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To Our Shareholders:
We are pleased to
report your company, Iowa First Bancshares
Corp., had record earnings for the year
ended December 31, 2004. Total 2004 net
income of $3,703,000 represented an
increase over the prior year of $483,000
or 15.0%. This increase in net income was
positively impacted by higher net interest
income, a lower provision for loan losses,
higher noninterest income, and tightly
controlled non-payroll operating expenses
during the twelve months ended December
31, 2004 compared to the same period
during 2003.
The year 2004 was one for
the record books at Iowa First Bancshares
Corp. Included in new all-time records set
or matched were:
• net income
• earnings per share
• net interest income
• total noninterest income
• trust department income
• dividends paid per share
• stock price
• year-end loans outstanding
Basic and diluted earnings
per share totaled $2.66 for the year ended
December 31, 2004, which was $.39 or 17.2%
more than the same period in 2003. The
Company's return on average assets for
2004 was .99% compared to .83% the prior
year. Furthermore, the Company's return on
average equity for the twelve months ended
December 31, 2004 and December 31, 2003
was 14.5% and 12.9%, respectively.
Net interest income
increased $515,000 or 4.6% in 2004
compared to 2003. In general, this
improvement was achieved by various
management strategies utilized to maintain
and grow the volume of profitable loans
and other short to medium term assets
while reducing the Company's usage of
relatively lower yielding short term
assets (primarily federal funds sold).
Additionally, deposit pricing was closely
monitored to remain competitive without
sacrificing the net interest margin by
paying overly aggressive deposit rates.
Noninterest-bearing deposits as a
percentage of total deposits also expanded
during 2004, further assisting growth in
the net interest margin and net interest
income. Moreover, reliance on wholesale
funding sources, primarily advances from
the Federal Home Loan Bank system, was
de-emphasized in 2004 to reduce overall
interest costs.
Another strong revenue
source for the Company in 2004 was
noninterest income which grew $267,000 or
9.2%. Primary contributors to this
increase included: growth in trust fees of
$71,000 (22.8%); service fees charged for
various products and services rose
$276,000 (16.2%); gains on loans sold
declined $145,000 (41.7%) as fewer home
loans were refinanced and sold to the
secondary market; and various other income
categories improved by $65,000 (12.1%).
The provision for loan
losses decreased $235,000 or 36.4% for the
year ended December 31, 2004 compared to
the prior year. Net loan charge-offs
totaled $205,000 for 2004, much improved
over the previous year's figure of
$769,000. As of December 31, 2004, total
loans on nonaccrual status or greater than
ninety days past due and still accruing of
$1,875,000 was $463,000 or 19.8% less than
year-end 2003. The Company's $3,385,000
allowance for loan losses at December 31,
2004 remained adequate, representing 1.2%
of average net loans outstanding.
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Considerable
attention was devoted during the
year to prudently managing
noninterest expense even as we
continued to expand our banking
facilities. The operation of the
Oakview branch in Muscatine for all
of 2004, versus only seven months in
2003, plus the opening of
Muscatine's Westside branch in
December 2004, with the concomitant
expenses for staff hiring and
training, supplies, advertising and
related costs increased operating
expenses in 2004. Despite these
incremental expenses associated with
making our banking locations more
convenient, coupled with
consistently growing costs for
technology and regulatory
compliance, overall operating
expenses were held to a modest
increase of $256,000 or 2.9%.
Moreover, excluding salaries and
employee benefits, total operating
expenses actually decreased $3,000.
Salaries and employee benefits
increased $259,000 or 5.2% due
mainly to normal raises, higher
bonus and incentive expense
reflecting the Company's record
year, as well as the always rising
cost of health insurance.
The Company's
average assets declined $12.9
million or 3.3% during 2004. Total
assets at December 31, 2004 of
$364.2 million were $8.2 million or
2.2% less than year-end 2003. Net
loans outstanding grew $14.0 million
(5.2%) year-over-year. In addition
to loan growth on the balance sheet,
nearly $12 million dollars of loans
were sold into the secondary market
during 2004. Total deposits remained
essentially unchanged with an
increase of only $159,000 (0.1%)
during 2004. However, as previously
noted, noninterest-bearing deposits
grew by $2,521,000 (5.3%) from
December 31, 2003 to December 31,
2004, thus contributing to the
improvement in net interest income
and margin.
As stated in last
year's "Report to Shareholders", one
of management's key focuses for 2004
was to prudently reduce the
Company's overnight liquidity (i.e.
federal funds sold) in order to
increase net interest income. This
goal was achieved in 2004 as
demonstrated by the reduction in
average federal funds sold from
$44.8 million to $28.7 million and
the net interest margin improvement
from 3.22% to 3.50%. This helped
achieve a $515,000 improvement in
net interest income, or 4.6%.
Importantly, this was achieved even
as all measures of interest rate
risk were within tolerances
established by Board policy, which
is intended to help ensure adequate
net interest margins for the future
years.
The Company
continued its practice of the past
several years by increasing the
dividend per share of common stock
owned. In 2004, dividends totaling
$.98 per share were declared, a 3.2%
increase over the prior year. The
Board of Directors, based on the
strong Company fundamentals and
sufficient cash flow, voted to once
again boost the quarterly cash
dividend per common share to $.25,
beginning with the January 2005
dividend payment. This represented a
further increase of 3.1% compared to
the prior quarter.
We are fortunate to
be blessed with talented, dedicated,
and experienced Board members,
officers, and staff. Also extremely
significant to our success are the
strong community-based corporations
in our primary markets of Fairfield
and Muscatine, Iowa, as they provide
great sources of strength to our
local economies. Obviously, a high
level of trust and loyalty from
current and future customers is the
hallmark of a successful community
banking organization. We continually
strive to proactively create,
modify, and offer value-added
solutions to the financial needs and
desires of our customers. In
successfully meeting and exceeding
the expectations of our customers,
we endeavor to enhance the value of
the Company for our fellow
shareholders.
D. Scott
Ingstad
Chairman of
the Board
President
and CEO
Kim
Bartling
Executive
Vice President
COO &
Treasurer
As always, we remain
committed to providing value and growth for
our customers, shareholders, employees, and
communities.
We remind you of our
market makers:
Howe Barnes
Investments, Inc. (800-800-4693)
Hill, Thompson and Magid, LP
(201-434-6900)
Monroe Securities, Inc
(800-766-5560)
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