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, 2004
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)
563-263-4221
-------------------------------
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
At September 30, 2004 there were 1,381,188 shares of the registrant's common
stock outstanding.
1
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, 2004 and December 31, 2003 1
Consolidated Condensed Statements of
Income, Three and Nine months Ended
September 30, 2004 and 2003 2
Consolidated Condensed Statements of
Cash Flows, Nine months Ended
September 30, 2004 and 2003 3
Notes to Consolidated Condensed
Financial Statements 4-5
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 6-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Item 4. Controls and Procedures 17
PART II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 19
2
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, December 31,
2004 2003
---------------------------
ASSETS
Cash and due from banks ................................ $ 15,376 $ 12,988
Interest-bearing deposits at financial institutions .... 8,413 6,948
Federal funds sold ..................................... 22,907 31,414
Investment securities available for sale ............... 31,204 37,157
Loans, net of allowance for loan losses September 30,
2004, $3,370; December 31, 2003, $3,180 .............. 275,326 266,925
Bank premises and equipment, net ....................... 6,951 6,764
Accrued interest receivable ............................ 2,310 2,231
Life insurance contracts ............................... 4,378 4,254
Restricted investment securities ....................... 2,688 3,028
Other assets ........................................... 751 705
------------------------
TOTAL ASSETS ................................... $ 370,304 $ 372,414
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits ........................... $ 50,025 $ 47,549
Interest bearing deposits .............................. 233,198 230,027
------------------------
TOTAL DEPOSITS ................................. 283,223 277,576
Note payable ........................................... 2,100 2,700
Securities sold under agreements to repurchase ......... 6,865 4,912
Federal Home Loan Bank advances ........................ 42,958 52,071
Treasury tax and loan open note ........................ 82 556
Junior subordinated debentures ......................... 4,125 4,125
Dividends payable ...................................... 335 343
Other liabilities ...................................... 1,845 1,723
------------------------
TOTAL LIABILITIES .............................. 341,533 344,006
------------------------
Redeemable common stock held by employee stock
ownership plan with 401(k) provisions (KSOP) ........... 3,171 2,971
------------------------
STOCKHOLDERS' EQUITY
Common stock ........................................... 200 200
Additional paid-in capital ............................. 4,251 4,251
Retained earnings ...................................... 37,839 36,071
Accumulated other comprehensive income ................. 494 788
Less net cost of common shares acquired for the treasury (14,013) (12,902)
Less maximum cash obligation related to KSOP shares .... (3,171) (2,971)
------------------------
TOTAL STOCKHOLDERS' EQUITY ..................... 25,600 25,437
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 370,304 $ 372,414
========================
See notes to Consolidated Condensed Financial Statements.
3
Iowa First Bancshares Corp. and Subsidiaries
Consolidated Condensed Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine months Ended
September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
-------------------------------------
INTEREST AND DIVIDEND INCOME:
Loans, including fees:
Taxable ................................... $ 4,127 $ 4,267 $12,260 $13,184
Nontaxable ................................ 59 33 154 92
Investment securities available for sale:
Taxable ................................... 141 236 517 739
Nontaxable ................................ 163 180 500 556
Federal funds sold .......................... 63 91 220 349
Restricted investment securities ............ 18 28 45 89
Other ....................................... 60 34 158 85
-------------------------------------
Total interest and dividend income .... 4,631 4,869 13,854 15,094
-------------------------------------
INTEREST EXPENSE:
Deposits .................................... 963 1,128 2,898 3,614
Note payable ................................ 24 27 69 127
Other borrowed funds ........................ 580 798 1,876 2,604
Junior subordinated debentures .............. 106 106 319 319
-------------------------------------
Total interest expense ................ 1,673 2,059 5,162 6,664
-------------------------------------
Net interest income ................... 2,958 2,810 8,692 8,430
Provision for loan losses ..................... 120 65 380 525
-------------------------------------
Net interest income after provision for
loan losses ........................... 2,838 2,745 8,312 7,905
-------------------------------------
Other income:
Trust department ............................ 95 98 282 288
Service fees ................................ 535 467 1,449 1,230
Investment securities gains, net ............ 12 -- 45 22
Gains on loans sold ......................... 23 180 137 325
Corporate owned life insurance income ....... 43 53 132 161
Other ....................................... 87 40 286 224
-------------------------------------
Total other income .................... 795 838 2,331 2,250
-------------------------------------
Operating expenses:
Salaries and employee benefits .............. 1,325 1,260 3,875 3,744
Occupancy expenses, net ..................... 195 180 569 522
Equipment expenses .......................... 155 136 475 468
Office supplies, printing, and postage ...... 79 86 237 278
Computer costs .............................. 126 131 386 396
Advertising and business promotion .......... 41 45 121 124
Other operating expenses .................... 318 364 952 1,050
-------------------------------------
Total operating expenses .............. 2,239 2,202 6,615 6,582
-------------------------------------
Income before income taxes ............ 1,394 1,381 4,028 3,573
Income taxes .................................. 424 441 1,247 1,072
-------------------------------------
Net income .................................... $ 970 $ 940 $ 2,781 $ 2,501
=====================================
Net income per common share, basic and diluted $ .70 $ .66 $ 1.99 $ 1.76
=====================================
Dividends declared per common share ........... $ .24 $ .24 $ .73 $ .71
=====================================
Comprehensive income .......................... $ 1,188 $ 641 $ 2,487 $ 2,278
=====================================
See notes to Consolidated Condensed Financial Statements.
