-----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, AsCTgW14+ipi+xUvrn1WnUlAT56RvaZq8OVFla5W89H6PBW2airhgKV0AYvksKlu VCLkaC2Y6QsbkfJkM69ttg== 0000950133-99-001839.txt : 19990518 0000950133-99-001839.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950133-99-001839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99624805 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 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, 1999 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 (I.R.S. Employer 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 April 22, 1999, 6,788,866 shares of the Registrant's common stock were issued and outstanding. Of that total, 573,654 shares are held by the Registrant's Employee Stock Ownership Plan, of which 326,659 shares were not committed to be released. 2 ISB FINANCIAL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART 1. FINANCIAL INFORMATION PAGE - ------- --------------------- ---- Item 1. Financial Statements Consolidated Statements of Financial Condition 3 (As of March 31, 1999 and December 31, 1998) Consolidated Statements of Income (For the three months 4 ended March 31, 1999 and 1998) Consolidated Statements of Stockholders' Equity (For the 5 three months ended March 31, 1999 and 1998) Consolidated Statements of Cash Flows (For the three 6 months ended March 31, 1999 and 1998) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 9 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART 2. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 2 3 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in Thousands, Except Share Data)
ASSETS March 31, December 31, 1999 1998 ----------- ----------- Cash and Cash Equivalents: Cash on Hand and Due from Banks $ 34,186 $ 36,953 Interest Bearing Deposits 74,497 108,918 Investment Securities: Held to Maturity (fair value of $2,260 and $2,675, 2,259 2,673 respectively) Available for Sale, at fair value 110,754 97,085 Mortgage-Backed Securities Held to Maturity (fair 270,539 277,798 value of $268,488 and $277,692, respectively) Loans Held For Sale 12,950 18,495 Loans Receivable, Net 760,227 761,175 Foreclosed Property 370 384 Premises and Equipment, Net 27,950 27,326 Federal Home Loan Bank Stock, at Cost 10,384 10,245 Accrued Interest Receivable 6,774 7,667 Goodwill and Acquisition Intangibles 44,499 45,352 Other Assets 6,342 7,559 ----------- ----------- TOTAL ASSETS $ 1,361,731 $ 1,401,630 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $ 1,177,164 $ 1,218,698 Federal Home Loan Bank Advances 45,356 45,639 Long Term Debt 1,000 0 Advance Payments by Borrowers for Taxes and Insurance 1,403 1,228 Accrued Interest Payable on Deposits 6,280 6,708 Accrued and Other Liabilities 6,737 5,390 ----------- ----------- TOTAL LIABILITIES 1,237,940 1,277,663 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0 -0- shares issued or outstanding Common Stock of $1 par value, authorized 25,000,000 7,381 7,381 shares, 7,380,671 shares issued Additional Paid-in Capital 68,208 68,021 Retained Earnings (Substantially Restricted) 65,412 63,527 Unearned Common Stock Held by ESOP (3,109) (3,267) Unearned Common Stock Held by RRP Trust (3,578) (3,683) Treasury Stock, 566,805 and 498,805 shares, at cost (9,735) (8,361) Accumulated Other Comprehensive Income (788) 349 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 123,791 123,967 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,361,731 $ 1,401,630 =========== ===========
SEE NOTES TO 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, -------------------- 1999 1998 ------- ------- INTEREST INCOME: Interest on Loans $16,108 $14,033 Interest and Dividends on Investment Securities 1,700 1,234 Interest on Mortgage-Backed Securities 4,325 1,811 Interest on Deposits 843 486 ------- ------- Total Interest Income 22,976 17,564 ------- ------- INTEREST EXPENSE: Interest on Deposits 10,270 7,793 Interest on Federal Home Loan Bank Advances 735 753 ------- ------- Total Interest Expense 11,005 8,546 ------- ------- Net Interest Income 11,971 9,018 Provision for Loan Losses 370 230 ------- ------- Net Interest Income After Provision for Loan Losses 11,601 8,788 ------- ------- NONINTEREST INCOME: Gain on the Sale of Property 38 14 Gain on the Sale of Loans 302 179 Service Charges on Deposit Accounts 1,880 923 Late Charges and Other Fees on Loans 480 323 Other Income 784 358 ------- ------- Total Noninterest Income 3,484 1,797 ------- ------- NONINTEREST EXPENSE: Salaries and Employee Benefits 5,133 3,520 SAIF Deposit Insurance Premium 121 110 Depreciation Expense 651 407 Occupancy Expense 777 475 Computer Expense 6 292 Marketing and Advertising 235 213 Franchise and Shares Tax Expense 267 249 Amortization of Goodwill and Other Acquired Intangibles 853 369 Other Expenses 2,428 1,417 ------- ------- Total Noninterest Expense 10,471 7,052 ------- ------- Income Before Income Tax Expense 4,614 3,533 Income Tax Expense 1,755 1,386 ------- ------- NET INCOME $ 2,859 $ 2,147 ======= ======= EARNINGS PER SHARE - BASIC $ 0.45 $ 0.34 ======= ======= EARNINGS PER SHARE - DILUTED $ 0.44 $ 0.33 ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Dollars in Thousands)
