-----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, SV/ikF2AV9NbvUIV8QI0L6nr690qD8drfnQDXXfvmR1yZcXJZSp6xlaadnGXuitH uVUgNYG3ksE8OMaMcu4xLw== 0000950133-98-001939.txt : 19980518 0000950133-98-001939.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950133-98-001939 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-25756 FILM NUMBER: 98622399 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 DATED MARCH 31, 1998 1 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 March 31, 1998 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 of incorporation or (I.R.S. Employer 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 April 21, 1998, 6,906,318 shares of the Registrant's common stock were issued and outstanding. Of that total, 586,285 shares are held by the Registrant's Employee Stock Ownership Plan, of which 375,495 shares were not committed to be released. 2 ISB FINANCIAL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements Consolidated Statements of Financial Condition 3 (As of March 31, 1998 and December 31, 1997) Consolidated Statements of Income (For the three months 4 ended March 31, 1998 and 1997) Consolidated Statements of Stockholders' Equity (For the 5 three months ended March 31, 1998 and 1997) Consolidated Statements of Cash Flows (For the three 6 months ended March 31, 1998 and 1997) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 10 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II. OTHER INFORMATION - -------- ----------------- Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 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 and Reports on Form 8-K 18 SIGNATURES 19
2 3 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in Thousands, Except Per Share Data)
Assets ------ March 31, December 31, 1998 1997 --------- ----------- Cash and Cash Equivalents: Cash on Hand and Due from Banks $ 11,747 $ 11,959 Interest Bearing Deposits 41,490 32,348 Investment Securities: Held to Maturity (fair value of $1,448 and $1,813, 1,446 1,811 respectively) Available for Sale, at fair value 62,802 75,506 Mortgage-Backed Securities Held to Maturity (fair 104,513 115,125 value of $105,712 and $116,004, respectively) Loans Receivable, Net 672,970 659,244 Real Estate Owned 493 473 Premises and Equipment, Net 19,340 19,253 Federal Home Loan Bank Stock, at Cost 6,251 6,160 Accrued Interest Receivable 5,243 5,514 Goodwill and Acquisition Intangibles 15,989 16,358 Other Assets 991 3,531 -------- -------- Total Assets $943,275 $947,282 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Deposits $771,823 $778,695 Federal Home Loan Bank Advances 46,462 46,728 Advance Payments by Borrowers for Taxes and Insurance 1,608 1,429 Accrued Interest Payable on Deposits 364 405 Accrued and Other Liabilities 5,576 4,461 -------- -------- Total Liabilities 825,833 831,718 -------- -------- 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, 7,380,671 shares issued Additional Paid-in Capital 67,072 66,798 Retained Earnings (Substantially Restricted) 58,332 57,096 Unearned Common Stock Held by ESOP (3,755) (3,921) Unearned Common Stock Held by RRP Trust (3,981) (4,082) Treasury Stock, 474,353 and 478,643 shares, at cost (7,866) (7,929) Unrealized Gain on Securities, Net of Deferred Taxes 259 221 -------- -------- Total Stockholders' Equity 117,442 115,564 -------- -------- Total Liabilities and Stockholders' Equity $943,275 $947,282 ======== ========
See Notes to Unaudited Consolidated Financial Statements 3 4 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands, Except Per Share Data)
For the Three Months Ended March 31, -------------------------- 1998 1997 ------- ------- Interest Income: Interest on Loans $14,033 $12,333 Interest and Dividends on Investment Securities 1,234 1,647 Interest on Mortgage-Backed Securities 1,811 2,264 Interest on Deposits 486 533 ------- ------- Total Interest Income 17,564 16,777 ------- ------- Interest Expense: Interest on Deposits 7,793 7,977 Interest on Federal Home Loan Bank Advances 753 769 ------- ------- Total Interest Expense 8,546 8,746 ------- ------- Net Interest Income 9,018 8,031 Provision for Loan Losses 230 162 ------- ------- Net Interest Income After Provision