4
Iowa First Bancshares Corp. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
For The Nine months Ended September 30, 2004 and 2003
(In Thousands)
(Unaudited)
2004 2003
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 2,781 $ 2,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from loans sold .......................................... 7,649 22,980
Loans underwritten ................................................ (7,512) (22,714)
Gains on loans sold ............................................... (137) (325)
Provision for loan losses ......................................... 380 525
Investment securities gains, net .................................. (45) (22)
Depreciation ...................................................... 427 384
Amortization of premiums and accretion of discounts
on investment securities available for sale, net ................ 153 130
Net (increase) decrease in accrued interest receivable ............ (79) 245
Net decrease in other assets ...................................... 44 304
Net increase in other liabilities ................................. 297 305
--------------------
Net cash provided by operating activities ................... 3,958 4,313
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits at financial institutions (1,465) (4,680)
Net (increase) decrease in federal funds sold ..................... 8,507 (11,240)
Proceeds from sales of available for sale securities .............. 2,548 516
Proceeds from maturities, calls and paydowns of available for sale 14,276 6,483
securities
Purchases of available for sale securities ........................ (11,448) (6,458)
Net (increase) decrease in loans .................................. (8,871) 10,849
Purchases of bank premises and equipment .......................... (614) (1,745)
Purchases of life insurance contracts ............................. -- (100)
Increase in cash value of life insurance contracts ................ (124) (151)
Proceeds from sales of restricted investment securities ........... 340 704
--------------------
Net cash provided by (used in) investing activities ........ 3,149 (5,822)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits ...................... 2,476 743
Net increase in interest-bearing deposits ......................... 3,171 11,399
Net increase (decrease) in securities sold under agreements to .... 1,953 (874)
repurchase
Repayment of note payable ......................................... (600) (3,922)
Proceeds from note payable ........................................ -- 3,322
Net decrease in treasury tax and loan open note ................... (474) (403)
Advances from Federal Home Loan Bank .............................. -- 9,550
Payments of advances from Federal Home Loan Bank .................. (9,113) (17,866)
Cash dividends paid ............................................... (1,021) (1,003)
Purchases of common stock for the treasury ........................ (1,111) (235)
--------------------
Net cash provided by (used in) financing activities ......... (4,719) 711
--------------------
Net increase (decrease) in cash and due from banks .......... 2,388 (798)
Beginning cash and due from banks ................................... 12,988 17,283
--------------------
Ending cash and due from banks ...................................... $ 15,376 $ 16,485
=====================
Supplemental Disclosures of Cash Flow Information, cash payments for:
Interest .......................................................... $ 5,116 $ 6,668
Income taxes ...................................................... 1,156 983
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in accumulated other comprehensive income, unrealized
gains (losses) on investment securities available for sale, net . (294) (223)
(Increase) in maximum cash obligations related to KSOP shares ..... (200) (94)
Transfers of loans to other real estate owned ..................... 90 123
See Notes to Consolidated Condenced Financial Statements.
5
IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
Iowa First Bancshares Corp. (the "Company") is a bank holding company
headquartered in Muscatine, Iowa. The Company owns the outstanding stock of two
national banks, First National Bank of Muscatine (Muscatine) and First National
Bank in Fairfield (Fairfield). First National Bank of Muscatine has a total of
five locations in Muscatine, Iowa. First National Bank in Fairfield has two
locations in Fairfield, Iowa. Each bank is engaged in the general commercial
banking business and provides full service banking to individuals and
businesses, including checking, savings, money market and time 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. Some of these other services include
sweep accounts, lock-box deposits, debit cards, credit-related insurance,
internet banking, automated teller machines, telephone banking and investment
services through a third-party arrangement. The Company also owns the
outstanding stock of Iowa First Capital Trust I, which was capitalized in March
2001 for the purpose of issuing Company Obligated Mandatorily Redeemable
Preferred Securities.
Basis of Presentation:
The consolidated financial statements include the accounts of the Company and
all wholly-owned subsidiaries, except Iowa First Capital Trust I, which under
current accounting rules, no longer meets the criteria for consolidation. The
consolidated financial statements are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 2003
Annual Report on Form 10-K. The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and conform to predominant practices within the banking
industry. Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare the consolidated
financial statements. In the opinion of management, all adjustments and normal
recurring accruals considered necessary for a fair presentation of the results
of operations for the interim periods presented herein have been included.
Operating results for the three and nine months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004.
Reclassifications:
Certain amounts in the prior year financial statements have been reclassified,
with no effect on net income or stockholders' equity, to conform to current year
presentations.
Note 2. Capital Stock and Earnings Per Share
Common shares and preferred stock authorized total 6,000,000 shares and 500,000
shares, respectively. Basic earnings per share is arrived at by dividing net
income by the weighted average number of shares of common stock outstanding for
the respective period. Diluted earnings per share is arrived at by dividing net
income by the weighted average number of common stock and common stock
equivalents outstanding for the respective period. The average number of shares
of common stock outstanding for the three and nine months ended September 30,
2004 were 1,384,640 and 1,399,040, respectively. The average number of shares of
common stock outstanding for the three and nine months ended September 30, 2003
were 1,417,345 and 1,421,258, respectively. There were no common stock
equivalents in 2004 or 2003.
Note 3. Commitments and Contingencies
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.
