................... (0.12) (0.11)
Change in average common shares outstanding ....... 0.01 (0.03)
----------------
Net change ............................. 0.25 0.07
----------------
Net income per share, current year ..... $ 1.95 $ 1.70
================
Net Interest Income
The following table sets forth a summary of the changes in interest earned and
paid resulting from changes in volume and rates. Changes attributable to both
rate and volume which cannot be segregated have been allocated to the change due
to volume (dollar amounts in thousands and income on a fully taxable equivalent
basis using statutory rates in effect for year presented):
Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
------------------- --------------------
Average Average Total Average Average Total
Balance Rate Change Balance Rate Change
--------------------------------------------------------------
Interest income:
Taxable loans ............................ $ 575 $ 84 $ 659 $ 718 $ 1,105 $ 1,823
Taxable investment
securities held to
maturity .............................. (2,103) -- (2,103) (505) 77 (428)
Taxable investment
securities available for
sale .................................. 2,269 (118) 2,151 (148) 146 (2)
Nontaxable investment
securities and loans .................. 135 (94) 41 237 (55) 182
Federal funds sold ....................... 400 (44) 356 102 172 274
--------------------------------------------------------------
Total interest
income ........................ $ 1,276 $ (172) $ 1,104 $ 404 $ 1,445 $ 1,849
--------------------------------------------------------------
Interest expense:
Interest-bearing deposits ................ $ 189 $ 64 $ 253 $ (24) $ 1,487 $ 1,463
Other borrowings ......................... 328 (34) 294 140 45 185
Note payable ............................. -- -- -- (49) -- (49)
--------------------------------------------------------------
Total interest
expense ....................... $ 517 $ 30 $ 547 $ 67 $ 1,532 $ 1,599
--------------------------------------------------------------
Change in net
interest earnings ............. $ 759 $ (202) $ 557 $ 337 $ (87) $ 250
==============================================================
Nonaccruing loans are included in the average balance. Loan fees are not
material.
Provision for Loan Losses
The following table summarizes loan balances at the end of each year; changes in
the allowance for loan losses arising from loans charged off and recoveries on
loans previously charged off by loan category; and the provisions for loan
losses which have been charged to operating expense (dollar amounts in
thousands):
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------
Balance of allowance for loan
losses at beginning of year ............... $ 2,309 $ 2,526 $ 2,654 $ 2,734 $ 2,591
-------------------------------------------------------
Loans charged off:
Commercial and agricultural ............... 24 240 189 130 241
Mortgage .................................. 2 27 2 25 22
Installment ............................... 136 171 227 117 129
-------------------------------------------------------
Total loans charged
off ........................... 162 438 418 272 392
-------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial and agricultural ............... 400 120 188 95 240
Mortgage .................................. 49 23 15 22 4
Installment ............................... 47 33 22 19 32
-------------------------------------------------------
Total recoveries ............... 496 176 225 136 276
-------------------------------------------------------
Net loans charged off (recovered) ............ (334) 262 193 136 116
-------------------------------------------------------
Less adjustments ............................. -- -- -- -- 19
-------------------------------------------------------
Provisions for loan losses charged
to operating expense ...................... 160 45 65 56 278
-------------------------------------------------------
Balance at end of year ....................... $ 2,803 $ 2,309 $ 2,526 $ 2,654 $ 2,734
=======================================================
Average taxable loans ........................ $168,970 $162,432 $153,547 $139,292 $132,214
=======================================================
Ratio of net loan charge-offs
(recoveries) to average taxable
loans outstanding ........................ (0.20%) 0.16% 0.13% 0.10% 0.09%
Allowance for loan losses as a
percentage of average taxable
loans outstanding ......................... 1.66 1.42 1.65 1.91 2.07
Coverage of net charge-offs by
year-end allowance for loan
losses .................................... N/A 8.81 13.09 19.51 23.57
Operating Expenses
A continuing objective of the Company's management is to contain overhead costs
while maintaining optimal productivity, efficiency, and quality service.
