-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kl3gT8ZeeeE778B1bczZ4/bsYzf2m2zmea4EI33ThO6a/Szu5mGnnlUF3YLWMg1a AMThLv3/r5PZQ1RoR6p6Vw== 0000912057-96-026324.txt : 19961118 0000912057-96-026324.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026324 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISB FINANCIAL CORP/LA CENTRAL INDEX KEY: 0000933141 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 721280718 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25756 FILM NUMBER: 96663629 BUSINESS ADDRESS: STREET 1: 1101 E ADMIRAL DOYLE DR CITY: NEW IBERIA STATE: LA ZIP: 70560 BUSINESS PHONE: 3183652361 MAIL ADDRESS: STREET 1: 1101 EAST ADMIRAL DOYLE DR CITY: NEW IBERIA STATE: LA ZIP: 70560 10-Q 1 FORM 10-Q 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, 1996 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 0-25756 ISB Financial Corporation - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Louisiana 72-1280718 -------------------------------- -------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1101 East Admiral Doyle Drive New Iberia, Louisiana 70560 --------------------------------- -------------- (Address of principal executive office) (Zip Code) (318) 365-2361 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 8, 1996, 7,051,260 shares of the Registrant's common stock were issued and outstanding. Of that total, 590,423 shares are held by the Registrant's Employee Stock Ownership Plan, of which 479,100 shares were not committed to be released. ISB FINANCIAL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (As of September 30, 1996 and December 31, 1995) 3 Consolidated Statements of Income (For the three months and nine months ended September 30, 1996 and 1995) 4 Consolidated Statements of Stockholders' Equity (For the nine months ended September 30, 1996 and 1995) 5 Consolidated Statements of Cash Flows (For the nine months ended September 30, 1996 and 1995) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 2 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in Thousands) ASSETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ Cash and Cash Equivalents: Cash on Hand and Due from Banks $8,489 $5,313 Interest Bearing Deposits 41,733 46,429 Investment Securities: Held to Maturity (market value of $2,218 and $784, 2,215 784 respectively) Available for Sale, at market value 60,177 86,058 Trading Account Securities, at market value 2,722 389 Mortgage-Backed Securities Held to Maturity (market 50,287 51,646 value of $51,512 and $49,506, respectively) Loans Receivable, Net 490,738 399,542 Real Estate Owned 938 561 Premises and Equipment, Net 12,361 9,440 Federal Home Loan Bank Stock, at Cost 4,116 3,739 Accrued Interest Receivable, Net 4,349 4,153 Other Assets 7,702 776 -------- -------- TOTAL ASSETS $685,827 $608,830 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $517,146 $444,600 Federal Home Loan Bank Advances 47,995 40,490 Accrued Interest Payable on Deposits 708 315 Advance Payments by Borrowers for Taxes and Insurance 1,303 1,239 Other Liabilities 6,361 2,509 -------- -------- TOTAL LIABILITIES 573,513 489,153 -------- -------- STOCKHOLDERS' EQUITY: Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0 -0- shares issued or outstanding Common Stock of $1.00 par value, authorized 25,000,000 7,381 7,381 shares, issued and outstanding 7,380,671 shares Paid in Capital 65,600 65,293 Retained Earnings 53,333 51,584 Unearned Common Stock Held by ESOP (4,791) (5,339) Unearned Common Stock Held by MRP Trust (4,564) 0 Treasury Stock (4,859) 0 Net Unrealized Gain on Securities 214 758 -------- -------- TOTAL STOCKHOLDERS' EQUITY 112,314 119,677 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $685,827 $608,830 -------- -------- -------- --------
See Notes to Unaudited Consolidated Financial Statements 3 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands, Except Per Share Data)
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- -------------------- 1996 1995 1996 1995 ----- ---- ---- ---- INTEREST INCOME: Loans $10,394 $8,219 $28,587 $24,320 Investment Securities Available for Sale 972 1,344 3,149 3,274 Investment Securities Held to Maturity 27 10 62 39 Mortgage-Backed Securities Held to Maturity 831 737 2,440 2,100 Interest-Bearing Deposits 694 501 2,434 1,108 ------- ------ ------ ------- Total Interest Income 12,918 10,811 36,672 30,841 ------- ------ ------ ------- INTEREST EXPENSE: Deposits 5,746 5,086 16,386 15,012 Federal Home Loan Bank Advances 791 372 2,331 452 ------- ------ ------ ------- Total Interest Expense 6,537 5,458 18,717 15,464 ------- ------ ------ ------- Net Interest Income 6,381 5,353 17,955 15,377 Provision for Loan Losses 27 22 44 228 ------- ------ ------ ------- Net Interest Income After Provision for Loan Losses 6,354 5,331 17,911 15,149 ------- ------ ------ ------- NONINTEREST INCOME: Service Charges on Deposit Accounts 505 408 1,336 1,127 Late Charges and Other Fees on Loans 149 134 542 494 Dividends on FHLB Stock 60 59 174 173 Other Income 191 163 640 386 ------- ------ ------ ------- Total Noninterest Income 905 764 2,692 2,180 ------- ------ ------ ------- NONINTEREST EXPENSE: Salaries and Employee