for Loan Losses 8,788 7,869 ------- ------- Noninterest Income: Service Charges on Deposit Accounts 923 713 Late Charges and Other Fees on Loans 322 200 Other Income 552 376 ------- ------- Total Noninterest Income 1,797 1,289 ------- ------- Noninterest Expense: Salaries and Employee Benefits 3,520 3,147 SAIF Deposit Insurance Premium 110 111 Depreciation Expense 407 284 Occupancy Expense 475 408 Computer Expense 292 339 Marketing and Advertising 213 75 Franchise and Shares Tax Expense 249 240 Amortization of Goodwill and Other Acquired Intangibles 369 401 Other Expenses 1,417 1,133 ------- ------- Total Noninterest Expense 7,052 6,138 ------- ------- Income Before Income Tax Expense 3,533 3,020 Income Tax Expense 1,386 1,225 ------- ------- Net Income $ 2,147 $ 1,795 ======= ======= Earnings Per Share - Basic $ 0.34 $ 0.29 ======= ======= Earnings Per Share - Fully Diluted $ 0.33 $ 0.29 ======= =======
See Notes to Unaudited Consolidated Financial Statements 4 5 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in Thousands)
Unearned Unearned Common Net Additional Common Stock Unrealized Total Common Paid In Retained Stock Held Held By Treasury Gain (Loss) Stockholders' Stock Capital Earnings By ESOP RRP Trust Stock On Securities Equity ------ ---------- -------- --------- --------- -------- ------------- ----------- Balance, December 31, 1996 $7,381 $65,725 $54,660 ($4,612) ($4,476) ($4,859) $187 $114,006 Comprehensive Income: Net Income 1,795 1,795 Change in Unrealized Gain (Loss) on (246) (246) Securities Available for Sale Net of Deferred Taxes of ($127) -------- Total Comprehensive Income 1,549 Cash Dividends Declared (699) (699) Common Stock Released by 209 175 384 ESOP Trust Common Stock earned by Participants 1 93 94 of Management Recognition Plan Treasury Stock Acquired (920) (920) ------ ------- ------- ------- ------- ------- ---- -------- Balance, March 31, 1997 $7,381 $65,725 $56,455 ($4,612) ($4,476) ($4,859) ($59) $115,555 ====== ======= ======= ======= ======= ======= ==== ======== Balance, December 31, 1997 $7,381 $66,798 $57,096 ($3,921) ($4,082) ($7,929) $221 $115,564 Comprehensive Income: Net Income 2,147 2,147 Change in Unrealized Gain (Loss) on 38 38 Securities Available for Sale Net of Deferred Taxes of $20 -------- Total Comprehensive Income 2,185 Cash Dividends Declared (911) (911) Common Stock Released by 259 166 425 ESOP Trust Common Stock Earned by Participants 10 101 111 of Recognition and Retention Plan Trust Treasury Stock Reissued 5 63 68 ------ ------- ------- ------- ------- ------- ---- -------- Balance, March 31, 1998 $7,381 $66,798 $59,243 ($3,921) ($4,082) ($7,929) $259 $117,442 ====== ======= ======= ======= ======= ======= ==== ========
See Notes to Unaudited Consolidated Financial Statements 5 6 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1998 and 1997 (Dollars in Thousands)
1998 1997 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,147 $ 1,795 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 809 719 Provision for Loan Losses 230 150 Compensation Expensed Recognized on RRP 111 94 (Gain) Loss on Sale of Premises and Equipment (12) 7 Loss (Gain) on Sale of Real Estate Owned 17 (24) Gain on Sale of Loans Held for Sale (166) (40) Amortization of Premium/Discount on Investments (54) 58 Current Provision for Deferred Income Taxes (32) 0 FHLB Stock Dividends (91) (82) Loans Originated for Resale (10,939) (2,503) Proceeds from Loans Sold to Others 11,105 2,543 Income Reinvested on Marketable Equity Security (82) (79) ESOP Contribution 370 384 Net Change in Securities Classified as Trading 0 (42) Proceeds from ESOP Note Repayment 0 841 Changes in Assets and Liabilities: Decrease in Accrued Interest Receivable 271 41 Decrease in Other Assets and Other Liabilities 3,483 2,040 --------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,167 $ 5,902 --------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds From Maturities of Held to Maturity Securities $ 365 $ 340 Proceeds From Maturities of Available for Sale Securities 12,845 13,500 Purchases of Securities Available for Sale 0 (9,998) Increase in Loans Receivable, Net (14,145) (20,806) Proceeds From Sale of Premises and Equipment 