-----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, CI5thEugVOIkyu1pukzgzdsZ9s6u9fJto7L3gnNkj0fgRMX+067HPyWSbPu0nHM7 9btVO2g2UJwzoMbC2BDD2g== 0000950133-97-001146.txt : 19970401 0000950133-97-001146.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950133-97-001146 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25756 FILM NUMBER: 97569843 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-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED] For the transition period from to ---------- --------------- Commission File No.: 0-25756 ISB FINANCIAL CORPORATION ------------------------- (Exact name of registrant as specified in its charter) LOUISIANA 72-1280718 --------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1101 EAST ADMIRAL DOYLE DRIVE NEW IBERIA, LOUISIANA 70560 --------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 365-2361 Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE Securities registered pursuant to Section 12(g) of the Act COMMON STOCK (PAR VALUE $1.00 PER SHARE) ---------------------------------------- (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 2 As of March 26, 1997, the aggregate market value of the 6,861,369 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 189,891 shares held by all directors and officers of the Registrant as a group, was approximately $169.8 million. This figure is based on the closing sale price of $24.75 per share of the Registrant's Common Stock on March 26, 1996. Number of shares of Common Stock outstanding as of December 31, 1996: 7,051,260 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated. (1) Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1996 are incorporated into Part II, Items 5 through 8 of this Form 10-K. (2) Portions of the definitive proxy statement for the 1997 Annual Meeting of Stockholders to be filed within 120 days of Registrant's fiscal year end are incorporated into Part III, Items 9 through 13 of this Form 10-K. 3 PART I. ITEM 1. BUSINESS. GENERAL ISB Financial Corporation (the "Company") is a Louisiana corporation organized in November 1994 by Iberia Savings Bank ("Iberia") for the purpose of acquiring all of the capital stock of Iberia to be issued by Iberia in the conversion (the "Conversion") of Iberia to stock form, which was completed on April 6, 1995. On May 3, 1996, the Company completed the acquisition of Royal Bankgroup of Acadina, Inc., ("Royal") and its wholly owned subsidiary, The Bank of Lafayette ("BOL"). Royal was merged into the Company and BOL was merged in Iberia. The two offices of BOL now operate as branches of Iberia. On October 18, 1996, the company completed the acquisition of Jefferson Bancorp, Inc. and its wholly owned subsidiary, Jefferson Federal Savings Bank. Jefferson Bancorp, Inc. was merged into the Company and Jefferson Federal Savings Bank now operates as a separate subsidiary of the Company as a state chartered savings bank under the name of Jefferson Bank ("Jefferson"). The only significant assets of the Company are the capital stock of Iberia and Jefferson (the "Banks"), the Company's loan to an employee stock ownership plan, and cash. To date, the business of the Company has consisted of the business of the Banks. The Company's common stock trades on the NASDAQ National Market under the symbol "ISBF." At December 31, 1996, the Company had total assets of $929.3 million, total deposits of $760.3 million and equity of $114.0 million. Iberia is a Louisiana chartered stock savings bank conducting business from its main office located in New Iberia, Louisiana and 17 full-service branch offices located in New Iberia, Lafayette, Jeanerette, Franklin, Morgan City, Crowley, Rayne, Kaplan, St. Martinville and Abbeville, all of which are in southwestern Louisiana. Jefferson is a Louisiana chartered stock savings bank conducting business from its main office located in Gretna, Louisiana and 6 full-service offices located in Marrero, Metairie, River Ridge, Algiers and Terrytown, all of which are in the greater New Orleans metropolitan area. The Banks attract retail deposits from the general public and the business community through a variety of deposit products. Deposits are insured by the Savings Association Insurance Fund ("SAIF"), administered by the Federal Deposit Insurance Corporation ("FDIC"), within applicable limits. The Banks are primarily engaged in attracting deposits from the general public and using those funds to originate loans. The Banks' primary lending emphasis has been loans secured by first and second liens on single-family (one-to-four units) residences located in the Banks' primary market area. At December 31, 1996, such loans amounted to $386.6 million or 66.4% of the Banks' gross loan portfolio. The Banks has placed recent emphasis on the origination of consumer and commercial loans. Consumer loans consist of home equity loans, home equity lines of credit, automobile loans, indirect automobile loans, loans secured by deposit accounts and other consumer loans. At December 31, 1996, $119.8 million, or 20.6%, of the Banks' gross loans were consumer loans. Of that amount $52.4 million, or 9.0% of gross loans, were indirect 4 automobile loans. Commercial loans consist of commercial real estate loans, commercial business loans and multi-family residential real estate loans. At December 31, 1996, $23.0 million, or 3.9% of loans are secured by commercial real estate, $36.1 million, or 6.2%, are commercial business loans and $2.3 million, or .4%, are multi-family residential real estate loans. The Banks also originate loans for the purpose of constructing single-family residential units. At December 31, 1996, $14.1 million, or 2.4%, are construction loans. The Company, as a bank holding company, is subject to regulation and supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB"). The Banks are subject to examination and comprehensive regulation by the Office of Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's chartering authority and primary regulator. The Banks are also subject to regulation by the FDIC, as the administrator of the SAIF, and to certain reserve requirements established by the Federal Reserve Board. The Banks are members of the Federal Home Loan Bank ("FHLB") of Dallas which is one of the 12 regional banks comprising the FHLB System. In addition to its deposit gathering and lending activities, the Banks invest in mortgage-backed securities, substantially all of which are issued or guaranteed by U.S. Government agencies and government sponsored enterprises, as well as U.S. Treasury and federal government agency obligations and other investment securities. At December 31, 1996, the Bank's mortgage-backed securities amounted to $150.7 million, or 16.2% of total assets and its investment securities amounted to $103.7 million, or 11.2% of total assets. 5 LENDING ACTIVITIES Loan Portfolio Composition. The following table sets forth the composition of the Banks' loans held in portfolio at the dates indicated.
December 31, ---------------------------------------------------------------------------------------------- 1996 1995 1994 ---------------------------- --------------------------- ------------------------ Percent of Percent of Percent of Amount Total Amount Total Amount Total ------ ----- ------ ----- ------ ----- (Dollars in Thousands) Mortgage loans: Single-family residential $386,555 66.45% $318,705 76.83% $300,730 78.00% Multi-family 2,279 0.39 1,506 0.36 1,801 0.47 Commercial real estate 22,961 3.95 14,486 3.49 10,655 2.76 Construction 14,064 2.41 15,617 3.76 14,427 3.74 ------ ---- ------ ---- ------ ---- Total mortgage loans 425,859 73.20 350,314 84.45 327,613 84.97 ------- ----- ------- ----- ------- ----- Commercial business loans 36,089 6.20 11,055 2.66 6,441 1.67 ------ ---- ------ ---- ----- ---- Consumer loans: Home equity 21,646 3.72 15,364 3.70 14,229 3.69 Automobile 59,880 10.29 6,492 1.56 5,942 1.54 Mobile home loans 4,215 .73 6,077 1.46 8,017 2.08 Educational loans 9,345 1.61 9,262 2.23 9,639 2.50 Credit card loans 4,017 0.69 3,836 0.92 3,477 0.90 Loans on savings 12,487 2.15 7,481 1.80 8,305 2.15 Other 8,225 1.41 4,960 1.20 1,910 0.50 ----- ---- ----- ---- ----- ---- Total consumer loans 119,815 20.60 53,472 12.89 51,519 13.36 ------- ----- ------ ----- ------ ----- Total loans receivable 581,763 100.00% 414,841 100.00% 385,573 100.00% ------- ====== ------- ====== ------- ====== Less: Allowance for loan losses (4,615) (3,746) (3,831) Loans-in-process (6,059) (8,399) (6,848) Unearned discount (143) (1) (5) Prepaid dealer participations 2,555 0 0 Deferred loan fees (922) (1,191) (1,416) Discount on loans purchased (1,460) (1,962) (2,679) ------ ------ ------ Loans receivable, net $571,119 $399,542 $370,794 -------- -------- --------
December 31, --------------------------------------------------------- 1993 1992 --------------------------------------------------------- Percent of Percent of Amount Total Amount Total ------ ----- ------ ----- (Dollars in Thousands) Mortgage loans: Single-family residential $284,630 79.96% $281,261 79.64% Multi-family 1,897 0.53 2,498 0.71 Commercial real estate 8,271 2.32 4,635 1.31 Construction 9,082 2.55 10,394 2.94 ----- ---- ------ ---- Total mortgage loans 303,880 85.36 298,788 84.60 ------- ----- ------- ----- Commercial business loans 4,089 1.15 6,953 1.97 ------ ---- ----- ---- Consumer loans: Home equity 11,493 3.23 8,946 2.54 Automobile 4,955 1.39 4,912 1.39 Mobile home loans 9,989 2.81 12,973 3.67 Educational loans 8,953 2.52 7,491 2.12 Credit card loans 2,406 0.68 2,050 0.58 Loans on savings 8,117 2.28 8,980 2.54 Other 2,082 0.58 2,079 0.59 ----- ---- ----- ----- Total consumer loans 47,995 13.49 47,431 13.43 ------ ----- ------ ----- Total loans receivable 355,964 100.00% 353,172 100.00% ------- ====== ------- ====== Less: Allowance for loan losses (3,413) (3,254) Loans-in-process (3,991) (6,622) Unearned discount (25) (107) Prepaid dealer participations 0 0 Deferred loan fees (1,242) (987) Discount on loans purchased (3,876) (5,798) ------ ------ Loans receivable, net $343,417 $336,404 -------- --------
6 Contractual Maturities. The following table sets forth the scheduled contractual maturities of the Banks' loans held to maturity at December 31, 1996. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdraft loans are reported as due in one year or less. The amounts shown for each period do not take into account loan prepayments and normal amortization of the Banks' loan portfolio held to maturity.
Mortgage Loans --------------------------------------------------------------------------------- Single-family Multi-family Commercial Construction Total (In Thousands) Amounts due in: One year or less $ 18,087 $ 19 $956 $ --- $ 19,062 After one year through five years 70,348 1,075 6,467 --- 77,890 After five years 298,120 1,185 15,538 14,064(1) 328,907 ------- ----- ------ -------- ------- Total(2) $386,555 $2,279 $22,961 $14,064 $425,859 ======== ======= Interest rate terms on amounts due after one year: Fixed $195,163 $ 1,494 $ 14,303 $ 10,548 $221,508 Adjustable 173,305 766 7,702 3,516 185,289 ------- ----- ----- ----- ------- Total $368,468 $2,260 $22,005 $14,064 $406,797 ======== =======
Commercial Business Consumer Loans Loans Total (In Thousands) Amounts due in: One year or less $ 15,646 $40,564 $75,272 After one year through five years 6,564 60,288 144,742 After five years 13,879 18,963 361,749 ------ ------ ------- Total(2) $36,089 $119,815 $581,763 ======= ======== ======== Interest rate terms on amounts due after one year: Fixed $11,612 $69,932 $303,052 Adjustable 8,831 9,319 203,439 ----- ----- ------- Total $20,443 $79,251 $506,491
- --------------- (1) Reflects the contractual maturity of the related permanent residential mortgage loan at the end of the construction phase. (2) Does not include adjustments relating to loans in process, allowances for loan losses and deferred fee income. 7 Scheduled contractual amortization of loans does not reflect the expected term of the Banks' loan portfolio. The average life of loans is substantially less than their contractual terms because of prepayments and due-on-sale clauses, which give the Banks the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are lower than current mortgage loan rates (due to refinancings of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstances, the weighted average yield on loans decreases as higher-yielding loans are repaid or refinanced at lower rates. 8 Loan Origination, Purchase and Sales Activity. The following table shows the loan origination, purchase and sale activity of the Banks during the periods indicated.
Year Ended December 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In Thousands) Gross loans at beginning of period $414,841 $385,573 $355,964 $353,172 $333,945 Originations of loans: Mortgage loans: Single-family residential 41,134 38,936 44,670 61,745 72,514 Multi-family residential --- --- --- --- --- Commercial real estate 15,143 5,486 3,044 2,721 733 Construction 21,939 24,330 25,602 17,225 17,037 Commercial business loans 32,457 15,608 13,712 5,170 3,563 Consumer loans: Home equity 13,785 11,257 8,367 7,261 3,411 Automobile 42,813 4,318 4,116 2,913 2,149 Mobile home loans 276 386 792 611 454 Educational loans 1,724 1,268 2,153 2,575 1,948 Loans on savings 5,272 4,463 3,329 3,908 5,961 Credit cards 1,137 1,430 6,677 5,311 4,505 Other 3,634 3,836 3,262 2,835 2,812 ------- ------- ------- ------- ------- Total originations 179,314 111,318 115,724 112,275 115,087 ------- ------- ------- ------- ------- Loans purchasaes/acquired 109,121 996 --- --- --- ------- ------- ------- ------- ------- Total originations and purchases 288,435 112,314 115,724 112,275 115,087 Repayments (116,511) (82,356) (84,204) (109,227) (95,489) Loan sales (5,002) (690) (1,911) (256) (371) ------- ------- ------- ------- ------- Net activity in loans 166,922 29,268 29,609 2,792 19,227 ------- ------- ------- ------- ------- Gross loans held at end of period $581,763 $414,841 $385,573 $355,964 $353,172 -------- ======== ======== ======== ========
9 The lending activities of Iberia and Jefferson are subject to written underwriting standards and loan origination procedures established by the Banks' Board of Directors and management. Applications for residential mortgage loans are taken by one of the Banks' mortgage executives, while the Banks' designated consumer lenders have primary responsibility for taking consumer loan applications and its commercial lending officers have primary responsibility for taking commercial business and commercial real estate loan applications. The Banks' loan originators will take loan applications at any of the Banks' offices and, on occasion, outside of the Banks' offices at the customer's convenience. The process of underwriting all residential mortgage, consumer and construction loans and obtaining appropriate documentation, such as credit reports, appraisals and other documentation is centralized in the Banks' main office. The credit analysis department is responsible for overseeing the underwriting of all commercial business and commercial real estate loans. The Banks generally requires that a property appraisal be obtained in connection with all new mortgage loans. Property appraisals generally are performed by an independent appraiser from a list approved by the Banks' Board of Directors. The Banks require that title insurance or a title opinion (other than with respect to home equity loans) and hazard insurance be maintained on all security properties and that flood insurance be maintained if the property is within a designated flood plain. Residential mortgage loan applications are primarily developed from advertising, referrals from real estate brokers and builders, existing customers and walk-in customers. Commercial real estate and commercial business loan applications are obtained primarily from previous borrowers, direct solicitations by the Banks' personnel, as well as referrals. Consumer loans originated by the Banks are obtained primarily through existing customers, automobile dealerships and walk-in customers who have been made aware of the Banks' programs by advertising and other means. Applications for residential mortgage loans typically are approved by certain designated officers or, if the loan amount exceeds $214,600 by the Officers' Loan Committee of the Bank, a committee of Bank officers. If a loan is between $500,000 and $1.0 million, it must also be approved by the Loan Committee of the Banks' Board of Directors, and loans in excess of $1.0 million must be approved by the Board of Directors. Certain designated officers of the Banks have limited authority to approve commercial commercial loans not exceeding specified levels, the officers may combine their individual limits and approve loans up to $1.0 million. Loans in excess of $1.0 million but less than $8.0 million must be approved by the Banks' Commerical Loan Committee made up of members of the Board of Directors. Commercial loans in excess of $8.0 million must be approved by the full Board of Directors. Certain designated officers approve consumer loans up to $30,000 unsecured and $100,000 secured. Consumer loans up to $200,000 unsecured and $500,000 secured must be approved by the Officer's Loan Committee, consisting of at least two members of senior management. Consumer loans up to $1.0 million must be approved by the Board of Directors Loan Committee. Consumer loans in excess of $1.0 million must be approved by the full board. Single-Family Residential Loans. Substantially all of the Bank's single-family residential mortgage loans consist of conventional loans. Conventional loans are loans that are neither 10 insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Department of Veterans Affairs ("VA"). The vast majority of the Banks' single-family residential mortgage loans are secured by properties located in southwestern Louisiana and the greater New Orleans area and are originated under terms and documentation which permit their sale to the Federal Home Loan Mortgage Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). During 1995, the Bank altered its asset/liability management strategies and determined that, rather than attempting to sell into the secondary market all of the Bank's newly originated longer term (more than 10 years) fixed-rate residential mortgage loans, it would retain such loans in the Bank's portfolio. To reduce the Bank's loan portfolio exposure on such loans to interest rate risk, the Bank has increased its borrowings pursuant to a program whereby it obtains long-term fixed-rate FHLB advances as a funding source for the long-term fixed-rate mortgage loans which the Bank soriginates for its portfolio. During 1996, the Banks decided to sell all conforming fixed-rate loan originations into the secondary market and only retain nonconforming fixed-rate loan originations in its portfolio. Fixed-rate loans generally have maturities ranging from 15 to 30 years and are fully amortizing with monthly loan payments sufficient to repay the total amount of the loan with interest by the end of the loan term. The Banks' fixed-rate loans generally are originated under terms, conditions and documentation which permit them to be sold to U.S. Government-sponsored agencies, such as the FHLMC and the FNMA, and other investors in the secondary market for mortgages. At December 31, 1996, $231.5 million, or 56.6%, of the Banks' single-family residential mortgage loans were fixed-rate loans. The adjustable-rate loans currently offered by the Banks have interest rates which adjust on an annual basis from the closing date of the loan or an annual basis commencing after an initial fixed-rate period of three, five or ten years in accordance with a designated index (to date the index utilized by the Bank has been the National Median Cost of Funds for SAIF-Insured Institutions), plus a stipulated margin. In 1996, the Banks changed its index to the one year constant maturity treasury ("CMT") for all new adjustable-rate single-family residential loan originations. The Bank's adjustable-rate single-family residential real estate loans generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date, and include a specified cap on the maximum interest rate over the life of the loan, which cap generally is 4% to 6% above the initial rate. The Bank's adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate of an adjustable-rate loan be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, or so-called negative amortization. At December 31, 1996, $177.8 million or 43.4% of the Bank's single-family residential mortgage loans were adjustable-rate loans. Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates increase the loan payment by the borrower increases to the extent permitted by the terms of the loan, thereby increasing the potential for 11 default. Moreover, as with fixed-rate loans, as interest rates increase, the marketability of the underlying collateral property may be adversely affected by higher interest rates. For conventional residential mortgage loans held in the portfolio and also for those loans originated for sale in the secondary market, the Banks' maximum loan-to-value ratio generally is 95%, and is based on the lesser of sales price or appraised value. Generally on loans with a loan-to-value ratio of over 80%, private mortgage insurance ("PMI") is required in an amount which reduces the Banks' exposure to 80% or less. In November 1994, in order to assist low- to moderate- income families achieve home ownership, Iberia implemented a program whereby it will provide 100% financing to certain low- to moderate- income homebuyers in Iberia's market area. Such loans are structured as a 30-year ARM with respect to 90% of the value with the remaining necessary funds (including closing costs) being provided through a five-year fixed rate second mortgage loan. No PMI is required to be obtained with respect to loans originated under this program. Iberia has developed its 100% financing loan product in an effort to address the home buying needs of lower income residents. Due to the absence, or limited amount, of equity with respect to such loans and the absence of PMI, this product may be deemed to involve greater risk than Iberia's typical single-family residential mortgage loans. However, the individual loans in this program generally are relatively small, with balances generally less than $50,000. At this time, Iberia anticipates that the aggregate balance of loans originated under this program will not exceed $10.0 million. As of December 31, 1996, such loans amounted to $4.4 million, or .01%, of the Banks' total loan portfolio. To date, Iberia has not experienced any significant delinquency problems with respect to loans originated under this program. Commercial and Multi-Family Residential Real Estate Loans. The Bank has increased its investment in commercial real estate loans from $4.6 million, or 1.3% of the total loan portfolio at December 31, 1992, to $23.0 million, or 3.9% of the total loan portfolio, at December 31, 1996. The Banks' multi-family residential loan portfolio at December 31, 1996 is $2.3 million or .39% of the total loan portfolio. The increase in commercial real estate loans reflects, in part, the Banks' determination to originate such loans in its market area and certain commercial real estate loans acquired from BOL. The Banks intend to continue to expand its involvement in commercial real estate lending and to continue to moderately increase the amount of such loans in the Banks' portfolio. The Banks expect it will continue to grant such loans primarily to small and medium-sized businesses located in the Banks' primary market area, a portion of the market that the Banks believes has been underserved in recent years. The types of properties securing the Banks' commercial real estate loans include strip shopping centers, professional office buildings, small retail establishments and warehouses, all of which are located in the Banks' market area. As of December 31, 1996, the Banks' largest commercial real estate loan had a balance of $2.4 million. Such loan is secured by an strip shopping center in the Banks' market area and is performing in accordance with its terms. 12 The Banks' commercial real estate and multi-family residential loans generally are one-year adjustable-rate loans indexed to the New York Prime Rate, as quoted in The Wall Street Journal, plus a margin. Generally, fees of 50 basis points to 2% of the principal loan balances are charged to the borrower upon closing. Although terms for multi-family residential and commercial real estate loans may vary, the Banks' underwriting standards generally provide for terms of up to 10 years with amortization of principal over the term of the loan and loan-to-value ratios of not more than 75%. Generally, the Banks obtain personal guarantees of the principals as additional security for any commercial real estate and multi-family residential loans. The Banks evaluate various aspects of commercial and multi-family residential real estate loan transactions in an effort to mitigate risk to the extent possible. In underwriting these loans, consideration is given to the stability of the property's cash flow history, future operating projections, current and projected occupancy, position in the market, location and physical condition. In recent periods, the Banks have also generally imposed a debt coverage ratio (the ratio of net cash from operations before payment of debt service to debt service) of not less than 120%. The underwriting analysis also includes credit checks and a review of the financial condition of the borrower and guarantor, if applicable. An appraisal report is prepared by a state-licensed or certified appraiser (generally MAI qualified) commissioned by the Banks to substantiate property values for every commercial real estate and multi-family loan transaction. All appraisal reports are reviewed by the Banks prior to the closing of the loan. On occasion the Banks also retains a second independent appraiser to review an appraisal report. Commercial real estate and multi-family residential lending entails different and significant risks when compared to single-family residential lending because such loans often involve large loan balances to single borrowers and because the payment experience on such loans is typically dependent on the successful operation of the project or the borrower's business. These risks can also be significantly affected by supply and demand conditions in the local market for apartments, offices, warehouses or other commercial space. The Banks attempt to minimize its risk exposure by limiting such lending to proven businesses, only considering properties with existing operating performance which can be analyzed, requiring conservative debt coverage ratios, and periodically monitoring the operation and physical condition of the collateral. As of December 31, 1996, $190,000 of the Banks' commercial real estate loans were non-performing. Construction Loans. Substantially all of the Banks' construction loans have consisted of loans to construct single-family residences extended to individuals where the Banks have committed to provide a permanent mortgage loan upon completion of the residence. As of December 31, 1996, the Banks' construction loans amounted to $14.1 million, or 2.4% of the Banks' total loan portfolio. The Banks' loans are underwritten as construction/permanent loans, with one set of documents and one closing for both the construction and the long-term portions of such loans. The Banks' construction loans typically provide for a construction period not exceeding 12 months, generally have loan-to-value ratios of 80% or less of the appraised value upon completion and generally do not require the amortization of principal during the construction phase. Upon completion of construction, the loans convert to permanent residential 13 mortgage loans. Loan proceeds are disbursed in stages after inspections of the project indicate that such disbursements are for costs already incurred and which have added to the value of the project. The Banks also will originate ground or land loans to individuals to purchase a building lot on which he intends to build his primary residence. Prior to making a commitment to fund a construction loan, the Banks require an appraisal of the property by an independent state-licensed or qualified appraiser approved by the Board of Directors. In addition, during the term of the construction loan, the project periodically is inspected by an independent inspector. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project, when completed, having a value which is insufficient to assure full repayment. Loans on lots may run the risk of adverse zoning changes, environmental or other restrictions on future use. Consumer Loans. The Bank offers consumer loans in order to provide a full range of retail financial services to its customers. At December 31, 1996, $119.8 million, or 20.6%, of the Banks' total loan portfolio was comprised of consumer loans. The Banks originate substantially all of such loans in its primary market area. The largest component of the Bank's consumer loan portfolio consists of indirect automobile loans. These loans are originated by the automobile dealerships and applications are facsimiled to bank personnel for approval or denial. The Banks rely on the dealerships, in part, for loan qualifying information. To that extent, there is risk inherent in indirect automobile loans apart from the ability of the consumer to repay the loan, that being fraud perpetrated by the automobile dealership. To limit its exposure, the Banks have limited its dealings with automobile dealerships which have demonstrated reputable behavior in the past. At December 31, 1996, $52.4 million, or 9.0%, of the Banks' total loan portfolio are indirect automobile loans. At December 31, 1996, the Banks' remaining consumer loan portfolio was comprised of home equity loans, educational loans, loans secured by deposits at the Banks, mobile home loans, direct automobile loans, credit card loans and other consumer loans. At December 31, 1996, the Banks had $21.6 million or 3.7% of home equity loans, $9.3 million or 1.6% of educational loans, all of which were underwritten to conform with the standards of the Louisiana Public Facilities Authority ("LPFA"). Generally, the Bank has sold its educational loans to the LPFA or other government sponsored agencies at the commencement of the repayment period. Deposit loans totaled $12.5 million, or 2.1%, of the Banks' total loan portfolio at December 31, 1996. The Banks' mobile home loans amounted to $4.2 million, or .7% of the loan portfolio at December 31, 14 1996, compared to $18.1 million or 5.4% of the Bank's loan portfolio at December 31, 1991. The Bank have not emphasized originations of mobile home loans in recent years due to, among other things, management's perception that such loans generally are riskier than certain other consumer loans, such as home equity loans, and single-family mortgage loans. Thes Bank also offers direct automobile loans, loans based on its VISA and MasterCard credit cards and other consumer loans. At December 31, 1996, the Bank's direct automobile loans amounted to $7.5 million, or 1.3%, of the Banks' total loan portfolio. The Banks' Visa and MasterCard credit card loans totaled $4.0 million, or 0.7%, of the Banks' total loan portfolio at such date. Commercial Business Loans. The Banks originate commercial business loans on a secured and, to a lesser extent, unsecured basis. The Banks' commercial business loans generally are made to small to mid-size companies located in the Banks' primary market area and are made for a variety of commercial purposes. At December 31, 1996, the Banks' commercial business loans amounted to $36.1 million or 6.2% of the Banks' gross loan portfolio. The Banks have placed emphasis on the origination of commercial real estate and commercial business loans. Commercial real estate and commercial business loans generally have higher yields and shorter repayment periods than single-family residential loans. The Banks' commercial business loans may be structured as term loans or revolving lines of credit. Commercial business loans generally have a term of ten years or less and adjustable or variable rates of interest based upon the New York Prime Rate. The Banks' commercial business loans generally are secured by equipment, machinery, real property or other corporate assets. In addition, the Banks generally obtain personal guarantees from the principals of the borrower with respect to all commercial business loans. The Banks also provide commercial loans structured as advances based upon perfected security interests in accounts receivable and inventory. Generally the Banks will advance amounts not in excess of 85.0% of accounts receivable, provided that such accounts have not aged more than 90 days. In such cases, payments are made directly to the Banks and the Banks generally maintain in escrow 2.0% to 10.0% of the amounts received. As of December 31, 1996, the Banks had $407,000 of non-performing commercial business loans and its largest commercial business loan had a principal balance of $1.8 million. Such loan is secured by a rental fleet of automobiles and generally has performed in accordance with its terms since origination. Loans-to-One Borrower Limitations. The Louisiana Savings Bank Act of 1990, as amended (the "LSBA") imposes limitations on the aggregate amount of loans that a Louisiana chartered savings bank can make to any one borrower. Under LSBA, the permissible amount of loans-to-one borrower may not exceed 15% of the savings bank's total net worth. In addition, a savings bank may make loans in an amount equal to an additional 10% of the savings bank's net worth if the loans are 100% secured by readily marketable collateral. A savings bank's net worth shall be calculated based on its last quarterly call report and consists of (i) outstanding and unimpaired common stock; (ii) outstanding and unimpaired perpetual preferred stock; (iii) unimpaired capital surplus, undivided profits, capital reserves, minus intangible assets; (iv) 15 purchased mortgage servicing rights; or (v) mandatory convertible debt up to 20% of categories (i) through (iv). Readily marketable collateral consists of financial instruments or bullion which are salable under ordinary circumstances with reasonable promptness at fair market value or on an auction or a similarly available daily bid and ask price market. At December 31, 1996, Iberia's limit on unsecured fix-to-one borrower under LSBA was $10.3 million. At December 31, 1996, Jefferson's limit on unsecured lons-to-one-borrower under LSBA was $2.7 million. At December 31, 1996, Iberia's five largest loans or groups of loans-to-one borrower ranged from $992,000 to $2.4 million, and all of such loans were performing in accordance with their term. Jefferson had no loans in excess of $500,000 at December 31, 1996. ASSET QUALITY General. As a part of the Banks' efforts to improve asset quality, it has developed and implemented an asset classification system. All of the Banks' assets are subject to review under the classification system. All assets of the Banks are periodically reviewed and the classifications are reviewed by the Loan Committee of the Board of Directors on at least a quarterly basis. When a borrower fails to make a required payment on a loan, the Banks attempt to cure the deficiency by contacting the borrower and seeking payment. Contacts are generally made 30 days after a payment is due. In most cases, deficiencies are cured promptly. If a delinquency continues, late charges are assessed and additional efforts are made to collect the loan. While the Banks generally prefer to work with borrowers to resolve such problems, when the account becomes 90 days delinquent, the Banks institute foreclosure or other proceedings, as necessary, to minimize any potential loss. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. As a matter of policy, the Banks do not accrue interest on loans past due 90 days or more, except for credit card loans. See Note 5 of the Notes to Consolidated Financial Statements. Real estate acquired by the Bank as a result of foreclosure or by deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under GAAP are classified as real estate owned until sold. Pursuant to SOP 92-3 issued by the AICPA in April 1992, which provides guidance on determining the balance sheet treatment of foreclosed assets in annual financial statements for periods ending on or after December 15, 1992, there is a rebuttable presumption that foreclosed assets are held for sale and such assets are recommended to be carried at the lower of fair value minus estimated costs to sell the property, or cost (generally the balance of the loan on the property at the date of acquisition). After the date of acquisition, all costs incurred in maintaining the property are expenses and costs incurred for the improvement or 16 development of such property are capitalized up to the extent of their net realizable value. The Bank's accounting for its real estate owned complies with the guidance set forth in SOP 92-3. Under GAAP, the Banks are required to account for certain loan modifications or restructurings as "troubled debt restructurings." In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Banks for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that the Banks would not otherwise consider under current market conditions. Debt restructurings or loan modifications for a borrower do not necessarily always constitute troubled debt restructurings, however, and troubled debt restructurings do not necessarily result in non-accrual loans. The Banks had one troubled debt restructuring as of December 31, 1996. See the table below under "Non-Performing Assets and Troubled Debt Restructurings." Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 1996, in dollar amounts and as a percentage of each category of the Banks' loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts which are past due.
December 31, 1996 -------------------------------------------------------------------- 30-59 Days 60-89 Days ----------------------------- ----------------------------- Percent of Percent of Amount Loan Category Amount Loan Category (Dollars in Thousands) Mortgage loans: Residential: Single-family $7,791 2.02% $1,349 0.35% Multi-family --- --- --- --- Commercial 39 0.17 6 .03 Construction --- --- --- --- Commercial business loans 477 1.32 175 .48 Consumer loans 1,864 1.56 639 0.53 ----- --- Total $10,171 1.75% $2,169 0.37% ------- ==== ------ ====
17 Non-Performing Assets and Troubled Debt Restructurings. The following table sets forth information relating to the Banks' non-performing assets and troubled debt restructurings at the dates indicated.
December 31, ---------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 (Dollars in Thousands) Non-accrual loans: Mortgage loans: Single-family $ 892 $ 788 $ 729 $ 642 $1,477 Multi-family --- --- --- --- --- Commercial 190 30 55 142 10 Construction --- --- --- --- --- Commercial business loans 407 --- --- --- --- Consumer loans 1,002 597 461 586 852 ----- ----- ----- ----- ----- Total non-accrual loans 2,491 1,415 1,245 1,370 2,339 ----- ----- ----- ----- ----- Accruing loans more than 90 days past due(1) 69 53 13 14 14 Total non-performing loans 2,560 1,468 1,258 1,384 2,353 ----- ----- ----- ----- ----- Real estate owned, net 978 561 570 859 900 ----- ----- ----- ----- ----- Total non-performing assets $3,538 $2,029 $1,828 $2,243 $3,253 ====== ====== ====== ====== ====== Performing troubled debt restructurings $ 176 $ 186 $ 194 $ 201 $ 207 ====== ====== ====== ====== ====== Total non-performing assets and troubled debt restructurings $3,714 $2,215 $2,022 $2,444 $3,460 ====== ====== ====== ====== Non-performing loans to total loans 0.44% 0.35% 0.33% 0.39% 0.67% Total non-performing assets to total assets 0.38% 0.33% 0.37% 0.46% 0.67% Total non-performing assets and troubled debt restructurings to total 0.40% 0.36% 0.41% 0.51% 0.71% assets
- ---------------- (1) Consists solely of credit card loans. 18 Other Classified Assets. Federal regulations require that the Banks classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: "substandard," "doubtful" and "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. At December 31, 1996, the Bank had $7.3 million of assets classified substandard, $183,000 assets classified doubtful, and no assets classified loss. At such date, the aggregate of the Banks' classified assets amounted to 0.80% of total assets. Allowance for Loan Losses. The Banks' policy is to establish reserves for estimated losses on delinquent loans when it determines that losses are expected to be incurred on such loans and leases. The allowance for losses on loans is maintained at a level believed adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loss experience, current economic conditions, volume, growth and composition of the portfolio, and other relevant factors. The allowance is increased by provisions for loan losses which are charged against income. As shown in the table below, at December 31, 1996, the Banks' allowance for loan losses amounted to 180.3% and 0.79% of the Banks' non-performing loans and gross loans receivable, respectively. Effective December 21, 1993, the FDIC, in conjunction with the Office of the Comptroller of the Currency, the OTS and the Federal Reserve Board, issued the Policy Statement regarding an institution's allowance for loan and lease losses. The Policy Statement, which reflects the position of the issuing regulatory agencies and does not necessarily constitute GAAP, includes guidance (i) on the responsibilities of management for the assessment and establishment of an adequate allowance and (ii) for the agencies' examiners to use in evaluating the adequacy of such allowance and the policies utilized to determine such allowance. The Policy Statement also sets forth quantitative measures for the allowance with respect to assets classified substandard and doubtful and with respect to the remaining portion of an institution's loan portfolio. Specifically, the Policy Statement sets forth the following quantitative measures which examiners may use to determine the reasonableness of an allowance: (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the portfolio that is classified substandard; and (iii) for the portions of the portfolio that have not been classified (including loans designated special mention), estimated credit losses over the upcoming 12 months based on facts and circumstances available on the evaluation date. While the Policy Statement sets forth this quantitative measure, such guidance is not intended as a "floor" or "ceiling." The review of the Policy Statement did not result in a material adjustment to the Bank's policy for establishing loan losses. 19 The following table sets forth the activity in the Banks' allowance for loan losses during the periods indicated.
Year Ended December 31, --------------------------------------------------------------------- 1996 1995 1994 1993 1992 (Dollars in Thousands) Allowance at beginning of period $3,746 $3,831 $3,413 $3,254 $1,630 Allowance from subsidiary acquisition 1,114 13 --- --- --- Provisions 156 239 305 441 2,200 Charge-offs: Mortgage loans: Single-family 46 55 81 107 290 Multi-family --- --- --- --- --- Commercial --- 4 --- 96 21 Construction --- --- --- --- --- Commercial business loans 61 --- --- --- --- Consumer loans 509 371 214 343 534 ----- ----- ----- ----- ----- Total 616 430 295 546 845 ===== ===== ===== ----- ----- Recoveries: Mortgage loans: Single-family 39 15 302 107 177 Multi-family --- --- --- --- --- Commercial --- --- --- --- 30 Construction --- --- --- --- --- Commercial business loans 43 --- --- --- --- Consumer loans 133 78 106 157 62 ----- ----- ----- ----- ----- Total 215 93 408 264 269 ----- ----- ----- ----- ----- Allowance at end of period $ 4,615 $ 3,746 $ 3,831 $3,413 $3,254 ======= ======= ======= ====== ====== Allowance for loan losses to total non-performing loans at 180.28% 255.18% 304.53% 246.60% 138.29% end of period Allowance for loan losses to total loans at end of period 0.79% 0.90% 0.99% 0.96% 0.92%
20 The following table presents the allocation of the allowance for loan losses to the total amount of loans in each category listed at the dates indicated.
December 31, -------------------------------------------------------------------------------------------- 1996 1995 1994 -------------------------- ------------------------- --------------------------- % of Loan % of Loans % of Loans in Each in Each in Each Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans (Dollars in Thousands) Single-family residential $1,991 66.45% $2,184 76.83% $2,221 78.00% Multi-family residential 11 0.39 10 0.36 13 0.47 Commercial real estate 502 3.95 176 3.49 196 2.76 Construction 72 2.41 107 3.76 107 3.74 Commercial business 817 6.20 134 2.66 118 1.67 Consumer 1,222 20.60 1,135 12.89 1,176 13.36 ----- ----- ----- ----- ----- ----- Total allowance for loan losses $4,615 100.00% $3,746 100.00% $3,831 100.00% ------ ====== ====== ====== ====== ======
December 31, -------------------------------------------------------------- 1993 1992 ---------------------------- ----------------------------- % of Loans % of Loans in Each in Each Category to Category to Amount Total Loans Amount Total Loans ---------------------------- ----------------------------- (Dollars in Thousands) Single-family residential $2,042 79.96% $1,846 79.64% Multi-family residential 14 0.53 17 0.71 Commercial real estate 197 2.32 137 1.31 Construction 65 2.55 68 2.94 Commercial business 97 1.15 205 1.97 Consumer 998 13.49 981 13.43 ------ ----- ------ ----- Total allowance for loan losses $3,413 100.00% $3,254 100.00% ====== ====== ====== ======
21 Management of the Banks presently believe that its allowance for loan losses is adequate to cover any potential losses in the Banks' loan portfolio. However, future adjustments to this allowance may be necessary, and the Banks' results of operations could be adversely affected if circumstances differ substantially from the assumptions used by management in making its determinations in this regard. MORTGAGE-BACKED SECURITIES As of December 31, 1996, the Banks' mortgage-backed securities amounted to $150.7 million, or 16.21% of total assets. At the time of their respective acquisitions, BOL and Jefferson provided $4.2 million and $106.8 million, respectively, of mortgage-backed securities. The Banks' mortgage-backed securities portfolios provides a means of investing in housing-related mortgage instruments without the costs associated with originating mortgage loans for portfolio retention and with limited credit risk of default which arises in holding a portfolio of loans to maturity. Mortgage-backed securities (which also are known as mortgage participation certificates or pass-through certificates) represent a participation interest in a pool of single-family or multi-family mortgages. The principal and interest payments on mortgage-backed securities are passed from the mortgage originators, as servicer, through intermediaries (generally U.S. Government agencies and government-sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as the Banks. Such U.S. Government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include the FHLMC, the FNMA and the Government National Mortgage Association ("GNMA"). The Banks also invests to a limited degree in certain privately issued, credit enhanced mortgage-backed securities rated AA or above by national securities rating agencies. The FHLMC is a public corporation chartered by the U.S. Government and owned by the 12 FHLBs and federally insured savings institutions. The FHLMC issues participation certificates backed principally by conventional mortgage loans. The FHLMC guarantees the timely payment of interest and the ultimate return of principal on participation certificates. The FNMA is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. The FNMA guarantees the timely payment of principal and interest on FNMA securities. FHLMC and FNMA securities are not backed by the full faith and credit of the United States, but because the FHLMC and the FNMA are U.S. Government-sponsored enterprises, these securities are considered to be among the highest quality investments with minimal credit risks. The GNMA is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and the timely payment of principal and interest on GNMA securities are guaranteed by the GNMA and backed by the full faith and credit of the U.S. Government. Because the FHLMC, the FNMA and the GNMA were established to provide support for low- and middle-income housing, there are limits to the maximum size of loans that qualify for these programs which limit currently is $214,600. 22 Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable-rate loans. As a result, the risk characteristics of the underlying pool of mortgages, (i.e., fixed-rate or adjustable rate) as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security thus approximates the life of the underlying mortgages. The Banks have generally determined, consistent with its asset/liability management strategies, to limit its investments in mortgage-backed securities to securities backed by ARMs, have a balloon feature or securities which otherwise have an adjustable rate feature. The Banks' mortgage-backed securities include interests in collateralized mortgage obligations ("CMOs"). CMOs have been developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option of the underlying mortgagor and are typically issued by governmental agencies, governmental sponsored enterprises and special purpose entities, such as trusts, corporations or partnerships, established by financial institutions or other similar institutions. A CMO can be collateralized by loans or securities which are insured or guaranteed by the FNMA, the FHLMC or the GNMA. In contrast to pass-through mortgage-backed securities, in which cash flow is received pro rata by all security holders, the cash flow from the mortgages underlying a CMO is segmented and paid in accordance with a predetermined priority to investors holding various CMO classes. By allocating the principal and interest cash flows from the underlying collateral among the separate CMO classes, different classes of bonds are created, each with its own stated maturity, estimated average life, coupon rate and prepayment characteristics. The regular interests of some CMOs are like traditional debt instruments because they have stated principal amounts and traditionally defined interest-rate terms. Purchasers of certain other CMOs are entitled to the excess, if any, of the issuer's cash inflows, including reinvestment earnings, over the cash outflows for debt service and administrative expenses. These CMOs may include instruments designated as residual interests, which represent an equity ownership interest in the underlying collateral, subject to the first lien of the investors in the other classes of the CMO. Certain residual CMO interests may be riskier than many regular CMO interests to the extent that they could result in the loss of a portion of the original investment. Moreover, cash flows from residual interests are very sensitive to prepayments and, thus, contain a high degree of interest-rate risk. At December 31, 1996, the fair value of the Banks' investment in CMOs amounted to $21.4 million, all of which consisted of regular interests. As of December 31, 1996, the Banks' CMOs did not include any residual interests or interest-only or principal-only securities. As a matter of policy, the Banks do not invest in residual interests of CMOs or interest-only and principal-only securities. Mortgage-backed securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal credit risk. In addition, mortgage-backed and related securities are more liquid than individual mortgage loans and may be used to collateralize borrowings of the Banks in the event that the Banks determined to utilize borrowings as a source of funds. Mortgage-backed securities issued or guaranteed by 23 the FNMA or the FHLMC (except interest-only securities or the residual interests in CMOs) are weighted at no more than 20.0% for risk-based capital purposes, compared to a weight of 50.0% to 100.0% for residential loans. See "Regulation - The Bank - Capital Requirements." As of December 31, 1996, all of the Banks' mortgage-backed securities were classified as held to maturity. Mortgage-backed securities which are held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using a method which approximates a level yield, while mortgage-backed securities available for sale are carried at current market value. See Notes 1 and 4 of the Notes to Consolidated Financial Statements. The following table sets forth the composition of the Bank's mortgage-backed securities at the dates indicated.