Benefits 2,113 1,653 5,870 4,572 SAIF Deposit Insurance Premium 3,153 253 3,661 751 Depreciation Expense 262 197 708 573 Occupancy Expense 336 159 825 653 Computer Expense 156 123 438 378 Net Costs (Income) of Other Real Estate 13 (19) 38 (27) Louisiana Shares and Franchise Tax 224 0 671 0 Other 1,218 829 2,924 2,299 ------- ------ ------ ------- Total Noninterest Expense 7,475 3,195 15,135 9,199 ------- ------ ------ ------- Income (Loss) Before Income Taxes (216) 2,900 5,468 8,130 Income Taxes (benefit) (23) 1,009 2,028 2,837 ------- ------ ------ ------- NET INCOME (LOSS) ($193) $1,891 $3,440 $5,293 ------- ------ ------ ------- ------- ------ ------ ------- NET INCOME (LOSS) PER COMMON SHARE ($0.03) $0.28 $0.50 N/A ------- ------ ------ ------- ------- ------ ------ ------- WEIGHTED AVERAGE SHARES OUTSTANDING 6,346,648 6,818,363 6,649,352 N/A ------- ------ ------ ------- ------- ------ ------ -------
See Notes to Unaudited Consolidated Financial Statements 4 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in Thousands)
Unearned Unearned Common Common Stock Acquired By Net Stock Management Unrealized Total Common Paid In Retained Acquired Recognition and Treasury Gain (Loss) Stockholders' Stock Capital Earnings By ESOP Retention Plan Stock On Securities Equity ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- Balance, December 31, 1994 $46,105 ($1,265) $44,840 Net Income 5,293 5,293 Cash Dividends Declared (1,019) (1,019) Common Stock Issued in Conversion $7,381 $65,006 ($5,904) 66,483 Common Stock Released by ESOP Trust 172 376 548 Charge in Unrealized Gain (Loss) on Securities Available for Sale 1,577 1,577 ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- Balance, September 30, 1995 $7,381 $65,178 $50,379 ($5,528) $0 $0 $312 $117,722 ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- Balance, December 31, 1995 $7,381 $65,293 $51,584 ($5,339) $0 $0 $758 $119,677 Net Income 3,440 3,440 Cash Dividends Declared (1,691) (1,691) Common Stock Released by ESOP Trust 307 548 855 Common Stock Acquired by Management Recognition Plan Trust ($4,687) (4,687) Common Stock Earned by Participants of Management Recognition Plan 123 123 Treasury Stock Acquired (4,859) (4,859) Change in Unrealized Gain (Loss) on Securities Available for Sale (544) (544) ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- Balance, September 30, 1996 $7,381 $65,600 $53,333 ($4,791) ($4,564) ($4,859) $214 $112,314 ---------- --------- --------- ---------- ------------------- -------- -------------- -------------- ---------- --------- --------- ---------- ------------------- -------- -------------- --------------
5 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
FOR THE NINE MONTHS ENDED --------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,441 $ 5,293 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 903 738 Provision for Loan Losses 44 228 Compensation Expense Recognized on Management Recognition Plan 123 0 Gain on Sale of Premises and Equipment (81) (16) (Gain) Loss on Sale of Real Estate Owned 31 (34) Write Down of Real Estate Owned to Market Value 6 0 Amortization of Premium/Discount on Investments 296 294 Current Provision for Deferred Income Taxes 0 250 FHLB Stock Dividends (174) (173) Loans Originated for Resale (1,915) 0 Proceeds From Loans Sold to Others 1,927 0 Income Reinvested on Marketable Equity Security (228) (219) ESOP Contribution 847 550 Net Change in Securities Classified as Trading (2,332) 0 Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable 179 (834) Decrease (Increase) in Other Assets and Other Liabilities 1,454 (515) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,521 5,562 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Maturities of Held to Maturity Securities 2,142 145 Proceeds from Maturities of Available for Sale Securities 28,125 0 Purchases of Held to Maturity Securities (1,576) 0 Purchases of Available for Sale Securities (2,995) (37,820) Increase in Loans Receivable, Net (47,319) (20,707) Proceeds from Sale of Premises and Equipment 180 65 Purchases of Premises and Equipment (1,313) (450) Proceeds from Disposition of Real Estate Owned 253 184 Purchases of Mortgage-Backed Securities 0 (9,109) Principal Collections on Mortgage-Backed Securities 5,575 2,928 Cash Received in Excess of Purchase Price of Bank Subsidiary 5,605 0 Other Investing Activities (165) 0 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (11,488) (64,764) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposit 638 (15,757) Net Change in Time Deposits 8,482 17,960 Increase (Decrease) in Escrow Funds and Miscellaneous Deposits, Net (28) 219 Proceeds From FHLB Advances 8,195 67,311 Principal Repayments of FHLB Advances (690) (41,836) Proceeds from Issuance of Common Stock 0 67,903 Dividends Paid to Shareholders (1,604) (510) Acquisition of Common Stock by Management Recognition Plan (4,687) 0 Purchase of Treasury Stock (4,859) 0 Stock Conversion Costs Incurred 0 (1,116) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 5,447 94,174 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,520) 34,972 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,742 9,686 ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 50,222 $ 44,658 ------- ------- ------- ------- SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 213 $ 183 SUPPLEMENTAL DISCLOSURES: Cash Paid For: Interest on Deposits and Borrowings $ 18,324 $ 15,224 Income Taxes $ 2,818 $ 2,552