6
Financial instruments whose contract amounts represent credit risk:
September 30, December 31,
2004 2003
-------------------------------
Commitments to extend credit ............. $60,342,000 $43,843,000
Standby letters of credit ................ 2,139,000 2,336,000
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 creditworthiness on a case-by-case basis. The increase of nearly
$16.5 million in commitments to extend credit from December 31, 2003 to
September 30, 2004, is primarily attributable to a small number of borrowers
who, like the other borrowers included in the commitments to extend credit, meet
the standards of creditworthiness established by management.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements and,
generally, have terms of one year, or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Banks hold collateral, which may include accounts
receivable, inventory, property, equipment, and income-producing properties,
supporting those commitments if deemed necessary. In the event the customer does
not perform in accordance with the terms of the agreement with the third party,
the Banks would be required to fund the commitment. The maximum potential amount
of future payments the Banks could be required to make is represented by the
contractual amount shown in the summary above. If the commitment is funded, the
Banks would be entitled to seek recovery from the customer. At September 30,
2004 and December 31, 2003 no amounts have been recorded as liabilities for the
Banks' potential obligations under these guarantees.
The Company also executes contracts for the sale of mortgage loans in the
secondary market. None of these contracts were executed as of September 30, 2004
and December 31, 2003, respectively. These amounts, if any, representing loans
held for sale, are included in loans at the respective balance sheet dates.
Results of Operations:
Quarter ended September 30, 2004 compared with quarter ended September 30, 2003:
The Company recorded net income of $970,000 for the quarter ended September 30,
2004, compared with net income of $940,000 for the quarter ended September 30,
2003, an increase of $30,000 or 3.2%. This increase in net income primarily
resulted from higher net interest income during the third quarter of 2004
compared to the third quarter of 2003.
Basic and diluted earnings per share were $.70 for the three months ended
September 30, 2004, $.04 or 6.1% more than the same period in 2003. The
Company's annualized return on average assets for the third quarter of 2004 was
1.05% compared to .98% during the third quarter of the prior year. The Company's
annualized return on average equity for the three months ended September 30,
2004 and September 30, 2003 was 15.1% and 14.9%, respectively.
7
The distribution of average assets, liabilities and stockholders' equity and
interest rates, as well as interest differential was as follows (dollar amounts
in thousands and income and rates on fully taxable equivalent basis using
statutory tax rates in effect for the year presented):
Three Months Ended Three Months Ended
September 30, 2004 September 30, 2003
-------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------
Assets
Taxable loans, net .................................. $271,686 $ 4,127 6.08% $263,024 $ 4,267 6.49%
Taxable investment securities available for sale .... 18,111 141 3.11 21,582 236 4.37
Nontaxable investment securities and loans .......... 19,425 336 6.93 18,556 323 6.96
Federal funds sold .................................. 18,451 63 1.37 40,833 91 0.89
Restricted investment securities .................... 2,751 18 2.62 3,313 28 3.38
Interest-bearing deposits at financial
institutions ...................................... 8,614 60 2.79 6,318 34 2.15
-------------------- -------------------
Total interest-earning assets ............... 339,038 4,745 5.60 353,626 4,979 5.63
-------- ---------
Cash and due from banks ............................. 14,757 14,322
Bank premises and equipment, net .................... 6,811 6,641
Life insurance contracts ............................ 4,360 4,151
Other assets ........................................ 2,827 3,478
-------- --------
Total ....................................... $367,793 $382,218
======== ========
Liabilities
Deposits:
Interest-bearing demand ........................... $121,063 $ 206 0.68% $121,652 $ 199 0.65%
Time .............................................. 107,736 757 2.79 113,914 929 3.23
Note payable ........................................ 2,724 24 3.41 3,293 27 3.25
Other borrowings .................................... 51,799 580 4.44 63,998 798 4.95
Junior subordinated debentures ...................... 4,125 106 10.32 4,125 106 10.32
-------------------- -------------------
Total interest-bearing liabilities .......... 287,447 1,673 2.31 306,982 2,059 2.66
-------- --------
Noninterest-bearing deposits ........................ 49,417 45,289
Other liabilities ................................... 2,389 2,007
-------- --------
Total liabilities ........................... 339,253 354,278
Redeemable common stock held by KSOP ................ 3,057 2,868
Stockholders' Equity ................................ 25,483 25,072
-------- --------
Total ....................................... $367,793 $382,218
======== ========
Net interest earnings ............................... $ 3,072 $ 2,920
======== ========
Net Interest Margin (net interest earnings divided
by total interest-earning assets) ................... 3.59% 3.30%
====== ======
Nonaccruing loans are included in the average balance. Loan fees are not
material.
The net interest margin increased to 3.59% during the third quarter of 2004
compared to 3.30% during the third quarter of 2003. The return on average
interest-earning assets decreased a modest 3 basis points (from 5.63% in 2003 to
5.60% in 2004) and interest paid on average interest-bearing liabilities
decreased 35 basis points (from 2.66% in 2003 to 2.31% in 2004).
The Federal Reserve Bank Board and Chairman Greenspan during all of 2003 and
through June 30, 2004, continued to manage short-term interest rates at, or
near, lows not seen in decades. The prime lending rate began 2003 at 4.25% and
ended the year at 4.00%. In a reversal of accommodative monetary policy, the
Federal Reserve Bank started to raise short-term interest rates during the third
quarter 2004. Consequently, the prime lending rate was raised 25 basis points
three times during the third quarter of 2004 and stood at 4.75% at September 30,
2004. During this period of historically low interest rates, the Company has
emphasized the utilization of interest rate floors on selected commercial and
agricultural loans. During the first three quarters of 2004 and the entire year
of 2003 most, if not all, of such loans subject to interest rate floors were
actually paying the floor rate. This, coupled with a change in the mix of the
loan portfolio, resulted in the rates received on taxable loans during the third
quarter of 2004, versus the third quarter of 2003, declining approximately the
same amount as the rates paid on interest-bearing liabilities (41 basis points
compared to 35 basis points, respectively). As market interest rates rise, rates
paid on interest-bearing liabilities may, for a time, increase more than rates
received on taxable loans. This outcome is possible due to the loans which are
subject to floor rate pricing lagging market interest rate increases until such
time as the floor rate has been exceeded. The extent of this impact will depend
on the amount and timing of future market interest rate hikes.
