UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______ to _______
Commission file number 2-89283
IOWA FIRST BANCSHARES CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF IOWA 42-1211285
- ------------------------------- -------------------
(State or other jurisdiction (IRS Employer of
incorporation or organization) Identification No.)
300 East Second Street
Muscatine, Iowa 52761
----------------------------------------
(Address of principal executive offices)
319-263-4221
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
At September 30, 1997 there were 1,779,242 shares of the registrant's common
stock outstanding.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE NO.
PART 1 Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets, September 30,
1997 and December 31, 1996
Consolidated Condensed Statements of Operations, Three
and Nine Months Ended September 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows,
Nine months Ended September 30, 1997 and 1996
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Cash and due from banks ....................................... $ 12,303 $ 14,914
Investment securities available for sale (cost September 30, .. 69,222 67,622
1997, $68,752; December 31, 1996, $67,492)
Federal funds sold and securities
purchased under resale agreements .......................... 3,540 7,263
Loans, net of allowance for possible loan
losses September 30, 1997, $2,647;
December 31, 1996, $2,803 .................................. 202,602 183,438
Bank premises and equipment, net .............................. 5,671 4,526
Other assets .................................................. 3,541 2,698
-------- --------
TOTAL ASSETS ............................................... $296,879 $280,461
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits .................................. $ 37,728 $ 43,445
Interest bearing deposits ..................................... 202,067 194,907
-------- --------
TOTAL DEPOSITS ............................................. $239,795 $238,352
Federal funds purchased and securities
sold under agreements to repurchase ........................ 5,567 5,453
Federal Home Loan Bank advances ............................... 20,363 7,473
Treasury tax and loan open note ............................... 1,777 1,944
Other liabilities ............................................. 2,121 2,041
-------- --------
TOTAL LIABILITIES .......................................... $269,623 $255,263
-------- --------
STOCKHOLDERS' EQUITY
Common Stock .................................................. $ 200 $ 200
Surplus ....................................................... 3,911 3,872
Retained earnings ............................................. 23,062 21,621
-------- --------
$ 27,173 $ 25,693
Unrealized gains (losses) on securities available for sale, net 295 81
Less net cost of common shares acquired for the treasury ...... 212 576
-------- --------
TOTAL STOCKHOLDERS' EQUITY ................................. $ 27,256 $ 25,198
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $296,879 $280,461
======== ========
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
INTEREST INCOME:
Interest and fees on loans .................. $ 4,261 $ 3,803 $ 12,250 $ 11,372
Interest on investment securities ........... 1,023 1,015 3,013 2,904
Interest on federal funds sold and securities
purchased under resale agreements ......... 64 134 314 711
-------- -------- -------- --------
Total interest income ....................... $ 5,348 $ 4,952 $ 15,577 $ 14,987
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits ........................ $ 2,291 $ 2,194 $ 6,701 $ 6,772
Interest on repurchase agreements and
other borrowings .......................... 392 147 957 442
-------- -------- -------- --------
Total interest expense ...................... $ 2,683 $ 2,341 $ 7,658 $ 7,214
-------- -------- -------- --------
Net interest income ......................... $ 2,665 $ 2,611 $ 7,919 $ 7,773
Provision for possible loan losses ............. 0 60 4 100
-------- -------- -------- --------
Net interest income after provision for
possible loan losses ...................... $ 2,665 $ 2,551 $ 7,915 $ 7,673
Investment securities gains (losses) ........... 3 4 (1) 4
Other income ................................... 428 449 1,259 1,319
Other expense .................................. 2,020 1,685 5,581 5,018
-------- -------- -------- --------
Income before income taxes .................. $ 1,076 $ 1,319 $ 3,592 $ 3,978
Applicable income taxes ........................ 341 436 1,146 1,328
-------- -------- -------- --------
Net income ..................................... $ 735 $ 883 $ 2,446 $ 2,650
======== ======== ======== ========
Per share data:
Net earnings per common share ................ $ 0.41 $ 0.50 $ 1.36 $ 1.50
======== ======== ======== ========
Dividends declared per common share ............ $ 0.19 $ 0.18 $ 0.57 $ 0.49
======== ======== ======== ========
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 30, 1997 and 1996
(In Thousands)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................. $ 2,446 $ 2,650
Adjustments to reconcile net income to net
cash provided by operating activities:
Proceeds from FHLMC ..................................... 498 4,678
Loans underwritten for FHLMC ............................. (494) (4,673)
Gains on loans sold to FHLMC ............................. (4) (5)
Provision for loan losses ................................ 4 100
Investment securities (gains) losses, net ................ 1 (4)
Depreciation ............................................. 347 282
Amortization of premiums and accretion of discounts
on loans and investment securities, net ................ 120 158
(Increase) in other assets ................................ (843) (600)
(Decrease) increase in other liabilities .................. 324 (525)
-------- --------
Net cash provided by operating activities ................... $ 2,399 $ 2,061