December 31, --------------------------------------- 1996 1995 1994 (In Thousands) Mortgage-backed securities(1): FHLMC $80,648 $16,434 $18,461 FNMA 35,340 15,553 10,574 GNMA 13,233 350 401 FNMA CMO 9,697 7,209 4,506 FHLMC CMO 10,901 10,901 4,495 Privately Issued 850 (2) 1,199 1,486 ------ ------ ------ Total mortgage-backed securities $150,669(3) $51,646 $39,923 ---------- ======= ======= Total market value(4) $150,014 $51,872 $37,767 -------- ======= =======
- --------------- (1) See Note 4 of the Notes to Consolidated Financial Statements. (2) Rated AA by national rating agencies. (3) At December 31, 1996, $62.5 million of the Banks' mortgage-backed securities had adjustable rates and $88.2 million had fixed rates, of which $79.3 million had a balloon feature (the mortgage-backed security will mature and repay before the underlying loans have been fully amortized). (4) At all periods presented, all of the Banks' mortgage-backed securities were classified as held to maturity. Mortgage-backed securities held to maturity are carried at their principal balances, net of acquisition discount and premium and deferred fees. 24 The following table sets forth the purchases, principal repayments and sales of the Banks' mortgage-backed securities for the periods indicated.
Year Ended December 31, ----------------------------------------------- 1996 1995 1994 (In Thousands) Mortgage-backed securities purchased(1) $15,532 $ 4,793 Acquired $111,114 Principal repayments (11,903) (3,722) (6,108) Sales --- --- --- Other, net (188) (87) (181) ------- ------- -------- Net change $99,023 $11,723 $(1,496) ======= ======= ========
- --------------- (1) All purchases are of mortgage-backed securities issued by government entities or government sponsored entities. At December 31, 1996, the weighted average contractual maturity of the Banks' mortgage-backed securities with a balloon feature was approximately 2.5 years. The actual maturity of a mortgage-backed security may be less than its stated maturity due to prepayments of the underlying mortgages. Prepayments that are faster than anticipated may shorten the life of the security and adversely affect its yield to maturity. The yield is based upon the interest income and the amortization of any premium or discount related to the mortgage-backed security. In accordance with GAAP, premiums and discounts are amortized over the estimated lives of the loans, which decrease and increase interest income, respectively. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of the mortgage-backed security, and these assumptions are reviewed periodically to reflect actual prepayments. Although prepayments of underlying mortgages depend on many factors, including the type of mortgages, the coupon rate, the age of mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of prepayments. During periods of rising mortgage interest rates, if the coupon rates of the underlying mortgages are less than the prevailing market interest rates offered for mortgage loans, refinancings generally decrease and slow the prepayment of the underlying mortgages and the related securities. Conversely, during periods of falling mortgage interest rates, if the coupon rates of the underlying mortgages exceed the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages 25 and the related securities. Under such circumstances, the Banks may be subject to reinvestment risk because to the extent that the Banks' mortgage-related securities amortize or prepay faster than anticipated, the Banks may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate. The declining yields earned during fiscal 1993 and 1994 a direct response to falling interest rates as well as to accelerated prepayments. In fiscal 1995, higher yields were earned as a direct response to increasing interest rates. INVESTMENT SECURITIES The Banks' investments in investment securities consist primarily of securities issued by the U.S. Treasury and federal government agency obligations. As of December 31, 1996, the Banks' investment securities available for sale amounted to $101.1 million, net of gross unrealized gains of $288,000, and its investment securities held to maturity amounted to $2.2 million. At the time of their respective acquisitions, BOL and Jefferson provided $2.0 million and $57.5 million, respectively, of investment securities. The Banks attempt to maintain a high degree of liquidity in its investment securities portfolio and generally do not invest in securities with terms to maturity exceeding five years. The following table sets forth information regarding the amortized cost and market value of the Banks' investment securities at the dates indicated.
December 31, ------------------------------------------------------------------------------------ 1996 1995 1994 ------------------------- ------------------------ ------------------------- Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value (In Thousands) U.S. Government and federal agency obligations $95,549 $95,855 $79,907 $81,065 $44,371 $42,583 Other 7,523 7,507 5,785 5,777 5,634 5,504 ----- ----- ----- ----- ----- ----- Total $103,072 $103,362 $85,692 $86,842 $50,005 $48,087 ======== ======== ======= ======= ======= =======
26 The following table sets forth certain information regarding the maturities of the Banks' investment securities at December 31, 1996.
Contractually Maturing ------------------------------------------------------------------------------------------ Weighted Weighted Weighted Weighted Under 1 Average 1-5 Average 6-10 Average Over 10 Average Year Yield Years Yield Years Yield Years Yield (Dollars in Thousands) U.S. Government and federal agency obligations $56,396 5.94% $39,459 6.20% $ --- ---% $ --- ---% Other 5,289(1) 6.08 2,032 5.78 184 6.30 --- --- ------- ----- ---- ----- Total $61,685 5.95 $41,491 6.18 $184 6.30 $ --- --- ------- ------- ==== ===== =====
- --------------- (1) Consists of a mutual fund of adjustable rate mortgage-backed securities, all of which adjust at least annually. SOURCES OF FUNDS General. The Banks' principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Banks' branch offices. The acquisitions of Jefferson and BOL provided $288.3 million of deposits used to help fund the Banks' loan growth. The Banks also derive funds from amortization and prepayments of outstanding loans and mortgage-related securities, and from maturing investment securities. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. While available, during the past five years, the Bank has not used borrowings to supplement its deposits as a source of funds. Deposits. The Banks' current deposit products include passbook accounts, NOW accounts, MMDA, certificates of deposit ranging in terms from 30 days to seven years and noninterest-bearing personal and business checking accounts. The Banks' deposit products also include Individual Retirement Account ("IRA") certificates and Keogh accounts. The Banks' deposits are obtained primarily from residents in its Primary Market Area. The Banks attracts local deposit accounts by offering a wide variety of accounts, competitive interest rates, and convenient branch office locations and service hours. In addition, Iberia has supplemented its traditional deposit activities with acquisitions from the RTC in 1989, 1990 and 1991. The acquisition of BOL helped Iberia double its market share in the greater Lafayette market. The acquisition of Jefferson established the Company in a new market, the greater New Orleans area. The Banks utilize traditional marketing methods to attract new customers and 27 savings deposits, including print and broadcast advertising and direct mailings. However, the Banks do not solicit funds through deposit brokers nor does it pay any brokerage fees if it accepts such deposits. The Banks participate in the regional ATM network known as CIRRUS(R). The Banks have been competitive in the types of accounts and in interest rates it has offered on its deposit products but does not necessarily seek to match the highest rates paid by competing institutions. With the significant decline in interest rates paid on deposit products, the Banks in 28 recent years has experienced disintermediation of deposits into competing investment products. See generally Note 8 of the Notes to Consolidated Financial Statements. The following table sets forth certain information relating to the Banks' deposits at the dates indicated. Years prior to 1996 do not include deposits of Jefferson or BOL as those acquisitions did not take place until 1996.
December 31, ------------------------------------------------------------------------------------ 1996 1995 1994 ------------------------ -------------------------- ------------------------ Percent Percent Percent of Total of Total of Total Amount Deposits Amount Deposits Amount Deposits (Dollars in Thousands) NOW accounts $ 76,991 10.13% $ 32,472 7.30% $ 30,349 6.98% Money market accounts 58,669 7.72 32,204 7.24 41,597 9.57 Non-interest-bearing checking accounts 33,884 4.46 9,124 2.05 6,450 1.49 ------- ----- ------ ----- ------ ----- Total demand deposits 169,544 22.30 73,800 16.59 78,396 18.04 ------- ----- ------ ----- ------ ----- Passbook savings deposits 119,685 15.74 49,920 11.23 55,505 12.78 Certificate of deposit accounts: Less than 6 months 11,099 1.46 16,101 3.62 4,795 1.10 6-11 months 60,766 7.99 45,211 10.17 63,463 14.61 12-35 months 261,151 34.35 119,263 26.83 103,259 23.77 More than 35 months 138,039 18.16 140,305 31.56 129,025 29.70 ------- ----- ------- ----- ------- ----- Total certificates 471,055 61.96 320,880 72.18 300,542 69.18 ------- ----- ------- ----- ------- ----- Total deposits $760,284 100.00% $444,600 100.00% $434,443 100.00% -------- ====== ======== ====== ======== ======
The following table sets forth the activity in the Banks'deposits during the periods indicated.
Year Ended December 31, ---------------------------------------------------- 1996 1995 1994 --------- --------------- ------- (In Thousands) Beginning balance $444,600 $434,443 $439,500 Deposits acquired 288,290 --- --- Net increase (decrease) before interest credited 7,869 (3,197) (16,920) Interest credited 19,525 13,354 11,863 -------- -------- -------- Net increase (decrease) in deposits 315,684 10,157 (5,057) -------- -------- -------- Ending balance $760,284 $444,600 $434,443 ======== ======== ========
29 The following table sets forth by various interest rate categories the certificates of deposit with the Banks at the dates indicated.
December 31, --------------------------------------------------- 1996 1995 1994 (Dollars in Thousands) 0.00% to 2.99% $ 100 $ --- $ 103 3.00% to 3.99% 706 3,480 71,037 4.00% to 4.99% 90,768 63,805 70,222 5.00% to 6.99% 365,882 237,159 143,911 7.00% to 8.99% 13,599 16,076 15,269 9.00% and over --- --- --- ---------- ---------- --------- $ 471,055 $ 320,880 $ 300,542 ========== =========
30 The following table sets forth the amount and maturities of the Banks' certificates of deposit at December 31, 1996.
Over One Over Two Year Years Through Through Over Three One Year and Two Years Three Years Years Less (Dollars in Thousands) 2.00% to 3.99% $ 681 $ 15 $ 94 $ 16 4.00% to 4.99% 90,245 434 63 26 5.00% to 6.99% 178,155 118,653 36,533 32,541 7.00% to 8.99% 8,663 1,383 454 3,099 ------- ------ ----- ----- $277,744 $120,485 $37,144 $35,682
Borrowings. The Banks may obtain advances from the FHLB of Dallas upon the security of the common stock it owns in that bank and certain of its residential mortgage loans and securities held to maturity, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. The Banks made limited use of such borrowings during the past five years. See Note 9 of the Notes of Consolidated Financial Statements. 31 SUBSIDIARIES Iberia only has one active, wholly owned subsidiary, Iberia Financial Services, Inc. ("Iberia Services"). At December 31, 1996, Iberia's equity investment in Iberia Services was $947,845 and Iberia Services had total assets of $951,000. For the years ended December 31, 1996 and 1995, Iberia Services had total revenue of $704,000 and $453,000, respectively and a net income of $131,000 in 1996 and a net loss of $24,000 in 1995. See Note 1 of the Notes to Consolidated Financial Statements. The business of Iberia Services consists of holding certain parcels of real estate which the Iberia previously intended to develop (all of which parcels were sold in 1996) as well as acting as a broker for the sale of annuities and certain other securities to the general public. Iberia Services has one wholly owned subsidiary, Finesco, Ltd., which the Bank acquired in January 1995 and which business consists of insurance premium financing. COMPETITION The Banks face strong competition both in attracting deposits and originating loans. Its most direct competition for deposits has historically come from other savings institutions, credit unions and commercial banks located in its market area including many large financial institutions which have greater financial and marketing resources available to them. In addition, during times of high interest rates, the Banks have faced additional significant competition for investors' funds from short-term money market securities, mutual funds and other corporate and government securities. The ability of the Banks to attract and retain savings deposits depends on its ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities. The Banks experience strong competition for loan originations principally from other savings institutions, commercial banks and mortgage banking companies. The Banks compete for loans principally through the interest rates and loan fees it charges, the efficiency and quality of services it provides borrowers and the convenient locations of its branch office network. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions. EMPLOYEES The Banks had 322 full-time employees and 34 part-time employees as of December 31, 1996. None of these employees is represented by a collective bargaining agreement. The Banks believe that it enjoys excellent relations with its personnel. REGULATION Set forth below is a brief description of certain laws and regulations which relate to the regulation of the Company and the Banks. The description of these laws and regulations, as well 32 as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. THE COMPANY. The Company is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company, as a bank holding company, is subject to regulation and supervision by the Federal Reserve Board. The Company is required to file annually a report of its operations with, and will be subject to examination by, the Federal Reserve Board. BHCA Activities and Other Limitations. The BHCA prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, without prior approval of the Federal Reserve Board. The BHCA also generally prohibits a bank holding company from acquiring any bank located outside of the state in which the existing bank subsidiaries of the bank holding company are located unless specifically authorized by applicable state law. No approval under the BHCA is required, however, for a bank holding company already owning or controlling 50% of the voting shares of a bank to acquire additional shares of such bank. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company, factoring company, trust company or savings association; performing certain data processing operations; providing limited securities brokerage services; acting as an investment or financial advisor; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, non-operating basis; providing tax planning and preparation services; operating a collection agency; and providing certain courier services. The Federal Reserve Board also has determined that certain other activities, including real estate brokerage and syndication, land development, property management and underwriting of life insurance not related to credit transactions, are not closely related to banking and a proper incident thereto. Limitations on Transactions with Affiliates. Transaction between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a 33 savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engaged in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition to the restrictions imposed by Sections 23A and 23B, no savings institution may (i) loan or otherwise extend credit to an affiliate, except for any affiliate which engages only in activities which are permissible for bank holding companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings institution. In addition, Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution's loans to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus). In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve Board capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill and, with certain exceptions, intangibles. Tier II capital generally consists of hybrid capital instruments; perpetual preferred stock which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets 34 such as cash to 100% for the bulk of assets which are typically held by a bank holding company, including multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Single-family residential first mortgage loans which are not past-due (90 days or more) or non-performing and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighing system, as are certain privately-issued mortgage-backed securities representing indirect ownership of such loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics. In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose does not include goodwill and any other intangible assets and investments that the Federal Reserve Board determines should be deducted from Tier I capital. The Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at least 4.0% to 5.0% or more, depending on their overall condition. At December 31, 1995, the Company believes it is in compliance with the above-described Federal Reserve Board regulatory capital requirements. Financial Support of Affiliated Institutions. Under Federal Reserve Board policy, the Company will be expected to act as a source of financial strength to the Banks and to commit resources to support the Bank in circumstances when it might not do so absent such policy. The legality and precise scope of this policy is unclear, however, in light of recent judicial precedent. Federal Securities Laws. The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. THE BANKS. The Banks are subject to extensive regulation and examination by the OFI and by the FDIC and are also subject to certain requirements established by the Federal Reserve Board. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. There are periodic examinations by the OFI and the FDIC to test the Banks' compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the OFI, the FDIC or the Congress could have a material adverse impact on the Company, the Banks and their operations. 35 FDIC Insurance Premiums. The deposits of the Savings 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 fund met its target reserve in September 1995, but the SAIF was not expected to meet its target reserve level until at least 2002. Consequently, in late 1995, the FDIC approved a final rule regarding deposit insurance premiums which, effective with respect to the semiannual premium assessment beginning January 1, 1996, reduced deposit insurance premiums for BIF member institutions to zero basis points (subject to an annual minimum of $2,000) for institutions in the lowest risk category. Deposit insurance premiums for SAIF members were maintained at their existing levels (23 basis points for institutions in the lowest risk category). On September 30, 1996, President Clinton signed into law legislation which will eliminate the premium differential between SAIF-insured institutions and BIF-insured institutions by recapitalizing the SAIF's reserves to the required ratio. The legislation provides that all SAIF member institutions pay a one-time special assessment to recapitalize the SAIF, which in the aggregate will be sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits. The legislation also provides for the merger of the BIF and the SAIF, with such merger being conditioned upon the prior elimination of the thrift charter. Effective October 8, 1996, FDIC regulations imposed a one-time special assessment of 65.7 basis points on SAIF-assessable deposits as of March 31, 1995, which was collected on November 27, 1996. The Savings Bank's one-time special assessment amounted to $2.9 million pre-tax. The payment of such special assessment had the effect of immediately reducing the Savings Bank's capital by $1.9 million after tax. On October 16, 1996, the FDIC proposed to lower assessment rates for SAIF members to reduce the disparity in the assessment rates paid by BIF and SAIF members. Beginning October 1, 1996, effective SAIF rates would range from zero basis points to 27 basis points. From 1997 through 1999, SAIF members will pay 6.4 basis points to fund the Financing Corporation while BIF member institutions will pay approximately 1.3 basis points. The Savings Bank's deposit insurance premiums, which have amounted to 23 basis points will be reduced to 6.4 basis points. The FDIC may terminate the deposit insurance of any insured depository institution, including the Banks, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Banks' deposit insurance. Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Banks, will not be members of the Federal Reserve System. These requirements are substantially similar to those adopted by the Federal Reserve Board regarding bank holding companies, as described above. The FDIC's capital regulations establish a minimum 3.0% Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation, highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and 36 related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights. The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier I capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 1996, the Banks met each of its capital requirements. In August 1995, the FDIC and other federal banking agencies published a final rule modifying their existing risk-based capital standards to provide for consideration of interest rate risk when assessing capital adequacy of a bank. Under the final rule, the FDIC must explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor in evaluating a bank's capital adequacy. In addition, in August 1995, the FDIC and the other federal banking agencies published a joint policy statement for public comment that describes the process the banking agencies will use to measure and assess the exposure of a bank's net economic value to changes in interest rates. Under the policy statement, the FDIC will consider results of supervisory and internal interest rate risk models as one factor in evaluating capital adequacy. The FDIC intends, at a future date, to incorporate explicit minimum requirements for interest rate risk in its risk-based capital standards through the use of a model developed from the policy statement, a future proposed rule and the public comments received therefrom. Activities and Investments of Insured State-Chartered Banks. The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting 37 shares of a depository institution if certain requirements are met. In addition, an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as "principal" in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank must cease the impermissible activity. Louisiana Savings Bank Law. As Louisiana chartered savings banks, the Banks are subject to regulation and supervision by the OFI under LSBA. The LSBA contains provisions governing the incorporation and organization, location of offices, rights and responsibilities of directors, officers and members as well as the corporate powers, savings, lending, capital and investment requirements and other aspects of the Bank and its affairs. In addition, the OFI is given extensive rulemaking power and administrative discretion under the LSBA including authority to enact and promulgate rules and regulations governing the conversion of Louisiana chartered savings banks which convert from the mutual to the stock form. The Banks are required under the LSBA to comply with certain capital requirements established by the OFI. In addition, the LSBA prohibits the Banks from declaring dividends unless the Bank has a surplus equal to 20% of the outstanding common stock of the Bank both before and after the dividend is paid. The LSBA also restricts the amount the Bank can lend to one borrower to an amount which may not exceed 15% of the Bank's total net worth. The Bank may lend an amount equal to an additional 10% of the Bank's total net worth to one borrower if the loans are secured 100% by readily marketable collateral. The OFI generally examines the Banks once every year and the current practice is for the OFI to conduct a joint examination with the FDIC. The OFI may publish part of an examination of any savings bank which does not take corrective action to comply with comments received from the examiner within forty-five days after notice. In addition, the OFI may require corrective action be taken by directors, officers and employees of any savings bank and issue a formal order if corrective action is not taken. If the formal order contains a finding that the business of the savings bank is being conducted in a fraudulent, illegal, unsafe or unsound manner or could lead to insolvency or substantial dissipation of assets, earnings or impairment of capital, such order must be complied with immediately and may be enforced by the OFI through a court of competent jurisdiction. Regulatory Enforcement Authority. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. 38 FEDERAL AND STATE TAXATION General. The Company and the Banks are subject to the generally applicable corporate tax provisions of the Code, and the Banks are subject to certain additional provisions of the Code which apply to thrift and other types of financial institutions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive discussion of the tax rules applicable to the Banks. Fiscal Year. The Company and the Banks and its subsidiary file a consolidated federal income tax return on the basis of a fiscal year ending on December 31. Bad Debt Reserves. Savings institutions, such as Iberia and Jefferson, which meet certain definitional tests primarily relating to their assets and the nature of their businesses, are permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions may, within specified formula limits, be deducted in arriving at the institution's taxable income. For purposes of computing the deductible addition to its bad debt reserve, the institution's loans are separated into "qualifying real property loans" (i.e., generally those loans secured by certain interests in real property) and all other loans ("non-qualifying loans"). The deduction with respect to non-qualifying loans must be computed under the experience method as described below. The following formulas may be used to compute the bad debt deduction with respect to qualifying real property loans: (i) actual loss experience, or (ii) a percentage of taxable income. Reasonable additions to the reserve for losses on non-qualifying loans must be based upon actual loss experience and would reduce the current year's addition to the reserve for losses on qualifying real property loans, unless that addition is also determined under the experience method. The sum of the additions to each reserve for each year is the institution's annual bad debt deduction. Under the experience method, the deductible annual addition to the institution's bad debt reserves is the amount necessary to increase the balance of the reserve at the close of the taxable year to the greater of (a) the amount which bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during the current and five preceding taxable years bear to the sum of the loans outstanding at the close of the six years, or (b) the lower of (i) the balance of the reserve account at the close of the last taxable year prior to the most recent adoption of the experience method (the "base year"), except that for taxable years beginning after 1987, the base year shall be the last taxable year beginning before 1988, or (ii) if the amount of loans outstanding at the close of the taxable year is less than the amount of loans outstanding at the close of the base year, the amount which bears the same ratio to loans outstanding at the close of the taxable year as the balance of the reserve at the close of the base year bears to the amount of loans outstanding at the close of the base year. Under the percentage of taxable income method, the bad debt deduction equals 8% of taxable income determined without regard to that deduction and with certain adjustments. The availability of the percentage of taxable income method permits a qualifying savings institution to 39 be taxed at a lower effective federal income tax rate than that applicable to corporations in general. This resulted generally in an effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction permitted under the percentage of taxable income method, in the absence of other factors affecting taxable income, of 31.3% exclusive of any minimum tax or environmental tax (as compared to 34% for corporations generally). For tax years beginning on or after January 1, 1993, the maximum corporate tax rate was increased to 35%, which increased the maximum effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction to 32.2%. Any savings institution at least 60% of whose assets are qualifying assets, as described in the Code, will generally be eligible for the full deduction of 8% of taxable income. At least 60% of the assets of the Banks are "qualifying assets" as defined in the Code, and Iberia and Jefferson anticipates that at least 60% of its assets will continue to be qualifying assets in the immediate future. If this ceases to be the case, the institution may be required to restore some portion of its bad debt reserve to taxable income in the future. Under the percentage of taxable income method, the bad debt deduction for an addition to the reserve for qualifying real property loans cannot exceed the amount necessary to increase the balance in this reserve to an amount equal to 6% of such loans outstanding at the end of the taxable year. The bad debt deduction is also limited to the amount which, when added to the addition to the reserve for losses on non-qualifying loans, equals the amount by which 12% of deposits at the close of the year exceeds the sum of surplus, undivided profits and reserves at the beginning of the year. Based on experience, it is not expected that these restrictions will be a limiting factor for Iberia Savings in the foreseeable future. In addition, the deduction for qualifying real property loans is reduced by an amount equal to all or part of the deduction for non-qualifying loans. At December 31, 1996, the federal income tax reserves of Iberia included $10.9 million for which no federal income tax has been provided. Because of these federal income tax reserves and the liquidation account established for the benefit of certain depositors of Iberia in connection with the Conversion, the retained earnings of Iberia are substantially restricted. Jefferson also has a liquidation account established for the benefit of certain depositors of Jefferson in connection with its Conversion, thus the retained earnings of Jefferson are also restricted. Pursuant to certain legislation which was recently enacted and which was effective for tax years that began after December 31, 1995, a large bank (one with an adjusted basis of assets of greater than $500 million), such as the Bank, would no longer be permitted to make additions to its tax bad debt reserve under the percentage of taxable income method. Such legislation also requires the Bank to realize increased tax liability over a period of at least six years, beginning in 1996, relating to the Bank's "applicable excess reserves." The amount of applicable excess reserves is taken into account ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement described below. The recapture requirement would be suspended for each of two successive taxable years beginning January 1, 1996 in which the Bank originates an amount of certain kinds of residential loans which in the aggregate are equal to or greater than the average of the principal amounts of such loans made by the Bank during its six taxable years preceding 1996. Distributions. If Iberia distributes cash or property to its stockholders, and the distribution is treated as being from its accumulated bad debt reserves, the distribution will cause Iberia to have additional taxable income. A distribution is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a "non-qualified distribution." A distribution with respect to stock is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, it exceeds the institution's current and post-1951 40 accumulated earnings and profits. The amount of additional taxable income created by a non-dividend distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution. Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI") and is calculated on the AMTI in excess of an exemption amount. The alternative minimum tax is assessed to the extent that it exceeds the tax on regular taxable income. The Code provides that an item of tax preference is the excess of the bad debt deduction allowable for a taxable year pursuant to the percentage of taxable income method over the amount allowable under the experience method. Other items of tax preference that constitute AMTI include (a) tax-exempt interest on newly issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). Net Operating Loss Carryovers. A financial institution may carry back net operating losses ("NOLs") to the preceding three taxable years and forward to the succeeding 15 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. At December 31, 1996 the Company had a federal and state net operating loss carryover of $1.5 million and $581,000, respectively, which were assumed by the Company in the acquistion of Royal Bankgroup. Capital Gains and Corporate Dividends-Received Deduction. Corporate net capital gains are taxed at a maximum rate of 34%. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. However, a corporation may deduct 100% of dividends from a member of the same affiliated group of corporations. Other Matters. Federal legislation is introduced from time to time that would limit the ability of individuals to deduct interest paid on mortgage loans. Individuals are currently not permitted to deduct interest on consumer loans. Significant increases in tax rates or further restrictions on the deductibility of mortgage interest could adversely affect the Banks. The Company's consolidated federal income tax returns for the tax years ended 1995 and 1996 are open under the statute of limitations and are subject to review by the IRS. In addition, the 1995 and partial year 1996 federal tax returns of Royal Bankgroup and Jefferson Bancorp are also considered open under the statute of limitations and are subject to review by the IRS. STATE TAXATION 41 The nonbanking subsidiaries of the Banks and the Company are subject to the Louisiana Corporation Income Tax based on their Louisiana taxable income, as well as franchise taxes. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana taxable income" means net income which is earned within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law including a federal income tax deduction and an allowance for net operating losses, if any. In addition, the Banks are subject to the Louisiana Shares Tax which is imposed on the assessed value of its stock. The formula for deriving the assessed value is to calculate 15% of the sum of (a) 20% of the company's capitalized earnings, plus (b) 80% of the company's taxable stockholders' equity, and to subtract from that figure 50% of the company's real and personal property assessment. Various items may also be subtracted in calculating a company's capitalized earnings. 42 ITEM 2. PROPERTIES. The following table sets forth certain information relating to the Banks' offices at December 31, 1996.
Net Book Value of Property and Leasehold Improvements Deposits Owned or at at Location Leased December 31, 1996 December 31, 1996 (In Thousands) 1101 E. Admiral Doyle Drive, New Iberia Owned $3,253 $188,423 1427 W. Main Street, Jeanerette Owned 202 28,353 403 N. Lewis Street, New Iberia Owned 245 55,322 1205 Victor II Boulevard, Morgan City Owned 364 16,993 1820 Main Street, Franklin (1) Leased 82 6,845 301 E. St. Peter Street, New Iberia Owned 1,093 25,674 700 Jefferson Street, Lafayette Owned 303 27,246 576 N. Parkerson Avenue, Crowley Owned 423 38,580 200 E. First Street, Kaplan Owned 138 23,400 1012 The Boulevard, Rayne Owned 222 11,554 500 S. Main Street, St. Martinville Owned 82 12,186 1101 Veterans Memorial Drive, Abbeville Leased 1 4,640 150 Ridge Road, Lafayette Owned 74 14,826 2130 W. Kaliste Saloom, Lafayette Owned 1,152 16,225 2110 W. Pinhook Road, Lafayette Owned 1,700 46,873 2602 Johnston Street, Lafayette (1) Leased 333 20,647 2240 Ambassador Caffery, Lafayette Leased 181 2,183 4510 Ambassador Caffery, Lafayette Leased 183 1,547 1011 Fourth Street, Gretna Owned 973 80,996 3929 Veterans Blvd., Metairie Leased 24 28,768 9300 Jefferson Hwy., River Ridge Owned 533 39,242
43 2330 Barataria Boulevard, Marrero Owned 180 2,662 4626 General De Gaulle, New Orleans Owned 277 12,959 111 Wall Boulevard, Gretna Owned 316 20,869 1820 Barataria Blvd., Marrero Owned 346 39,271 --- ------ $12,680 $760,284 ======= ========
- --------------- (1) Building owned, ground leased. ITEM 3. LEGAL PROCEEDINGS. The Company and the Banks are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required herein, to the extent applicable, is incorporated by reference from page 51 of the Registrant's 1996 Annual Report to Stockholders ("Annual Report"). ITEM 6. SELECTED FINANCIAL DATA. The information required herein is incorporated by reference from pages 4 and 5 of the Registrant's 1996 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required herein is incorporated by reference from pages 6 to 17 of the Registrant's 1996 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 44 The information required herein is incorporated by reference from pages 18 to 47 of the Registrant's 1996 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 45 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required herein is incorporated by reference from the Registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders ("Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. The information required herein is incorporated by reference from the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required herein is incorporated by reference from the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required herein is incorporated by reference from the Registrant's Proxy Statement. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents Filed as Part of this Report. (1) The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit 13): Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Income for the Fiscal Periods Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Periods Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Fiscal Periods ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 46 (2) All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. (3) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
Exhibit Index ------------- Page ---- 3.1 Articles 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, Iberia Savings Bank and Larrey G. Mouton dated February 15, 1995 *** 10.4 Severance Agreement among ISB Financial Corporation, Iberia Savings Bank and Wayne Robideaux dated February 15, 1995 (representative of similar agreements entered into with Scott T. Sutton, William M. Lahasky, Boyd Boudreaux and Ronnie J. Faret) ** 13.0 1996 Annual Report to Stockholders 22.0 Subsidiaries of the Registrant - Reference is made to "Item 2. "Business" for the required information 23.0 Consent of Castaing, Hussey & Lolan LLP 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. 33-93210) 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, 1995. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 27, 1997 By: /s/ Larrey G. Mouton -------------------- Larrey G. Mouton President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date - ---- ----- ---- /s/ Larrey G. Mouton President, Chief Executive March 27, 1997 - -------------------- Officer and Director Larrey G. Mouton (principal executive officer) /s/ William M. Lahasky Vice President and March 27, 1997 - ---------------------- Chief Financial Officer William M. Lahasky (principal financial and accounting officer) /s/ Henry J. Dauterive, Jr. Chairman of the Board March 31, 1997 - -------------------------- Henry J. Dauterive, Jr. /s/ Emile J. Plaisance, Jr. Vice Chairman of the Board March 31, 1997 - -------------------------- Emile J. Plaisance, Jr.
48 /s/ Elaine D. Abell Director March 31, 1997 - ------------------- Elaine D. Abell /s/ Harry V. Barton, Jr. Director March 31, 1997 - ------------------- Harry V. Barton, Jr. Director March , 1997 - --------------------- William R. Bigler /s/ Cecil C. Broussard Director March 31, 1997 - ---------------------- Cecil C. Broussard /s/ William H. Fenstermaker Director March 31, 1997 - --------------------------- William H. Fenstermaker /s/ Ray Himel Director March 31, 1997 - --------------- Ray Himel Director March , 1997 - ---------------- Karen Knight /s/ E. Stewart Shea, III Director March 31, 1997 - -------------------------- E. Stewart Shea, III /s/ Guyton H. Watkins Director March 31, 1997 - ---------------------- Guyton H. Watkins Director March , 1997 - ---------------------------- Louis J. Tamporello, Sr.
EX-13.0 2 ANNUAL REPORT. 1 [ISB LOGO] FINANCIAL CORPORATION 1996 2 TABLE OF CONTENTS SECTION 1 Letter to Stockholders.................................................................... 2 Selected Consolidated Financial Data...................................................... 4 Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 6 SECTION 2 Report of Independent Auditors............................................................ 18 Consolidated Financial Statements Consolidated Statements of Financial Condition...................................... 19 Consolidated Statements of Income................................................... 20 Consolidated Statements of Stockholders' Equity..................................... 21 Consolidated Statements of Cash Flows............................................... 22 Notes to Consolidated Financial Statements.......................................... 24 Corporate Information..................................................................... 48
ANNUAL MEETING The Annual Meeting of Stockholders is scheduled for Wednesday, April 16, 1997 at 3:00 p.m., at Iberia Savings Bank, 1101 E. Admiral Doyle Drive, New Iberia, Louisiana. 1 3 LETTER TO STOCKHOLDERS This past year was one of many accomplishments including a significant growth in assets, increases in quarterly dividends, the completion of a 5% stock buyback, an announcement to convert to a commercial bank charter, the rollout of our successful debit card program and the opening of our first supermarket branches. The Company earned $5,278,000 or $.80 cents per share in 1996. The one-time assessment of $2.9 million ($1.9 million after taxes) during the third quarter to recapitalize the Savings Association Insurance Fund ("SAIF") was the primary cause for the reduction in net income in 1996 compared to 1995. This assessment was made on all savings institutions with deposits insured by the SAIF. The charge did not have a material impact on the Company's capital position. In fact, the long-term benefits are significant. We expect to realize annual savings due to lower insurance premiums beginning in 1997. Assets of the Company increased $320 million during this same period primarily as a result of two acquisitions. First was the May acquisition of Royal Bankgroup of Acadiana, Inc. and its subsidiary, the Bank of Lafayette. With assets of $70 million, the Bank of Lafayette added two important branches in a key section of our overall market. In addition to these facilities and deposits, this acquisition gave us the personnel to expand our commercial lending abilities and to add an experienced automotive dealer lending group. These efforts facilitated significant increase in new loan volume during the year. At the time we completed this merger, we opened two supermarket branches giving Iberia Savings Bank seven locations in Lafayette and a 6% market share of deposits. We have become a strong competitive force in this growing area. Second, the purchase of Jefferson Bancorp and its subsidiary, Jefferson Federal Savings Bank, completed in October, added $266 million in assets and seven branch offices in the greater New Orleans area. Our challenge here is to increase lending, introduce new deposit products and services, consolidate and streamline operations. This effort is underway now and its effect should begin to be reflected in our financial statements by the end of 1997. Net loans increased $172 million due, in part, to the acquisitions and also to new commercial loans and consumer loans originated through a network of local automobile dealerships. The relevant economic data for our market area suggests that loan demand will continue to grow. Our Company increased quarterly dividends per share in April from $0.075 to $0.080 and again in October to $0.085. We are hopeful that we can increase dividends again in 1997. In addition to increasing our dividend payments, we completed a stock repurchase in July for 329,411 shares, or approximately 5.0% of the then outstanding shares at $14.75 per share. We believe this stock repurchase was an effective use of our capital since, among other factors, the purchase price was below book value. Another 5% stock repurchase was announced in January 1997 but has not yet been completed due to the increases in per-share price of the Company's common stock. We are continuing to monitor this and, if deemed prudent, may resume our stock repurchases. 2 4 In line with our overall strategy to change our loan mix to reflect a higher percentage of commercial and consumer lending, the Company recently announced its plan to convert its subsidiary savings banks from a state savings bank charter to a commercial bank charter. The change should occur in 1997. We expect to continue our efforts to be a strong originator of one-to-four family residential mortgage loans but we also intend to increase the amount of loans sold to investors in our efforts to increase fee income and permit increased funding of our profitable commercial and consumer loan portfolios. This charter change is also in response to federal legislative uncertainty for the future of the savings bank charter. Our new debit card, ReadyCheck, was introduced in March. The volume related to this card has rapidly accelerated to approximately 10,500 transactions per month. This card is attractive to customers, reduces check processing costs and creates fee income for the bank. In addition to our existing network of 24 ATMs, two new ATMs were recently installed, on a test basis, in convenience stores. On behalf of the Directors, Management and Staff, we thank you for the confidence you have placed in ISB Financial Corporation and look forward to reporting continued successes and good returns on your investment. Sincerely, /s/ LARREY G. MOUTON LARREY G. MOUTON PRESIDENT AND CHIEF EXECUTIVE OFFICER 3 5 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS) DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------- SELECTED FINANCIAL CONDITION DATA: Total Assets $929,264 $608,830 $487,563 $482,814 $487,836 Cash and cash equivalents 53,385 51,742 9,686 19,674 34,157 Discount on loans purchased 1,460 1,962 2,679 3,876 5,798 Loans receivable, net 571,119 399,542 370,794 343,417 336,404 Investment securities 103,724 87,231 48,088 58,285 52,682 Mortgage-backed securities 150,669 51,646 39,923 41,419 44,875 Deposit accounts 760,284 444,600 434,443 439,500 452,197 Borrowings 47,750 40,490 5,000 -- -- Equity 114,006 119,677 44,840 39,863 32,318 YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------- SELECTED OPERATING DATA: Interest income $52,707 $42,334 $36,548 $38,340 $41,221 Interest expense 27,136 21,282 17,294 17,508 20,707 ------------------------------------------------------------- Net interest income 25,571 21,052 19,254 20,832 20,514 Provision for loan losses 156 239 305 441 2,200 ------------------------------------------------------------- Net interest income after provision for loan losses 25,415 20,813 18,949 20,391 18,314 Noninterest income 3,818 2,668 2,425 2,107 2,134 Noninterest expense 20,778(1) 12,693 11,783 11,407 10,942 ------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 8,455 10,788 9,591 11,091 9,506 Income taxes 3,177 3,781 3,354 3,541 3,399 ------------------------------------------------------------- Income before cumulative effect of change in accounting principle 5,278 7,007 6,237 7,550 6,107 Cumulative effect of change in accounting principle -- -- -- -- 452 ------------------------------------------------------------- Net income $ 5,278(1) $ 7,007 $ 6,237 $ 7,550 $ 6,559 ============================================================= Earnings per share $ .80 $ .80(2) N/A N/A N/A =============================================================