Unearned Unearned Common Additional Common Stock Common Paid In Retained Stock Held Held By Stock Capital Earnings By ESOP RRP Trust ------- --------- --------- ---------- --------- BALANCE, DECEMBER 31, 1997 $7,381 $66,798 $57,096 ($3,921) ($4,082) Comprehensive Income: Net Income 2,147 Change in Unrealized Gain (Loss) on Securities Available for Sale Net of Deferred Taxes of $20 Total Comprehensive Income Cash Dividends Declared (911) Common Stock Released by 259 166 ESOP Trust Common Stock earned by Participants 10 101 of Management Recognition Plan Treasury Stock Acquired 5 ------ ------- ------- ------- ------- BALANCE, MARCH 31, 1998 $7,381 $67,072 $58,332 ($3,755) ($3,981) ====== ======= ======= ======= ======= BALANCE, DECEMBER 31, 1998 $7,381 $68,021 $63,527 ($3,267) ($3,683) Comprehensive Income: Net Income 2,859 Change in Unrealized Gain (Loss) on Securities Available for Sale Net of Deferred Taxes of ($406) Total Comprehensive Income Cash Dividends Declared (974) Common Stock Released by 174 158 ESOP Trust Common Stock Earned by Participants 12 105 of Recognition and Retention Plan Trust Treasury Stock Acquired Stock Options Exercised 1 ------ ------- ------- ------- ------- BALANCE, MARCH 31, 1999 $7,381 $68,208 $65,412 ($3,109) ($3,578) ====== ======= ======= ======= =======
Accumulated Other Total Treasury Comprehensive Stockholders' Stock Income Equity -------- ------------- ------------ BALANCE, DECEMBER 31, 1997 ($7,929) $ 221 $115,564 Comprehensive Income: Net Income 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) Common Stock Released by 425 ESOP Trust Common Stock earned by Participants 111 of Management Recognition Plan Treasury Stock Acquired 63 68 ------- ------- -------- BALANCE, MARCH 31, 1998 ($7,866) $ 259 $117,442 ======= ======= ======== BALANCE, DECEMBER 31, 1998 ($8,361) $ 349 $123,967 Comprehensive Income: Net Income 2,859 Change in Unrealized Gain (Loss) on (1,137) (1,137) Securities Available for Sale Net of Deferred Taxes of ($406) -------- Total Comprehensive Income 1,722 Cash Dividends Declared (974) Common Stock Released by 332 ESOP Trust Common Stock Earned by Participants 117 of Recognition and Retention Plan Trust Treasury Stock Acquired (1,389) (1,389) Stock Options Exercised 15 16 ------- ------- -------- BALANCE, MARCH 31, 1999 ($9,735) ($788) $123,791 ======= ===== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Thousands)
For The Three Months Ended March 31, ------------------------ 1999 1998 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,859 $ 2,147 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 1,655 809 Provision for Loan Losses 370 230 Compensation Expense Recognized on RRP 117 111 (Gain) Loss on Sale of Premises and Equipment (38) (12) (Gain) Loss on Sale of Real Estate Owned 31 17 Gain on Sale of Loans Held for Sale (302) (166) Gain on Sale of Investments 0 0 Amortization of Premium/Discount on Investments 32 (54) Current Provision for Deferred Income Taxes (4) (32) FHLB Stock Dividends (139) (91) Loans Originated for Resale (19,324) (12,206) Proceeds from Loans Sold to Others 29,622 11,105 Income Reinvested on Marketable Equity Securities (79) (82) ESOP Contribution 332 370 Changes in Assets and Liabilities: (Increase) Decrease in Accrued Interest Receivable 893 271 Decrease (Increase) in Other Assets and Other Liabilities 3,591 3,483 --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 19,616 $ 5,900 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds From Maturities of Held to Maturity Securities $ 414 $ 365 Proceeds From Maturities of Available for Sale Securities 9,500 12,845 Principal Collections on Mortgage-Backed Securities 16,951 10,664 Purchases of Securities Available for Sale (24,837) 0 Purchases of Mortgage-Backed Securities (9,699) 0 Decrease (Increase) in Loans Receivable, Net (4,103) (12,878) Proceeds From Sale of Premises and Equipment 87 202 Purchases of Premises and Equipment (1,324) (684) Proceeds From Disposition of Real