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold ....................... $ 3,723 $ 16,200
Proceeds from maturities of investment securities ........ 10,495 12,635
Proceeds from sales of investment securities ............. 6,426 1,505
Purchases of investment securities ....................... (18,640) (22,337)
Net (increase) in loans .................................. (19,168) (6,653)
Purchases of bank premises and equipment ................. (1,492) (220)
-------- --------
Net cash (used in) investing activities .................. $(18,656) $ 1,130
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing deposits .. $ (5,717) $ 2,371
Net increase (decrease) in interest bearing deposits ..... 7,160 (2,032)
Net increase (decrease) in securities sold under
agreements to repurchase ............................... 114 (1,023)
Net increase in other borrowings ......................... 12,723 1,683
Cash dividends paid ...................................... (998) (778)
Reissuance of treasury stock ............................. 525 256
Purchases of common stock for the treasury ............... (161) (396)
-------- --------
Net cash provided by financing activities ................ $ 13,646 $ 81
-------- --------
Net increase in cash and due from banks .................. (2,611) 3,272
Cash and due from banks:
Beginning ................................................ $ 14,914 $ 10,963
-------- --------
Ending ................................................... $ 12,303 $ 14,235
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest ............................................ $ 7,595 $ 7,303
Income taxes ........................................ $ 811 $ 1,310
See Notes to Consolidated Condensed Financial Statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
Iowa First Bancshares Corp. is a bank holding company providing bank and bank
related services through its subsidiaries.
Significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, First National Bank of
Muscatine (Muscatine) and First National Bank in Fairfield (Fairfield),
collectively referred to herein as (Banks). All material intercompany
accounts and transactions have been eliminated in consolidation. The
unaudited interim financial statements presented reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim periods. All such adjustments are of a normal
recurring nature.
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, securities sold under agreements to repurchase, Federal
Home Loan Bank advances, TT&L open note, certificates of deposits, and loans
are reported net.
Investment securities:
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 tax effect.
Realized gains or 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 September 30, 1997.
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 credit reviews 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
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
market value of the properties. Any write-down to fair market 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 market 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 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 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.
Fair value of financial instruments:
FAS No. 107, Disclosures about Fair Market 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. Interim condensed financial statements are not
required to include the disclosures outlined by FAS 107 and, accordingly, are
not included herein.
Note 2. Capital Stock and Earnings Per Share
Common shares and preferred stock authorized total 6,000,000 shares and 500,000
shares, respectively. 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 weighted average number
of shares of common stock and common stock equivalents outstanding for the third
quarter and year-to-date through September 30, 1997 was 1,796,000 and 1,796,330,
respectively. Fully diluted earnings per share are not shown as the dilutive
effect of common stock equivalents was less than three percent.
Note 3. Pending Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement #128, "Earnings Per Share." This Statement simplifies the computation
of earnings per share and makes the computation more consistent with those of
International Accounting Standards. The Statement is effective for periods
ending after December15, 1997. The Company does not expect the adoption of this
new standard to significantly impact previously reported earnings per share or
earnings per share trends.
In June 1997, the FASB issued Statement #130, "Reporting Comprehensive Income,"
and Statement #131, "Disclosures About Segments of an Enterprise and Related
Information." Statement #130 establishes standards for reporting comprehensive
income in financial statements. Statement #131 expands certain reporting and
disclosure requirements for segments from current standards. The Statements are
effective for fiscal years beginning after December 15, 1997 and the Company
does not expect the adoption of these new standards to result in material
changes to previously reported amounts or disclosures.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion and Analysis of Financial Condition
The Company's total assets at September 30, 1997, were $296,879,000. Muscatine's
total assets were $208,955,000 which reflects an $15,417,000 (8.0%) increase
from December 31, 1996, total assets. Fairfield's total assets were $85,139,000
at September 30, 1997, which is an increase of $1,043,000 (1.2%) when compared
to December 31, 1996, total assets. Total consolidated assets increased
$16,418,000 (5.9%) during the first nine months of 1997.
Net loans totaled $202,602,000 at September 30, 1997. Net loans at Muscatine
increased by $19,425,000 (15.4%) during the first nine months. Net loans
decreased at Fairfield by $261,000 (0.5%) during the first nine months.
Consolidated net loans increased by $19,164,000 (10.4%) year-to-date with
approximately $11 million of the increase occurring during the third quarter.