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 6 ISB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. All normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures for ISB Financial Corporation (the "Company") previously filed with the Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. BUSINESS The Company's principal business is conducted through it's wholly owned subsidiary, Iberia Savings Bank, which conducts business from its main office located in New Iberia, Louisiana and 17 full-service branch offices located in the cities of New Iberia, Lafayette, St. Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City and Abbeville. The Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF") to the maximum extent permitted by law. The Bank is subject to examination and regulation by the Office of Financial Institutions of the State of Louisiana, which is the Bank's chartering authority and primary regulator. The Bank is also subject to regulation by the Federal Deposit Insurance Corporation ("FDIC"), as the administrator of the SAIF, and to certain reserve requirements established by the Federal Reserve Board ("FRB"). The Bank is a member of the Federal Home Loan Bank of Dallas ("FHLB"). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, the Bank and the Bank's wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. 7 (2) LOANS RECEIVABLE Loans receivable (in thousands) at September 30, 1996 and December 31, 1995 consisted of the following:
SEPT. 30, DEC. 31, 1996 1995 --------- -------- Mortgage Loans: Single-family Residential $331,895 $318,705 Multifamily 2,025 1,506 Commercial Real Estate 21,377 14,486 Construction 15,429 15,617 -------- -------- Total Mortgage Loans 370,726 350,314 -------- -------- Commercial Business Loans 32,226 11,055 -------- -------- Consumer Loans: Home Equity $23,158 $15,364 Automobile 49,880 6,492 Mobile Home Loans 4,583 6,077 Educational Loans 9,641 9,262 Credit Card Loans 3,725 3,836 Loans on Savings 7,722 7,481 Other 3,613 4,960 -------- -------- Total Consumer Loans 102,322 53,472 -------- -------- Total Loans Receivable 505,274 414,841 -------- -------- Less: Allowance for Loan Losses (4,060) (3,746) Loans-in-Process (7,845) (8,399) Unearned Discount (1) (1) Deferred Loan Fees (1,057) (1,191) Discount on Loans Purchased (1,573) (1,962) -------- -------- Loans Receivable, Net $490,738 $399,542 -------- -------- -------- --------
(3) EMPLOYEE STOCK OWNERSHIP PLAN In connection with the conversion from mutual to stock form, the Company established an Employee Stock Ownership Plan ("ESOP") for the benefit of employees of the Company and the Bank. The ESOP purchased 590,423 shares, or 8% of the total stock sold in the conversion, for $5,904,230, financed by a loan from the Company. The leveraged ESOP is accounted for in accordance with AICPA SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans". Compensation cost of the ESOP for the nine months ended September 30, 1996 was $847,000 based on the release of 54,854 shares. At September 30, 1996, there were 56,469 allocated shares, 54,854 shares had been committed to be released, and 479,100 shares were held in suspense by the ESOP. The fair value of the unearned ESOP shares was approximately $7,426,000. 8 (4) EARNINGS PER SHARE Earnings per share were based on 6,346,648 weighted average shares outstanding during the three month period ended September 30, 1996. The weighted average number of common shares outstanding excludes (a) the weighted average unreleased shares owned by the ESOP of 488,158 for the three month period ended September 30, 1996; (b) the weighted average shares owned by the Management Recognition Plan and Trust of 295,226 for the three months ending September 30, 1996 and (c) the weighted average shares purchased in Treasury Stock of 250,639. Earnings per share for periods preceding the three months ended June 30, 1995 are not applicable, as the Bank's conversion from mutual-to-stock form and reorganization into a holding company format was not completed until April 6, 1995. (5) ROYAL BANKGROUP OF ACADIANA, INC. ACQUISITION After the close of business on May 3, 1996, the Company acquired, through a multi-step cash merger transaction, Royal Bankgroup of Acadiana, Inc. ("RBA") and its wholly owned subsidiary, Bank of Lafayette ("BOL"), a Louisiana chartered commercial bank with two offices in Lafayette, Louisiana. BOL has been merged with and into Iberia Savings Bank and RBA has been merged with and into the Company. The Company paid an aggregate of $9.1 million in merger consideration for the previously outstanding shares of common stock and options to acquire all of the outstanding common stock of RBA. As of May 3, 1996, RBA had $76.3 million in total assets, $63.5 million in total deposits and $44.1 million in loans outstanding. The two BOL offices continue to be operated as branch offices of Iberia