4 6
AT OR FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------- SELECTED OPERATING RATIOS (3): Return on average assets (4) 0.74% 1.26% 1.29% 1.55% 1.39% Return on average equity (4) 4.49 7.14 14.56 20.77 22.50 Equity to assets at the end of period 12.27 19.66 9.20 8.26 6.62 Interest-earning assets to interest- bearing liabilities 120.01 119.87 107.69 105.39 108.31 Interest rate spread (5) 2.97 3.16 3.88 4.24 4.32 Net interest margin (5) 3.77 3.95 4.17 4.44 4.51 Noninterest expense to average assets (4) 2.91 2.28 2.44 2.35 2.31 Efficiency ratio (4) (6) 70.70 53.51 54.35 49.73 48.31 ASSET QUALITY DATA: Non-performing assets to total assets at end of period (7) 0.38 0.33 0.37 0.46 0.67 Allowance for loan losses to non-performing loans at end of period 180.27 255.18 304.53 246.60 138.29 Allowance for loan losses to total loans at end of period 0.79 0.90 1.08 0.99 0.92 CONSOLIDATED CAPITAL RATIOS: Tier 1 leverage capital ratio 10.34 19.52 9.44 8.21 6.55 Tier 1 risk-based capital ratio 20.91 42.79 19.12 18.24 14.10 Total risk-based capital ratio 21.92 44.14 20.37 19.48 15.69
- ------------------ (1) Includes a one-time special SAIF assessment of $2.9 million ($1.9 million after tax effect). Excluding this one-time assessment, net income would have been $7.2 million in 1996. (2) 1995 earnings per share have been stated only for a partial period because of the Bank's conversion to stock form on April 6, 1995. (3) With the exception of end of period ratios, all ratios are based on average daily balances during the respective periods and are annualized where appropriate. (4) Exclusive of the effect of the one-time special SAIF assessment, return on average assets would have been 1.01% for 1996, return on average equity would have been 6.12%, non-interest expense to average assets would have been 2.51% and the efficiency ratio would have been 60.85%. (5) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets. (6) The efficiency ratio represents noninterest expense, as a percentage of the sum of net interest income and noninterest income. (7) Non-performing assets consist of non-accruing loans and real estate acquired through foreclosure, by deed-in-lieu thereof or deemed insubstance foreclosed. 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to assist readers in understanding the financial condition and results of operations of ISB Financial Corporation (the "Company") and its subsidiaries for the years ended December 31, 1994 through 1996. This review should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein. FINANCIAL CONDITION ASSETS GENERAL - Total assets of the Company increased by $320.4 million, or 52.6%, from $608.8 million at December 31, 1995 to $929.3 million at December 31, 1996. This increase was primarily due to the acquisition of Royal Bankgroup of Acadiana, Inc. ("Royal") of Lafayette, Louisiana, and its wholly owned subsidiary, Bank of Lafayette, and the acquisition of Jefferson Bancorp, Inc. ("Jefferson") of Gretna, Louisiana and its wholly owned subsidiary, Jefferson Federal Savings Bank. The Royal acquisition added $70.2 million of assets and $64.2 million of liabilities for a total cash price of $9.2 million. Goodwill of $3.2 million was recognized in the Royal transaction. The Jefferson acquisition added $266.2 million of assets and $229.4 million of liabilities for a total cash price of $51.8 million. Goodwill of $11.1 million and a core deposit intangible of $3.8 million was recognized in the Jefferson transaction. The Bank of Lafayette was merged with and into the Company's previously existing subsidiary, Iberia Savings Bank and the two branch offices of the Bank of Lafayette were added to the branch network of Iberia Savings Bank. Jefferson Federal Savings Bank was converted to a Louisiana-chartered savings bank upon its acquisition by the Company and now operates as a separate subsidiary of ISB Financial Corporation under the name of Jefferson Bank. The following discussion describes the major changes in the asset mix during 1996. ASSET MIX - --------- AT DECEMBER 31, 1996 Single Family Residential Loans 41.9% Mortgage-Backed Securities 16.2% Cash & Investments 16.9% Consumer Loans 13.1% Other Assets 5.4% Commercial Business Loans 3.8% Commercial Real Estate Loans 2.7% CASH AND CASH EQUIVALENTS - Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing deposits and cash on hand, increased by $1.6 million, or 3.2%, to $53.4 million at December 31, 1996 compared to $51.7 million at December 31, 1995. The increase in cash and cash equivalents was due primarily to an aggregate of $43.5 million of cash acquired from Royal and Jefferson and $19.1 million in net cash inflow from operations, partially offset by the $61.0 million of cash used to acquire Royal and Jefferson. INVESTMENT SECURITIES - Investment securities increased by $16.5 million or 18.9%, to $103.7 million at December 31, 1996 compared to $87.2 million at December 31, 1995. The increased level of investment securities was the result of an aggregate of $59.5 million of investment securities acquired from Royal and Jefferson and $12.9 million of investment securities purchased, which was partially offset by $54.8 million of 6 8 investment securities sold or matured, an $865,000 decrease in the market value of investment securities available for sale and $182,000 of amortization of premiums on investment securities. At December 31, 1996, $101.1 million of the Company's investment securities were classified as available for sale and had a pre-tax effected net unrealized gain of $288,000 at such date. In addition, at such date, $95.9 million of the Company's investment securities consisted of U.S. Government and Federal agency obligations and $56.4 million, or 54.4% of the Company's investment securities were due within one year. Note 3 to the Consolidated Financial Statements provides further information on the Company's investment securities. MORTGAGE-BACKED SECURITIES - Mortgage-backed securities increased by $99.0 million, or 191.7%, to $150.7 million at December 31, 1996 compared to $51.6 million at December 31, 1995. The increased balance of mortgage-backed securities was the result of an aggregate of $110.9 million of mortgage-backed securities acquired from Royal and Jefferson, which was partially offset by $11.9 million of repayments on mortgage-backed securities. At December 31, 1996, approximately 99.4% of the Company's mortgage-backed securities were issued or guaranteed by Federal agencies or government sponsored enterprises. Additional information on the Company's mortgage-backed securities may be found in Note 4 of the Consolidated Financial Statements. LOANS RECEIVABLE, NET - Loans receivable, net, increased by $171.6 million, or 42.9%, to $571.1 million at December 31, 1996 compared to $399.5 million at December 31, 1995. Total mortgage loans increased $75.5 million, or 21.6% during 1996, primarily as the result of a $67.9 million increase in single-family residential mortgage loans and an $8.5 million increase in commercial real estate loans. The increase in mortgage loans was the result of an aggregate of $64.5 million of mortgage loans acquired primarily from Jefferson and, to a much lesser extent, Royal and $71.9 million of mortgage loans originated for portfolio during 1996, which was partially offset by $60.9 million in repayments on mortgage loans. Commercial business loans increased $25.0 million, or 226.4%, during 1996 to $36.1 million at December 31, 1996. The increase in commercial business loans was the result of $8.3 million of commercial business loans acquired from Royal and $27.2 million of commercial business loans originated during 1996, which was partially offset by $10.5 million of repayments on commercial business loans. An increased emphasis on the origination of commercial real estate and commercial business loans was initiated during 1996. A significant restructuring and upgrading of the commercial lending department, including expertise acquired in the Royal acquisition, was completed in 1996. Consumer loans increased $66.3 million, or 124.1%, during 1996 to $119.8 million at year-end. The increase in consumer loans was the result of $36.4 million of consumer loans, including $23.2 million of indirect automobile loans, acquired primarily from Royal and, to a much lesser extent, Jefferson and $68.5 of consumer loans originated during 1996, which was partially offset by $38.6 million of repayments on consumer loans. The Company acquired an experienced department of indirect automobile dealer lenders as a result of the Royal acquisition. The balance of indirect automobile loans at December 31, 1996 was $52.0 million. For additional information on loans, see Note 5 to the Consolidated Financial Statements. NON-EARNING ASSETS - Premises and equipment increased $6.0 million, or 64.0%, to $15.5 million in 1996, primarily as a result of the acquisitions of Royal and Jefferson. Goodwill and other intangibles of $17.8 million related to the acquisitions was included on the balance sheet at December 31, 1996. 7 9 LIABILITY AND EQUITY MIX - -------------------------- AT DECEMBER 31, 1996 Certificates of Deposit 50.7% Demand Deposits 18.3% Regular Savings 12.9% Stockholders' Equity 12.3% FHLB Advances 5.1% Other Liabilities 0.8% LIABILITIES AND STOCKHOLDERS' EQUITY GENERAL - The Company's primary funding sources include deposits, borrowings from the Federal Home Loan Bank ("FHLB") of Dallas and stockholders' equity. The following discussion focuses on the major changes in the mix during 1996. DEPOSITS - Deposits increased by $315.7 million, or 71.0%, from $444.6 million at December 31, 1995 to $760.3 million at December 31, 1996. The increase was the result of an aggregate of $288.3 million of deposits acquired from Royal and Jefferson, $19.5 million of interest credited and $7.9 million of net cash deposits. Additional information regarding deposits is provided in Note 8 to the Consolidated Financial Statements. BORROWINGS - The Company's borrowings are comprised of advances from the FHLB of Dallas which increased by $7.3 million, or 17.9%, from $40.5 million at December 31, 1995 to $47.8 million at December 31, 1996. The increase in outstanding FHLB advances was used to fund the origination of additional fixed-rate, long-term mortgage loans. For additional information, including maturities of the Company's borrowings, see Note 9 to the Consolidated Financial Statements. STOCKHOLDERS' EQUITY - Stockholders' equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. At December 31, 1996, stockholders' equity totaled $114.0 million, a decrease of $5.7 million from the previous year-end level. The decrease in stockholders' equity in 1996 reflects, in part, certain aspects of management's plan to enhance shareholder value. The decrease in stockholders' equity during 1996 was the result of $2.2 million of cash dividends declared on the Company's common stock, $4.9 million of the Company's common stock re-purchased and placed into treasury, $4.7 million of the Company's common stock purchased to fund the Company's Recognition and Retention Plan ("RRP") trust, which was charged to stockholders' equity as unearned compensation, and a $571,000 decrease in net unrealized gain on securities, which was partially offset by $5.3 million of net income, $1.2 million of common stock released by the Company's Employee Stock Ownership Plan ("ESOP") trust and $211,000 of common stock earned by participants of the RRP trust. Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"). The Board of Governors of the Federal Reserve System ("FRB") imposes similar capital regulations on bank holding companies. At December 31, 1996, the Company exceeded all required regulatory capital ratio requirements with a tier 1 leverage capital ratio of 10.3%, a tier 1 risk-based capital ratio of 20.9% and a total risk-based capital ratio of 21.9%. At December 31, 1996, Iberia Savings Bank exceeded all required regulatory capital ratio requirements with a tier 1 leverage capital ratio of 10.3%, a tier 1 risk-based capital ratio of 17.9% and a total risk-based capital ratio of 18.9%. At December 31, 1996, Jefferson 8 10 Bank also exceeded all required regulatory capital ratio requirements with a tier 1 leverage capital ratio of 7.0%, a tier 1 risk-based capital ratio of 24.6% and a total risk-based capital ratio of 25.4%. These compared to regulatory requirements of 3.0%, 4.0%, and 8.0% respectively. The graph displays the Company's, Iberia Savings Bank's and Jefferson Bank's regulatory capital position as of December 31, 1996, along with the applicable regulatory requirements. REGULATORY CAPITAL - -------- [CHART] NET INCOME - ---------- 1992 $6,559 1993 $7,550 1994 $6,237 1995 $7,007 1996 $5,278 1996 $7,188 Before Special Assessment RESULTS OF OPERATIONS GENERAL - The Company reported net income of $5.3 million, $7.0 million and $6.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. The $1.7 million, or 24.7%, decrease in net income in 1996 compared to the prior year was due primarily to the $2.9 million, $1.9 million net of taxes, special assessment imposed by the FDIC on savings institutions with deposits insured by the Savings Association Insurance Fund ("SAIF") to recapitalize the deposit insurance fund for savings institutions. During 1996, interest income increased $10.4 million, noninterest income increased $1.2 million, interest expense increased $5.9 million, noninterest expense, excluding the FDIC special assessment, increased $5.2 million and income tax expense decreased $604,000. NET INTEREST INCOME - Net interest income is determined by interest rate spread (i.e. the difference between the yields earned on interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's average interest rate spread was 2.97%, 3.16% and 3.88% during the years ended December 31, 1996, 1995, and 1994, respectively. The Company's net interest margin (i.e., net interest income as a percentage of average interest-earning assets) was 3.77%, 3.95%, and 4.17%, during the years ended December 31, 1996, 1995, and 1994, respectively. 9 11 NET INTEREST MARGIN - ------------------- 1992 4.48% 1993 4.41% 1994 4.17% 1995 3.95% 1996 3.77% Net interest income increased $4.5 million, or 21.5%, in 1996 to $25.6 million compared to $21.1 million in 1995. The reason for such increase was a $10.4 million, or 24.5%, increase in interest income, which was partially offset by a $5.9 million, or 27.5%, increase in interest expense. Net interest income increased $1.8 million, or 9.3%, in 1995 compared to 1994. Such increase was due to a $5.8 million increase in interest income, which was partially offset by a $4.0 million increase in interest expense. INTEREST INCOME - Interest income totaled $52.7 million for the year ended December 31, 1996, an increase of $10.4 million over the total of $42.3 million for the year ended December 31, 1995. This improvement was mainly due to an increase in the Company's average interest-earning assets of $145.6 million, or 27.3%, to $678.3 million for the year ended December 31, 1996, caused primarily by the two acquisitions that took place during the year. Interest earned on loans increased $7.4 million, or 22.6%, in 1996. The increase was due to a $89.4 million, or 23.4%, increase in the average balance of loans, which was partially offset by a 5 basis point (with 100 basis points being equal to 1%) decrease in the yield earned. Interest earned on investment securities increased $106,000, or 2.2%, in 1996. The increase was due to a $1.4 million, or 1.8%, increase in the average balance of investment securities together with a 2 basis point increase in the yield earned. Interest earned on mortgage-backed securities increased $1.7 million, or 58.3%, during 1996. The increase was due to a $28.1 million, or 63.2%, increase in the average balance of mortgage-backed securities, which was partially offset by a 19 basis point decrease in the yield earned. Interest income on other earning assets, primarily interest-bearing deposits, increased $1.2 million, or 64.0%, during 1996. The increase was due to a $26.6 million, or 98.9%, increase in the average balance of other earning assets, which was partially offset by a 120 basis point decrease in the yield earned. Interest income also is affected by the accretion of discounts on purchased loans into interest income, which is accounted for as a yield adjustment. During the years ended December 31, 1996 and 1995, $502,000 and $717,000, respectively, was accreted into income. At December 31, 1996, the amount of the Company's remaining unaccreted discount was $1.5 million. Interest income amounted to $42.3 million and $36.5 million for the years ended December 31, 1995 and 1994, respectively. The $5.8 million, or 15.8%, increase in interest income in 1995 was due to a $1.8 million, or 6.0%, increase in interest income on loans, a $1.7 million, or 53.5%, increase in interest income on investment securities, an $818,000, or 40.4%, increase in interest income on mortgage-backed securities and a $1.4 million, or 362.8%, increase in interest income on other earning assets. INTEREST EXPENSE - Interest expense increased $5.9 million, or 27.5%, in 1996 to $27.1 million compared to $21.3 million in 1995. The reason for such increase was a $3.8 million increase in interest expense on deposits and a $2.1 million increase in interest expense on borrowings. The increase in interest expense on deposits was the result of an $88.7 million, or 20.7%, increase in the average balance of deposits, primarily as the result of the two acquisitions during the year, which was partially offset by an 8 basis point decrease in the average cost of deposits. The increase in interest expense on borrowings was the result of a $32.1 million, or 206.9%, increase in the average balance of borrowings, which was partially offset by a 15 basis point decrease in the average cost of borrowings. During 10 12 1996, the Company increased its utilization of FHLB advances as a result of its program of originating long-term, fixed-rate residential mortgage loans which are funded by matching long-term, fixed-rate FHLB advances. Total interest expense amounted to $21.3 million and $17.3 million for the years ended December 31, 1995 and 1994, respectively. The $4.0 million, or 23.1%, increase in interest expense in 1995 compared to 1994 was due primarily to a 69 basis point increase in the average cost of deposits and a $15.5 million increase in the average balance of borrowings. 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.
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- YIELD/COST AT AVERAGE AVERAGE DECEMBER 31, AVERAGE YIELD/ AVERAGE YIELD/ 1996 BALANCE INTEREST COST BALANCE INTEREST COST - ---------------------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans receivable: Mortgage loans 7.79% $362,663 $29,648 8.18% $321,528 $26,787 8.33% Commercial business loans 9.49 23,835 2,559 10.74 8,699 838 9.63 Consumer and other loans 9.54 85,017 8,056 9.48 51,885 5,205 10.03 -------- ------- -------- ------- Total loans 8.27 471,515 40,263 8.54 382,112 32,830 8.59 Mortgage-backed securities 6.35 72,664 4,498 6.19 44,531 2,842 6.38 Investment securities 6.17 80,565 4,926 6.11 79,134 4,820 6.09 Other earning assets 5.72 53,535 3,020 5.64 26,922 1,842 6.84 -------- ------- -------- ------- Total interest-earning assets 7.55 678,279 52,707 7.77 532,699 42,334 7.95 ------- ------- Non-interest earning assets 35,572 23,366 -------- -------- Total assets $713,851 $556,065 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits 2.06 $ 84,921 2,151 2.53 $ 63,035 1,736 2.75 Passbook savings deposits 2.59 69,892 1,860 2.66 53,532 1,520 2.84 Certificates of deposit 5.61 362,745 20,006 5.52 312,326 16,987 5.44 -------- ------ -------- ------- Total deposits 4.45 517,558 24,017 4.64 428,893 20,243 4.72 Borrowings 6.54 47,610 3,119 6.55 15,511 1,039 6.70 -------- ------ -------- ------- Total interest-bearing liabilities 4.58 565,168 27,136 4.80 444,404 21,282 4.79 ------ ------- Non-interest bearing demand deposits 23,603 8,041 Non-interest bearing liabilities 7,597 5,538 -------- -------- Total liabilities 596,368 457,983 Stockholders' Equity 117,483 98,082 -------- -------- Total liabilities and stockholders' equity $713,851 $556,065 ======== ======== Net interest-earning assets $113,111 $ 88,295 ======== ======== Net interest income/interest rate spread 2.97% $25,571 2.97% $21,052 3.16% ==== ======= ==== ======= ==== Net interest margin 3.77% 3.95% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 120.01% 119.87% ====== ======
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------- 1994 - ------------------------------------------------------------------------------------- AVERAGE AVERAGE YIELD/ BALANCE INTEREST COST - ------------------------------------------------------------------------------------- Interest-earning assets: Loans receivable: Mortgage loans $300,898 $25,997 8.64% Commercial business loans 6,092 451 7.40 Consumer and other loans 47,722 4,537 9.51 -------- ------- Total loans 354,712 30,985 8.74 Mortgage-backed securities 41,827 2,024 4.84 Investment securities 57,341 3,141 5.48 Other earning assets 8,173 398 4.87 -------- ------- Total interest-earning assets 462,053 36,548 7.91 ------- Non-interest earning assets 21,756 -------- Total assets $483,809 ======== Interest-bearing liabilities: Deposits: Demand deposits $ 71,855 1,843 2.56 Passbook savings deposits 58,534 1,611 2.75 Certificates of deposit 298,646 13,838 4.63 -------- ------- Total deposits 429,035 17,292 4.03 Borrowings 29 2 6.90 -------- ------- Total interest-bearing liabilities 429,064 17,294 4.03 ------- Non-interest bearing demand deposits 6,824 Non-interest bearing liabilities 5,097 -------- Total liabilities 440,985 Stockholders' Equity 42,824 -------- Total liabilities and stockholders' equity $483,809 ======== Net interest-earning assets $ 32,989 ======== Net interest income/interest rate spread $19,254 3.88% ======= ===== Net interest margin 4.17% ===== Ratio of average interest-earning assets to average interest-bearing liabilities 107.69% =======
11 13 The following table sets forth the effects of changing rates and volumes on net interest income of the Company. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume).
