-----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, IFQ6l+vu5oHVKs3f++6cWF1xYCYb7CHq9YEScgX4bBa8Z5Enh6rmXG487/KUMevd FUF7zmAGWHfIJ2SaFpBovg== 0000950133-96-001567.txt : 19960814 0000950133-96-001567.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950133-96-001567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96611439 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 ISB FINANCIAL CORPORATION FORM 10-Q (6/30/96). 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 June 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 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 August 9, 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 497,216 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 June 30, 1996 and December 31, 1995) Consolidated Statements of Income (For the three months 4 and six months ended June 30, 1996 and 1995) Consolidated Statements of Stockholders' Equity (For the 5 six months ended June 30, 1996 and 1995) Consolidated Statements of Cash Flows (For the six 6 months ended June 30, 1996 and 1995) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 10 and Results of Operations 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 3 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in Thousands) ASSETS
June 30, December 31, 1996 1995 ---------- ------------ Cash and Cash Equivalents: Cash on Hand and Due from Banks $7,884 $5,313 Interest Bearing Deposits 59,237 46,429 Investment Securities: Held to Maturity (market value of $2,220 and $784, 2,215 784 respectively) Available for Sale, at market value 64,537 86,058 Trading Account Securities, at market value 2,681 389 Mortgage-Backed Securities Held to Maturity (market 51,688 51,646 value of $51,512 and $51,872, respectively) Loans Receivable, Net 470,320 399,542 Real Estate Owned 1,054 561 Premises and Equipment, Net 12,376 9,440 Federal Home Loan Bank Stock, at Cost 4,056 3,739 Accrued Interest Receivable, Net 4,278 4,153 Other Assets 6,223 776 ---------- ------------ TOTAL ASSETS $686,549 $608,830 ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $515,309 $444,600 Federal Home Loan Bank Advances 48,236 40,490 Accrued Interest Payable on Deposits 688 315 Advance Payments by Borrowers for Taxes and Insurance 1,189 1,239 Other Liabilities 3,582 2,509 ---------- ------------ TOTAL LIABILITIES 569,004 489,153 ---------- ------------ 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 65,504 65,293 Retained Earnings 54,122 51,584 Unearned Common Stock Held by ESOP (4,972) (5,339) Unearned Common Stock Held by MRP Trust (4,656) 0 Net Unrealized Gain on Securities 166 758 ---------- ------------ TOTAL STOCKHOLDERS' EQUITY 117,545 119,677 ---------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $686,549 $608,830 ========== ============
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 For the Six Months Ended June 30, Ended June 30, ----------------------- ------------------------- 1996 1995 1996 1995 ---------- ----------- ---------- -------- INTEREST INCOME: Loans $9,651 $8,108 $18,193 $16,101 Investment Securities Available for Sale 964 1,221 2,177 1,930 Investment Securities Held to Maturity 23 15 35 29 Mortgage-Backed Securities Held to Maturity 772 815 1,609 1,363 Interest-Bearing Deposits 939 457 1,740 607 ---------- ----------- ---------- -------- Total Interest Income 12,349 10,616 23,754 20,030 ---------- ----------- ---------- -------- INTEREST EXPENSE: Deposits 5,481 5,132 10,640 9,926 Federal Home Loan Bank Advances 787 41 1,540 80 ---------- ----------- ---------- -------- Total Interest Expense 6,268 5,173 12,180 10,006 ---------- ----------- ---------- -------- Net Interest Income 6,081 5,443 11,574 10,024 Provision for Loan Losses 9 133 17 206 ---------- ----------- ---------- -------- Net Interest Income After Provision for Loan Losses 6,072 5,310 11,557 9,818 ---------- ----------- ---------- -------- NONINTEREST INCOME: Service Charges on Deposit Accounts 445 440 831 800 Late Charges and Other Fees on Loans 223 134 393 279 Dividends on FHLB Stock 59 60 114 114 Other Income 217 159 449 223 ---------- ----------- ---------- -------- Total Noninterest Income 944 793 1,787 1,416 ---------- ----------- ---------- -------- NONINTEREST EXPENSE: Salaries and Employee Benefits 2,041 1,571 3,757 2,919 SAIF Deposit Insurance Premium 257 249 508 498 Depreciation Expense 242 221 446 438 