202 0 Purchases of Premises and Equipment (684) (1,903) Preceeds From Disposition of Real Estate Owned 157 501 Principal Collections on Mortgage-Backed Securities 10,664 10,122 --------------------------- NET CASH USED IN INVESTING ACTIVITIES $ 9,404 $ (8,244) --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposits $ 4,961 $ 11,117 Net Change in Time Deposits (11,833) (1,966) Increase in Escrow Funds and Miscellaneous Deposits, Net 179 85 Principal Repayments of FHLB Advances (266) (250) Dividends Paid to Shareholders (750) (553) Proceeds from Sale of Treasury Stock 68 0 Payments to Repurchase Common Stock 0 (920) --------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ (7,641) $ 7,513 --------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 8,930 $ 5,171 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,307 53,385 --------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,237 $ 58,556 =========================== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 187 $ 79 =========================== SUPPLEMENTAL DISCLOSURES: Cash Paid (Received) For: Interest on Deposits and Borrowings $ 8,587 $ 9,167 =========================== Income Taxes $ - $ - =========================== Income Tax Refunds $ - $ - ===========================
6 7 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, 1997. BUSINESS The Company's principal business is conducted through it's wholly owned subsidiary, IBERIABANK (the "Bank"), which conducts business from its main office located in New Iberia, Louisiana and 26 full-service branch offices located in the cities of New Iberia, Lafayette, St. Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City, Abbeville, Gretna, Marrero, River Ridge, Metairie, New Orleans and Kenner, Louisiana. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the maximum extent permitted by law. The Bank is a Louisiana chartered commercial bank. 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 FDIC 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 subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The branches in Marrero, River Ridge, Metairie, New Orleans, Gretna and Kenner were branches of Jefferson Bank, a wholly owned subsidiary of the Company that was merged into Iberia Savings Bank on September 14, 1997. Jefferson Bank was acquired by the Company in October of 1996. 7 8 (2) LOANS RECEIVABLE Loans receivable (in thousands) at March 31, 1998 and December 31, 1997 consisted of the following:
Mar. 31, Dec. 31, 1998 1997 -------- -------- Residential Mortgage Loans: Single-family $370,882 $376,320 Multi-family 2,332 2,516 Construction 22,185 22,109 -------- -------- Total Residential Mortgage Loans 395,399 400,945 -------- -------- Commercial Loans: Business 59,407 57,978 Real Estate 55,999 48,291 -------- -------- Total Commercial Loans 115,406 106,269 Consumer Loans: Home Equity 36,210 34,192 Automobile 10,450 9,433 Indirect Automobile 96,422 90,676 Mobile Home Loans 3,069 3,226 Educational Loans 9,619 9,458 Credit Card Loans 3,747 4,150 Loans on Savings 11,052 11,255 Other 8,727 7,358 -------- -------- Total Consumer Loans 179,296 169,748 -------- -------- Total Loans Receivable 690,101 676,962 -------- -------- Adjustments: Allowance for Loan Losses (5,544) (5,258) Loans-in-Process (13,290) (14,082) Prepaid Dealer Participation 3,761 3,636 Unearned Interest (204) (160) Deferred Loan Fees, Net (801) (709) Discount on Loans Purchased (1,053) (1,145) -------- -------- Loans Receivable, Net $672,970 $659,244 ======== ========
8 9 (3) EARNINGS PER SHARE Basic earnings per share were based on 6,246,791 weighted average shares outstanding during the three month period ended March 31, 1998. Diluted earnings per share were based on 6,502,254 weighted average shares outstanding during the three month period ended March 31, 1998. For the three months ended March 31, 1998, the weighted average number of common shares outstanding excludes (a) the weighted average unreleased shares owned by the Employee Stock Ownership Plan ("ESOP") of 383,808; (b) the weighted average shares owned by the Management Recognition Plan and Trust of 271,895 and (c) the weighted average shares purchased in Treasury Stock of 478,177. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CHANGES IN FINANCIAL CONDITION At March 31, 1998, the consolidated assets of the Company totalled $943.3 million, a decrease of $4.0 million, or .4%, from December 31, 1997. Loans receivable, net, increased by $13.7 million, or 2.1%, to $673.0 million at March 31, 1998, compared to $659.2 million at December 31, 1997. Such increase was the result of a $7.7 million, or 16.0%, increase in commercial real estate loans, a $1.4 million, or 2.5%, increase in commercial business loans, a $2.0 million, or 5.9%, increase in home equity loans, a $1.0 million, or 10.8%, increase in automobile loans, a $5.7 million, or 6.3%, increase in indirect automobile loans and a $1.4 million, or 18.6%, increase in other consumer loans. Such increases were partially offset by a $5.4 million, or 1.4%, decrease in single-family residential loans. The changes in the loan portfolio reflect management's efforts to increase the originations of commercial real estate, commercial business, indirect automobile loans and consumer loans. Such loans generally are considered to involve more risk than 1-4 family residential mortgage loans, but generally have higher yields. The Company's loan to deposit ratio at March 31, 1998 was 87.2% compared to 84.7% at December 31, 1997. For additional information on loans, see Note 2 to the Notes to Consolidated Financial Statements. The increase in loans receivable was funded primarily by a decrease in investment securities available for sale and a decrease in mortgage-backed securities. Interest bearing deposits at other institutions increased $9.1 million, or 28.3%, to $41.5 million at March 31, 1998, compared to $32.3 million at December 31, 1997. The Company's investment securities available for sale decreased $12.7 million, or 16.8%, to $62.8 million at March 31, 1998, compared to $75.5 million at December 31, 1997. Such decrease was the result of the maturity or redemption of $12.8 million of investment securities, which was partially offset by the $58,000 increase in the market value of such securities and $54,000 of net premium amortization on such securities. Mortgage-backed securities decreased $10.6 million, or 9.2%, from December 31, 1997 to March 31, 1998. Such decrease was attributable entirely to repayments. Deposits decreased $6.9 million, or .9%, to $771.8 million at March 31, 1998, compared to $778.7 million at December 31, 1997. Such decrease was due to $13.7 million of net deposits withdrawals, which was partially offset by $6.8 million of interest credited. Advances from the FHLB of Dallas decreased $266,000, or .6%, to $46.5 million at March 31, 1998, compared to $46.7 million at December 31, 1997. The decrease in advances was attributable to scheduled payments made. The advances are amortizing, fixed-rate and long term and were used to fund originations of fixed-rate, long term single-family residential loans. 10 11 Total stockholders' equity increased $1.9 million, or 1.6%, to $117.4 million at March 31, 1998. The increase was the result of the Company's net income of $2.1 million, $425,000 of common stock released by the ESOP, $111,000 of common stock earned by participants of the Recognition and Retention Plan, a $38,000, after deferred taxes, increase in net unrealized gains on securities available for sale and $68,000 of stock issued out of treasury, all of which was partially offset by the declaration of cash dividends on common stock of $911,000. RESULTS OF OPERATIONS The Company reported net income of $2.1 million for the three months ended March 31, 1998, compared to $1.8 million during the three month period ended March 31, 1997, an increase of $352,000. The Company's net interest income increased by $987,000 and total noninterest income increased by $508,000 during the three months ended March 31, 1998 compared to the first quarter of 1997. Such changes were partially offset by a $68,000 increase in provision for loan losses, a $914,000 increase in total noninterest expense and a $161,000 increase in income tax expense. 11 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 Company 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.