8
Rates received on taxable investment securities available for sale have
decreased during the third quarter of 2004, compared to the third quarter of
2003, at a significantly faster pace than the rates paid on interest-bearing
liabilities (decreases of 126 basis points and 35 basis points, respectively).
This is largely due to maturities and early calls of taxable investment
securities coupled with reinvestment at appreciably lower interest rates. This
portfolio, however, with an average maturity of less than four years, had an
interest rate return during the quarter similar to that of like-term treasury
securities.
Rates received during the quarter ended September 30, 2004, versus the third
quarter of 2003, on nontaxable investment securities available for sale and
loans decreased at a much slower pace than the rates paid on interest-bearing
liabilities (decreases of 3 basis points and 35 basis points, respectively).
This was due largely to a longer average duration for nontaxable investment
securities available for sale and loans than the average duration for
interest-bearing liabilities. Most of the nontaxable investment securities
available for sale were purchased when market interest rates were higher than
rates currently available. In the current interest rate environment, when
taxable and nontaxable investment securities mature or are sold, called, or
otherwise paid down, the reinvestment rate available is nearly always lower than
the yield of the liquidating security.
The rate received on overnight federal funds sold to other banks increased 48
basis points during the third quarter of 2004, compared to the same quarter of
2003. This increase is primarily attributable to the monetary policy shift of
the Federal Reserve Bank which has caused overnight federal funds rates to rise.
For the quarter ended September 30, 2004, average federal funds sold to total
average assets had been reduced to 5.0% from 10.7% during the same quarter in
2003. These federal funds sold can be used to fund future loan demand, deposit
or other liability outflows, investment securities purchases, or various other
purposes as identified by management.
The rate earned on interest-bearing deposits at financial institutions
(primarily FDIC insured certificates of deposit) increased 64 basis points
during the third quarter of 2004 versus the same quarter of 2003, while the
average balance increased approximately $2,300,000. This asset category was
emphasized as it yielded 142 basis points over federal funds sold with little,
if any, credit risk. The average duration of interest-bearing deposits at
financial institutions was less than two years during the quarter ended
September 30, 2004.
During this period of low market interest rates, the rates paid on
interest-bearing demand deposits rose 3 basis points and the rates on time
deposits were reduced 44 basis points when comparing the third quarters of 2004
and 2003.
The rate paid on the note payable outstanding increased 16 basis points during
the third quarter of 2004 compared to the same quarter of 2003. This was the
result of three increases during the quarter in the prime lending rate to which
the note payable rate is tied.
The usage of wholesale funding sources (primarily Federal Home Loan Bank
advances), while mitigating intermediate and long-term interest rate risk,
tended to represent a relatively higher cost of funds than deposits and note
payable for the Company. The Company's average rate paid for such Federal Home
Loan Bank advances and other funds was reduced by 51 basis points when comparing
the third quarters of 2004 and 2003. Management has noticeably reduced reliance
on wholesale funding sources as evidenced by the average balance in this
category declining over $12 million during the third quarter of 2004 compared to
the third quarter of 2003.
Intense competition for all types of loans and deposits tends to limit the
Company's ability to control pricing and other terms when dealing with
customers. Despite these limitations, the Company was able to increase the
overall net interest margin to 3.59% during the three months ended September 30,
2004, compared to 3.30% for the same period last year.
Provisions for loan losses were $120,000 and $65,000 for the three months ended
September 30, 2004 and September 30, 2003, respectively. Net loan charge-offs
for the quarter ended September 30, 2004 totaled $24,000 compared to net
charge-offs of $37,000 for the same quarter in 2003.
9
The allowance for possible loan losses is maintained at the level considered
adequate by management of the Banks to provide for probable losses in the
existing loan portfolio. 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, the composition of the loan portfolio, historical loan loss
experience, review of specific problem loans, the estimated net realizable value
or the fair value of the underlying collateral, and other factors. There can be
no assurance that loan losses will not exceed the estimated amounts or that the
company will not be required to make additional provisions for loan losses in
the future. Asset quality is a constant priority for the Company and its
subsidiary banks. Should the economic climate deteriorate, borrowers may
experience difficulty, and the level of non-performing, charge-offs, and
delinquencies could rise thus requiring further increases in the provision.
Nonaccrual loans totaled $1,853,000 at September 30, 2004, a decrease of
$270,000 or 12.7% from December 31, 2003. There was a total of $77,000 other
real estate owned at September 30, 2004 compared to none at December 31, 2003.
Loans past due 90 days or more and still accruing totaled $138,000, which was
$77,000 or 35.8% less than at year-end 2003. The allowance for possible loan
losses of $3,370,000 at September 30, 2004, represented 1.2% of gross loans and
163% of total nonaccrual loans, other real estate owned, and loans past due 90
days or more and still accruing.