Occupancy Expense 279 230 489 432 Computer Expense 142 136 282 255 Net Costs (Income) of Other Real Estate 6 4 25 (8) Louisiana Shares and Franchise Tax 223 0 447 0 Other 918 751 1,706 1,470 ---------- ----------- ---------- -------- Total Noninterest Expense 4,108 3,162 7,660 6,004 ---------- ----------- ---------- -------- Income Before Income Taxes 2,908 2,941 5,684 5,230 Income Taxes 1,054 1,073 2,051 1,828 ---------- ----------- ---------- -------- NET INCOME $1,854 $1,868 $3,633 $3,402 ========== =========== ========== ======== NET INCOME PER COMMON SHARE $0.27 $0.27 $0.53 N/A ========== =========== ========== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 6,751,046 6,799,542 6,803,502 N/A ========== =========== ========== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4 5 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in Thousands)
Unearned Common Stock Common Paid In Retained Acquired Stock Capital Earnings By ESOP ------- ------- ---------- --------- BALANCE, DECEMBER 31, 1994 $46,105 Net Income 3,402 Cash Dividends Declared (509) Common Stock Issued in Conversion $7,381 $65,006 ($5,904) Common Stock Releasaed by 71 185 ESOP Trust Change in Unrealized Gain (Loss) on Securities Available for Sale ------- --------- ---------- --------- BALANCE, JUNE 30, 1995 $7,381 $65,077 $48,998 ($5,719) ======= ========= ========== ========= BALANCE, DECEMBER 31, 1995 $7,381 $65,293 $51,584 ($5,339) Net Income 3,633 Cash Dividends Declared (1,095) Common Stock Released by 211 367 ESOP Trust Common Stock Acquired by Management Recognition Plan Trust Common Stock Earned by Participants of Management Recognition Plan Change in Unrealized Gain (Loss) on Securities Available for Sale ------- --------- ---------- --------- BALANCE, JUNE 30, 1996 $7,381 $65,504 $54,122 ($4,972) ======= ========= ========== =========
Unearned Common Stock Acquired By Net Management Unrealized Total Recognition and Gain (Loss) Stockholders' Retention Plan On Securities Equity ----------------- ------------- ------------- BALANCE, DECEMBER 31, 1994 ($1,265) $44,840 Net Income 3,402 Cash Dividends Declared (509) Common Stock Issued in Conversion 66,483 Common Stock Releasaed by 256 ESOP Trust Change in Unrealized Gain (Loss) on 1,616 1,616 Securities Available for Sale --------------- ------------ ------------- BALANCE, JUNE 30, 1995 $351 $116,088 =============== ============ ============= BALANCE, DECEMBER 31, 1995 $758 $119,677 Net Income 3,633 Cash Dividends Declared (1,095) Common Stock Released by 578 ESOP Trust Common Stock Acquired by ($4,687) (4,687) Management Recognition Plan Trust Common Stock Earned by Participants 31 31 of Management Recognition Plan Change in Unrealized Gain (Loss) on (592) (592) Securities Available for Sale --------------- ------------ ------------- BALANCE, JUNE 30, 1996 ($4,656) $166 $117,545 =============== ============ =============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5 6 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
For The Six Months Ended June 30, June 30, 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,633 $ 3,402 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 551 487 Provision for Loan Losses 17 206 Compensation Earned on Shares Granted 31 0 Gain on Sale of Premises and Equipment (57) 0 (Gain) Loss on Sale of Real Estate Owned 16 (13) Amortization of Premium/Discount on Investments 242 186 FHLB Stock Dividends (114) (114) Loans Originated for Resale 0 0 Proceeds From Loans Sold to Others 0 0 Income Reinvested on Marketable Equity Security (151) (142) ESOP Contribution 574 256 Net Change in Securities Classified as Trading (2,291) 0 Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable 250 (1,058) Decrease (Increase) in Other Assets and Other Liabilities 76 (457) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,777 2,753 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Maturities of Held to Maturity Securities 2,142 145 Proceeds from Maturities of Available for Sale Securities 23,625 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 (26,770) (9,680) Proceeds from Sale of Premises and Equipment 128 2 Purchases of Premises and Equipment (1,035) (294) Proceeds from Disposition of Real Estate Owned 53 119 Purchases of Mortgage-Backed Securities 0 (9,109) Principal Collections on Mortgage-Backed Securities 4,219 1,746 Cash Received in