Estate Owned 206 157 --------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ (12,805) $ 10,671 --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposits $ (16,177) $ 4,961 Net Change in Time Deposits (25,357) (11,833) Increase in Escrow Funds and Miscellaneous Deposits, Net 175 179 Principal Repayments of FHLB Advances (283) (266) Dividends Paid to Shareholders (984) (750) Proceeds From Sale of Treasury Stock 16 68 Payments to Repurchase Common Stock (1,389) 0 --------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (43,999) $ (7,641) --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (37,188) $ 8,930 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 145,871 44,307 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,683 $ 53,237 ========= ======== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 225 $ 187 ========= ======== SUPPLEMENTAL DISCLOSURES: Cash Paid (Received) For: Interest on Deposits and Borrowings $ 11,433 $ 8,587 ========= ======== Income Taxes $ 450 $ 0 ========= ======== Income Tax Refunds $ 0 $ 0 ========= ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 the 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, 1998. BUSINESS The Company's principal business is conducted through its wholly owned subsidiary, IBERIABANK (the "Bank"), which conducts business from its main office located in New Iberia, Louisiana and 43 full-service branch offices located in the cities of New Iberia, Lafayette, Scott, Carencro, St. Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City, Abbeville, Ruston, Monroe, West Monroe, Gretna, Marrero, River Ridge, Metairie, New Orleans and Kenner, Louisiana. The Federal Deposit Insurance Corporation ("FDIC") insures the Bank's deposits 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. 2. LONG TERM DEBT On March 4, 1999, the Company entered into a revolving line of credit agreement with Union Planters Bank, N.A in the amount of $15.0 million. This revolving line of credit is to be used for general operating purposes, including the repurchase of the Company's common stock and for capital investment in the Bank. The maturity date of the agreement is March 31, 2001. The Company is required to make quarterly payments of interest at an interest rate equal to Wall Street Prime minus .50% and any balance outstanding under the agreement will be due at maturity. As security for the line of credit, the Company has pledged 100% of the outstanding common stock of the Bank. At March 31, 1999, the Company had drawn $1.0 million on the line of credit. 7 8 3. LOANS RECEIVABLE Loans receivable (in thousands) at March 31, 1999 and December 31, 1998 consisted of the following:
Mar. 31, Dec. 31, 1999 1998 --------- --------- Residential Mortgage Loans: Single-family $ 284,961 $ 301,468 Construction 6,662 7,549 --------- --------- Total Residential Mortgage Loans 291,623 309,017 Commercial Loans: Business 86,158 83,368 Real Estate 126,092 117,628 --------- --------- Total Commercial Loans 212,250 200,996 Consumer Loans: Home Equity 73,435 73,184 Automobile 23,353 24,630 Indirect Automobile 122,863 114,337 Mobile Home 2,330 2,511 Educational 265 624 Credit Card 4,713 4,584 Loans on Savings 6,746 8,104 Other 26,565 27,753 --------- --------- Total Consumer Loans 260,270 255,727 --------- --------- Total Loans Receivable 764,143 765,740 Adjustments: Allowance for Loan Losses (7,178) (7,135) Prepaid Dealer Participation 4,681 4,145 Unearned Interest (209) (236) Deferred Loan Fees & Purchased Discounts, Net (1,210) (1,339) --------- --------- Loans Receivable, Net $ 760,227 $ 761,175 --------- ---------
4. EARNINGS PER SHARE Basic earnings per share were based on 6,294,832 weighted average shares outstanding during the three month period ended March 31, 1999. Diluted earnings per share were based on 6,439,937 weighted average shares outstanding during the three month period ended March 31, 1999. For the three months ended March 31, 1999, the weighted average number of common shares outstanding excludes (a) the weighted average unreleased shares owned by the Employee Stock Ownership Plan ("ESOP") of 318,799; (b) the weighted average shares owned by the Management Recognition Plan and Trust of 246,403 and (c) the weighted average shares purchased in Treasury Stock of 510,637. 