Operating expenses decreased $20,000 or .3% from 1995 to 1996 after decreasing
$264,000 the previous year. Salaries and employee benefits increased only
$65,000 or 1.6% in 1996. Occupancy and equipment expenses increased only $4,000
or .4%, computer costs increased $34,000 or 10% most of which was due to a
refund of this expense recognized in 1995, FDIC insurance costs dropped a
significant $257,000 or 97% due to reductions in premiums, and legal fees
increased $15,000 or 71.4%. The other operating expense line item increased
$91,000 or 9.9% largely due to management's emphasis on enhanced marketing and
promotion to current and prospective customers. Most expense categories were
also reduced or held to modest increases in 1995 and 1994.
Net Income
The Company's consolidated net income for the three years is as follows (dollar
amounts in thousands):
Year Ended December 31,
---------------------------
1996 1995 1994
---------------------------
Net income ................. $3,465 $3,050 $2,875
===========================
As shown above, net income increased $415,000 or 13.6% in 1996. The net interest
income increased $543,000 or 5.5%, provision for loan losses increased $115,000,
other income rose $188,000 or 11.9%, operating expenses decreased $20,000 or
.3%, and income taxes increased $221,000 or 14.8%.
Net income increased $175,000 or 6.1% in 1995. This increase resulted from
improvement in net interest income of $188,000 or 1.9%, reduction of $20,000 or
30.8% in provisions for loan losses, a reduction in other income totaling
$106,000 or 6.3% despite an increase in trust income of $35,000 or 12.8%, a
decrease of $264,000 or 3.7% in operating expenses, and an increase of $191,000
or 14.6% in income taxes.
Selected Consolidated Ratios
Year Ended December 31,
------------------------
1996 1995 1994
------------------------
Percentage of net income to:
Average stockholders' equity .................. 14.46% 13.97% 14.82%
Average total assets .......................... 1.26 1.18 1.12
Percentage of average stockholders' equity to
average total assets .......................... 8.75 8.44 7.54
Dividends payout ratio .......................... 34.90 30.99 27.61
Interest Rate Sensitivity and Risk Management
The Company manages its balance sheet to minimize the impact of interest rate
movements on its earnings. The term "rate sensitivity" 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.
The following table shows the interest rate sensitivity position at several
repricing intervals (dollar amounts in thousands):
Repricing Maturities at December 31, 1996
----------------------------------------------------------------------
Less Than 3-12 1-5 More Than Noninterest
3 Months Months Years 5 Years Bearing Total
-----------------------------------------------------------------------
Assets:
Loans ............................ $ 62,244 $ 30,136 $ 76,036 $ 16,970 $ 855 $186,241
Investment securities ............ 6,432 13,447 40,313 7,420 10 67,622
Other earning assets ............. 7,263 551 -- -- -- 7,814
Nonearning assets ................ -- -- -- -- 18,784 18,784
-----------------------------------------------------------------------
Total assets .................. $ 75,939 $ 44,134 $116,349 $ 24,390 $ 19,649 $280,461
=======================================================================
Liabilities and
Equity:
Deposits ......................... $ 48,845 $ 88,553 $ 57,510 $ -- $ 43,444 $238,352
Securities sold under agreements
to repurchase and TT & L ...... 6,078 717 602 -- -- 7,397
FHLB advances ................. -- -- 4,400 3,073 -- 7,473
Other liabilities ................ -- -- -- -- 2,041 2,041
Equity ........................... -- -- -- -- 25,198 25,198
-----------------------------------------------------------------------
Total liabilities and equity .. $ 54,923 $ 89,270 $ 62,512 $ 3,073 $ 70,683 $280,461
=======================================================================
Repricing gap ....................... $ 21,016 $(45,136) $ 53,837 $ 21,317 $(51,034) $ --
Cumulative repricing gap ............ 21,016 (24,120) 29,717 51,034 -- --
The data in this table incorporates the contractual repricing characteristics as
well as an estimate of the actual repricing characteristics of the Company's
assets and liabilities. Based on the estimate, twenty percent of the savings and
NOW accounts are reflected in the less than 3 months category, thirty percent in
the 3-12 months category, with the remainder in the 1-5 year category. Also,
twenty-five percent of the money market accounts are reflected in the less than
3 months category with the remainder in the 3-12 months category.