Excess of Purchase Price of Bank Subsidiary 5,614 0 Other Investing Activities (75) 0 ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,330 (54,891) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposit 6,118 (13,092) Net Change in Time Deposits 1,165 9,379 Increase (Decrease) in Escrow Funds and Miscellaneous Deposits, Net (14) 167 Proceeds From FHLB Advances 8,195 45,846 Principal Repayments of FHLB Advances (449) (41,755) Proceeds from Issuance of Common Stock 0 67,903 Dividends Paid to Shareholders (1,056) 0 Acquisition of Common Stock by Management Recognition Plan (4,687) 0 Stock Conversion Costs Incurred 0 (1,116) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 9,272 67,332 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 15,379 15,194 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,742 9,686 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,121 $ 24,880 ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 108 $ 94 SUPPLEMENTAL DISCLOSURES: Cash Paid For: Interest on Deposits and Borrowings $ 11,807 $ 9,908 Income Taxes $ 1,663 $ 1,597
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE 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 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. During the quarter the Bank opened two branch offices in supermarkets in Lafayette, Louisiana. 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 8 (2) LOANS RECEIVABLE Loans receivable (in thousands) at June 30, 1996 and December 31, 1995 consisted of the following:
June 30, Dec. 31, 1996 1995 ---------- ---------- Mortgage Loans: Single-family Residential $331,324 $318,705 Multifamily 1,497 1,506 Commercial Real Estate 19,134 14,486 Construction 17,098 15,617 ---------- ---------- Total Mortgage Loans 369,053 350,314 ---------- ---------- Commercial Business Loans 24,706 11,055 ---------- ---------- Consumer Loans: Home Equity $22,931 $15,364 Automobile 40,550 6,492 Mobile Home Loans 5,087 6,077 Educational Loans 9,331 9,262 Credit Card Loans 3,467 3,836 Loans on Savings 7,522 7,481 Other 3,942 4,960 ---------- ---------- Total Consumer Loans 92,830 53,472 ---------- ---------- Total Loans Receivable 486,589 414,841 ---------- ---------- Less: Allowance for Loan Losses (4,102) (3,746) Loans-in-Process (9,328) (8,399) Unearned Discount (1) (1) Deferred Loan Fees (1,147) (1,191) Discount on Loans Purchased (1,691) (1,962) ---------- ---------- Loans Receivable, Net $470,320 $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 six months ended June 30, 1996 was $574,000 based on the release of 36,738 shares. At June 30, 1996, there were 56,469 allocated shares, 36,738 shares had been committed to be released, and 497,216 shares were held in suspense by the ESOP. The fair value of the unearned ESOP shares was approximately $7,334,000. 8 9 (4) EARNINGS PER SHARE Earnings per share were based on 6,751,046 weighted average shares outstanding during the three month period ended June 30, 1996. The weighted average number of common shares outstanding excludes the weighted average unreleased shares owned by the ESOP of 506,344 for the three month period ended June 30, 1996. The weighted average number of common shares outstanding excludes the weighted average shares owned by the Management Recognition Plan and Trust of 123,281 for the three months ending June 30, 1996. 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 will be vested over the next 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 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. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CHANGES IN FINANCIAL CONDITION At June 30, 1996, the consolidated assets of the Company totalled $686.5 million, an increase of $77.7 million or 12.8% from December 31, 1995. Loans receivable, net, increased by $70.8 million, or 17.7%, to $470.3 million at June 30, 1996, compared to $399.5 million at December 31, 1995. The increase was primarily 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. This acquisition together with loan originations during the period resulted in a $12.6 million, or 4.0%, increase in single-family residential loans, a $4.6 million, or 32.1%, increase in commercial real estate loans, a $1.5 million, or 9.5%, increase in construction loans, a $13.7 million, or 123.5%, increase in commercial business loans, a $7.6 million, or 49.3%, increase in home