8 9 This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from the estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN FINANCIAL CONDITION At March 31, 1999, the consolidated assets of the Company totaled $1.36 billion, a decrease of $39.9 million, or 2.8%, from December 31, 1998. Loans receivable, net, decreased by $948,000, or .1%, to $760.2 million at March 31, 1999 compared to $761.2 million at December 31, 1998. Such decrease was the result of a $16.5 million, or 5.5%, decrease in the balance of single-family residential mortgage loans, a $1.3 million, or 5.2%, decrease in automobile loans, a $1.4 million, or 16.8%, decrease in loans on savings and a $1.2 million, or 4.3%, decrease in other consumer loans, which was offset by a $2.8 million, or 3.3%, increase in commercial business loans, a $8.5 million, or 7.2%, increase in commercial real estate loans and a $8.5 million, or 7.5%, increase in indirect automobile 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, 1999 was 64.6% compared to 62.5% at December 31 1998. For additional information on loans, see Note 3 to the Consolidated Financial Statements. Loans held for sale decreased $5.5 million, or 30.0%, to $12.9 million compared to $18.5 million at December 31, 1998. Loans held for sale are single-family residential mortgage loans to be sold in the secondary market. Interest-bearing deposits at other institutions decreased $34.4 million, or 31.6%, to $74.5 million at March 31, 1999, compared to $108.9 million at December 31, 1998. Such decrease was primarily used to fund the purchase of investment securities and to fund the net decline in deposits. The Company's investment securities available for sale increased $13.7 million, or 14.1%, to $110.8 million at March 31, 1999, compared to $97.1 million at December 31, 1998. Such increase was the result of the purchase of $24.8 million of investment securities available for sale, which was partially offset by the maturity or redemption of $9.5 million of investment securities available for sale and by $32,000 of amortization of premium on such securities. Mortgage-backed securities decreased $7.3 million, or 2.6%, to $270.5 million at March 31, 1999, compared to $277.8 million at December 31, 1998. Such decrease was the result of $17.0 million of repayments of mortgage-backed securities, which was partially offset by $9.7 million of purchases of mortgage-backed securities. Deposits decreased $41.5 million, or 3.4%, to $1,177.2 million at March 31, 1999, compared to $1,218.7 million at December 31, 1998. The decrease in deposits was primarily the result of a large over-night deposit made on December 31, 1998 that was withdrawn the next business day and a decrease in time deposits due to lower pricing of non-relationship accounts. 9 10 Total stockholders' equity decreased $176,000, to $123.8 million at March 31, 1999. The decrease was the result of $1.4 million of treasury stock acquired, $974,000 of cash dividends declared on common stock and a $1.1 million, after taxes, decrease in accumulated other comprehensive income, which was partially offset by the Company's net income of $2.9 million, $332,000 of common stock released by the ESOP, $117,000 of common stock earned by participants of the Recognition and Retention Plan and $16,000 of common stock issued out of treasury. 10 11 RESULTS OF OPERATIONS The Company reported net income of $2.9 million for the three months ended March 31, 1999, compared to $2.1 million earned during the three months ended March 31, 1998. The Company's net interest income increased $3.0 million and total noninterest income increased $1.7 million during the three months ended March 31, 1999 compared to the first quarter of 1998. Such increases were partially offset by a $140,000 increase in the provision for loan losses, a $3.4 million increase in noninterest expense and a $369,000 increase in income tax expense. The increases in interest income, interest expense, noninterest income and noninterest expense were primarily the result of the acquisition of branches from the former First Commerce Corporation ("First Commerce") in September 1998. The Bank paid $29.2 million of cash as a deposit premium and purchased $126.6 million of loans, $5.7 million of premises and equipment and $753,000 of other assets. The Bank also assumed $452.6 million of deposits and $2.7 million of other liabilities from First Commerce. The Bank received $292.4 million of net cash in the transaction. 