Other income results from the charges and fees collected by the Company from its
customers for various services performed, gross trust department revenue,
miscellaneous other income, gains (or losses) from the sale of investment
securities in the available for sale category and loans, as well as income from
corporate owned life insurance. Total other income for the third quarter of 2004
was $795,000; $43,000 or 5.1% less than the third quarter of 2003. Service fees,
particularly on deposit accounts, were the largest single area of growth in the
other income category, exhibiting an increase of $68,000 or 14.6%. Due to a
significant reduction in loan refinancings, gains on loans sold declined
$157,000 or 87.2%. Income on corporate owned life insurance declined $10,000 or
18.9% due to lower overall market interest rates impacting the rates earned on
the insurance policies owned. Finally, miscellaneous other income rose $47,000
or 117.5%. The majority of this increase in the third quarter of 2004 compared
to the same quarter in 2003 resulted from non-recurring revenue.
Operating expenses include all the costs incurred to operate the Company except
for interest expense, the loan loss provision and income taxes. For the quarter
ended September 30, 2004, salaries and employee benefits expense increased
$65,000 or 5.2% due to normal raises, incentives and the rising cost of
benefits. Occupancy and equipment expenses increased $34,000 or 10.8% as
depreciation and maintenance costs have risen. All other operating expenses
decreased $62,000 or 9.9% due in large measure to management's focus on control
of these expenses. Total operating expenses increased a very slight $37,000 or
1.7% during the third quarter of 2004 versus the same quarter last year.
Income tax expense for the quarter ended September 30, 2004 of $424,000
represented 30.4% of income before taxes. For the comparable quarter last year
income tax expense was 31.9% of income before tax.
The efficiency ratio, defined as noninterest expense, excluding the provision
for loan losses, as a percent of net interest income plus noninterest income,
was 59.7% and 60.4% for the three months ended September 30, 2004 and 2003,
respectively. The primary reasons for this improvement in the efficiency ratio
are discussed previously in this report.
Results of Operations:
Nine months ended September 30, 2004 compared with nine months ended September
30, 2003
The Company recorded net income of $2,781,000 for the nine months ended
September 30, 2004, compared with net income of $2,501,000 for the three
quarters ended September 30, 2003, an increase of $280,000 or 11.2%. This
increase in net income resulted from higher net interest income, higher
noninterest income, lower provision for loan losses, and tightly controlled
noninterest expenses during the first three quarters of 2004 compared to the
same period during 2003.
Basic and diluted earnings per share were $1.99 for the nine months ended
September 30, 2004, $.23 or 13.1% more than the same period in 2003. The
Company's annualized return on average assets for the first three quarters of
2004 and 2003 was .99% and .86%, respectively. The Company's annualized return
on average equity for the nine months ended September 30, 2004 and September 30,
2003 was 14.6% and 13.4%, respectively.
10
The distribution of average assets, liabilities and stockholders' equity and
interest rates, as well as interest differential was as follows (dollar amounts
in thousands and income and rates on fully taxable equivalent basis using
statutory tax rates in effect for the year presented):
Nine months Ended Nine months Ended
September 30, 2004 September 30, 2003
------------------------------- -----------------------------
Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------
Assets
Taxable loans, net ............................. $267,378 $ 12,260 6.11% $267,332 $ 13,184 6.58%
Taxable investment securities available for sale 19,262 517 3.58 21,605 739 4.56
Nontaxable investment securities and loans ..... 19,154 991 6.90 18,685 982 7.01
Federal funds sold ............................. 29,787 220 0.98 45,059 349 1.03
Restricted investment securities ............... 2,883 45 2.08 3,740 89 3.17
Interest-bearing deposits at financial
institutions ................................. 8,218 158 2.56 5,106 85 2.22
-------------------- -------------------
Total interest-earning assets .......... 346,682 14,191 5.46 361,527 15,428 5.69
-------- --------
Cash and due from banks ........................ 14,739 14,127
Bank premises and equipment, net ............... 6,766 6,302
Life insurance contracts ....................... 4,321 4,054
Other assets ................................... 2,921 3,705
-------- --------
Total .................................. $375,429 $389,715
======== ========
Liabilities
Deposits:
Interest-bearing demand ...................... $127,155 $ 575 0.60% $124,788 $ 741 0.79%
Time ......................................... 108,928 2,323 2.85 115,075 2,873 3.34
Note payable ................................... 2,728 69 3.31 3,298 127 5.08
Other borrowings ............................... 54,372 1,876 4.61 68,525 2,604 5.08
Junior subordinated debentures ................. 4,125 319 10.32 4,125 319 10.32
-------------------- -------------------
Total interest-bearing liabilities ..... 297,308 5,162 2.32 315,811 6,664 2.82
-------- --------
Noninterest-bearing deposits ................... 47,440 44,250
Other liabilities .............................. 2,128 1,984
-------- --------
Total liabilities ...................... 346,876 362,045
Redeemable common stock held by KSOP ........... 3,074 2,767
Stockholders' Equity ........................... 25,479 24,903
-------- --------
Total .................................. $375,429 $389,715
======== ========
Net interest earnings .......................... $ 9,029 $ 8,764
======== ========
Net Interest Margin (net interest earnings
divided by total interest-earning assets) .... 3.48% 3.23%
====== ======
Nonaccruing loans are included in the average balance. Loan fees are not
material.
The net interest margin increased to 3.48% during the first three quarters of
2004 compared to 3.23% during the first three quarters of 2003. The return on
average interest-earning assets decreased 23 basis points (from 5.69% in 2003 to
5.46% in 2004) and interest paid on average interest-bearing liabilities
decreased 50 basis points (from 2.82% in 2003 to 2.32% in 2004).