equity loans and a $34.1 million, or 524.6%, increase in automobile loans. Such increases were partially offset by a $990,000, or 16.3%, decrease in mobile home loans and a $1.0, or 20.5%, decrease in other consumer loans. The increase in loans receivable was funded primarily by the deposits acquired from BOL and by fixed-rate advances from the Federal Home Loan Bank ("FHLB") of Dallas. Interest bearing deposits at other institutions increased $12.8 million, or 27.6%, to $59.2 million at June 30, 1996, compared to $46.4 million at December 31, 1995. The increased level of interest bearing deposits will be used as part of the consideration for the Company's proposed cash acquisition of Jefferson Bancorp, Inc., the parent holding company of Jefferson Federal Savings Bank, Gretna, Louisiana, which acquisition is expected to be consumated in the fourth quarter of 1996. This increase was funded primarily by maturities of investment securities. The Company's investment securities available for sale decreased $21.5 million, or 25.0%, to $64.5 million at June 30, 1996, compared to $86.1 million at December 31, 1995. Such decrease was due primarily to the maturity or redemption of $25.6 million of investment securities together with a $897,000 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 increased $42,000 from December 31, 1995 to June 30, 1996. Such increase was the result of $4.4 million of mortgage-backed securities acquired from the Bank of Lafayette partially offset by $4.3 million of principal repayments on such mortgage-backed securities. Deposits increased $70.7 million, or 15.9%, to $515,309 million at June 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 $7.8 million of interest credited, which was partially offset by $603,000 in net deposit withdrawals. 10 11 Advances from the FHLB of Dallas increased $7.7 million, or 19.1%, to $48.2 million at June 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. Total stockholders' equity decreased $2.1 million, or 1.8%, to $117.5 million at June 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 $1.1 million, a $592,000, after deferred taxes, decrease in net unrealized gains on securities available for sale and $4.7 million of common stock acquired by the Management Recognition and Retention Plan and Trust, which was partially offset by the Company's net income of $3.6 million and $578,000 of common stock released by the ESOP. RESULTS OF OPERATIONS The Company reported net income of $1.9 million for the three months ended June 30, 1996, virtually unchanged from the the $1.9 million earned during the three month period ended June 30, 1995. The Company's net interest income increased by $638,000 and total noninterest income increased by $151,000 during the three months ended June 30, 1996 compared to the second quarter of 1995. Such increases were offset by a $946,000 increase in noninterest expense in the three months ended June 30, 1996 compared to the same period in 1995, primarily as a result of increases in salaries and benefits and Louisiana shares and franchise tax, which is imposed only for periods subsequent to the Bank's mutual-to-stock conversion. For the six months ended June 30, 1996 the Company earned $3.6 million compared to $3.4 million for the same period of 1995. The $231,000, or 6.8%, increase in net income was the result primarily of a $1.6 million, or 15.5%, increase in net interest income, a $371,000, or 26.2%, increase in noninterest income and a $189,000, or 91.7%, decrease in provision for loan losses which was partially offset by a $1.7 million, or 27.6%, increase in noninterest expenses and a $223,000, or 12.2%, 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 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 J u n e 3 0, ----------------------------------------------------------------------- 1996 1995 ------------------------------- ------------------------------------ Yield/Cost Average Average at June 30, Average Yield/ Average Yield/ 1996 Balance Interest Cost(1) Balance Interest Cost(1) ---------- --------- ---------- --------- --------- ---------- -------- (Dollars in Thousands) Interest-earning assets: Loans receivable: Mortgage loans 7.86 % $348,870 $7,200 8.26 % $316,250 $6,622 8.38 % Commercial business loans 9.30 22,194 511 9.21 7,772 182 9.37 Consumer and other loans 9.47 74,000 1,940 10.49 51,830 