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, ------------------------------------------------------------------------ 1999 1998 ------------------------------------- ------------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost(1) Balance Interest Cost(1) ------- -------- ------- ------- -------- ------- Interest-earning assets: Loans receivable: Mortgage loans $ 314,405 $ 6,151 7.83% $369,581 $ 7,474 8.09% Commercial loans 199,797 4,358 8.72 117,025 2,912 9.95 Consumer and other loans 262,132 5,600 8.55 175,242 3,647 8.32 ---------- -------- -------- ------- Total Loans 776,334 16,109 8.30 661,848 14,033 8.48 ---------- -------- -------- ------- Mortgage-backed securities 274,821 4,325 6.30 110,227 1,811 6.57 Investment securities 111,548 1,700 6.10 80,515 1,234 6.13 Other earning assets 80,037 842 4.21 29,466 486 6.60 ---------- -------- -------- ------- Total interest-earning assets 1,242,740 22,976 7.40 882,056 17,564 7.97 -------- ------- Non-interest-earning assets 120,616 62,645 ---------- -------- Total assets $1,363,356 $944,701 ========== ======== Interest-bearing liabilities: Deposits: Demand deposits $ 292,971 1,553 2.12 $154,942 976 2.52 Passbook savings deposits 129,653 581 1.79 110,693 651 2.35 Certificates of deposits 643,001 8,136 5.06 461,125 6,166 5.35 ---------- -------- -------- ------- Total deposits 1,065,625 10,270 3.86 726,760 7,793 4.29 Borrowings 45,538 735 6.45 46,637 753 6.46 ---------- -------- -------- ------- Total interest-bearing liabilities 1,111,163 11,005 3.96 773,397 8,546 4.42 -------- ------- Non-interest bearing demand deposits 114,767 44,801 Non-interest bearing liabilities 12,999 9,410 ---------- -------- Total liabilities 1,238,929 827,608 Stockholders' Equity 124,427 117,093 ---------- -------- Total liabilities and stockholders' equity $1,363,356 $944,701 ========== ======== Net interest-earning assets $ 131,577 $108,659 ========== ======== Net interest income/interest rate spread $ 11,971 3.43% $ 9,018 3.55% ========= ===== ======== ==== Net interest margin 3.85% 4.09% ===== ==== Ratio of average interest- earning assets to average interest-bearing liabilities 111.84% 114.05% ========== ========
(1) Annualized. 12 13 NET INTEREST INCOME Net interest income increased $3.0 million, or 32.7%, to $12.0 million in the three months ended March 31, 1999, compared to $9.0 million in the three months ended March 31, 1998. The increase was due to a $5.4 million, or 30.8% increase in interest income, which was partially offset by a $2.5 million, or 28.8%, increase in interest expense. The increase in interest income was the result of a $360.7 million, or 40.9%, increase in the average balance of interest-earning assets, which was partially offset by a 57 basis point (100 basis points being equal to 1%) decrease in the yield earned on interest-earning assets. The increase in interest expense was the result of a $337.8 million, or 43.7%, increase in the average balance of interest-bearing liabilities, which was partially offset by a 46 basis point decrease in the cost thereof. The increases in the average balances of interest-earning assets and interest-bearing liabilities were due primarily to the acquisition from First Commerce in September 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 3.43% and 3.85%, respectively, during the three months ended March 31, 1999, compared to 3.55% and 4.09%, respectively, for the comparable period in 1998. INTEREST INCOME The Company's total interest income was $23.0 million for the three months ended March 31, 1999, compared to $17.6 million for the three months ended March 31, 1998. The reason for the $5.4 million, or 30.8%, increase in interest income was a $2.1 million, or 14.8%, increase in interest income from loans, a $466,000, or 37.8%, increase in interest and dividends on investment securities, a $2.5 million, or 138.8%, increase in interest on mortgage-backed securities and a $357,000, or 73.5%, increase in interest on deposits held at other institutions. The increase in interest income from loans was the result of a $114.5 million, or 17.3%, increase in the average balance of loans, which was partially offset by a 18 basis point decrease in the yield earned thereon. The increase in interest income from investment securities was the result of a $31.0 million, or 38.5%, increase in the average balance of investment securities, which was partially offset by a three basis point decrease in the yield earned thereon. The increase in interest income from mortgage-backed securities was the result of a $164.6 million, or 149.3%, increase in the average balance of mortgage-backed securities, which was partially offset by a 27 basis point decrease in the yield earned thereon. The increase in interest from deposits at other institutions was the result of a $50.6 million, or 171.6%, increase in the average balance of deposits at other institutions, which was partially offset by a 239 basis