Savings Bank. The transaction is accounted for as a purchase under generally accepted accounting principles and it resulted in $3.3 million of goodwill, which is to be amortized over 15 years, using the straight-line method. The revenues and expenses of RBA are included in these consolidated financial statements only from the date of the acquisition forward. (6) MANAGEMENT RECOGNITION AND RETENTION PLAN AND TRUST AND STOCK OPTION PLAN On May 24, 1996, the shareholders of the Company approved the Management Recognition and Retention Plan. The plan enables the Company to provide officers, key employees and directors with a proprietary interest in the Company as an incentive to contribute to its success. Pursuant to this plan, the Company acquired 295,226 shares, or 4%, of its outstanding common stock in an open market transaction. These shares are accounted for as unearned deferred compensation and shares granted will be amortized as compensation expense over the vesting period. In May 1996, 168,864 shares were granted and those shares will vest over seven years. The shareholders also approved the Stock Option Plan on May 24, 1996. The plan is designed to attract and retain qualified personnel in key positions, provide officers and key employees with a proprietary interest in the Company as an incentive to contribute to the success of the Company and reward key employees for outstanding 9 performance. The plan is also designed to retain qualified directors for the Company. Pursuant to this plan, the Company has reserved 738,067 shares for issuance. In May 1996, 618,125 options were granted, and those options will vest over seven years. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN FINANCIAL CONDITION At September 30, 1996, the consolidated assets of the Company totalled $685.8 million, an increase of $77.0 million or 12.6% from December 31, 1995. Loans receivable, net, increased by $91.2 million, or 22.8%, to $490.7 million at September 30, 1996, compared to $399.5 million at December 31, 1995. The increase was the result of $15.8 million of commercial business and real estate loans, $22.8 million of automobile loans, and $5.5 million of various other consumer loans acquired in the purchase of RBA and it's subsidiary, BOL, together with loan originations during the period. This resulted in a $13.2 million, or 4.1%, increase in single-family residential loans, a $6.9 million, or 47.6%, increase in commercial real estate loans, a $21.2 million, or 191.5%, increase in commercial business loans, a $7.8 million, or 50.7%, increase in home equity loans and a $43.4 million, or 668.3%, increase in automobile loans. Such increases were partially offset by a $1.5 million, or 24.6%, decrease in mobile home loans and a $1.3 million, or 27.2%, decrease in other consumer loans. The increase in loans receivable was funded primarily by the deposits acquired from RBA, by the decrease in investment securities available for sale, the decrease in interest bearing deposits at other institutions and by fixed-rate advances from the Federal Home Loan Bank ("FHLB") of Dallas. Interest bearing deposits at other institutions decreased $4.7 million, or 10.1%, to $41.7 million at September 30, 1996, compared to $46.4 million at December 31, 1995. The Company's investment securities available for sale decreased $25.9 million, or 30.1%, to $60.2 million at September 30, 1996, compared to $86.1 million at December 31, 1995. Such decrease was due primarily to the maturity or redemption of $30.1 million of investment securities together with a $751,000 decrease in the market value of such securities which was partially offset by the purchase of $3.0 million of investment securities and $2.0 million of investment securities acquired from BOL. Mortgage-backed securities decreased $1.4 million from December 31, 1995 to September 30, 1996. Such decrease was the result of $5.8 million of principal repayments on mortgage-backed securities partially offset by $4.4 million of mortgage-backed securities acquired from BOL. Deposits increased $72.5 million, or 16.3%, to $517.1 million at September 30, 1996, compared to $444.6 million at December 31, 1995. Such increase was due to $63.5 million of deposits acquired from BOL and $13.4 million of interest credited, which was partially offset by $4.4 million in net deposit withdrawals. Advances from the FHLB of Dallas increased $7.5 million, or 18.5%, to $48.0 million at September 30, 1996, compared to $40.5 million at December 31, 1995. The advances are fixed-rate and long term and are used to fund additional originations of fixed-rate, long term single-family residential loans. 