1,304 10.06 ------ ----- ------ ----- Total Loans 8.07 445,064 9,651 8.67 375,852 8,108 8.63 Mortgage-backed securities 6.14 51,908 772 5.95 46,190 815 7.06 Investment securities 6.05 67,090 987 5.88 80,385 1,236 6.15 Other earning assets 5.34 71,232 939 5.27 21,979 457 8.32 ------ --- ------ --- Total interest-earning assets 7.46 635,294 12,349 7.78 524,406 10,616 8.10 ------ ------ Non-interest-earning assets 33,925 27,057 ------ ------ Total assets $669,219 $551,463 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits 1.96 $98,403 491 2.00 $69,414 430 2.48 Passbook savings deposits 2.67 58,403 402 2.75 52,062 457 3.51 Certificates of deposits 5.48 334,927 4,588 5.48 311,477 4,245 5.45 ------- ----- ------- ----- Total deposits 4.39 491,733 5,481 4.46 432,953 5,132 4.74 Borrowings 6.54 48,392 787 6.51 2,400 41 6.83 ------ --- ----- -- Total interest-bearing liabilities 4.58 540,125 6,268 4.64 435,353 5,173 4.75 ----- ----- Non-interest bearing liabilities 6,441 6,429 ----- ----- Total liabilities 546,566 441,782 Stockholders' Equity 122,653 109,681 ------- ------- Total liabilities and stockholders' equity $669,219 $551,463 ======== ======== Net interest-earning assets $95,169 $89,053 ======= ======= Net interest income/interest rate spread 2.88% $6,081 3.13 % $5,443 3.34 % ===== ====== ==== ====== ==== Net interest margin 3.83 % 4.15 % ==== ==== Ratio of average interest- earning assets to average interest-bearing liabilities 117.62% 120.46% ======= =======
S i x M o n t h s E n d e d J u n e 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 $344,465 $14,133 8.21 % $315,459 $13,161 8.34 % Commercial business loans 16,847 825 9.79 6,903 326 9.45 Consumer and other loans 63,124 3,235 10.25 51,700 2,614 10.11 ------ ----- ------ ----- Total Loans 424,436 18,193 8.57 374,062 16,101 8.61 Mortgage-backed securities 51,291 1,609 6.27 42,859 1,363 6.36 Investment securities 72,262 2,212 6.12 64,509 1,959 6.07 Other earning assets 65,591 1,740 5.31 15,028 607 8.08 ------ ----- ------ --- Total interest-earning assets 613,580 23,754 7.74 496,458 20,030 8.07 ------ ------ Non-interest-earning assets 30,348 26,930 ------ ------ Total assets $643,928 $523,388 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $86,767 908 2.09 $70,928 881 2.48 Passbook savings deposits 54,500 749 2.75 57,243 827 2.89 Certificates of deposits 327,871 8,983 5.48 309,192 8,218 5.32 ------- ----- ------- ----- Total deposits 469,138 10,640 4.54 437,363 9,926 4.54 Borrowings 47,185 1,540 6.53 2,573 80 6.22 ------ ----- ----- -- Total interest-bearing liabilities 516,323 12,180 4.72 439,936 10,006 4.55 ------ ------ Non-interest bearing liabilities 5,970 5,445 ----- ----- Total liabilities 522,293 445,381 Stockholders' Equity 121,635 78,007 ------- ------ Total liabilities and stockholders' equity $643,928 $523,388 ======== ======== Net interest-earning assets $97,257 $56,522 ======= ======= Net interest income/interest rate spread $11,574 3.02 % $10,024 3.52 % ======= ==== ======= ==== Net interest margin 3.77 % 4.04 % ==== ==== Ratio of average interest- earning assets to average interest-bearing liabilities 118.84% 112.85% ======= =======
- ------------------------------ (1) Annualized. 12 13 NET INTEREST INCOME Net interest income increased $638,000, or 11.7%, to $6.1 million in the three months ended June 30, 1996, compared to $5.4 million in the three months ended June 30, 1995. The increase was due to a $1.7 million, or 16.3%, increase in interest income, which was partially offset by a $1.1 million, or 21.2%, increase in interest expense. The increase in interest income was the result of a $110.9 million, or 21.1%, increase in the average balance of interest-earning assets, due in part to $63.2 million in aggregate interest-earning assets acquired from RBA, which was partially offset by a 32 basis point (100 basis points being equal to 1%) decrease in the yield thereon. The increase in interest expense was the result of a $104.8 million, or 24.1%, increase in the average balance of interest-bearing liabilities which was partially offset by a 11 basis point decrease 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 3.13% and 3.83%, respectively, during the three months ended June 30, 1996, compared to 3.34% and 4.15%, respectively, for the comparable period in 1995. For the six month period ending June 30, 1996, net