Three Months Ended March 31, --------------------------------------------------------------------- 1998 1997 ---------------------------------- -------------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost(1) Balance Interest Cost(1) -------- -------- ------- ------- -------- ------- Interest-earning assets: Loans receivable: Mortgage loans $427,930 $8,828 8.25% $414,147 $8,392 8.11% Commercial business loans 58,676 1,558 10.62 41,295 1,078 10.44 Consumer and other loans 175,242 3,647 8.32 126,381 2,863 9.06 -------- ------ -------- ------ Total Loans 661,848 14,033 8.48 581,823 12,333 8.48 -------- ------ -------- ------ Mortgage-backed securities 110,227 1,811 6.57 145,667 2,264 6.22 Investment securities 80,515 1,234 6.13 106,250 1,647 6.20 Other earning assets 29,466 486 6.60 35,551 533 6.00 -------- ------ -------- ------ Total interest-earning assets 882,056 17,564 7.97 869,291 16,777 7.72 ------ ------ Non-interest-earning assets 62,645 59,836 -------- -------- Total assets $944,701 $929,127 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $154,942 976 2.52 $136,275 853 2.50 Passbook savings deposits 110,693 651 2.35 120,474 765 2.54 Certificates of deposits 461,125 6,166 5.35 468,927 6,359 5.42 -------- ------ -------- ------ Total deposits 726,760 7,793 4.29 725,676 7,977 4.40 Borrowings 46,637 753 6.45 47,664 769 6.45 -------- ------ -------- ------ Total interest-bearing liabilities 773,397 8,546 4.42 773,340 8,746 4.52 ------ ------ Non-interest bearing demand deposits 44,801 32,966 Non-interest bearing liabilities 9,410 8,709 -------- -------- Total liabilities 827,608 815,015 Stockholders' Equity 117,093 114,112 -------- -------- Total liabilities and stockholders' equity $944,701 $929,127 ======== ======== Net interest-earning assets $108,659 $ 95,951 ======== ======== Net interest income/interest rate spread $9,018 3.55% $8,031 3.20% ====== ===== ====== ===== Net interest margin 4.09% 3.70% ===== ==== Ratio of average interest- earning assets to average interest-bearing liabilities 114.05% 112.41% ======== ========
- ------------ (1) Annualized. 12 13 NET INTEREST INCOME Net interest income increased $987,000, or 12.3%, to $9.0 million in the three months ended March 31, 1998, compared to $8.0 million in the three months ended March 31, 1997. The increase was due to a $787,000, or 4.7%, increase in interest income, together with a $200,000, or 2.3%, decrease in interest expense. The increase in interest income was the result of a $12.8 million, or 1.5%, increase in the average balance of interest-earning assets, together with a 25 basis point (100 basis points being equal to 1%) increase in the yield thereon. The decrease in interest expense was the result of a 10 basis point decrease in the cost of interest-bearing liabilities. The average balance of interest-bearing liabilities remained unchanged from the first quarter of 1997 to the first quarter of 1998. 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 3.55% and 4.09%, respectively, during the three months ended March 31, 1998, compared to 3.20% and 3.70%, respectively, for the comparable period in 1997. INTEREST INCOME The Company's total interest income was $17.6 million for the three months ended March 31, 1998, compared to $16.8 million for the three months ended March 31, 1997. The reason for the $787,000, or 4.7%, increase in interest income was a $1.7 million, or 13.8%, increase in interest income from loans, which was partially offset by a $413,000, or 25.1%, decrease in interest and dividends on investment securities, a $453,000, or 20.0%, decrease in interest income from mortgage-backed securities and a $47,000, or 8.8%, decrease in interest on deposits held at other financial institutions. The increase in interest income from loans was the result of a $80.0 million, or 13.8%, increase in the average balance of loans. The yield earned on loans remained unchanged at 8.48%. The decrease in interest and dividends on investment securities was the result of a $25.7 million, or 24.2%, decrease in the average balance of investment securities, together with a seven basis point decrease in the yield earned thereon. The decrease in interest income from mortgage-backed securities was the result of a $35.4 million, or 24.3%, decrease in the average balance of mortgage-backed securities, which was partially offset by a 35 basis point increase in the yield earned thereon. The decrease in interest on other earning assets, primarily deposits at other financial institutions, was the result of a $6.1 million, or 17.1%, decrease in the average balance of other earning assets, which was partially offset by a 60 basis point increase in the yield earned thereon. INTEREST EXPENSE The Company's total interest expense was $8.5 million during the three months ended March 31, 1998, compared to $8.7 million for the three months ended March 31, 1997. The reason for the $200,000, or 2.3%, decrease in interest expense was an 11 basis point decrease in the average cost of deposits, which was partially offset by a $1.1 million, or .1%, increase in the average balance of deposits. Interest expense 13 14 paid on advances from the FHLB remained relatively constant. The borrowings from the FHLB are used to fund fixed-rate, long term single-family residential loans. PROVISION FOR LOAN LOSSES The provision for loan