11 Total stockholders' equity decreased $7.4 million, or 6.2%, to $112.3 million at September 30, 1996, compared to $119.7 at December 31, 1995. The decrease was the result of the declaration of cash dividends on common stock of $1.7 million, a $544,000, after deferred taxes, decrease in net unrealized gains on securities available for sale, $4.7 million of common stock acquired by the Management Recognition and Retention Plan and Trust and $4.9 million of stock purchased into treasury, which was partially offset by the Company's net income of $3.4 million, $855,000 of common stock released by the ESOP and $123,000 of common stock earned by participants of the Management Recognition and Retention Plan. RESULTS OF OPERATIONS The Company reported a net loss of $193,000 for the three months ended September 30, 1996, compared to $1.9 million earned during the three month period ended September 30, 1995. The Company's net interest income increased by $1.0 million and total noninterest income increased by $141,000 during the three months ended September 30, 1996 compared to the third quarter of 1995. Such increases were offset by a $4.3 million increase in noninterest expense in the three months ended September 30, 1996 compared to the same period in 1995, primarily as a result of a $2.9 million special SAIF assessment from the Federal Deposit Insurance Corporation, increases in salaries and benefits and the Louisiana shares and franchise tax, which is imposed only for periods subsequent to the Bank's mutual-to-stock conversion. For the nine months ended September 30, 1996 the Company earned $3.4 million compared to $5.3 million for the same period of 1995. The Company's net interest income increased $2.6 million, total noninterest income increased $512,000 and income tax expense decreased $809,000 during the nine months ended September 30, 1996 compared to the first nine months of 1995. Such increases were offset by a $5.9 million increase in noninterest expenses in the nine months ended September 30, 1996 compared to the same period of 1995. 12 Average Balances, Net Interest Income and Yields Earned and Rates Paid The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Bank from interest-earning assets and the resultant average yields (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Information is based on average daily balances during the indicated periods.
T h r e e M o n t h s E n d e d S e p t e m b e r 3 0, ---------------------------------------------------------- 1996 1995 ---------------------------- --------------------------- Yield/Cost Average Average at September 30, Average Yield/ Average Yield/ 1996 Balance Interest Cost(1) Balance Interest Cost(1) ---------------- -------- -------- --------- ------- -------- ------- (Dollars in Thousands) Interest-earning assets: Loans receivable: Mortgage loans 7.81% $354,712 $7,268 8.20% $322,996 $6,686 8.28% Commercial business loans 9.26 28,581 805 11.27 9,915 227 9.16 Consumer and other loans 9.47 95,986 2,321 9.67 51,774 1,306 10.09 ------ ----- ------ ----- Total Loans 8.11 479,279 10,394 8.67 384,685 8,219 8.55 Mortgage-backed securities 6.49 50,962 831 6.52 46,747 737 6.31 Investment securities 6.17 66,403 999 6.02 88,069 1,354 6.15 Other earning assets 5.79 47,544 694 5.84 31,244 501 6.41 ------ --- ------ --- Total interest-earning assets 7.65 644,188 12,918 8.02 550,745 10,811 7.85 ------ ------ Non-interest-earning assets 39,624 26,902 ------ ------ Total assets $683,812 $577,647 -------- -------- -------- -------- Interest-bearing liabilities: Deposits: Demand deposits 1.88 $76,560 504 2.63 $61,455 430 2.80 Passbook savings deposits 2.66 61,310 412 2.69 50,411 353 2.80 Certificates of deposits 5.51 347,206 4,830 5.56 314,034 4,303 5.48 ------- ----- ------- ----- Total deposits 4.60 485,076 5,746 4.74 425,900 5,086 4.78 Borrowings 6.54 48,154 791 6.57 20,584 372 7.23 ------ --- ------ --- Total interest-bearing liabilities 4.77 533,230 6,537 4.90 446,484 5,458 4.89 Noninterest-bearing demand deposits 30,365 8,569 Non-interest bearing liabilities 7,146 5,473 ----- ----- Total liabilities 570,741 460,526 Stockholders' Equity 113,071 117,121 ------- ------- Total liabilities and stockholders' equity $683,812 $577,647 ======== ======== Net interest-earning assets $110,958 $104,261 ======== ======== Net interest income/interest rate spread 2.88% $6,381 3.12% $5,353 2.96% ===== ====== ===== ====== ===== Net interest margin 3.96% 3.89% ===== ===== Ratio of average interest-earning assets to average interest-bearing liabilities 120.81% 123.35% ======= ======= N i n e M o n t h s E n d e d S e p t e m b e r 3 0, ----------------------------------------------------------- 1996 1995 --------------------------- -------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost(1) Balance Interest Cost(1) ------- -------- ------- ------- -------- ------- (Dollars in Thousands) Interest-earning assets: Loans receivable: Mortgage loans $347,903 $21,401 8.20% $318,003 $19,847 8.32% Commercial business loans 19,174 1,630 11.33 7,909 553 9.32 Consumer and other loans 70,982 5,556 10.44 51,730 3,920 10.10 -------- ------- -------- ------- Total Loans 438,059 28,587 8.70 377,642 24,320 8.59 Mortgage-backed securities 50,562 2,440 6.43 44,161 2,100 6.34 Investment securities 70,302 3,211 6.09 72,412 3,313 6.10 Other earning assets 58,417 2,434 5.56 20,492 1,108 7.21 -------- ------- -------- ------- Total interest-earning assets 617,340 36,672 7.92 514,707 30,841 7.99 ------- ------- Non-interest-earning assets 32,965 26,969 -------- -------- Total assets $650,305 $541,676 -------- -------- -------- -------- Interest-bearing liabilities: Deposits: Demand deposits $ 