Total available for sale securities increased $1.6 million during the first nine
months of 1997 and federal funds sold decreased $3.7 million. The Banks continue
to emphasize purchase of securities with maturities of five years and less as
such purchases offer reasonable yields with very little credit risk as well as
limited interest rate risk. Additionally, selected securities with longer
maturities have been purchased in order to enhance overall portfolio yield
without significantly increasing risk. At September 30, 1997, less than 20% of
investment securities mature in more than five years and less than 5% mature in
more than ten years. Securities totaling $6.4 million have been sold during the
year, generating net losses of $1,000.
Total deposits at September 30, 1997, were $239,795,000. Deposits at Muscatine
increased 1.5% from the prior year end. Fairfield's total deposits decreased
approximately 1.4% during the same period. This represents a combined deposit
increase of $1.4 million (.6%) for the Company during the first nine months of
1997. Additionally, securities sold under agreements to repurchase totaled $5.6
million. Intermediate and long term advances borrowed from the Federal Home Loan
Bank totaled $20.4 million at quarter end, a $12.9 million increase from
year-end 1996.
Results of Operations
Consolidated net income was $735,000, or $.41 per share, for the third quarter
of 1997, compared to $883,000 and $.50 per share for the same period last year.
Contributing to the net income reduction were expenses, after income tax
effects, of approximately $100,000 related to a problem loan which management
believes will be partially or wholly recovered in a future year.
Net income for the nine months ended September 30, 1997 was $2,446,000 compared
to $2,650,000 in 1996, a 7.7% decrease. The net income for 1996 included
$150,000 of nonrecurring income primarily from recovery of interest on two loans
which had been on nonaccrual of interest status for quite some time. These loans
were paid off and our position in certain leases were sold during the second
quarter of 1996 resulting in the aforementioned $150,000 additional income.
Excluding this $150,000 of income and including the $100,000 discussed above,
1997 earnings to date were $46,000 or two percent higher than 1996.
The Company has been able to expand the dollars of net interest margin, as
compared to the prior year-to-date figures by actively managing asset quality,
growth of the loan portfolio, and rates paid on assets and liabilities.
Management has expressed concern for several quarters, however, as to the
ability to continue increasing the net interest margin each successive quarter.
The increased usage of wholesale funding sources, while mitigating intermediate
and long-term interest rate risk, increases interest expense. As a result,
margins are put under pressure with the goal of increasing volume sufficiently
to more than offset the margin reduction, thus, improving earnings over time.
Provisions for loan losses were $4,000 for the nine months ended September 30,
1997, which is $96,000 less than the same period in 1996. Net loan charge-offs
totaled $161,000 compared to net recoveries of $328,000 for the first nine
months of 1996.
Nonaccrual loans rose during the past twelve months totaling $1,241,000 at
September 30, 1997; $339,000 more than at September 30, 1996. Other real estate
owned totaled only $24,000, and loans past due 90 days or more and still
accruing totaled $427,000. The reserve for loan losses of $2,647,000 represents
1.3% of net loans and 156% of total nonaccrual loans, other real estate owned,
and loans past due 90 days or more and still accruing.
The efficiency ratio, defined as noninterest expense as a percent of net
interest income plus noninterest income, was 60.8% for the first nine months of
1997 compared to 56.2% for all of 1996. This increase is due in large measure to
the following expenditures thus far in 1997: opening a new full-service branch
in Fairfield, Iowa; opening a full-service branch inside a new Wal-Mart
Superstore in Muscatine, Iowa; upgrading computer hardware, software, networks
and training; and opening a new branch facility with drive-through service in
downtown Muscatine, Iowa. These costs were incurred to maintain and enhance the
competitiveness of the organizations service and product delivery system now as
well as in the future. However, such decisions increase overhead expenses in the
near term which results in a less favorable efficiency ratio.
Interest Rate Sensitivity
The Company manages its balance sheet to minimize the impact of interest rate
movements on its earnings. The term "rate sensitive" refers to those assets and
liabilities which are "sensitive" to fluctuations in rates and yields. When
interest rates move, earnings may be affected in many ways. Interest rates on
assets and liabilities may change at different times or by different amounts.