losses was $230,000 in the three months ended March 31, 1998 as compared to $162,000 for the same period in 1997. The increased provisions for loan losses during the three month period in 1998 compared to 1997 was due to the increase in net loans, particularly the increases in commercial real estate, commercial business and indirect automobile loans which generally involve greater risk than single-family residential loans. As of March 31, 1998, the ratio of the Company's allowance for loan losses to non-performing loans was 223.9%. NONINTEREST INCOME Noninterest income increased $508,000, or 39.4%, in the three months ended March 31, 1998 to $1.8 million, compared to $1.3 million for the three months ended March 31, 1997. Such increase was due primarily to a $210,000, or 29.5%, increase in service charges on deposit accounts, a $122,000, or 61.0%, increase in late charges and other fees on loans and a $176,000, or 46.8%, increase in other income. The increase in service charges on deposit accounts was due primarily to the increased number of accounts that are subject to such service charges together with increased charges on such accounts. The increase in other income was due primarily to increased gains on the sale of newly originated mortgage loans in the secondary market. NONINTEREST EXPENSE Noninterest expense increased $914,000, or 14.9%, in the three months ended March 31, 1998 to $7.1 million, compared to $6.1 million in the three months ended March 31, 1997. Such increase was due primarily to a $373,000, or 11.9%, increase in salaries and employee benefits, a $123,000, or 43.1%, increase in depreciation expense, a $67,000, or 16.4%, increase in occupancy expense, a $138,000, or 184.0%, increase in marketing and advertising expense and a $284,000, or 25.1%, increase in other expenses, all of which was partially offset by a $47,000, or 13.7%, decrease in computer expense and a $32,000, or 8.0%, decrease in the amortization of goodwill and other acquired intangibles. INCOME TAX EXPENSE Income tax expense increased $161,000, or 13.1%, in the three months ended March 31, 1998 to $1.4 million compared to $1.2 million for the three months ended March 31, 1998. The increase in income tax expense reflects an increase in income before taxes. 14 15 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 March 31, 1998, the Company had $46.5 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 March 31, 1998, the total approved loan commitments outstanding amounted to $49.0 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $60.7 million. Certificates of deposit scheduled to mature in twelve months or less at March 31, 1998 totalled $327.6 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates it will continue to have sufficient funds to meet its liquidity requirements. At March 31, 1998, the Company and its subsidiary had regulatory capital which was well in excess of regulatory requirements. The current requirements and the Company's actual levels as of March 31, 1998 are detailed below (dollars in thousands):
Required Capital Actual Capital ----------------- ----------------- Amount Percent Amount Percent ------- ------- -------- ------- Tier 1 Leverage $28,495 3.00% $101,193 10.65% Tier 1 Risk-Based $23,667 4.00% $101,193 17.10% Total Risk-Based $47,334 8.00% $106,737 18.04%
15 16 YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. Timely and accurate data processing is essential to any financial institution. The Company formed a task force in 1997 to assess the impact of the Year 2000 problem and to insure compliance for all critical and ancillary systems utilized by the Company. The Company is in the process of selecting a new computer vendor for data processing software for its core applications, and the Company will determine compliance with Year 2000 issues before awarding a contract. Many of the costs associated with determing compliance with and correcting Year 2000 issues for ancillary computer programs is expected to come from a reassignment of existing internal resources and is not expected to involve material additional costs. 16 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk are presented at December 31, 1997 in Item 7A of the Company's Annual Report on Form 10-K, file with the SEC on March 31, 1998. Management believes there have been no material changes in the Company's market risk since December 31, 1997. 17 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 Not Applicable Item 6. Exhibits and Reports on Form 8-K a) Not applicable. b) No Form 8-K reports were filed during the quarter. 18 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 Date: May 11, 1998 By: /s/ Larrey G. Mouton ------------------------------------------ Larrey G. Mouton, President and Chief Executive Officer Date: May 11, 1998 By: /s/ John J. Ballatin ------------------------------------------ John J. Ballatin, Executive Vice President and Cashier 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 0000933141 ISB FINANCIAL 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 11,747 41,490 0 0 62,802 105,959 107,160 672,970 (5,544) 943,275 771,823 46,462 7,548 0 0 0 7,381 110,061 943,275 14,033 3,045 486 17,564 7,793 8,546 9,018 230 0 7,052 3,533 2,147 0 0 2,147 .34 .33 7.97 2,140 0 0 7,172 5,258 181 237 5,544 0 0 5,544
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