71,932 1,412 2.62 $ 63,133 1,311 2.77 Passbook savings deposits 55,753 1,161 2.78 54,941 1,180 2.86 Certificates of deposits 332,146 13,813 5.54 310,824 12,521 5.37 -------- ------ -------- -------- Total deposits 459,831 16,386 4.75 428,898 15,012 4.67 Borrowings 47,510 2,331 6.54 8,642 452 6.97 -------- -------- -------- -------- Total interest-bearing liabilities 507,341 18,717 4.92 437,540 15,464 4.71 -------- -------- Noninterest-bearing demand deposits 18,251 7,494 Non-interest bearing liabilities 6,751 5,452 -------- -------- Total liabilities 532,343 450,486 Stockholders' Equity 117,962 91,190 -------- -------- Total liabilities and stockholders' equity $650,305 $541,676 -------- -------- -------- -------- Net interest-earning assets $109,999 $ 77,167 -------- -------- -------- -------- Net interest income/interest rate spread $17,955 3.00% $15,377 3.28% ------- ----- -------- ---- ------- ----- -------- ---- Net interest margin 3.88% 3.98% ----- ---- ----- ---- Ratio of average interest-earning assets to average interest-bearing liabilities 121.68% 117.64% ------- ------- ------- ------- - ---------------- (1) Annualized.
13 NET INTEREST INCOME Net interest income increased $1.0 million, or 19.2%, to $6.4 million in the three months ended September 30, 1996, compared to $5.4 million in the three months ended September 30, 1995. The increase was due to a $2.1 million, or 19.5%, increase in interest income, which was partially offset by a $1.1 million, or 19.8%, increase in interest expense. The increase in interest income was the result of a $93.4 million, or 17.0%, increase in the average balance of interest-earning assets, due in part to $63.2 million in aggregate interest-earning assets acquired from RBA, together with a 17 basis point (100 basis points being equal to 1%) increase in the yield thereon. The increase in interest expense was the result of a $86.7 million, or 19.4%, increase in the average balance of interest-bearing liabilities together with a 1 basis point increase in the cost thereon. The Company's interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) and net interest margin (net interest income as a percentage of average interest-earning assets) amounted to 3.12% and 3.96%, respectively, during the three months ended September 30, 1996, compared to 2.96% and 3.89%, respectively, for the comparable period in 1995. For the nine month period ending September 30, 1996, net interest income increased $2.6 million, or 16.8%, to $18.0 million compared to $15.4 million for the same period in 1995. The increase was due to a $5.8 million, or 18.9%, increase in interest income, which was partially offset by a $3.3 million, or 21.0%, increase in interest expense. The increase in interest income was the result of a $102.6 million, or 19.9%, increase in the average balace of interest-earning assets which was partially offset by a 7 basis point decrease in the yield thereon. The increase in interest expense was the result of a $69.8 million, or 16.0%, increase in the average balance of interest-bearing liabilities together with a 21 basis point increase in the cost thereon. The Company's interest rate spread and net interest margin amounted to 3.00% and 3.88%, respectively, during the nine months ended September 30, 1996, compared to 3.28% and 3.98%, respectively, for the comparable period in 1995. INTEREST INCOME The Company's total interest income was $12.9 million for the three months ended September 30, 1996, compared to $10.8 million for the three months ended September 30, 1995. The reasons for the $2.1 million, or 19.5%, increase in interest income were a $2.2 million, or 26.5%, increase in interest income from loans, a $193,000, or 38.5%, increase in interest income from other earning assets, primarily interest-earning deposits held at other institutions and a $94,000, or 12.8%, increase in interest income from mortgage-backed securities which was partially offset by a $372,000, or 27.7%, decrease in interest income from investment securities. The increase in interest income from loans was the result of a $94.6 million, or 24.6%, increase in the average balance of loans, together with a 12 basis point increase in the average yield earned thereon. The increase in interest income from other earning assets was the result of a $16.3 million, or 52.2%, increase in the average balance of other earning assets which was partially offset by a 57 basis point decrease in the yield earned thereon. The increase in interest income on mortgage-backed securities was the result of a $4.2 14 million, or 9.0%, increase in the average balance of mortgage-backed securities together with a 21 basis point increase in the yield earned thereon. The decrease in interest income from investment securities was the result of a $21.7 million, or 24.6%, decrease in the average balance of investment securities together with a 13 basis point decrease in the yield thereon. For the nine months ended September 30, 1996, total interest income was $37.7 million compared to $30.8 million for the same period in 1995. The reasons for the $5.8 million, or 18.9%, increase in interest income were a $4.3 million, or 