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------------- 1996/1995 1995/1994 ----------------------------------------------------------------------------------------- CHANGE ATTRIBUTABLE TO CHANGE ATTRIBUTABLE TO ----------------------------------------------------------------------------------------- TOTAL TOTAL RATE/ INCREASE RATE/ INCREASE RATE VOLUME VOLUME (DECREASE) RATE VOLUME VOLUME (DECREASE) ----------------------------------------------------------------------------------------- Interest-Earning Assets: Loans receivable: Mortgage loans $ (502) $ 3,427 $ (64) $ 2,861 $ (929) $ 1,783 $ (64) $ 790 Commercial business loans 96 1,458 167 1,721 136 193 58 387 Consumer and other loans (289) 3,324 (184) 2,851 250 396 22 668 ----------------------------------------------------------------------------------------- Total loans receivable (695) 8,209 (81) 7,433 (543) 2,372 16 1,845 Mortgage-backed securities (85) 1,795 (54) 1,656 645 131 42 818 Investment securities 19 87 0 106 352 1,193 134 1,679 Other earning assets (323) 1,821 (320) 1,178 161 913 370 1,444 ----------------------------------------------------------------------------------------- Total net change in income on interest-earning assets (1,084) 11,912 (455) 10,373 615 4,609 562 5,786 ----------------------------------------------------------------------------------------- Interest-Bearing Liabilities: Deposits: Demand deposits (139) 602 (48) 415 136 (226) (17) (107) Regular savings deposits (95) 464 (29) 340 51 (138) (4) (91) Certificates of deposit 238 2,743 38 3,019 2,405 634 110 3,149 ----------------------------------------------------------------------------------------- Total deposits 4 3,809 (39) 3,774 2,592 270 89 2,951 Borrowings (23) 2,150 (47) 2,080 0 1,068 (31) 1,037 ----------------------------------------------------------------------------------------- Total net change in expense on interest-bearing liabilities (19) 5,959 (86) 5,854 2,592 1,338 58 3,988 ----------------------------------------------------------------------------------------- Net change in net interest income $(1,065) $ 5,953 $ (369) $ 4,519 $(1,977) $ 3,271 $ 504 $ 1,798 =========================================================================================
PROVISION FOR LOAN LOSSES - Provision for loan losses are charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on various factors, including historical experience, the volume and type of lending conducted by the Company, the amount of the Company's classified assets, the status of past due principal and interest payments, general economic conditions, particularly as they relate to the Company's market area, and other factors related to the collectibility of the Company's loan portfolio. Management of the Company assesses the allowance for loan losses on a quarterly basis and will make provisions for loan losses as deemed appropriate in order to maintain the adequacy of the allowance for loan losses. 12 14 ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF NON-PERFORMING LOANS AT YEAR END - ------------------------- Non-Performing Loans 1992 $2,353 1993 $1,384 1994 $1,258 1995 $1,468 1996 $2,560 Loan Loss Allowance 1992 $3,254 1993 $3,413 1994 $3,831 1995 $3,746 1996 $4,615 The Company made a provision for loan losses of $156,000 in 1996, compared to $239,000 and $305,000 for 1995 and 1994, respectively. The allowance for loan losses amounted to $4.6 million or .79% and 180.3% of total loans and total nonperforming loans, respectively, at December 31, 1996 compared to $3.7 million or .90% and 255.2%, respectively, at December 31, 1995. Non-performing loans (non-accrual loans and accruing loans 90 days or more overdue) were $2.6 million and $1.5 million at December 31, 1996 and December 31, 1995, respectively. The Company's real estate owned, which consists of real estate acquired through foreclosure or by deed-in-lieu thereof, amounted to $978,000 and $561,000 at December 31, 1996 and December 31, 1995, respectively. As a percentage of total assets, the Company's total non-performing assets, which consists of non-performing loans plus real estate owned, amounted to $3.7 million or .38% at December 31, 1996 and $2.0 million or .33% at December 31, 1995. Although management of the Company believes that the Company's allowance for loan losses was adequate at December 31, 1996, based on facts and circumstances available to it, there can be no assurances that additions to such allowance will not be necessary in future periods, which would adversely affect the Company's results of operations. NON-INTEREST INCOME - For 1996, the Company reported non-interest income of $3.8 million compared to $2.7 million of non-interest income for 1995. The primary reasons for the $1.1 million, or 43.1%, increase in non-interest income was a $507,000, or 33.2%, increase in service charges on deposit accounts reflecting the increased number of deposit accounts due to the Royal and Jefferson acquisitions, a $398,000, or 78.3%, increase in other income and $181,000 of gains on the sale of investment securities. Total non-interest income amounted to $2.7 million and $2.4 million for the years ended December 31, 1995 and 1994, respectively. The primary reason for the $243,000 increase in non-interest income during 1995 compared to 1994 was a $290,000 increase in service charges on deposit accounts. This increase represents an increase in the number of accounts within the categories in which the Company imposes service charges. NON-INTEREST EXPENSE - Non-interest expense includes salaries and employee benefits, occupancy expense, SAIF deposit insurance premiums (including, in 1996, the one-time special SAIF assessment), advertising and marketing expense, computer service expense and other items. Non-interest expense amounted to $20.8 million, $12.7 million, and $11.8 million for the three years ended December 31, 1996, 1995, and 1994, respectively. The primary reasons for the $8.1 million, or 63.7% increase in non-interest expense was the FDIC special assessment of $2.9 mil- 13 15 lion (pre-tax), the compensation expenses resulting from the ESOP and the RRP plan and the ongoing expenses of operating 11 additional branch offices, nine of which were acquired in the Royal and Jefferson acquisitions. Salaries and employee benefits increased $2.2 million, or 34.0%, occupancy expense increased $413,000, or 50.6%, advertising expense increased $287,000, or 60.4%, other expense increased $827,000, or 30.2%, and the amortization of goodwill and acquisition intangibles increased $310,000, or 348.3%. As of December 31, 1996, the Company had goodwill and acquisition intangibles of $17.8 million, primarily from the Royal and Jefferson acquisitions. For 1997, amortization expense related to the goodwill and acquisition intangibles recorded at December 31, 1996 is expected to amount to $1.6 million. See Note 18 of the Notes to Consolidated Financial Statements. In addition, franchise and shares tax expense was $987,000 for 1996, the first year the Company was subject to such taxes. INCOME TAXES - For the years ended December 31, 1996, 1995, and 1994, the Company incurred income tax expense of $3.2 million, $3.8 million, and $3.4 million, respectively. The Company's effective tax rate amounted to 37.6%, 35.1%, and 35.0% during 1996, 1995, and 1994 respectively. The difference between the effective tax rate and the statutory tax rate primarily related to variances in the items that are either non-taxable or non-deductible, primarily the non-deductibility of the amortization of goodwill and acquisition intangibles and the non-deductible portion of the ESOP compensation expense. For more information, see Note 10 to the Consolidated Financial Statements. ASSET AND LIABILITY MANAGEMENT The principal objective of the Company's asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts, determine the level of risk appropriate given the Company's business focus, operating environment, capital and liquidity requirements and performance objectives, establish prudent asset concentration guidelines and manage the risk consistent with Board approved guidelines. Through such management, the Company seeks to reduce the vulnerability of its operations to changes in interest rates and to manage the ratio of interest-rate sensitive assets to interest-rate sensitive liabilities within specified maturities or repricing dates. The Company's actions in this regard are taken under the guidance of the Asset/Liability Committee ("ALCO"), which is chaired by the Chief Executive Officer and comprised of members of the Company's senior management. The ALCO generally meets on a weekly basis, to review, among other things, the sensitivity of the Company's assets and liabilities to interest rate changes, local and national market conditions and interest rates. In connection therewith, the ALCO generally reviews the Company's liquidity, cash flow needs, maturities of investments, deposits and borrowings, and capital position. The ALCO reports to the Company's Board of Directors on a quarterly basis. As part of its asset/liability management strategy, the Company has emphasized the origination of consumer loans, commercial business loans and commercial real estate loans, all of which typically have shorter terms than residential mortgage loans and/or adjustable or variable rates of interest. The Company has also emphasized the origination for portfolio of adjustable-rate mortgage ("ARM") loans. As of December 31, 1996, $208.4 million, or 35.8% of the Company's total loan portfolio had adjustable interest rates. In addition, in recent periods, the Company has originated fixed-rate, long-term mortgage loans that are funded by fixed-rate, long-term amortizing advances from the FHLB. As part of the Company's asset/liability management strategies, the Company has limited its investments in investment securities to those with an estimated life of five years or less. In addition, the Company generally has determined to limit its investments in mortgage-backed securities, all of which are designated as held to maturity at December 31, 1996, to those which are backed by ARMs and/or which otherwise have an adjustable rate feature. At December 31, 1996, $62.5 million or 41.5% of the Company's mortgage-backed securities were backed by ARMs or 14 16 had adjustable interest rates. In addition, at December 31, 1996, $79.3 million, or 52.6% of the fixed-rate mortgage-backed securities had a balloon feature (the mortgage-backed security will mature and repay before the underlying loans have been fully amortized). All of the balloon mortgage-backed securities were acquired in the Jefferson acquisition. At December 31, 1996, the Company's portfolio of mortgage-backed securities with a balloon feature had a weighted average life of 2.5 years. The Company's strategy with respect to liabilities in recent periods has been to emphasize transaction accounts, which are not as sensitive to changes in interest rates as time certificates of deposit. At December 31, 1996, 38.1% of the Company's deposits were in transaction accounts compared to 27.8% at December 31, 1995. This change in deposit mix was achieved primarily by the Royal and Jefferson acquisitions. The following summarizes the anticipated maturities or repricing of the Company's interest-earning assets and interest-bearing liabilities as of December 31, 1996, based on the information and assumptions set forth in the notes below.
UP TO ONE YEAR TO TWO YEARS TO THREE YEARS FIVE YEARS ONE YEAR TWO YEARS THREE YEARS TO FIVE YEARS TO TEN YEARS ------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) Interest-earning assets (1): Loans receivable $ 162,354 $ 59,506 $ 57,838 $ 100,486 $ 137,025 Investment securities (2) 104,524 31,630 7,603 1,982 184 Mortgage-backed securities 80,737 21,396 21,104 22,280 3,185 ------------------------------------------------------------------------------ Total 347,615 112,532 86,545 124,748 140,394 ------------------------------------------------------------------------------ Interest-bearing liabilities: Deposits: NOW accounts(3) 28,487 16,491 10,884 1,902 3,845 Regular savings accounts(3) 20,346 25,828 19,113 9,248 18,060 Money market deposit accounts ("MMDA")(3) 46,349 1,355 1,206 488 464 Certificates of deposit 301,409 111,653 22,390 33,342 2,259 Borrowings 1,510 1,612 1,720 3,797 11,970 ------------------------------------------------------------------------------ Total 398,101 156,939 55,313 48,777 36,598 ------------------------------------------------------------------------------ Excess (deficiency) of interest- earning assets over interest- bearing liabilities $ (50,486) $ (44,407) $ 31,232 $ 75,971 $ 103,796 ============================================================================== Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $ (50,486) $ (94,893) $ (63,661) $ 12,310 $ 116,106 ============================================================================== Cumulative excess (deficiency) of interest- earning assets over interest-bearing liabilities as a percent of total assets (5.43)% (10.21)% (6.85)% 1.32% 12.49% ==============================================================================
OVER TEN YEARS TOTAL ----------------------------- (DOLLARS IN THOUSANDS) Interest-earning assets (1): Loans receivable $ 58,495 $ 575,704 Investment securities (2) -- 145,923 Mortgage-backed securities 1,967 150,669 ----------------------------- Total 60,462 872,296 ----------------------------- Interest-bearing liabilities: Deposits: NOW accounts(3) 15,382 76,991 Regular savings accounts(3) 27,090 119,685 Money market deposit accounts ("MMDA")(3) 8,807 58,669 Certificates of deposit 2 471,055 Borrowings 27,141 47,750 ----------------------------- Total 78,422 774,150 ----------------------------- Excess (deficiency) of interest- earning assets over interest- bearing liabilities $ (17,960) $ 98,146 ============================= Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $ 98,146 ============================= Cumulative excess (deficiency) of interest- earning assets over interest-bearing liabilities as a percent of total assets 10.56% =============================
(1) Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due and fixed-rate assets are included in the periods in which they are scheduled to be repaid, based on scheduled amortization, in each case as adjusted to take into account estimated prepayments. (2) Includes interest-bearing deposits at other institutions. (3) Although the Company's NOW accounts, passbook savings accounts and MMDAs are subject to immediate withdrawal, management considers a substantial amount of such accounts to be core deposits having significantly longer effective maturities. The decay rates used on these accounts are based on Federal Home Loan Bank of Atlanta assumptions and should not be regarded as indicative of the actual withdrawals that may be experienced by the Company. If all of the Company's NOW accounts, passbook savings accounts and MMDAs had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $210.6 million or 22.67% of total assets. 15 17 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, loan and mortgage-backed security amortizations, prepayments and maturities, 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 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 Company has been able to generate sufficient cash through its deposits and borrowings (primarily consisting of advances from the FHLB of Dallas). At December 31, 1996, the Company had $47.8 million of outstanding advances from the FHLB of Dallas. Additional advances available at December 31, 1996 from the FHLB of Dallas amounted to $177.6 million. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight 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 certificates of deposit and deposit withdrawals, to fund loan commitments and to maintain a portfolio of mortgage-backed and investment securities. At December 31, 1996, the total approved loan commitments outstanding amounted to $33.1 million. At the same date, commitments under unused lines of credit, including credit card lines, amounted to $43.9 million. Certificates of deposit scheduled to mature in one year or less at December 31, 1996 totaled $277.7 million. Management believes that a significant portion of maturing deposits will remain on deposit with the Company. The Company anticipates it will continue to have sufficient funds together with available borrowings to meet its current commitments. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operation results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. 16 18 RECENT ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 123, Accounting for Stock-Based Compensation. The statement establishes a fair value based method of accounting for stock-based compensation plans. It encourages entities to adopt that method in place of the provisions of Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, for all arrangements under which employees receive shares of stock or other equity instruments of the employer if the employer incurs liabilities to employees in amounts based on the price of its stock. The Company will continue using the accounting methods prescribed by APB Opinion 25 and will disclose in the notes to its consolidated financial statements information on a fair value basis for its stock-based compensation plans. In June 1996, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the consistent application of the financialcomponents approach. This approach requires the recognition of financial assets and servicing assets that are controlled by the reporting entity, and the derecognition of financial assets and liabilities when control is extinguished. Liabilities and derivatives incurred or obtained by transferors in conjunction with the transfer of financial assets are required to be measured at fair value, if practicable. SFAS 125 also supercedes SFAS 122, Accounting for Mortgage Servicing Rights. Servicing assets and other retained interests in transferred assets are required to be measured by allocating the previous carrying amount between the assets sold, if any, and the interest that is retained, if any, based on the relative fair value of the assets at the date of transfer. SFAS 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, was issued in December, 1996 and deferred application of many of the provisions of SFAS 125 until after December 31, 1997. Management believes adoption of SFAS 125 will not have a material effect on financial position and the results of operations. 17 19 INDEPENDENT AUDITOR'S REPORT CHARLES E. CASTAING CASTAING, HUSSEY & LOLAN, LLP MEMBERS ROGER E. HUSSEY CERTIFIED PUBLIC ACCOUNTANTS AMERICAN INSTITUTE OF SAMUEL R. LOLAN 525 WEEKS STREET - P.O. BOX 14240 CERTIFIED PUBLIC ACCOUNTANTS CAROLINE C. BOUDREAUX NEW IBERIA, LOUISIANA 70562-4240 SOCIETY OF PATRICK J. DAUTERIVE -------------------- LOUISIANA CERTIFIED PUBLIC ACCOUNTANTS LORI D. PERCLE PH: (318) 364-7221 DEBBIE B. TAYLOR FAX: (318) 364-7235 KATHERINE H. ARMENTOR - --------------------- ROBIN G. FREYOU DAWN K. GONSOULIN
TO THE BOARD OF DIRECTORS ISB FINANCIAL CORPORATION AND SUBSIDIARIES NEW IBERIA, LOUISIANA We have audited the accompanying consolidated statements of financial condition of ISB Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ISB Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ CASTAING, HUSSEY & LOLAN, LLP New Iberia, Louisiana February 7, 1997 18 20 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995 ------------------------ ASSETS CASH AND CASH EQUIVALENTS: Cash on Hand and Due from Banks $ 10,822 $ 5,313 Interest Bearing Deposits - Federal Home Loan Bank 42,563 46,429 ------------------------ 20Total Cash and Cash Equivalents 53,385 51,742 INVESTMENT SECURITIES: Held to Maturity (fair value of $2,218 and $784, respectively) 2,216 784 Available for Sale, at fair value 101,144 86,058 Trading Account Securities, at fair value 364 389 Mortgage-Backed Securities Held to Maturity (fair value of $150,014 and $51,872, respectively) 150,669 51,646 Loans Receivable, Net 571,119 399,542 Real Estate Owned 978 561 Premises and Equipment, Net 15,483 9,440 Federal Home Loan Bank Stock, at Cost 5,808 3,739 Accrued Interest Receivable 5,667 4,153 Goodwill and Acquisition Intangibles 17,807 54 Other Assets 4,624 722 ------------------------ Total Assets $929,264 $608,830 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $760,284 $444,600 Federal Home Loan Bank Advances 47,750 40,490 Advance Payments by Borrowers for Taxes and Insurance 1,605 1,239 Accrued Interest Payable on Deposits 832 315 Accrued and Other Liabilities 4,787 2,509 ------------------------ Total Liabilities 815,258 489,153 ------------------------ Commitments and Contingencies STOCKHOLDERS' EQUITY: Preferred Stock of $1 Par Value; 5,000,000 shares authorized, -0- shares issued or outstanding -0- -0- Common Stock of $1 Par Value; 25,000,000 shares authorized; 7,380,671 shares issued 7,381 7,381 Additional Paid-in Capital 65,725 65,293 Retained Earnings (Substantially Restricted) 54,660 51,584 Unearned Common Stock Held by ESOP (4,612) (5,339) Unearned Common Stock Held by RRP Trust (4,476) -0- Treasury Stock, at cost; 329,411 shares (4,859) -0- Unrealized Gain on Securities, Net of Deferred Taxes 187 758 ------------------------ Total Stockholders' Equity 114,006 119,677 ------------------------ Total Liabilities and Stockholders' Equity $929,264 $608,830 ========================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 19 21 CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) 1996 1995 1994 --------------------------------------- INTEREST INCOME: Interest on Loans $ 40,263 $ 32,830 $ 30,985 Interest and Dividends on Investment Securities 4,926 4,820 3,141 Interest on Mortgage-Backed Securities 4,498 2,842 2,024 Interest on Deposits 3,020 1,842 398 --------------------------------------- Total Interest Income 52,707 42,334 36,548 --------------------------------------- INTEREST EXPENSE: Interest on Deposits 24,017 20,243 17,292 Interest on Federal Home Loan Bank Advances 3,119 1,039 2 --------------------------------------- Total Interest Expense 27,136 21,282 17,294 --------------------------------------- Net Interest Income 25,571 21,052 19,254 Provision for Loan Losses 156 239 305 --------------------------------------- Net Interest Income After Provision For Loan Losses 25,415 20,813 18,949 --------------------------------------- NONINTEREST INCOME: Gain (Loss) on Sale of Investments 181 -0- (15) Service Charges on Deposit Accounts 2,032 1,525 1,235 Late Charges and Other Fees on Loans 699 635 691 Other Income 906 508 514 --------------------------------------- Total Noninterest Income 3,818 2,668 2,425 --------------------------------------- NONINTEREST EXPENSE: Salaries and Employee Benefits 8,475 6,324 5,509 SAIF Deposit Insurance Premium 3,679 998 1,009 Depreciation Expense 998 774 826 Occupancy Expense 1,229 816 752 Advertising Expense 762 475 316 Computer Expense 624 505 526 Net (Income) Costs of Real Estate Owned 56 (30) 132 Franchise and Shares Tax Expense 987 -0- -0- Amortization of Goodwill and Other Acquired Intangibles 399 89 126 Other Expenses 3,569 2,742 2,587 --------------------------------------- Total Noninterest Expense 20,778 12,693 11,783 --------------------------------------- Income Before Income Tax Expense 8,455 10,788 9,591 Income Tax Expense 3,177 3,781 3,354 --------------------------------------- Net Income $ 5,278 $ 7,007 $ 6,237 ======================================= Net Income Per Common Share (Note 13)* $ .80 $ .80 $ N/A ======================================= Weighted Average Common Shares Outstanding* 6,560,993 6,819,132 N/A =======================================
*Includes 2nd, 3rd and 4th quarters only for 1995. THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 20 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) UNEARNED RETAINED UNEARNED COMMON ADDITIONAL EARNINGS - COMMON STOCK COMMON PAID-IN (SUBSTANTIALLY STOCK HELD HELD BY TREASURY STOCK CAPITAL RESTRICTED) BY ESOP RRP TRUST STOCK --------------------------------------------------------------- BALANCE, JANUARY 1, 1994 $ -0- $ -0- $39,868 $ -0- $ -0- $ -0- Net Income for the year ended December 31, 1994 6,237 Change in Unrealized Loss on Securities Available for Sale, Net of Deferred Taxes --------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 -0- -0- 46,105 -0- -0- -0- Net Income for the year ended December 31, 1995 7,007 Cash Dividends Declared (1,528) Common Stock Issued in Conversion 7,381 65,006 (5,904) Common Stock Released by ESOP Trust 287 565 Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes --------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 7,381 65,293 51,584 (5,339) -0- -0- Net Income for the year ended December 31, 1996 5,278 Cash Dividends Declared (2,202) Common Stock Released by ESOP Trust 432 727 Common Stock Acquired by Recognition and Retention Plan Trust (4,687) Common Stock Earned by Participants of Recognition and Retention Plan Trust 211 Treasury Stock Acquired at Cost (4,859) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes --------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 $7,381 $65,725 $54,660 $(4,612) $(4,476) $(4,859) ===============================================================