Rates received during the first three quarters of 2004, compared to the same
quarters in 2003, on taxable loans decreased slightly less than rates paid on
interest-bearing liabilities (decreases of 47 basis points and 50 basis points,
respectively).
Rates received on taxable investment securities available for sale decreased
during the first nine months of 2004, compared to the same period in 2003, at a
faster pace than the rates paid on interest-bearing liabilities (decreases of 98
basis points and 50 basis points, respectively). This is largely due to
maturities and early calls of taxable investment securities coupled with
reinvestment at appreciably lower interest rates. This portfolio, however, with
an average maturity of less than four years, had an interest rate return during
the first nine months comparable to the interest return earned on five year
treasury securities.
11
Rates received during the first three quarters of 2004, versus the first three
quarters of 2003, on nontaxable investment securities available for sale and
loans decreased at a much slower pace than the rates paid on interest-bearing
liabilities (decreases of 11 basis points and 50 basis points, respectively).
This was due largely to a longer average duration for nontaxable investment
securities available for sale and loans than the average duration for
interest-bearing liabilities. Most of the nontaxable investment securities
available for sale were purchased when market interest rates were higher than
rates currently available. In the current interest rate environment, when
taxable and nontaxable investment securities mature or are sold, called, or
otherwise paid down, the reinvestment rate available is nearly always lower than
the yield of the liquidating security.
The rate received on overnight federal funds sold to other banks decreased a
modest 5 basis points during the first nine months of 2004, compared to the same
period in 2003. For the first three quarters of 2004, average federal funds sold
to total average assets were reduced to 7.9% compared to 11.6% for the same
period in 2003. These federal funds sold can be used to fund future loan demand,
deposit or other liability outflows, investment securities purchases, or various
other purposes as identified by management.
The rate earned on interest-bearing deposits at financial institutions
(primarily FDIC insured certificates of deposit) increased 34 basis points
during the first nine months of 2004 versus the first nine months of 2003, while
the average balance increased over $3,100,000. This asset category was
emphasized as it yielded 158 basis points over federal funds sold with little,
if any, credit risk. The average duration of interest-bearing deposits at
financial institutions was less than two years during the nine months ended
September 30, 2004.
During this period of low market interest rates, the rates paid on
interest-bearing demand and time deposits were reduced 19 basis points and 49
basis points, respectively, when comparing the first three quarters of 2004 and
2003.
The rate paid on the note payable outstanding declined 177 basis points during
the first nine months of 2004 compared to the same period in 2003. This was the
result of refinancing this debt with a different lender at far more favorable
terms. The impact of this refinancing was reflected during the entire first
three quarters of 2004 compared to only a portion of the same period last year.
The usage of wholesale funding sources (primarily Federal Home Loan Bank
advances), while mitigating intermediate and long-term interest rate risk,
tended to represent a relatively higher cost of funds than deposits and note
payable for the Company. The Company's average rate paid for such Federal Home
Loan Bank advances and other funds was reduced by 47 basis points when comparing
the first three quarters of 2004 and 2003. Management has noticeably reduced
reliance on wholesale funding sources as evidenced by the average balance in
this category declining over $14 million during the first three quarters of 2004
compared with 2003.
Intense competition for all types of loans and deposits tends to limit the
Company's ability to control pricing and other terms when dealing with
customers. Despite these limitations, the Company was able to increase the
overall net interest margin to 3.48% during the nine months ended September 30,
2004, compared to 3.23% for the same period last year.
Provisions for loan losses were $380,000 for the nine months ended September 30,
2004, compared to $525,000 for the nine months ended September 30, 2003. Net
loan charge-offs for the three quarters ended September 30, 2004 totaled
$190,000 compared to net charge-offs of $446,000 for the same quarters in 2003.
The loan losses in 2003 were primarily attributable to two agricultural loans at
our Fairfield subsidiary bank.
Other income results from the charges and fees collected by the Company from its
customers for various services performed, gross trust department revenue,
miscellaneous other income, gains (or losses) from the sale of investment
securities in the available for sale category and loans, as well as income from
corporate owned life insurance. Total other income for the first nine months of
2004 was $2,331,000; $81,000 or 3.6% more than the first nine months of 2003.
Service fees, particularly on deposit accounts, were the largest single area of
growth in the other income category, exhibiting an increase of $219,000 or
17.8%. Due to a significant reduction in loan refinancings, gains on loans sold
declined $188,000 or 57.8%. Income on corporate owned life insurance declined
$29,000 or 18.0% due to lower overall market interest rates impacting the rates
earned on the insurance policies owned. Finally, miscellaneous other income rose
$62,000 or 27.7%. The majority of this increase in the first nine months of 2004
compared to the same period in 2003 resulted from non-recurring revenue.
12
Operating expenses include all the costs incurred to operate the Company except
for interest expense, the loan loss provision and income taxes. For the three
quarters ended September 30, 2004, salaries and employee benefits expense
increased $131,000 or 3.5% due to normal raises, incentives and the rising cost
of benefits. Occupancy and equipment expenses increased $54,000 or 5.5% as
depreciation and maintenance costs have risen. All other operating expenses
decreased $152,000 or 8.2% due in large measure to managements' focus on control
of these expenses and final settlement of a non-recurring liability at an amount
approximately $20,000 more advantageous to the Company than previously
anticipated and accrued for. Total operating expenses increased a very slight
$33,000 or 0.5% during the first three quarters of 2004 versus the same quarters
last year.