interest income increased $1.6 million, or 15.5%, to $11.6 million compared to $10.0 million for the same period in 1995. The increase was due to a $3.7 million, or 18.6%, increase in interest income, which was partially offset by a $2.2 million, or 21.7%, increase in interest expense. The increase in interest income was the result of a $117.1 million, or 23.6%, increase in the average balace of interest-earning assets which was partially offset by a 33 basis point decrease in the yield thereon. The increase in interest expense was the result of a $76.4 million, or 17.4%, increase in the average balance of interest-bearing liabilities together with a 17 basis point increase in the cost thereon. The Company's interest rate spread and net interest margin amounted to 3.02% and 3.77%, respectively, during the six months ended June 30, 1996, compared to 3.52% and 4.04%, respectively, for the comparable period in 1995. INTEREST INCOME The Company's total interest income was $12.3 million for the three months ended June 30, 1996, compared to $10.6 million for the three months ended June 30, 1995. The reasons for the $1.7 million, or 16.3%, increase in interest income were a $1.5 million, or 19.0%, increase in interest income from loans and a $482,000, or 105.5%, increase in interest income from other earning assets, primarily interest-earning deposits held at other institutions, which was partially offset by a $43,000, or 5.3%, decrease in interest income from mortgage-backed securities and a $249,000, or 20.1%, decrease in interest income from investment securities. The increase in interest income from loans was the result of a $69.2 million, or 18.4%, increase in the average balance of loans, together with a 4 basis point increase in the average yield earned thereon. The increase in interest income from other earning assets was the result of a $49.3 million, or 224.1%, increase in the average balance of other earning assets which was partially offset by a 305 basis point decrease in the yield thereon. The decrease in interest income on mortgage-backed securities was the result of a 111 basis point 13 14 decrease in the yield earned thereon, which was partially offset by a $5.7 million, or 12.4%, increase in the average balance of mortgage-backed securities. The decrease in interest income from investment securities was the result of a $13.3 million, or 16.5%, decrease in the average balance of investment securities together with a 27 basis point decrease in the yield thereon. For the six months ended June 30, 1996, total interest income was $23.8 million compared to $20.0 million for the same period in 1995. The reasons for the $3.7 million, or 18.6%, increase in interest income were a $2.1 million, or 13.0%, increase in interest income from loans, a $246,000, or 18.0%, increase in interest income from mortgage-backed securities, a $253,000, or 12.9%, increase in interest income from investment securities and a $1.1 million, or 186.7%, increase in interest income from other earning assets. The increase in interest income from loans was the result of a $50.4 million, or 13.5%, increase in the average balance of loans, which was partially offset by a 4 basis point decrease in the yield thereon. The increase in interest income from mortgage-backed securities was the result of $8.4 million, or 19.7%, increase in the average balance of mortgage-backed securities, which was partially offset by a 9 basis point decrease in the yield earned thereon. The increase in interest income from investment securities was the result of a $7.8 million, or 12.0%, increase in the average balance of investment securities together with a 5 basis point increase in the yield thereon. The increase in interest income from other earning assets was the result of a $50.6 million, or 336.5%, increase in the average balance of other earning assets, which was partially offset by a 277 basis point decrease in the yield earned thereon. INTEREST EXPENSE The Company's total interest expense was $6.3 million during the three months ended June 30, 1996, compared to $5.2 million for the three months ended June 30, 1995. The primary reasons for the $1.1 million, or 21.2%, increase in interest expense was a $349,000, or 6.8%, increase in interest expense on deposits due to a $58.8 million, or 13.6%, increase in the average balance of deposits, which