Maintaining a proper balance between rate sensitive earning assets and rate
sensitive liabilities is the principal function of asset and liability
management of a banking organization. The following table shows the interest
rate sensitivity position at several repricing intervals (dollar amounts in
thousands):
Repricing Maturities at September 30, 1997
-----------------------------------------------------------
Less Than 1-5 More Than Noninterest
One Year Years 5 Years Bearing Total
--------- --------- --------- ----------- ---------
Assets:
Loans ...................................... $ 83,555 $ 82,620 $ 37,833 $ 1,241 $ 205,249
Investment securities ...................... 19,067 33,156 16,989 10 69,222
Other earning assets ....................... 3,540 -- -- -- 3,540
Nonearning assets .......................... -- -- -- 18,868 18,868
--------- --------- --------- --------- ---------
Total assets ............................ $ 106,162 $ 115,776 $ 54,822 $ 20,119 $ 296,879
========= ========= ========= ========= =========
Liabilities and Equity:
Deposits .................................. $ 151,632 $ 50,436 $ -- $ 37,728 $ 239,795
Other purchased funds ..................... 7,344 8,863 11,500 -- 27,707
Other liabilities ......................... -- -- -- 2,121 2
Equity ....................................... -- -- -- 27,256 27,256
--------- --------- --------- --------- ---------
Total liabilities and equity ........... $ 158,976 $ 59,299 $ 11,500 $ 67,105 $ 296,879
========= ========= ========= ========= =========
Repricing gap ................................ $ (52,814) $ 56,478 $ 43,322 $ (46,986) $ --
========= ========= ========= ========= =========
Cumulative repricing gap ..................... $ (52,814) $ 3,664 $ 46,986 $ -- $ --
========= ========= ========= ========= =========
The data in this table incorporates the contractual characteristics as well as
an estimate of the actual repricing characteristics of the Company's assets and
liabilities. Based on the estimate, fifty percent of the savings and NOW
accounts are reflected in the less than one year category, with the remaining
50% in the 1-5 year time frame. Money market accounts are estimated as 100% in
the less than one year category.
A positive repricing gap for a given period exists when total interest-earning
assets exceed total interest-bearing liabilities and a negative gap exists when
total interest-bearing liabilities are in excess of interest-earning assets.
Generally a positive repricing gap will result in increased net interest income
in a rising rate environment and decreased net interest income in a falling rate
environment. A negative repricing gap tends to produce increased net interest
income in a falling rate environment and decreased net interest income in a
rising rate environment. At September 30, 1997, rate sensitive liabilities
exceeded rate sensitive assets within a one year maturity range by $52.8 million
and, thus, the Company is positioned to benefit from a decline 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.
Additionally, liquidity can be gained by the sale of loans or securities prior
to maturity if such assets had previously been designated as available for sale.
Interest rates, relative to the rate paid by the security or loan sold, along
with the maturity of the security or loan, are the major determinates of the
price which can be realized upon sale.
The subsidiary banks do not have brokered deposits.
The stability of the Company's funding, and thus its ability to manage
liquidity, is greatly enhanced by its consumer deposit base. Consumer deposits
tend to be small in size, diversified across a large base of individuals, and
are government insured to the extent permitted by law. Total deposits at
September 30, 1997, were $239,795,000 or 81% of total liabilities and equity.
Securities available for sale with a cost totaling $68,752,000 at quarter-end
included net unrealized gains of $470,000. These securities may be sold in whole
or in part to increase liquid assets, reposition the investment portfolio, or
for other purposes as defined by Management.
Capital
Stockholders' equity increased $2,058,000 during the nine months ended September
30, 1997.
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a more consistent system for
comparing capital positions of financial institutions and to take into account
the different inherent risks among financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a Financial Institution to maintain capital at higher levels.
A comparison of the Company's capital as of September 30, 1997 with the minimum
requirements is presented below.
Minimum
Actual Requirements
------ ------------
Tier 1 risk-based capital 12.75% 4.00%
Total risk-based capital 14.00% 8.00%
Tier 1 leverage ratio 9.09% 3.00%
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Company's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Trends, Events or Uncertainties
Officers and Directors of the Company and its subsidiaries have had, and may
have in the future, banking transactions in the ordinary course of business of
the Company's subsidiaries. All such transactions are on substantially the same
terms, including interest rates on loans and collateral, as those prevailing at
the time for comparable transactions with others, involve no more than normal
risk of collectibility, and present no other unfavorable features.
At its meeting on June 15, 1989, the Company's Board of Directors authorized a
stock repurchase program, to repurchase up to 10 percent of the Company's
shares. Through September 30, 1997, approximately 21,000 shares of common stock
had been purchased under the program, net of sales to the Company's Employee
Stock Ownership Plan and shares issued pursuant to the Company's stock option
plan. The Company expects to continue repurchase of its common stock from time
to time under the repurchase program. It is anticipated, however, that all
treasury stock purchased to date will have been used for the above described
purposes by year end 1997.
In the normal course of business, the Banks are involved in various legal
proceedings. In the current opinion of management, any liability resulting from
such proceedings would not have a material effect on the Company's financial
statements.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K.
Reports on Form 8-K. No Form 8-K has been filed for
the quarter ended September 30, 1997.
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IOWA FIRST BANCSHARES CORP.
(Registrant)
November 10, 1997 /s/ George A. Shepley
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Date George A. Shepley, Chairman of
the Board and Chief Executive Officer
November 10, 1997 /s/ Kim K. Bartling
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Date Kim K. Bartling, Executive Vice
President, Chief Operating
Officer & Treasurer