Income tax expense for the first nine months of 2004 was 31.0% of income before
tax. For the comparable period last year income tax expense was 30.0% of income
before tax.
The efficiency ratio, defined as noninterest expense, excluding the provision
for loan losses, as a percent of net interest income plus noninterest income,
was 60.0% and 61.6% for the nine months ended September 30, 2004 and 2003,
respectively. The primary reasons for this improvement in the efficiency ratio
are discussed previously in this report.
Discussion and Analysis of Financial Condition
The Company's assets at September 30, 2004 totaled $370,304,000, a decrease of
$2,110,000 or 0.6% from December 31, 2003. As of September 30, 2004, the Company
had $22,907,000 of federal funds sold compared to $31,414,000 at December 31,
2003. Additionally, interest-bearing deposits at financial institutions
(primarily fully FDIC insured certificates of deposit) as well as some
interest-bearing demand accounts at various banking institutions totaled
$8,413,000 versus $6,948,000 at December 31, 2003. This increase was primarily
the result of higher yields available on such certificates of deposit than could
be obtained in the federal funds and treasury securities markets. Federal funds
sold and other liquid assets have been higher the past several quarters than the
Company would historically consider normal. These liquid assets may be used to
fund future loan growth, deposit or other liability outflows, purchases of
investment securities available for sale when interest rates again rise, or
various other purposes as identified by management.
Total available for sale securities decreased $5,953,000 or 16.0% during the
first nine months of 2004 to total $31,204,000 at September 30, 2004. The Banks
emphasize purchase of securities with maturities of five years and less as such
purchases typically offer reasonable yields with limited credit risk as well as
limited interest rate risk. Additionally, selected securities with longer
maturities are owned in order to enhance overall portfolio yield without
significantly increasing risk. In the low interest rate environment which
continued during the first three quarters of 2004, the banks limited their
purchases of securities to less than the total of securities that were sold,
matured, called, or paid down. Furthermore, most of the securities that were
purchased had relatively short maturities or likely early call dates. Securities
sold thus far in 2004 totaled $2,548,000 and resulted in net gains recognized of
$45,000.
Net loans totaled $275,326,000 at September 30, 2004, an increase of $8,401,000
or 3.1% from December 31, 2003. Competition for high-quality loans remains
intense in all loan categories. Refinancing of home loans continued, albeit at a
substantially slower pace than during the first three quarters of 2003. The
Company sells many of these loans in the secondary market. Consequently, the
loans which are sold, as well as the loans remaining in the Company's portfolio
but refinanced at lower rates, combine to put downward pressure on loan yields
and the volume of home loans on the balance sheet.
Total deposits at September 30, 2004, were $283,223,000, an increase of
$5,647,000 or 2.0% from the balance at December 31, 2003. Certificates of
deposit represented on average for the nine months ended September 30, 2004,
approximately 38% of total deposits. Interest-bearing demand deposits, comprised
of savings, money market and NOW accounts, represented another 45% of average
deposits. The final 17% of average deposits were in noninterest-bearing
accounts. Securities sold under agreements to repurchase increased $1,953,000 to
$6,865,000, and advances borrowed from the Federal Home Loan Bank declined by
$9,113,000 from year-end 2003, totaling $42,958,000 at quarter end.
The note payable balance of $2,100,000 at September 30, 2004, was $600,000 lower
than December 31, 2003, as the Company made the scheduled annual principal
payment of $600,000 at the end of the third quarter of 2004. This note was
refinanced during the third quarter of 2003. The new variable rate revolving
five-year term note is priced at Prime less one percent, with a floor of 3.25%
and a ceiling of 5.25%, considerably lower than the prior fixed rate of over
7.35%.
13
Interest Rate Sensitivity
The Company manages its balance sheet to minimize the impact of interest rate
movements on its earnings. The term "rate sensitive" refers to those assets and
liabilities which are "sensitive" to fluctuations in rates and yields. When
interest rates move, earnings may be affected in many ways. Interest rates on
assets and liabilities may change at different times or by different amounts.
Maintaining a proper balance between rate sensitive earning assets and rate
sensitive liabilities is the principal function of asset and liability
management of a banking organization.
A positive repricing gap for a given period exists when total interest-earning
assets exceed total interest-bearing liabilities and a negative gap exists when
total interest-bearing liabilities are in excess of interest-earning assets.
Generally a positive repricing gap will result in increased net interest income
in a rising rate environment and decreased net interest income in a falling rate
environment. A negative repricing gap tends to produce increased net interest
income in a falling rate environment and decreased net interest income in a
rising rate environment. At September 30, 2004, rate sensitive liabilities
exceeded rate sensitive assets within a one year maturity range and, thus, the
Company is theoretically positioned to benefit from a decline in interest rates
within the next year.
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, interest-bearing deposits at financial institutions, 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 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, 2004, were $283,223,000 or 76.5% of total liabilities and equity.
Federal funds sold overnight totaled $22,907,000 or 6.2% of September 30, 2004
total assets. These federal funds sold may be used to fund loans as well as
deposit withdrawals, or for other purposes as defined by management.
Securities available for sale with a fair value totaling $31,204,000 at
quarter-end included net unrealized gains of $788,000. 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 $354,000 (1.4%) and $163,000 (0.6%) during the
three and nine months ended September 30, 2004, respectively. The year-to-date
increase included net income of $2,781,000, decrease of $294,000 in accumulated
other comprehensive income, $1,012,000 of dividends declared to shareholders,
$1,112,000 of treasury share purchases and $200,000 increase in the maximum
obligation related to KSOP shares.