was partially offset by a 28 basis point decrease in the average cost thereof and a $746,000, or 1,819.5%, increase in interest expense paid on advances from the FHLB due to a $46.0 million, or 1,916.3%, increase in the average balance of advances from the FHLB which was partially offset by a 11 basis point decrease in the cost thereof. The decrease in the average cost of deposits reflects primarily the effects of the lower cost deposits acquired from the Bank of Lafayette. The borrowings from the FHLB are used to fund fixed-rate, long term single-family residential loans. For the six months ended June 30, 1996, the company's total interest expense was $12.2 million, compared to $10.0 million for the same period in 1995. The primary reasons for the $2.2 million, or 21.7%, increase in interest expense was a $714,000, or 7.2%, increase in interest expense on deposits due to a $31.8 million, or 7.3%, increase in the average balance of deposits, while the cost thereof remained unchanged, and a $1.5 million, or 1,825.0%, increase in interest expense on borrowings due to a $44.6 million, or 1,733.9%, increase in the average balance of borrowings together with a 31 basis point increase in the cost thereof. 14 15 PROVISION FOR LOAN LOSSES The provision for loan losses was $9,000 in the three months ended June 30, 1996 as compared to $133,000 for the same period in 1995. The decrease was primarily due to management's assessment of the amount of provisions necessary to maintain a sufficient level of loan loss reserves. Loan loss reserve adjustments required pre-closing 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 June 30, 1996, the ratio of the Company's allowance for loan losses to non-performing loans was 219.1% and the ratio of the allowance for loan losses to net loans was .87%. NONINTEREST INCOME Noninterest income increased $151,000, or 19.0%, in the three months ended June 30, 1996 to $944,000, compared to $793,000 for the three months ended June 30, 1995. Such increase was due primarily to a $89,000, or 66.4%, increase in late charges and other fees on loans and a $58,000, or 36.5%, increase in other income due primarily to gains on the sale of certain assets owned by the Bank's subsidiary company. For the six months ended June 30, 1996, noninterest income increased $371,000, or 26.2%, to $1.8 million, compared to $1.4 million for the same period in 1995. Such increase was due primarily to a $114,000, or 40.9%, increase in late charges and other fees on loans and a $226,000, or 101.3%, increase in other income. NONINTEREST EXPENSE Noninterest expense increased $946,000, or 29.9%, in the three months ended June 30, 1996 to $4.1 million, compared to $3.2 million in the three months ended June 30, 1995. Such increase was due primarily to a $470,000, or 29.9%, increase in salaries and employee benefits due primarily to shares released to employees from the ESOP 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 quarter and a $223,000 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 $167,000, or 22.2%, primarily due to increases associated with the two branch offices acquired from BOL and the two new branch offices opened in supermarkets. For the six months ended June 30, 1996, noninterest expense increased $1.7 million, or 27.6%, to $7.7 million compared to $6.0 million for the same period in 1995. Such increase was primarily due to a $838,000, or 28.7%, increase in salaries and employee benefits, a $447,000 increase in Louisiana Shares Tax and Louisiana Franchise Tax and a $236,000, or 16.1%, increase in other noninterest expense. 15 16 INCOME TAX EXPENSE Income tax expense decreased $19,000, or 1.8%, in the three months ended June 30, 1996 to $1.1 million, compared to $1.1 million for the three months ended June 30, 1995. The decrease in income tax expense reflects a decrease in income before income taxes. For the six months ended June 30, 1996, income tax expense increased $223,000, or 12.2%, to $2.1 million compared to $1.8 million for the same period in 1995. The increase in income tax expense reflects an increase in income before income taxes and an increase in the effective tax rate. 