A positive repricing gap for a given period exists when total interest-earning
assets exceed total interest-bearing liabilities and a negative repricing 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 December 31, 1996, using the estimates
discussed above, rate sensitive liabilities exceeded rate sensitive assets
within a one year period by $24,120,000 and, thus, the Company is positioned to
benefit from a fall in interest rates within the next year.
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. Liquidity
also can be gained by the sale of loans or securities, which were previously
designated as available for sale, prior to maturity. 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 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 under
$100,000 at December 31, 1996 were $217,795,000 or 91% of total deposits and 78%
of total liabilities and equity.
Equity has increased in significance as a funding source, increasing $2,165,000
during 1996 to total $25,198,000. Securities sold under agreements to repurchase
and treasury tax and loan open note funding sources totaled $7,397,000. Longer
term Federal Home Loan Bank advances totaled $7,473,000. At year-end total
federal funds sold and securities maturing within one year were $26,623,000 or
9.5% of total assets. Both short-term and long-term liquidity are actively
reviewed and managed.
At December 31, 1996, securities available for sale totaling $67,622,000
included $377,000 of gross unrealized gains and $247,000 of gross unrealized
losses. These securities may be sold in whole or part to increase liquid assets,
reposition the investment portfolio, or for other purposes as defined by
management.
Capital
Stockholders' equity increased $2,165,000 (9.4%) in 1996. Dividends to
stockholders were declared at a rate of $.68, $.53, and $.45 per share during
the years ended December 31, 1996, 1995, and 1994, respectively.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared 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.
Effect of FASB Statements
The Financial Accounting Standards Board has issued Statement No, 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" and Statement No. 127 "Deferral of the Effective Date of Certain
Provisions of Statement No. 125". Statement No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it cotrols and the liabilities it has incurred, derecognizes
fianancial assets when control has been surrendered, and derecognizes
liabilities when extinguished. Statement 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The provisions of Statement No. 125 applicable to
servicing of financial assets are effective for servicing of financial assets
occurring after December 31, 1996. The provisions of Statement 125 applicable to
transfers of financial assets and extinguishment of liabilities are effective
for transfers and extinguishments occurring after December 31, 1997. Management
believes that adoption of this Statement will not have a material effect on the
Company's financial statements.
Quarterly Results of Operations (Unaudited)
In the fourth quarter of 1996, net income was $815,000, compared with $750,000
in the same period of 1995, an increase of 8.7%. The net interest income during
the fourth quarter of 1996 was $2,661,000 compared with $2,539,000 for the
fourth quarter of 1995. The provision for possible loan losses was $60,000 in
the fourth quarter of 1996 versus $15,000 in 1995. Other income totaled $441,000
and $444,000 during the fourth quarter of 1996 and 1995, respectively. Other
operating expenses of $1,839,000 in the last quarter of 1996 compare with
$1,769,000 for the last quarter of 1995. Income tax expense was $388,000 and
$449,000 for the final quarter of 1996 and 1995, respectively. Quarterly results
of operations are as follows (dollar amounts in thousands):
Quarter ended,
----------------------------------
Mar. 31 June 30, Sep. 30 Dec. 31
----------------------------------
1996
-----------------------------------
Total interest income .............. $4,902 $5,133 $4,952 $5,045
Total interest expense ............. 2,429 2,444 2,341 2,384
---------------------------------
Net interest income ................. 2,473 2,689 2,611 2,661
Provision for loan losses ........... 15 25 60 60
Other income ........................ 387 483 453 441
Other expense ....................... 1,671 1,662 1,685 1,839
---------------------------------
Income before income taxes .......... 1,174 1,485 1,319 1,203
Applicable income taxes ............. 382 510 436 388
---------------------------------
Net income .......................... $ 792 $ 975 $ 883 $ 815
=================================
Net income per share ................ $ 0.45 $ 0.55 $ 0.50 $ 0.45
=================================
Quarter ended,
----------------------------------
Mar. 31 June 30, Sep. 30 Dec. 31
----------------------------------
1995
-----------------------------------
Total interest income .............. $4,460 $4,716 $4,780 $4,986
Total interest expense ............. 2,038 2,259 2,307 2,447
---------------------------------
Net interest income ................. 2,422 2,457 2,473 2,539
Provision for loan losses ........... 15 15 -- 15
Other income ........................ 372 364 396 444
Other expense ....................... 1,747 1,744 1,617 1,769
---------------------------------
Income before income taxes .......... 1,032 1,062 1,252 1,199
Applicable income taxes ............. 329 317 400 449
---------------------------------
Net income .......................... $ 703 $ 745 $ 852 $ 750
=================================
Net income per share ................ $ 0.40 $ 0.42 $ 0.47 $ 0.41
=================================
IOWA FIRST BANCSHARES CORP.
