Iowa First Bancshares Corp. Reports Third Quarter Financial Results And Dividend Payment

Iowa First Bancshares Corp. (OTC Pink: IOFB) today reported net income of $1,101,000 for the quarter ended September 30, 2016, compared to net income of $1,090,000 for the quarter ended September 30, 2015. The increase in third quarter net income year-over-year of $11,000 (1.0%) was primarily attributable to higher net interest income of $99,000 (2.7%). This increase in net interest income was augmented by a $66,000 (7.5%) increase in noninterest income. Noninterest expense increased $44,000 (1.6%) and provision for loan losses was raised $135,000 or (450%). This large percentage increase in the provision is the result of three primary factors: 1) comparison of this year's number to a relatively small provision for loan losses recognized in the prior year; 2) an increase in loans outstanding of $21,866,000 (5.9%) from September 30, 2015 to September 30, 2016; and 3) a year-over-year increase of 48.3% in nonperforming assets, which totaled $3,329,000 at September 30, 2016. While higher than in the recent past, the nonperforming assets represent a very manageable .84% of gross loans outstanding. Income tax expense declined $25,000 or 4.3% when comparing the third quarter of 2016 to the same quarter in 2015.

The Company recorded net income of $3,182,000 for the nine months ended September 30, 2016, compared with net income of $3,125,000 for the three quarters ended September 30, 2015, an increase of $57,000 (1.8%). The primary factors contributing to this earnings improvement included a $433,000 (4.0%) increase in net interest income and an $113,000 (4.4%) increase in noninterest income. Offsetting some of these income gains, noninterest expense increased $259,000 (3.1%) and provision for loan losses was raised $285,000 (317%). Income tax expense declined $55,000 (3.3%).

Basic and diluted earnings per share were $2.82 for the nine months ended September 30, 2016, up $.05 or 1.8% from the same period in 2015. The Company's annualized return on average assets for the first three quarters of 2016 and 2015 was .91% and .94%, respectively. The Company's annualized return on average equity for the nine months ended September 30, 2016 and September 30, 2015 was 9.1% and 9.6%, respectively.

Total assets at September 30, 2016 totaled $476,535,000, an increase of $28,176,000 (6.3%) from September 30, 2015. As noted above, gross loans outstanding increased $21,866,000 (5.9%), while total deposits increased $25,557,000 (6.8%) year-over-year. The allowance for loan losses totaled $4,469,000 at September 30, 2016, or 1.13% of gross loans outstanding.

The board of directors declared a $.285 per common share cash dividend which was paid on October 25, 2016, to shareholders of record October 3, 2016. On an annualized basis this dividend represents a return of 3.3% on the December 31, 2015 stock price.

Users of this press release are encouraged to read the Iowa First Bancshares Corp. 2015 Annual Report to Shareholders. Of particular note, page 37 of the aforementioned report discusses contingencies.

As previously disclosed, during 2013, representatives of a previous loan customer made certain allegations and threatened litigation against the First National Bank of Muscatine, a wholly-owned bank of the Company, and certain officers thereof. On February 26, 2015, a lawsuit was filed in the Iowa District Court in and for Muscatine County against the Bank and certain of its officers. In Loretta B. Mealy, individually, and as Executor of the Estate of Terrence L. Mealy, Plaintiffs, vs. First National Bank of Muscatine, Scott Ingstad, M. Wayne Johanson and Timothy Nelson, Defendants, the plaintiffs make various claims and allegations against the Bank and certain of its officers relating to the previous lending relationship, including the manner in which certain stock that had been delivered to the Bank for collateral was liquidated and the manner in which default provisions were implemented. The Bank has asserted certain counterclaims against the Estate seeking indemnification and contribution based on improper conduct of the loan customer. In the lawsuit, the plaintiffs are seeking compensatory and punitive damages.

The Company believes the claims are without merit, the plaintiffs were not damaged as alleged and has been vigorously defending the lawsuit. Depositions have been taken, written discovery answered and the plaintiffs' expert reports received. The experts retained by the Company are completing their work and their reports should be ready for production by November 15, 2016. There currently is a mediation set with a district judge as the mediator on Friday, December 9, 2016, and the trial date is June 19, 2017. There is an insurance policy which may provide coverage for the officers who have been named defendants. There is no other insurance.

While the final outcome of any legal proceeding is inherently uncertain, based upon current information, including but not limited to the advice and counsel with the Company's advisors, including the Company's legal counsel representing it in the lawsuit, the Company has concluded that a loss is neither probable nor estimable at this time. Consequently, no loss contingency has been established as of September 30, 2016 or December 31, 2015. However, the Company believes that if the plaintiffs are ultimately successful, the Company's liability could have a material impact on the Company's future earnings and the consolidated financial statements.

Iowa First Bancshares Corp. is a bank holding company headquartered in Muscatine, Iowa. The Company provides a wide array of banking and other financial services to individuals, businesses and governmental organizations through its two wholly-owned national banks located in Muscatine and Fairfield, Iowa.

This press release may contain forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and many factors could cause actual results to differ materially from the results anticipated or projected. Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements or that could have a material effect on the operations and future prospects of the Company include, but are not limited to: (1) credit quality deterioration or pronounced and sustained reduction in real estate or other collateral values could cause an increase in the allowance for loan losses and a reduction in net income; (2) our management's ability to reduce and effectively manage interest rate risk and the impact of interest rates in general on the level and volatility of our net interest income; (3) changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; (4) fluctuations in the value of our investment securities; (5) governmental monetary and fiscal policies; (6) legislative, regulatory and tax law changes as well as changes in the scope and cost of Federal Deposit Insurance Corporation insurance and other fees; (7) the ability to attract and retain key executives and employees; (8) the sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in our loan portfolio; (9) our ability to adapt successfully to technological changes; (10) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (11) the effects of competition from numerous sources; (12) the failure of assumptions underlying the establishment of allowances for loan losses and estimation of values of collateral and various other financial assets and liabilities; (13) volatility, duration and matching risks of rate-sensitive assets and liabilities as well as liquidity risk; (14) operational risks, including data processing system failure or fraud; (15) the costs, effects and outcomes of existing or future litigation; (16) changes in general economic or industry conditions, nationally or in the communities in which we conduct business; (17) changes in accounting policies and practices; and (18) other risks.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Dollar amounts in thousands, except share and per share data) (unaudited)

       

For the Three

For the Three

For the Nine

For the Nine

Months Ended

Months Ended

Months Ended

Months Ended

September 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015
 
Net Interest Income $ 3,750 $ 3,651 $ 11,129 $ 10,696
Provision for Loan Losses 165 30 375 90
Noninterest Income 943 877 2,658 2,545
Noninterest Expense 2,874 2,830 8,637 8,378
Income Tax Expense 553 578 1,593 1,648
Net Income after Income Taxes 1,101 1,090 3,182 3,125
 

Net Income Per Common Share, Basic and Diluted
$ .973 $ .965 $ 2.816 $ 2.770
 

Average year-to-date common shares outstanding, basic and diluted
1,130,436 1,128,951 1,129,762 1,128,276
 
               

As of

As of

As of

September 30, 2016

December 31, 2015

September 30, 2015
 
Gross Loans $ 394,069 $ 373,288 $ 372,203
Total Assets 476,535 456,784 448,359
Total Deposits 402,853 387,833 377,296
Tier 1 Capital 46,871 44,595 43,917
 
Return on Average Equity 9.1 % 9.4 % 9.6 %
Return on Average Assets .91 .92 .94
Net Interest Margin (tax equivalent) 3.44 3.49 3.52
Allowance as a Percent of Total Loans 1.13 1.22 1.23
 

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