17.5%, increase in interest income from loans, a $340,000, or 16.2%, increase in interest income from mortgage-backed securities, and a $1.3 million, or 119.7%, increase in interest income from other earning assets. The increase in interest income from loans was the result of a $60.4 million, or 16.0%, increase in the average balance of loans, together with a 11 basis point increase in the yield thereon. The increase in interest income from mortgage-backed securities was the result of $6.4 million, or 14.5%, increase in the average balance of mortgage-backed securities, together with a 9 basis point increase in the yield earned thereon. The increase in interest income from other earning assets was the result of a $37.9 million, or 185.1%, increase in the average balance of other earning assets, which was partially offset by a 165 basis point decrease in the yield earned thereon. The decrease in interest income from investment securities was the result of a $2.1 million, or 2.9%, decrease in the average balance of investment securities together with a 1 basis point decrease in the yield earned thereon. INTEREST EXPENSE The Company's total interest expense was $6.5 million during the three months ended September 30, 1996, compared to $5.5 million for the three months ended September 30, 1995. The primary reasons for the $1.1 million, or 19.8%, increase in interest expense was a $660,000, or 13.0%, increase in interest expense on deposits due to a $59.2 million, or 13.9%, increase in the average balance of deposits, which was partially offset by a 4 basis point decrease in the average cost thereof and a $419,000, or 112.6%, increase in interest expense paid on advances from the FHLB due to a $27.6 million, or 133.9%, increase in the average balance of advances from the FHLB which was partially offset by a 66 basis point decrease in the cost thereof. The borrowings from the FHLB are used to fund fixed-rate, long term single-family residential loans. For the nine months ended September 30, 1996, the company's total interest expense was $18.7 million, compared to $15.5 million for the same period in 1995. The primary reasons for the $3.3 million, or 21.0%, increase in interest expense was a $1.4 million, or 9.2%, increase in interest expense on deposits due to a $30.9 million, or 7.2%, increase in the average balance of deposits together with a 8 basis point increase in the cost thereof and a $1.9 million, or 415.7%, increase in interest expense on borrowings due to a $38.9 million, or 449.8%, increase in the average balance of borrowings which was partially offset by a 43 basis point decrease in the cost thereof. 15 PROVISION FOR LOAN LOSSES The provision for loan losses was $27,000 in the three months ended September 30, 1996 as compared to $22,000 for the same period in 1995. The acquisition of BOL by the Company resulted in $542,000 of additional loan loss reserves being added to the Company's loan loss reserves. As of September 30, 1996, the ratio of the Company's allowance for loan losses to non-performing loans was 263.1%. NONINTEREST INCOME Noninterest income increased $141,000, or 18.50%, in the three months ended September 30, 1996 to $905,000, compared to $764,000 for the three months ended September 30, 1995. Such increase was due primarily to a $97,000, or 23.8%, increase in service charges on deposit accounts, a $28,000, or 17.2%, increase in other income and a $15,000, or 11.2%, increase in late charges and fees on loans. For the nine months ended September 30, 1996, noninterest income increased $512,000, or 23.5%, to $2.7 million, compared to $2.2 million for the same period in 1995. Such increase was due primarily to a $209,000, or 18.5%, increase in service charges on deposit accounts, a $48,000, or 9.7%, increase in late charges and other fees on loans and a $254,000, or 65.8%, increase in other income. NONINTEREST EXPENSE Noninterest expense increased $4.3 million, or 134.0%, in the three months ended September 30, 1996 to $7.5 million, compared to $3.2 million in the three months ended September 30, 1995. Such increase was due primarily to a $2.9 million increase in SAIF deposit insurance premium due to the special SAIF assessment, a $460,000, or 27.8%, increase in salaries and employee benefits due primarily to increase the ESOP and management recognition plans and salaries and benefits associated with the additional personnel needed to staff the two branch offices acquired from the Bank of Lafayette and the two new branches opened in supermarkets during the second quarter of 1996, a $177,000, or 111.3%, increase in occupancy expense due primarily to the two branches acquired from RBA and the two new supermarket branches and a $224,000 increase in Louisiana Shares Tax, which is assessed only on stock-form institutions beginning in the year following the issuance of stock, and Louisiana Franchise Tax, which was nominal in 1995 because the parent company's assets at the beginning of 1995 were zero. Other noninterest expense increased $389,000, or 46.9%, primarily due to increases associated with the two branch offices acquired from BOL and the two new branch offices opened in supermarkets