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 June 30, 1996, the Company had $48.2 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 June 30, 1996, the total approved loan commitments outstanding amounted to $22.0 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $30.4 million. Certificates of deposit scheduled to mature in six months or less at June 30, 1996 totalled $141.5 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Bank. The Company has signed a definitive agreement to acquire Jefferson Bancorp, Inc. for $51.2 million in cash, which acquisition is expected to be consumated in the fourth quarter of 1996. The Company anticipates it will continue to have sufficient funds to meet its liquidity requirements. At June 30, 1996, the Company and the Bank had regulatory capital which was well in 16 17 excess of regulatory limits. The current requirements and the Bank's actual levels as of June 30, 1996 are detailed below (dollars in thousands):
Required Capital Actual Capital Excess Capital -------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Tier 1 Leverage $19,643 3.00% $80,326 12.27% $60,683 9.27% Tier 1 Risk- Based $13,940 4.00% $80,326 23.05% $66,386 19.05% Total Risk-Based $27,880 8.00% $84,428 24.23% $56,548 16.23%
PROPOSED DEPOSIT INSURANCE PREMIUMS The deposits of the Bank are currently insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit insurance fund that covers commercial bank deposits, are required by law to attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The BIF has achieved a fully funded status in contrast to the SAIF and, therefore, the FDIC in 1995 substantially reduced the average deposit insurance premium paid by commercial banks to a level approximately 75% below the average premium paid by savings institutions. The underfunded status of the SAIF has resulted in the introduction in the U.S. Congress of various bills intended to, among other things, recapitalize the SAIF and address the resulting premium disparity. The Congress had been actively considering legislation which would require savings institutions like the Bank to pay a one-time charge of $0.85 to $0.95 for ever $100 of insured deposits to recapitalize the depleted SAIF. Based on total insured deposits of $440.5 million at March 31, 1995, which is the anticipated measurement date for deposits, the Bank would incur a one-time charge of between $3.7 million and $4.2 million on a pre-tax basis ($2.5 million to $2.8 million after tax). Management does not believe that this one-time charge to the Bank, if incurred, will have a material impact on the Bank's overall financial condition. The proposed legislation also contemplated the merger of the BIF and the SAIF following the recapitalization of the SAIF. Thereafter, federal deposit insurance premiums would be assessed similarly for all FDIC insured institutions. The above described legislation had been, for some time, included as part of a fiscal 1996 budget bill, but was eliminated prior to the bill being enacted on April 26, 1996. The Bank cannot presently predict with any degree of certainty what form the legislation will ultimately take, nor when or whether it may be enacted. 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 17 18 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 19 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 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. Item 6. Exhibits and Reports on Form 8-K a) Not applicable. b) On April 12, 1996 a current report on Form 8-K was filed with repsect to the Letter of Intent which the registrant entered into with respect to its proposed acquisition of Jefferson Bancorp, Inc. 19 20 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: August 9, 1996 By: /s/ LARREY G. MOUTON ------------------------------------ Larrey G. Mouton, President and Chief Executive Officer Date: August 9, 1996 By: /s/ WILLIAM M. LAHASKY ------------------------------------ William M. Lahasky, Vice President and Chief Financial Officer 20 EX-27 2 FINANCIAL DATA SCHEDULE.
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT JUNE 30, 1996 AND DECEMBER 31, 1995; CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q SIX MONTHS ENDED JUNE 30, 1996. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 7,884 59,237 0 2,681 0 51,688 64,537 474,422 (4,102) 686,549 515,309 48,236 5,459 0 0 0 7,381 110,164 686,549 18,193 3,821 1,740 23,754 10,640 12,180 11,574 17 0 7,660 6,131 6,131 0 0 3,663 .53 .53 3.77 1,789 83 0 3,851 3,729 244 75 4,102 0 0 4,102
-----END PRIVACY-ENHANCED MESSAGE-----