14
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a consistent system for
comparing capital positions of financial institutions and to take into account
the different inherent risks among financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.
A comparison of the Company's capital as of September 30, 2004 with the
requirements to be considered adequately capitalized is presented below.
For Capital
Actual Adequacy Purposes
----------------------------
Total capital to risk-weighted assets ........... 12.9% 8.00%
Tier 1 capital to risk-weighted assets .......... 11.7% 4.00%
Tier 1 capital to average assets ................ 8.7% 4.00%
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Company's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Trends, Events or Uncertainties
Officers and Directors of the Company and its subsidiaries have had, and may
have in the future, banking transactions in the ordinary course of business of
the Company's subsidiaries. All such transactions are on substantially the same
terms, including interest rates on loans and collateral, as those prevailing at
the time for comparable transactions with others, involve no more than normal
risk of collectibility, and present no other unfavorable features.
In the normal course of business, the Banks are involved in various legal
proceedings. In the current opinion of management, any liability resulting from
such proceedings would not have a material effect on the Company's financial
statements.
The Company began construction during the second quarter of 2004 of a new branch
facility on the west side of Muscatine, Iowa. This branch is scheduled to be
completed before year-end 2004. The branch is anticipated to offer a wide array
of banking services and is located in a section of Muscatine in which the
Company has no current banking facilities. The total cost of this branch,
including the underlying real estate and equipment, is anticipated to be
approximately $900,000.
The Company has in the past purchased, and is authorized under an existing stock
repurchase plan to buy in the future, shares of its outstanding common stock for
the treasury as they become available. Pursuant to the stock repurchase plan
approved by the Board of Directors, 6,591 shares were purchased by the Company
during the third quarter of 2004 and 36,372 shares were purchased during the
first three quarters of 2004. See Part II, Item 2 of this Form 10-Q for further
detail regarding purchases of equity securities for the treasury.
15
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
With the exception of the historical information contained in this report, the
matters described herein contain certain forward-looking statements with respect
to the Company's financial condition, results of operations and business. These
forward-looking statements are subject to certain risks and uncertainties, not
all of which can be predicted or anticipated. Factors that may cause actual
results to differ materially from those contemplated by the forward-looking
statements herein include market conditions as well as conditions affecting the
banking industry generally and factors having a specific impact on the Company,
including but not limited to fluctuations in interest rates and in the economy;
the impact of laws and regulations applicable to the Company and changes
therein; the impact of accounting pronouncements applicable to the Company and
changes therein; competitive conditions in the markets in which the Company
operates, including competition from banking and non-banking companies with
substantially greater resources; the Company's ability to control the
composition of its loan portfolio without adversely affecting interest income;
the Company's dependence on third party suppliers; and the Company's ability to
respond to changes in technology. Readers of this Form 10-Q should therefore not
place undue reliance on forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in the quantitative and qualitative market risks
since the prior year-end. Such risks were described in the Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2003.
Item 4. Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer (Chairman of the Board, President and CEO) and principal
financial officer (Executive Vice President, Chief Operating Officer &
Treasurer), of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")). Based on this evaluation, the principal executive officer and
principal financial officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. There was no change in
the Company's internal control over financial reporting during the Company's
most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
16
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has no legal proceedings which are deemed material.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
During the quarter ended September 30, 2004, the Company purchased its own
common stock, detailed as follows:
Total
Number of Maximum
Shares Number of
Purchased Shares That
Total as Part of May Yet Be
Number of Average Publicly Purchased
Shares Price Paid Announced Under The
Period Purchased Per Share Plan (1) Plan (1)
- --------------------------------------------------------------------------------------------
July 1 - July 31, 2004 ............ 1,775 $31.00 1,775 28,397
August 1 - August 31, 2004 ......... 4,816 $32.25 4,816 23,581
September 1 - September 30, 2004 ... -- N/A N/A 23,581
(1) In May 2002, the Company's board of directors approved a stock repurchase
plan of up to 75,000 shares, or approximately 5.2% of the then outstanding
shares. The Company's board of directors in June 2004 increased this stock
repurchase plan by authorizing the purchase of an additional 10,000 shares.
This stock repurchase plan has no stated expiration date and is the
Company's only current, publicly-announced stock repurchase plan. The
Company anticipates future purchases under this stock repurchase plan.
The above table is required for any equity securities of the Company which have
been registered by the Company pursuant to section 12 of the Securities Exchange
Act of 1934. The Company has only filed a registration statement with the SEC
under the Securities Act of 1933 and, therefore, its equity securities are only
registered under section 15(d) of the Exchange Act. Thus, while the above table
is not required, it has been provided in the interest of high-quality
disclosure.
Item 3. Defaults Upon Senior Securities
There have been no defaults upon senior securities by the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the current
quarter.
Item 5. Other Information
There has been no new information not previously disclosed requiring disclosure
under this item.
Item 6. Exhibits
(a) Exhibits
Exhibit 31.1 - Certification pursuant to Rule 13a-15(e) and
15d-15(e)
Exhibit 31.2 - Certification pursuant to Rule 13a-15(e) and
15d-15(e)
Exhibit 32.1 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
17
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 15, 2004 /s/ D. Scott Ingstad
- ----------------- -------------------------------
Date D. Scott Ingstad, Chairman of
the Board, President and CEO
November 15, 2004 /s/ Kim K. Bartling
- ----------------- -------------------------------
Date Kim K. Bartling, Executive Vice
President, Chief Operating
Officer & Treasurer
18