and the amortization of goodwill associated with the RBA acquisition. For the nine months ended September 30, 1996, noninterest expense increased $5.9 million, or 64.5%, to $15.1 million compared to $9.2 million for the same period in 1995. Such increase was primarily due to a $1.3 million, or 28.4%, increase in salaries and employee benefits, a $2.9 million increase in SAIF deposit insurance 16 premium from a $671,000 increase in Louisiana Shares Tax and Louisiana Franchise Tax and a $625,000, or 27.2%, increase in other noninterest expense. INCOME TAX EXPENSE (BENEFIT) Income tax expense decreased $1.0 million, or 102.3%, in the three months ended September 30, 1996 to a benefit of $23,000, compared to $1.0 million for the three months ended September 30, 1995. The decrease in income tax expense reflects a decrease in income before income taxes. For the nine months ended September 30, 1996, income tax expense decreased $809,000, or 28.5%, to $2.0 million compared to $2.8 million for the same period in 1995. The decrease in income tax expense reflects decrease in income before income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Company's primary sources of funds are deposits, borrowings, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, the Company invests excess funds in overnight deposits and other short-term interest-earning assets which provide liquidity to meet lending requirements. The Bank has been able to generate sufficient cash through its deposits as well as borrowings. At September 30, 1996, the Company had $48.0 million in outstanding advances from the Federal Home Loan Bank of Dallas. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as over-night deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending products. The Company uses its sources of funds primarily to meet its ongoing commitments, to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed and investment securities. At September 30, 1996, the total approved loan commitments outstanding amounted to $19.5 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $45.9 million. Certificates of deposit scheduled to mature in six months or less at September 30, 1996 totalled $136.7 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Bank. On October 18, 1996, the Company consummated its acquisition of Jefferson Bancorp, Inc. for $51.2 million in cash. The Company anticipates it will continue to have sufficient funds to 17 meet its liquidity requirements. At September 30, 1996, the Company and the Bank had regulatory capital which was well in excess of regulatory limits. The current requirements and the Bank's actual levels as of September 30, 1996 are detailed below (dollars in thousands):
REQUIRED CAPITAL ACTUAL CAPITAL EXCESS CAPITAL ---------------- ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- Tier 1 Leverage $19,639 3.00% $81,384 12.43% $61,745 9.43% Tier 1 Risk-Based $14,689 4.00% $81,384 22.16% $66,695 18.16% Total Risk-Based $29,379 8.00% $85,444 23.27% $56,065 15.27%
RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial accounting and reporting standards for stock-based employee compensation plans. This statement encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting are required to disclose in a footnote to the financial statements pro forma net income and, if presented, earnings per share, as if this Statement had been adopted. The accounting requirements of this Statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. 18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION After the close of business on October 18, 1996, the Company acquired, through a multi-step cash merger transaction, Jefferson Bancorp, Inc. and its wholly owned subsidiary, Jefferson Federal Savings Bank, a federally chartered savings and loan bank with seven offices in Jefferson and Orleans parishes of Lousiana. Jefferson Federal Savings Bank has been rechartered into a state savings bank and will operate as Jefferson Bank and Jefferson Bancorp, Inc. has been merged with and into the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Not applicable. b) No Form 8-K reports were filed during the quarter. 19 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. ISB FINANCIAL CORPORATION By: /s/ Larrey G. Mouton ------------------------ Date: November 8, 1996 Larrey G. Mouton, President and Chief Executive Officer By: /s/ William M. Lahasky ------------------------ Date: November 8, 1996 William M. Lahasky, Vice President and Chief Financial Officer 20 EX-27 2 EXHIBIT 27
9 This schedule contains summary financial information extracted from Consolidated Statements of Financial Condition at September 30, 1996 and December 31, 1995; Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1995 and Form 10-Q for the nine months ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 8,489 41,733 0 2,722 0 50,287 60,177 494,798 (4,060) 685,827 517,146 47,995 8,372 0 0 0 7,381 104,933 685,827 28,587 5,651 2,434 36,672 16,386 18,717 17,955 44 0 15,135 5,468 5,468 0 0 3,440 .50 .50 3.88 1,841 36 0 3,701 3,729 393 183 4,060 0 0 4,060 In thousands, except per share data.
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