DIRECTORS AS OF DECEMBER 31, 1996
George A. Shepley Donald R. Heckman
Chairman of the Board and CEO Investor
Iowa First Bancshares Corp. Factory Manager - Retired
Chairman of the Board H.J. Heinz Co.
First National Bank of Muscatine Dean H. Holst
Chairman of the Board Director
First National Bank in Fairfield Iowa First Bancshares Corp.
Director, President and CEO
Kim K. Bartling First National Bank in Fairfield
Director, Executive Vice President, Chief
Operating Officer and Treasurer D. Scott Ingstad
Iowa First Bancshares Corp. Director and President
Director, Senior Vice President and CFO Iowa First Bancshares Corp.
First National Bank of Muscatine Director, President and CEO
Director First National Bank of Muscatine
First National Bank in Fairfield
Roy J. Carver, Jr. Victor G. McAvoy
Chairman of the Board President
Carver Pump Company Muscatine Community College
Larry L. Emmert Carl J. Spaeth
President President
Hoffmann, Inc. Cabe Corporation
Craig R. Foss Beverly J. White
President Director and Vice President
Foss, Kuiken, and Gookin, P.C. Quality Foundry Co.
OFFICERS AS OF DECEMBER 31, 1996
George A. Shepley Patricia R. Thirtyacre
Chairman of the Board Corporate Secretary
Chief Executive Officer
Teresa A. Carter
D. Scott Ingstad Internal Audit Manager
President
Kim K. Strause
Kim K. Bartling Assistant Auditor
Executive Vice President
Chief Operating Officer
Treasurer
IOWA FIRST BANCSHARES CORP.
Subsidiary Bank Directors as of December 31, 1996
FIRST NATIONAL BANK OF MUSCATINE FIRST NATIONAL BANK IN FAIRFIELD
George A. Shepley George A. Shepley
Chairman of the Board and CEO Chairman of the Board and CEO
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Chairman of the Board Chairman of the Board
First National Bank of Muscatine First National Bank of Muscatine
Chairman of the Board Chairman of the Board
First National Bank in Fairfield First National Bank in Fairfield
D. Scott Ingstad Dean H. Holst
Director and President Director
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Director, President and CEO Director, President and CEO
First National Bank of Muscatine First National Bank in Fairfield
Kim K. Bartling Kim K. Bartling
Director, Executive Vice President, Chief Director, Executive Vice President, Chief
Operating Officer and Treasurer Operating Officer and Treasurer
Iowa First Bancshares Corp. Iowa First Bancshares Corp.
Director, Senior Vice President and CFO Director, Senior Vice President and CFO
First National Bank of Muscatine First National Bank of Muscatine
Director Director
First National Bank in Fairfield First National Bank in Fairfield
Larry L. Emmert Stephen R. Cracker
President Director, Executive Vice President
Hoffmann, Inc. First National Bank in Fairfield
Donald R. Heckman Craig R. Foss
Investor President
Factory Manager - Retired Foss, Kuiken & Gookin PC
H.J. Heinz Co.
Victor G. McAvoy Thomas S. Gamrath
President Vice President & Treasurer
Muscatine Community College Gamrath-Doyle & Associates, Inc.
Carl J. Spaeth Charles A. Handy, DDS
President
Cabe Corporation Donald L. Johnson
Farmer
Beverly J. White
Director and Vice President H. Roy Lamansky
Quality Foundry Co. Jefferson County Board of Supervisors
Marvin L. Nelson
President
The Nelson Company, Inc.