point decrease in the yield earned thereon. INTEREST EXPENSE The Company's total interest expense was $11.0 million during the three months ended March 31, 1999, compared to $8.5 million for the three months ended March 31, 1998. The reasons for the $2.5 million, or 28.8%, increase in interest expense was a $2.5 million, or 31.8%, increase in interest expense on deposits due to a $338.9 million, or 46.6%, increase in interest-bearing deposits, which was partially offset by a 43 basis point decrease in the cost of such deposits. The increase in interest expense on deposits was partially offset by a $18,000, or 2.4%, decrease in interest expense on FHLB advances due to a $1.1 million, or 2.4%, decrease in the average balance of FHLB advances, together with a one basis point decrease in the cost of such advances. PROVISION FOR LOAN LOSSES The provision for loan losses was $370,000 in the three months ended March 31, 1999 as compared to $230,000 for the same period in 1998. The increase in the provision for loan losses was the result of the growth in the commercial loan and indirect automobile loan portfolios together with the increase in the amount of non-performing loans. The Company had $5.1 million of non-performing loans, or 13 14 .37% of total assets, at March 31, 1999, compared to $2.4 million, or .26% of total assets, at March 31, 1998. As of March 31, 1999, the ratio of the Company's allowance for loan losses to non-performing loans was 142.0%, compared to 126.5% at December 31, 1998. NONINTEREST INCOME Noninterest income increased $1.7 million, or 93.9%, in the three months ended March 31, 1999 to $3.5 million, compared to $1.8 million for the three months ended March 31, 1998. Such increase was due primarily to a $123,000, or 68.7%, increase in gain on the sale of loans in the secondary market, a $957,000, or 103.7%, increase in service charges on deposit accounts, a $157,000, or 48.6%, increase in late charges and other fees on loans and a $426,000, or 119.0%, 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. NONINTEREST EXPENSE Noninterest expense increased $3.4 million, or 48.5%, in the three months ended March 31, 1999, to $10.5 million, compared to $7.1 million for the three months ended March 31, 1998. Such increase was due primarily to a $1.6 million, or 45.8%, increase in salaries and employee benefits resulting from the increased staff added in the last half of 1998 as a result primarily of the branch purchase in September 1998, a $244,000, or 60.0%, increase in depreciation expense primarily resulting from the fixed assets acquired in the branch purchase in September 1998 and the in-house data processing system installed in September 1998, a $302,000, or 63.6%, increase in occupancy expense primarily resulting from the branch purchase, a $484,000, or 131.2%, increase in the amortization of goodwill and other acquired intangibles due to the branch acquisition and a $1.0 million, or 71.3%, increase in other expenses, which was partially offset by a $286,000, or 97.9%, decrease in computer expense. INCOME TAX EXPENSE Income tax expense increased $369,000, or 26.6%, in the three months ended March 31, 1999 to $1.8 million, compared to $1.4 million for the three months ended March 31, 1998. The increase in income tax expense was due primarily to the increase 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 March 31, 1999, the Company had $45.4 million in outstanding advances from the FHLB of Dallas and $1.0 million in outstanding advances from Union Planters Bank, N.A. 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 and to pay maturing savings certificates and saving withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed and investment securities. At March 31, 1999, the total approved loan commitments outstanding amounted to $30.5 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $64.2 million. Certificates of deposit scheduled to mature in twelve months or less at March 31, 1999 totaled $476.2 million. Based on past experience 14 15 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, 1999, the Company and its subsidiary had regulatory capital, which was in excess of regulatory requirements. The current requirements and the Company's actual levels as of March 31, 1999 are detailed below (dollars in thousands):
Required Capital Actual Capital ------------------ ------------------- Amount Percent Amount Percent ------ ------- ------ ------- Tier 1 Leverage $38,230 3.00% $80,055 6.28% Tier 1 Risk-Based $31,825 4.00% $80,055 10.06% Total Risk-Based $63,650 8.00% $87,217 10.96%
YEAR 2000 COMPLIANCE The Year 2000 (Y2K) issues affects the ability of computer systems to correctly process dates after December 31, 1999. These issues not only affect the Bank, but virtually all companies that utilize computer information systems. In November 1997, the Bank established a Y2K Task Force headed by a member of the Bank's senior management team. The mission of this task force was to achieve Y2K compliance for all software, hardware and environmental systems that were dependent upon computer technology for their operation. In order to be ready for Year 2000, the Bank's Y2K Task Force developed a Year 2000 Action and Assessment Plan (the "Action Plan"). The Action Plan was developed using the guidelines outlined in the Federal Financial Institution's Examination council, "The Effect of 2000 on Computer Systems." As part of the assessment phase of the project, the Y2K Task Force identified 58 mission critical systems, 28 sensitive and 24 non-critical applications. As a result of this assessment, the Bank undertook an aggressive plan in early 1998 to completely replace all of the major application systems with new state- of-the-art technology that was Y2K compliant. The conversion to these new systems took place in September of 1998. The Bank has incurred capital expenditures amounting to approximately $2.5 million for the replacement of the core application systems. All other systems were determined by the Task Force to be Y2K compliant "as is," or with some minor enhancements required. These enhancements are not expected to involve material additional costs. To assure that all systems are Y2K compliant, internal testing and validation began in the fourth quarter of 1998 and is scheduled to be completed by June 30, 1999. Currently the Bank is approximately 90% complete in its test and validation phase. 15 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk are presented at December 31, 1998 in Item 7A of the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 1999. Management believes there have been no material changes in the Company's market risk since December 31, 1998. 16 17 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.
Page ---- 3.1 Article of Incorporation of ISB Financial Corporation * 3.2 Bylaws of ISB Financial Corporation * 4.1 Stock Certificate of ISB Financial Corporation ** 10.1 ISB Financial Corporation Employee Stock Ownership Plan * 10.2 ISB Financial Corporation Profit Sharing Plan and Trust ** 10.3 Employment Agreement among ISB Financial Corporation, IBERIABANK and Larrey G. Mouton *** 10.4 Severance Agreement among ISB Financial Corporation, IBERIABANK and John J. Ballatin, James R. McLemore, Jr., Donald P., Lee and Ronnie J. Foret 10.5 1999 Stock Option Plan **** 10.6 1996 Stock Option Plan ***** 10.7 Recognition and Retention Plan of Iberia Savings Bank and Trust Agreement ***** 27.0 Financial Data Schedule (*) Incorporated herein by reference from the Registration Statement on Form S-1 (Registration No. 33-86598) filed by the Registrant with the SEC on November 22, 1994, as subsequently amended. (**) Incorporated herein by reference from the Registration Statement on Form S-8 (Registration No. 33-9321 0) filed by the Registrant with the SEC on June 7, 1995. (***) Incorporated herein by reference from the like-numbered exhibit from the registrant's Annual Report on Form 10-K for the year ended December 31, 1997. (****) Incorporated herein by reference from the Registrant's definitive proxy statement, dated March 19, 1999, as filed with the SEC. (*****) Incorporated herein by reference from the Registrant's definitive proxy statement dated April 16, 1996, as filed with the SEC.
b. Reports on Form 8-K There were no reports filed on Form 8-K for the three months ended March 31, 1999. 17 18 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, 1999 By: /s/ Larrey G. Mouton ------------ --------------------------------- Larrey G. Mouton, President and Chief Executive Officer Date: May 11, 1999 By: /s/ James R. McLemore, Jr. ------------ ---------------------------------- James R. McLemore, Jr., Senior Vice President and Chief Officer 18 EX-27 2 FINANCIAL DATA SCHEDULE
9 0000933141 ISB FINANCIAL 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 34,186 74,497 0 0 110,754 272,798 270,748 760,227 (7,198) 1,361,731 1,177,164 45,356 14,420 1,000 0 0 7,381 116,410 1,361,731 16,108 6,025 843 22,976 10,270 11,005 11,971 370 0 10,471 4,614 2,859 0 0 2,859 .45 .44 7.40 3,018 2,043 0 5,061 7,135 402 75 7,178 0 0 7,178
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