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) UNREALIZED TOTAL GAIN (LOSS) STOCK- ON SECURITIES, HOLDER'S NET OF DEFERRED TAXES EQUITY ---------------------------------- BALANCE, JANUARY 1, 1994 $ (5) $ 39,863 Net Income for the year ended December 31, 1994 6,237 Change in Unrealized Loss on Securities Available for Sale, Net of Deferred Taxes (1,260) (1,260) ---------------------------------- BALANCE, DECEMBER 31, 1994 (1,265) 44,840 Net Income for the year ended December 31, 1995 7,007 Cash Dividends Declared (1,528) Common Stock Issued in Conversion 66,483 Common Stock Released by ESOP Trust 852 Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes 2,023 2,023 ---------------------------------- BALANCE, DECEMBER 31, 1995 758 119,677 Net Income for the year ended December 31, 1996 5,278 Cash Dividends Declared (2,202) Common Stock Released by ESOP Trust 1,159 Common Stock Acquired by Recognition and Retention Plan Trust (4,687) Common Stock Earned by Participants of Recognition and Retention Plan Trust 211 Treasury Stock Acquired at Cost (4,859) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes (571) (571) ---------------------------------- BALANCE, DECEMBER 31, 1996 $ 187 $114,006 ==================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 21 23 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 ------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,278 $ 7,007 $ 6,237 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 1,522 973 952 Provision for Loan Losses 156 239 305 Compensation Expensed Recognized on RRP 211 -0- -0- Write-Down of Real Estate Owned to Market Value 8 -0- 46 Gain on Sale of Premises and Equipment (107) (18) (125) Loss (Gain) on Sale of Real Estate Owned 32 (42) (45) Gain on Loans Sold (55) -0- (4) (Gain) Loss on Sale of Investments (181) -0- 15 Amortization of Premium/Discount on Investments 370 405 775 Current Provision for Deferred Income Taxes 381 381 518 FHLB Stock Dividends (259) (232) (161) Loans Originated for Resale (4,610) (406) (1,503) Proceeds From Loans Sold to Others 4,665 406 1,507 Income Reinvested on Marketable Equity Security (306) (296) (205) ESOP Contribution 1,146 852 -0- Net Change in Securities Classified as Trading (9) (390) -0- Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable 588 (1,179) (13) (Increase) Decrease in Other Assets and Other Liabilities (2,583) (180) (187) ------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,247 7,520 8,112 ------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds From Sales of Available for Sale Securities 12,207 -0- 18,297 Proceeds From Maturities of Held to Maturity Securities 2,142 145 141 Proceeds From Maturities of Available for Sale Securities 40,625 7,000 15,014 Purchases of Securities Held to Maturity (1,576) -0- -0- Purchases of Securities Available for Sale (11,034) (42,855) (25,572) Increase in Loans Receivable, Net (62,919) (29,184) (27,663) Proceeds from FHLBStock Redemption 24 -0- -0- Proceeds From Sale of Premises and Equipment 238 70 660 Purchases of Premises and Equipment (1,812) (645) (713) Proceeds From Disposition of Real Estate Owned 338 248 626 Purchases of Mortgage-Backed Securities -0- (15,532) (4,793) Principal Collections on Mortgage-Backed Securities 11,903 3,722 6,108 Cash Paid in Excess of Cash Received on Bank Acquisitions (17,521) -0- -0- Other Investing Activities -0- (20) -0- ------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (27,385) (77,051) (17,895) -------------------------------------------
22 24
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 --------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposits 16,248 (10,181) (4,302) Net Change in Time Deposits 11,158 20,338 (755) (Decrease) Increase in Escrow Funds and Miscellaneous Deposits, Net (180) 172 82 Proceeds From FHLB Advances 8,195 77,481 5,000 Principal Repayments of FHLB Advances (935) (41,991) -0- Proceeds From Issuance of Common Stock -0- 67,903 -0- Dividends Paid to Shareholders (2,159) (1,019) -0- Acquisition of Common Stock by RRP (4,687) -0- -0- Purchase of Treasury Stock (4,859) -0- -0- Stock Conversion Costs Incurred -0- (1,116) (230) --------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 22,781 111,587 (205) --------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,643 42,056 (9,988) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,742 9,686 19,674 --------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 53,385 $ 51,742 $ 9,686 ============================================= SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 308 $ 197 $ 278 Transfer of Land and Building to Real Estate Owned $ -0- $ -0- $ 481 SUPPLEMENTAL DISCLOSURES: Cash Paid For: Interest on Deposits and Borrowings $ 26,618 $ 21,190 $ 17,274 Income Taxes $ 2,818 $ 3,472 $ 2,823
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS: ISB Financial Corporation (the "Company") is a Louisiana corporation organized in November 1995 for the purpose of becoming the bank holding company for Iberia Savings Bank ("Iberia"). The Board of Directors of Iberia adopted the Plan of Conversion pursuant to which Iberia converted from a Louisiana chartered mutual savings bank to a Louisiana chartered stock savings bank. The Company completed its subscription and community offering in April 1995 and, with a portion of the net proceeds, acquired the capital stock of Iberia. Iberia is a wholly owned subsidiary of the Company and provides a full range of financial services to individuals and corporate customers through its eighteen branches located throughout southwestern Louisiana. Iberia Financial Services, Inc. ("IFSI") is a wholly owned subsidiary of Iberia. IFSI's main source of income was a gain on the sale of real estate in 1996 and commissions from discount brokerage services in 1995. Finesco, Ltd. ("Finesco") is a wholly owned subsidiary of IFSI. Finesco's main source of income was derived from interest earned on financing insurance premiums. Jefferson Bank, formerly Jefferson Federal Savings Bank, ("Jefferson"), a Louisiana chartered stock savings bank, was acquired on October 18, 1996 and is operated as a wholly owned subsidiary of the Company. Jefferson operates seven full service offices in greater New Orleans. See the related Acquisition footnote. Metro Service Corporation ("Metro") and Jefferson Insurance Corporation ("JIC") are wholly owned subsidiaries of Jefferson Bank. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of ISB Financial Corporation and its wholly owned subsidiaries, Iberia and Jefferson. The accounts of IFSI, Finesco, Metro and JIC are also included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The 1994 financial statements contained herein are those of Iberia Savings Bank (and Subsidiaries) as the predecessor entity. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans. In connection with the determination of the allowances for losses on loans, management obtains independent appraisals for significant properties. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and foreclosed real estate may change in the near term. 24 26 CASH AND CASH EQUIVALENTS: For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "cash and cash equivalents". INVESTMENT SECURITIES: Investment securities that are held for short-term resale are classified as trading account securities and carried at fair value. Debt securities that management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Other marketable securities are classified as available for sale and are carried at fair value. Realized and unrealized gains and losses on trading account securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in stockholders' equity. The cost of securities sold is recognized using the specific identification method. Stock in the Federal Home Loan Bank of Dallas ("FHLB") is carried at cost. Since Iberia and Jefferson are members of the FHLB, they are required to maintain an amount of stock based on their total assets. At December 31, 1996 and 1995, the institutions held more than the required level of FHLB stock. MORTGAGE-BACKED SECURITIES: Mortgage-backed securities are classified as held to maturity, and are stated at cost, adjusted for amortization of premiums and accretion of discounts using a method that approximates level yield. The Company has the intent and ability to hold these securities to maturity. REDESIGNATIONS REGARDING INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES: On November 15, 1995, the Financial Accounting Standards Board issued a "Special Report", A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. In connection with the "Special Report", accounting principles allowed the Company a one-time opportunity to reassess the appropriateness of the designations of all its securities held upon the initial application of the "Special Report". The Company did not elect to redesignate any of its investment securities or mortgage-backed securities with the adoption of this "Special Report". LOANS RECEIVABLE: Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and discounts. The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of various factors, including the collectibility of the loan portfolio, the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. INTEREST AND FEES ON LOANS: Interest income on loans is accrued over the term of the loans based upon the principal balance outstanding. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. A loan is considered impaired when it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Residential mortgage loans and consumer installment loans are considered to be groups of smaller balance homogeneous loans and are collectively evaluated for impairment and are not subject to SFAS 114 measurement criteria. 25 27 Net loan fees or costs incurred in the origination of all loans are deferred and recognized as an adjustment of the yield on loans using the effective interest method in accordance with Statement of Financial Accounting Standard ("SFAS") 91, Accounting For Nonrefundable Fees and Costs Associated with Originating for Acquiring Loans and Initial Direct Costs of Leases. If the related loan is settled prior to maturity, any remaining balance is immediately recognized as income or an expense. PREMISES AND EQUIPMENT: Premises and equipment are being depreciated on a straight line basis over the estimated useful lives of 15 to 40 years for buildings and 5 to 10 years for furniture, fixtures and equipment. LOAN SERVICING: The Company adopted SFAS 122, Accounting for Mortgage Servicing Rights prospectively as of January 1, 1996. Issued in May 1995, SFAS 122 amends certain provisions of SFAS 65 to eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and rights acquired through purchase transactions. The statement requires a mortgage banking enterprise, which sells or securitizes loans and retains the related mortgage servicing rights, to allocate the total cost of the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. When participating interests in loans sold have an average contractual interest rate, adjusted for normal servicing fees, that differs from the agreed yield to the purchaser, gains or losses are recognized equal to the present value of such differential over the estimated remaining life of such loans. The resulting "excess servicing receivable" or "deferred servicing revenue" is amortized over the estimated life using a method approximating the interest method. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. The effect of adopting SFAS 122 did not have a material impact on the Company's financial condition or the results of operations. REAL ESTATE AND OTHER ASSETS ACQUIRED IN SETTLEMENT OF LOANS: Real estate and other assets acquired in settlement of loans are recorded at the balance of the loan or at estimated fair value minus estimated costs to sell, whichever is less, at the date acquired, plus capital improvements made thereafter to facilitate sale. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value minus estimated costs to sell. Costs of holding real estate acquired in settlement of loans are shown as charges against income currently. Gains on sales of such real estate are taken into income based on the buyer's initial and continuing investment in the property. Other assets acquired in settlement of loans consist primarily of mobile homes. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its fair value minus estimated costs to sell. The allowance for losses was $-0- at December 31, 1996 and 1995. LONG-LIVED ASSETS: The Company adopted SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, in 1996. This statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. Impairment would be considered when the undiscounted cash flows estimated to be generated by those assets are less then the assets' carrying amount. Implementation of this statement had no effect on the consolidated financial statements. ADVERTISING COSTS: The Company expenses all advertising costs as incurred. There were no direct-response advertising costs capitalized as of December 31, 1996. 26 28 GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill, representing the purchase price in excess of fair value of identifiable net assets at acquisition, is amortized over periods not exceeding 25 years. Other acquired intangible assets, such as core deposit intangibles, are amortized over the periods benefited, not exceeding 8 years. EMPLOYEE BENEFITS: SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which is effective for fiscal years beginning after December 15, 1992, requires recognition of estimated future postretirement costs over employees' periods of service. SFAS 112, Employers' Accounting for Postretirement Benefits, which is effective for fiscal years beginning December 15, 1995, requires recognition of estimated future postemployment costs over employees' periods of service. The Company offers no postretirement health or medical benefits or postemployment benefits to any of its employees or former employees. INCOME TAXES: The Company and all subsidiaries file a consolidated federal income tax return on a calendar year basis. Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities in accordance with SFAS 109, Accounting for Income Taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. EARNINGS PER SHARE: Net income per share of the Company's common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during each year. The weighted average number of common shares outstanding excludes the weighted average unreleased shares owned by the Employee Stock Ownership Plan ("ESOP"). The effect of stock options and unvested Recognition and Retention Plan ("RRP") shares is calculated using the treasury stock method. Application of the treasury stock method did not have a material effect on earnings per share and therefore disclosure of primary and fully diluted earnings per share is not required. Earnings per share for periods preceding the three months ended June 30, 1995 are not applicable, as the Company's conversion from mutual-to-stock form and reorganization into a holding company format was not completed until April 6, 1995. FAIR VALUE OF FINANCIAL INSTRUMENTS: The disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS: For those short-terms instruments, the carrying amounts were a reasonable estimate of fair value. INVESTMENT SECURITIES: Fair value equals quoted market prices and dealer quotes. LOANS: The fair value of mortgage loans receivable was estimated based on present values using entry-value rates at December 31, 1996 and 1995, weighted for varying maturity dates. Other loans receivable were valued based on present values using entry-value interest rates at December 31, 1996 and 1995 applicable to each category of loans. 27 29 DEPOSITS: The fair value of NOW accounts, money market deposits and savings accounts was the amount payable on demand at the reporting date. Certificates of deposit were valued using a weighted average rate calculated based upon rates at December 31, 1996 and 1995 for deposits of similar remaining maturities. OFF BALANCE SHEET ITEMS: The Company has outstanding commitments to extend credit and standby letters of credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed and, therefore, have no current fair value. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS: In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 123, Accounting for Stock-Based Compensation. The statement establishes a fair value based method of accounting for stock-based compensation plans. It encourages entities to adopt that method in place of the provisions of Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, for all arrangements under which employees receive shares of stock or other equity instruments of the employer if the employer incurs liabilities to employees in amounts based on the price of its stock. The Company will continue using the accounting methods prescribed by APB Opinion 25 and will disclose in the footnotes information on a fair value basis for its stock-based compensation plans. In June 1996, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the consistent application of the financial-components approach. This approach requires the recognition of financial assets and servicing assets that are controlled by the reporting entity, and the derecognition of financial assets and liabilities when control is extinguished. Liabilities and derivatives incurred or obtained by transferors in conjunction with the transfer of financial assets are required to be measured at fair value, if practicable. SFAS 125 also supercedes SFAS 122, Accounting for Mortgage Servicing Rights. Servicing assets and other retained interests in transferred assets are required to be measured by allocating the previous carrying amount between the assets sold, if any and the interest that is retained, if any, based on the relative fair value of the assets at the date of transfer. SFAS 127, Deferral of the Effective Date of Certain Provisions of FASBStatement No. 125, was issued in December 1996 and deferred application of many of the provisions of SFAS 125 until after December 31, 1997. Management believes adoption of SFAS 125 will not have a material effect on financial position and the results of operations. RECLASSIFICATIONS: Certain reclassifications have been made to the 1994 and 1995 consolidated financial statements in order to conform to the classifications adopted for reporting in 1996. 28 30 NOTE 2 - CASH: The Company is required to maintain reserves which consist of vault cash and cash on deposit with the Federal Reserve Bank based on a percentage of customer deposits. The amount of the reserves at December 31, 1996 and 1995 was $4,353,000 and $1,263,000, respectively. NOTE 3 - INVESTMENT SECURITIES: NOTE 3 - INVESTMENT SECURITIES: The amortized cost and estimated fair values of investment securities (in thousands) at December 31, 1996 consisted of the following:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------------------- Securities Available for Sale: U.S. Government and Federal Agency Obligations $ 95,549 $378 $(72) $ 95,855 Marketable Equity Security 5,307 -0- (18) 5,289 ----------------------------------------------------- Total Securities Available for Sale $100,856 $378 $(90) $101,144 ===================================================== Securities Held to Maturity: Obligations of State and Political Subdivisions $ 1,982 $ 3 $ -0- $ 1,985 Other 234 -0- (1) 233 ----------------------------------------------------- Total Securities Held to Maturity $ 2,216 $ 3 $ (1) $ 2,218 =====================================================
The amortized cost and estimated fair value of investment securities at December 31, 1996, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
SECURITIES AVAILABLE SECURITIES FOR SALE HELD TO MATURITY ------------------------------------------------------ ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ------------------------------------------------------ Due in one year or less $ 56,366 $ 56,396 $ -0- $ -0- Due two through five years 39,183 39,459 2,032 2,035 Due five through ten years -0- -0- 184 183 ------------------------------------------------------ Subtotal 95,549 95,855 2,216 2,218 Marketable Equity Security 5,307 5,289 -0- -0- ------------------------------------------------------ Totals $100,856 $101,144 $ 2,216 $ 2,218 ======================================================
29 31 Proceeds from the sale of available for sale investment securities during 1996 were $12,207,000. Gross gains of $174,000, before related income taxes of $59,000 and gross losses of $-0- were realized on those sales. Proceeds from the sale of trading securities during 1996 were $85,000. Gross gains of $7,000, before related income taxes of $2,000 were realized on those sales. Unrealized gains on trading account securities amounting to $14,000 were recognized in net income in 1996. The amortized cost and estimated fair values of investment securities (in thousands) at December 31, 1995 consisted of the following:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------------------------------------------------- Securities Available for Sale: U.S. Government and Federal Agency Obligations $ 79,907 $ 1,158 $ -0- $ 81,065 Marketable Equity Security 5,001 -0- (8) 4,993 ---------------------------------------------------- Total Securities Available for Sale $ 84,908 $ 1,158 $ (8) $ 86,058 ==================================================== Securities Held to Maturity: Obligations of State and Political Subdivisions $ 585 $ -0- $ -0- $ 585 Other 199 -0- -0- 199 ---------------------------------------------------- Total Securities Held to Maturity $ 784 $ -0- $ -0- $ 784 ====================================================
The Company had no sales of investment securities available for sale during 1995. Unrealized losses on trading securities amounting to $4,000 were recognized in net income in 1995. Proceeds from sales of investment securities during 1994 were $18,297,000. Gross gains of $51,000 and gross losses of $66,000 were realized on those sales. NOTE 4 - MORTGAGE-BACKED SECURITIES All mortgage-backed securities are classified as held to maturity at December 31, 1996 and 1995 and consisted of the following (in thousands):
DECEMBER 31, 1996 ------------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------------ FHLMC $ 80,648 $ 130 $ (603) $ 80,175 FNMA 35,340 232 (146) 35,426 GNMA 13,233 119 -0- 13,352 FNMA CMO 9,697 47 (256) 9,488 FHLMC CMO 10,901 97 (194) 10,804 Privately Issued 850 -0- (81) 769 ------------------------------------------------------------ Totals $150,669 $ 625 $ (1,280) $150,014 ============================================================
There were no sales of mortgage-backed securities for the year ended December 31, 1996. 30 32 Mortgage-backed securities include approximately $62,487,000 of adjustable rate securities and $88,182,000 of fixed rate securities at December 31, 1996. At December 31, 1996, $79,300,000 of the mortgage-backed securities had a balloon feature (the mortgage-backed security will mature and repay before the underlying loans have been fully amortized).
DECEMBER 31, 1995 ------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------- FHLMC $ 16,434 $ 33 $ (87) $ 16,380 FNMA 15,553 161 (23) 15,691 GNMA 350 3 -0- 353 FNMA CMO 7,209 91 (60) 7,240 FHLMC CMO 10,901 199 -0- 11,100 Privately Issued 1,199 -0- (91) 1,108 ------------------------------------------------------- Totals $ 51,646 $ 487 $ ( 261) $ 51,872 =======================================================
There were no sales of mortgage-backed securities for the years ended December 31, 1995 and 1994. Mortgage-backed securities include approximately $51,237,000 of adjustable rate securities and $409,000 of fixed rate securities at December 31, 1995. NOTE 5 - LOANS RECEIVABLE: Loans receivable (in thousands) at December 31, 1996 and 1995 consisted of the following:
DECEMBER 31, ----------------------- 1996 1995 ----------------------- Mortgage Loans: Single-family Residential $386,555 $318,705 Multi-family 2,279 1,506 Commercial Real Estate 22,961 14,486 Construction 14,064 15,617 ----------------------- Total Mortgage Loans 425,859 350,314 ----------------------- Commercial Business Loans 36,089 11,055 ----------------------- Consumer Loans: Home Equity 21,646 15,364 Automobile 7,509 5,873 Indirect Automobile 52,371 619 Mobile Home Loans 4,215 6,077 Educational Loans 9,345 9,262 Credit Card Loans 4,017 3,836 Loans on Savings 12,487 7,481 Other 8,225 4,960 ----------------------- Total Consumer Loans 119,815 53,472 ----------------------- Total Loans Receivable 581,763 414,841 -----------------------
31 33
DECEMBER 31, ----------------------- 1996 1995 ----------------------- Less: Allowance for Loan Losses (4,615) (3,746) Loans-in-Process (6,059) (8,399) Prepaid Dealer Participations 2,555 -0- Unearned Discount (143) (1) Deferred Loan Fees, Net (922) (1,191) Discount on Loans Purchased (1,460) (1,962) ----------------------- Loans Receivable, Net $571,119 $399,542 =======================
Loans receivable include approximately $208,431,000 and $191,990,000 of adjustable rate loans and $373,332,000 and $222,851,000 of fixed rate loans at December 31, 1996 and 1995, respectively. The amount of loans for which the accrual of interest has been discontinued totaled approximately $2,491,000 and $1,468,000 at December 31, 1996 and 1995, respectively. Impaired loans are not material to the consolidated financial statements. A summary of changes in the allowance for loan losses (in thousands) for the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 ----------------------------------------- Balance, Beginning of Year $ 3,746 $ 3,831 $ 3,413 Allowance for Loan Losses from Acquisitions 1,114 13 -0- Provision Charged to Operations 156 239 305 Loans Charged-Off (616) (430) (295) Recoveries 215 93 408 ----------------------------------------- Balance, End of Year $ 4,615 $ 3,746 $ 3,831 =========================================
Fixed rate loans receivable (in thousands) as of December 31, 1996 are scheduled to mature and adjustable rate loans are scheduled to reprice as follows:
UNDER 1 1 TO 5 6 TO 10 YEARS 11 YEAR YEARS YEARS AND OVER TOTAL --------------------------------------------------------------------- Loans secured by 1 - 4 family residential: Fixed Rate $ 2,951 $ 16,080 $ 52,775 $159,677 $231,483 Adjustable Rate 47,423 34,810 94,298 1,308 177,839 Other loans secured by real estate: Fixed Rate 8,047 9,997 4,969 2,595 25,608 Adjustable Rate 10,295 4,603 143 -0- 15,041 All other loans 43,398 70,906 16,765 723 131,792 --------------------------------------------------------------------- Totals $112,114 $136,396 $168,950 $164,303 $581,763 =====================================================================
32 34 NOTE 6 - LOAN SERVICING: Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of mortgage loans serviced for others was $10,863,000 and $3,006,000 at December 31, 1996 and 1995, respectively. Custodial escrow balances maintained in connection with the foregoing portfolio of loans serviced for others, and included in demand deposits, were approximately $122,000 and $23,000 at December 31, 1996 and 1995, respectively. Mortgage loan servicing rights of $35,000 were capitalized in 1996. Amortization of mortgage servicing rights was $5,000 in 1996, and the balance of mortgage servicing rights at December 31, 1996 was $30,000. NOTE 7 - PREMISES AND EQUIPMENT: Premises and equipment (in thousands) at December 31, 1996 and 1995 is summarized as follows:
DECEMBER 31, ---------------------- 1996 1995 ---------------------- Land $ 3,053 $ 1,668 Buildings 13,774 8,243 Furniture, Fixtures and Equipment 8,968 4,672 ---------------------- 25,795 14,583 Less Accumulated Depreciation 10,312 5,143 ---------------------- Total Premises and Equipment $ 15,483 $ 9,440 ======================
The Company actively engages in leasing office space that it has available. Leases have different terms ranging from month-to-month rental to five year leases. At December 31, 1996 the monthly lease income was $28,000 per month. Total lease income for 1996, 1995 and 1994 was $361,000, $330,000, and $295,000, respectively. Income from leases was reported as a reduction in occupancy expense. The total allocated cost of the portion of the buildings held for lease at December 31, 1996 and 1995 was $2,808,000 and $2,788,000, respectively with related accumulated depreciation of $833,000 and $737,000, respectively. The Company leases certain branch offices, land and ATM facilities through noncancellable operating leases with terms that range from one to twenty years, with renewal options thereafter. Minimum future annual rent commitments under these agreements as of December 31, 1996, are:
2001 AND 1997 1998 1999 2000 THEREAFTER TOTAL - --------------------------------------------------------------------------------------------------------------------------- $225,169 $193,269 $187,405 $186,232 $705,915 $1,497,990
33 35 NOTE 8 - DEPOSITS: An analysis of deposits (in thousands) as of December 31, 1996 and 1995 is as follows:
DECEMBER 31, 1996 ------------------------------------------------- WEIGHTED PERCENT AVERAGE RATE BALANCE TO TOTAL ------------------------------------------------- Non-Interest-Bearing DDA .00% $ 33,884 4.46% NOW Accounts 1.97% 76,991 10.13 Money Market Deposit 3.35% 58,669 7.72 ---------------------------- Total Demand Deposits 169,544 22.31 ---------------------------- Regular Savings 2.60% 119,685 15.74 ---------------------------- Certificates of Deposit: Less than 2.99% 100 .01 3.0 to 3.99% 706 .09 4.0 to 4.99% 90,768 11.94 5.0 to 5.99% 258,860 34.05 6.0 to 6.99% 107,022 14.08 7.0 to 7.99% 13,429 1.76 8.0 and over 170 .02 ---------------------------- Total Certificates of Deposit 5.60% 471,055 61.95 ---------------------------- Total Deposits 4.34% $760,284 100.00% ============================ DECEMBER 31, 1995 ------------------------------------------------- WEIGHTED PERCENT AVERAGE RATE BALANCE TO TOTAL ------------------------------------------------- Non-Interest-Bearing DDA .00% $ 9,124 2.05% NOW Accounts 2.02% 32,472 7.30 Money Market Deposit 3.13% 32,204 7.24 ---------------------------- Total Demand Deposits 73,800 16.59 Regular Savings 2.75% 49,920 11.23 Certificates of Deposit: 3.0 to 3.99% 3,840 .86 4.0 to 4.99% 63,805 14.35 5.0 to 5.99% 162,619 36.58 6.0 to 6.99% 74,540 16.77 7.0 to 7.99% 15,953 3.59 8.0 to 8.99% 123 .03 ---------------------------- Total Certificates of Deposit 5.53% 320,880 72.18 Total Deposits 4.67% $444,600 100.00% ============================
Certificates of deposit with a balance of $100,000 and over were $92,364,000 and $70,106,000 at December 31, 1996 and 1995, respectively. 34 36 A schedule of maturities of certificates of deposit (in thousands) at December 31, 1996 is as follows:
2001 AND 1997 1998 1999 2000 THEREAFTER TOTAL ------------------------------------------------------------------------------- Less than 2.99% $ 100 $ -0- $ -0- $ -0- $ -0- $ 100 3.0 to 3.99% 581 15 94 -0- 16 706 4.0 to 4.99% 90,245 434 63 7 19 90,768 5.0 to 5.99% 122,349 96,791 30,732 1,749 7,239 258,860 6.0 to 6.99% 55,806 21,862 5,801 7,906 15,647 107,022 7.0 to 7.99% 8,652 1,383 439 2,341 614 13,429 8.0 and over 11 -0- 15 -0- 144 170 ------------------------------------------------------------------------------- Total Certificates of Deposit $277,744 $120,485 $ 37,144 $ 12,003 $ 23,679 $471,055 ===============================================================================
Interest expense on deposits (in thousands) is summarized as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1996 1995 1994 --------------------------------------- NOW Accounts $ 854 $ 674 $ 672 Money Market Deposits 1,297 1,062 1,171 Regular Savings 1,860 1,520 1,611 Certificates of Deposit 20,006 16,987 13,838 --------------------------------------- Total Interest Expense on Deposits $ 24,017 $ 20,243 $ 17,292 =======================================
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances (in thousands) at December 31, 1996 and 1995 is summarized as follows:
DECEMBER 31, ------------------------ 1996 1995 ------------------------ 5.0% to 5.99% $ 4,967 $ 552 6.0% to 6.99% 38,521 35,633 7.0% to 7.99% 4,262 4,305 ------------------------ Total Advances $ 47,750 $ 40,490 ========================
Advances at December 31, 1996 have maturities in future years as follows (in thousands):
YEAR ENDING DECEMBER 31 AMOUNT ----------------------------------------------------------- 2010 $ 9,121 2011 3,376 2015 497 2025 28,297 2026 6,459 ------- $47,750 =======
35 37 All advances are collateralized by a blanket pledge of mortgage loans and a secondary pledge of FHLB stock and FHLB demand deposits. Total additional advances available from the FHLB at December 31, 1996 were $213,869,000. Borrowings in excess of the existing limit can be obtained with a pledge of investment securities and mortgage-backed securities. NOTE 10 - INCOME TAXES: The provision for income tax expense (in thousands) consists of the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------------------------------------- Current Expense: Federal $ 2,756 $ 3,379 $ 2,836 State 40 22 -0- -------------------------------------- Total Current Expense 2,796 3,401 2,836 Deferred Federal Expense 381 380 518 -------------------------------------- Total Income Tax Expense $ 3,177 $ 3,781 $ 3,354 ======================================
There was an overpayment of federal income taxes of $1,537,000 at December 31, 1996 and $33,000 at December 31, 1995. Income tax was allocated to the Company and its subsidiaries based on its taxable income in relation to total consolidated taxable income at the effective tax rate. At December 31, 1996, the Company had a federal and state net operating loss carryover of $1,465,000 and $581,000, respectively, which were assumed by the Company in the acquisition of Royal Bankgroup. The provision for federal income taxes differs from the amount computed by applying the federal income tax statutory rate of 34 percent on income from operations as indicated in the following analysis (in thousands):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------------------------------------- Federal Tax Based on Statutory Rate $ 2,875 $ 3,668 $ 3,261 Increase (Decrease) Resulting from: Effect of Tax-Exempt Income (46) (23) (14) Amortization of Goodwill and Other Acquired Intangibles 133 23 37 Interest and Other Nondeductible Expenses 17 10 8 Nondeductible ESOP Expense 142 98 -0- State Income Tax on Non-Bank Entities 18 22 -0- Other 38 (17) 62 -------------------------------------- $ 3,177 $ 3,781 $ 3,354 --------------------------------------
36 38 The deferred tax liability (in thousands) at December 31, 1996 and 1995 is as follows:
DECEMBER 31, ------------------------ 1996 1995 ------------------------ Deferred Tax Asset: Allowance for Loan Losses $ 465 $ 546 Deferred Loan Fees 24 99 Deferred Directors' Fees 114 96 Writedown of Real Estate Owned to Market Value 113 95 Health Care Accruals in Excess of Claims Paid 121 119 Net Operating Loss 496 -0- ESOP and RRP 159 42 Investment Securities 16 -0- Other 64 18 ---------------------- Subtotal 1,572 1,015 Deferred Tax Liability: FHLB Stock (729) (450) Premises and Equipment (1,057) (225) Unrealized Gain on Investments Classified as Available for Sale (100) (391) Discount Accretion on Investments (168) (107) ---------------------- Subtotal (2,054) (1,173) ---------------------- Net Deferred Tax Liability $ (482) $ (158) ======================
A summary of the changes in the net deferred tax asset (liability) for the years ended December 31, 1996 and 1995 is as follows (in thousands):
DECEMBER 31, ---------------------- 1996 1995 ---------------------- Balance, Beginning $ (158) $ 1,265 Deferred Tax Expense, Charged to Operations (381) (380) Deferred Tax Liability from Acquisition (237) -0- Unrealized Gain on Available for Sale Securities, Charged to Equity 294 (1,043) -------------------- Balance, Ending $ (482) $ (158) ====================
The likelihood of realization of the entire amount of the deferred tax asset is considered to be more likely than not; therefore, no valuation allowance has been provided for at December 31, 1996 and 1995. Retained earnings at December 31, 1996 and 1995, included approximately $10,891,000 accumulated prior to January 1, 1987 for which no provision for federal income taxes has been made. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it will be added to future taxable income. 37 39 NOTE 11 - CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS: The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Financial institutions are segmented into one of five classifications ranging from "well capitalized" to "critically undercapitalized". Should a financial institution's ratios decline below the predetermined minimum ratios, the institution would be subject to increasingly restrictive regulatory action. To be classified as a well capitalized financial institution, Tier 1 leverage capital, Tier 1 risk-based capital and Total risk-based capital must be at least five, six and ten percent, respectively. At December 31, 1996 and 1995, Iberia was classified as well capitalized. At December 31, 1996, Jefferson was also classified as well capitalized. The Company met all regulatory capital requirements as follows (dollars in thousands):
DECEMBER 31, 1996 ------------------------------------------------------- REQUIRED ACTUAL ----------------------- ------------------------ AMOUNT PERCENT AMOUNT PERCENT ------------------------------------------------------- Tier 1 leverage capital: ISB Financial Corp. $ 27,878 3.00% $ 96,050 10.34% Iberia Savings Bank 19,891 3.00% 68,337 10.31% Jefferson Bank 7,815 3.00% 18,158 6.97% Tier 1 risk-based capital: ISB Financial Corp. 18,371 4.00% 96,050 20.91% Iberia Savings Bank 15,289 4.00% 68,337 17.88% Jefferson Bank 2,949 4.00% 18,158 24.63% Total risk-based capital: ISB Financial Corp. 36,743 8.00% 100,665 21.92% Iberia Savings Bank 30,578 8.00% 72,377 18.94% Jefferson Bank 5,897 8.00% 18,733 25.41% DECEMBER 31, 1995 ------------------------------------------------------- REQUIRED ACTUAL ----------------------- ------------------------ AMOUNT PERCENT AMOUNT PERCENT ------------------------------------------------------- Tier 1 leverage capital: ISB Financial Corp. $ 18,268 3.00% $118,869 19.52% Iberia Savings Bank 17,374 3.00% 82,882 14.31% Tier 1 risk-based capital: ISB Financial Corp. 11,112 4.00% 118,869 42.79% Iberia Savings Bank 11,159 4.00% 82,882 29.71% Total risk-based capital: ISB Financial Corp. 22,223 8.00% 122,615 44.14% Iberia Savings Bank 22,318 8.00% 86,372 30.96%
38 40 Iberia and Jefferson are restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions. For 1996, regulatory approval was obtained by Iberia to pay dividends in excess of this limit in the amount of $21,000,000 to fund the acquisitions. Dividends payable without permission by Iberia and Jefferson in 1997 will be limited to 1997 earnings. NOTE 12 - BENEFIT PLANS: 401(k) PROFIT SHARING PLAN The Company has a non-contributory profit sharing plan covering substantially all of its employees. Annual employer contributions to the plan are set by the Board of Directors. Contributions for December 31, 1996, 1995 and 1994, were $-0-, $-0-, and $187,000, respectively. The Company converted the Profit Sharing Thrift Plan to a 401(k) Profit Sharing Plan effective January 1, 1995. The amended plan provides, among other things, that participants in the plan be able to direct the investment of their account balances within the Profit Sharing Plan into alternative investment funds. In addition to the employer's contributions, participant deferrals under the salary reduction election may be matched by the employer based on a percentage to be determined annually by the employer. There was no matching of participant deferrals by the employer for the years ended December 31, 1996 and 1995. EMPLOYEE STOCK OWNERSHIP PLAN In connection with the conversion from mutual to stock form, the Company established an ESOP for the benefit of all eligible employees. The ESOP purchased 590,423 shares, or 8 percent of the total stock sold in the Company's initial public offering, for $5,904,000, financed by a loan from the Company. The leveraged ESOP is accounted for in accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Procedures ("SOP") 93-6, Employers' Accounting for Employee Stock Ownership Plans. The ESOP was effective upon completion of the conversion. Full-time employees of the Company who have been credited with at least 1,000 hours of service during a 12 month period and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of 10 years. Under SOP 93-6, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders' equity. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the Company's ESOP shares differ from the cost of such shares, this differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability. Dividends on allocated shares will be used to pay the ESOP debt. 39 41 Compensation cost for the years ended December 31, 1996 and 1995 was $1,146,000 and $852,000, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share for that day was approximately $8,302,000 and $8,009,000 at December 31, 1996 and 1995, respectively. A summary of the ESOP share allocation is as follows:
DECEMBER 31, ---------------------- 1996 1995 ---------------------- Shares allocated beginning of year 56,469 -0- Shares allocated during year 72,738 56,469 Shares distributed during the year (354) -0- ---------------------- Total allocated shares held by ESOP at year end 128,853 56,469 Unreleased shares 461,216 533,954 ---------------------- Total ESOP shares 590,069 590,423 ======================
RECOGNITION AND RETENTION PLAN (RRP) The Company established the RRP for certain officers and directors during the year ended December 31, 1996. Following shareholder approval of the RRP on May 24, 1996, the Company purchased 295,226 shares of the Corporation's common stock in the open market at $15.875 per share to fully fund the related trust and to be awarded in accordance with the provisions of the RRP. The cost of the shares of restricted stock awarded under these plans are recorded as unearned compensation, a contra equity account. The fair value of the shares on the date of award will be recognized as compensation expense over the vesting period, which is seven years. The holders of the restricted stock receive dividends and have the right to vote the shares. For the year ended December 31, 1996, the amount included in compensation expense was $211,000. The weighted-average grant-date fair value of the restricted stock granted under the RRP during the year ended December 31, 1996 was $15.92. A summary of the changes in restricted stock follows:
UNAWARDED AWARDED SHARES SHARES ------------------------ Balance, January 1, 1996 -0- -0- Purchased by Plan 295,226 -- Granted (165,364) 165,364 Forfeited 3,936 (3,936) Earned and Issued -- -- ------------------------ Balance, December 31, 1996 133,798 161,428 ========================
1996 STOCK OPTION PLAN In 1996, the Company adopted a stock option plan for the benefit of directors, officers, and other key employees. The number of shares of common stock reserved for issuance under the stock option plan was equal to 738,067 shares or 10 percent of the total number of common shares sold in the Company's initial public offering of its common stock upon the mutual-to-stock conversion of Iberia Savings Bank. The option exercise price cannot be 40 42 less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. The stock options granted to directors and officers in 1996 are exercisable in seven equal annual installments. No compensation expense was recognized in 1996 related to the stock option plan. The stock option plan also permits the granting of Stock Appreciation Rights ("SAR's"). SAR's entitle the holder to receive, in the form of cash or stock, the increase in the fair value of Company stock from the date of grant to the date of exercise. No SAR's have been issued under the plan. The following table summarizes the activity related to stock options:
AVAILABLE OPTIONS FOR GRANT OUTSTANDING ------------------------- At inception 738,067 -- Granted (649,118) 649,118 Canceled 9,225 (9,225) Exercised -- -0- ------------------------- At December 31, 1996 98,174 639,893 =========================
A total of 628,893 of the outstanding options were issued in May 1996 at an exercise price of $15.875. The remaining 11,000 shares were issued subsequently and have an exercise price between $17.00 and $18.50. No shares were exercisable at December 31, 1996. The weighted-average grant-date fair value of options granted during the year ended December 31, 1996 was $5.19. In October 1995, the FASB issued SFAS123, Accounting for Stock-Based Compensation. SFAS 123 requires disclosure of the compensation cost for stock-based incentives granted after January 31, 1995 based on the fair value at grant date for awards. Applying SFAS 123 would result in pro forma net income and earnings per share amounts as follows:
1996 ----------- Net income As reported $5,278,000 Pro forma $5,054,000 Earnings per share As reported $ .80 Pro forma $ .77
The fair value of each option is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions used for 1996 grants: dividend yields of 2.00 percent; expected volatility of 18.97 percent; risk-free interest rate of 6.71 percent; and expected lives of 8.5 years for all options. NOTE 13 - RELATED PARTY TRANSACTIONS: The Company makes loans to its directors and principal officers in the ordinary course of business. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than a normal risk of collectibility. The Company has entered into an employment agreement with the President/Chief Executive Officer and severance agreements with its three Executive Vice Presidents, the Vice President/Chief Financial Officer and the President/Chief Executive Officer of Jefferson. The total commitments under all agreements at December 31, 1996 was $965,000. 41 43 NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISKS, COMMITMENTS AND CONTINGENCIES: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The same credit policies are used in these commitments as for on-balance-sheet instruments. The Company's exposure to credit loss in the event of nonperformance by the other parties is represented by the contractual amount of the financial instruments. The principal commitments of the Company are as follows: LOAN COMMITMENTS: At December 31, 1996 and 1995 the Company had outstanding firm commitments to originate loans as follows (in thousands):
DECEMBER 31, ----------------------- 1996 1995 ----------------------- Mortgage Loans $ 167 $ 2,548 Undisbursed Mortgage Loans-in-Process 6,426 8,399 Commercial Loans 25,822 3,437 Consumer and Other Loans 702 939 ----------------------- Total Commitments $ 33,117 $ 15,323 =======================
Unused credit card lines were $6,785,000 and $6,439,000 at December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, the Company had no outstanding commitments to sell loans. LINES AND LETTERS OF CREDIT: The Company issues letters of credit and approves lines of credit on substantially the same terms as other commercial loans. At December 31, 1996 and 1995, the letters of credit outstanding were $1,232,000 and $256,000, respectively. Unfunded approved lines of credit at December 31, 1996 and 1995 were $35,840,000 and $10,981,000, respectively. LETTERS OF CREDIT ISSUED ON BEHALF OF THE COMPANY: The Company has outstanding Standby Letters of Credit issued by the FHLB in favor of customers of the Company. The Company uses these letters of credit to collateralize public entity deposits in lieu of a direct pledge of investment securities of the Company. At December 31, 1996 and 1995, outstanding letters of credit totaled $1,855,000 and $1,200,000, respectively. The Company has made a blanket pledge of loans to the FHLB to secure all letters of credit issued on behalf of the Company. This blanket pledge is also used to collateralize any direct borrowing from the FHLB. The Company is subject to certain claims and litigation arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the consolidated financial position of the Company. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses 42 44 and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral normally consists of real property. NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value of the Company's financial instruments (in thousands) are as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------------------------------------------------- ASSETS Cash $ 53,385 $ 53,385 $ 51,742 $ 51,742 Investment Securities 103,724 103,726 87,231 87,231 Mortgage-Backed Securities 150,669 150,014 51,646 51,872 Mortgage Loans Receivable 419,800 427,117 343,053 356,375 Other Loans Receivable 155,860 160,157 64,051 66,147 LIABILITIES Deposits: Regular Savings, NOW Accounts, and Money Market Deposits $289,229 $289,229 $123,720 $123,720 Certificates of Deposit 471,055 476,749 320,880 324,770 FHLB Advances 47,750 45,653 40,490 43,225
The fair value estimates presented herein are based upon pertinent information available to management as of December 31, 1996 and 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. NOTE 16 - CONCENTRATED CREDIT RISKS: The Company's lending activity is concentrated within the southwestern part of Louisiana where the main industries are agriculture and oil and gas. Traditionally, the Company's major emphasis in lending has been the origination of residential home loans and other loans secured by real estate. In 1996, there was an increase in originations of commercial loans and indirect automobile dealer loans. The loans are expected to be paid back from cash flow of the borrower or proceeds from the sale of the real estate. Losses are limited by the value of the collateral upon default of the borrowers. NOTE 17 - CONVERSION FROM MUTUAL TO STOCK ASSOCIATION: In 1995, Iberia converted from a Louisiana chartered mutual savings bank to a Louisiana chartered stock savings bank, pursuant to its Plan of Conversion. The Company issued 7,380,671 shares of common stock at $10 per share. The Company's ESOP purchased 590,423 shares, financed by a loan from the Company. The net proceeds received from the conversion was $67,903,000. Total conversion costs approximated $1,346,000. 43 45 In accordance with regulations, at the time that Iberia converted from a mutual savings bank to a stock savings bank, Iberia established a liquidation account in the amount of $43,857,000. Jefferson also has a liquidation account from its conversion from mutual to stock form in the amount of $12,088,000. The liquidation accounts will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at Iberia and Jefferson, respectively, after the Conversion. The liquidation accounts will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder's or supplemental eligible account holder's interest in the liquidation account. In the event of a complete liquidation of Iberia or Jefferson, each account holder and supplemental eligible account holder of that institution will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. Iberia and Jefferson may not pay a dividend on their capital stock if the dividend would bring regulatory capital below the balance of the liquidation account. Iberia and Jefferson are restricted from declaring or paying cash dividends or repurchasing any of their shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements. NOTE 18 - ACQUISITIONS: On May 3, 1996, the Company completed the acquisition of Royal Bankgroup of Acadiana, Inc., ("Royal") and its wholly owned subsidiary, The Bank of Lafayette ("BOL"). Royal was merged into the Company and BOL was merged into Iberia Savings Bank. The two offices of BOL are operating as branches of Iberia. The total acquisition costs, including related expenses, was $9,211,000. No stock was issued in the transaction and the acquisition is accounted for as a purchase transaction. Total assets of $70,157,000 were acquired, including $45,214,000 of loans, $15,128,000 in cash, $1,998,000 of investment securities, $4,191,000 of mortgage-backed securities and $2,352,000 of fixed assets. Total liabilities of $64,154,000 were assumed, including $63,487,000 of deposits. Goodwill of $3,208,000 was recognized in the transaction and will be amortized over 15 years using the straight line method. Total amortization of goodwill in 1996 was $150,000. Results of operations for Royal for the period prior to acquisition are not included in these statements. On October 18, 1996, the Company completed the acquisition of Jefferson Bancorp, Inc. and its wholly owned subsidiary, Jefferson Federal Savings Bank. Jefferson Bancorp was merged into the Company and Jefferson FSB changed its charter to a state savings bank, Jefferson Bank, and is operated as a subsidiary of the Company. The total purchase price was $51,790,000 in cash and the acquisition is accounted for as a purchase transaction. Total assets of $266,235,000 were acquired, including $63,907,000 of loans, $28,352,000 in cash, $57,452,000 of investment securities, $106,755,000 of mortgage-backed securities and $3,008,000 of fixed assets. Total liabilities of $229,387,000 were assumed, including $224,803,000 of deposits. Goodwill of $11,116,000 was recognized in the transaction and is being amortized over 25 years using the straight line method. A core deposit intangible of $3,825,000 was recognized and will be amortized over its estimated life of 8 years using accelerated methods. Total amortization of the intangibles in 1996 was $230,000. Results of operations for Jefferson are shown from the date of acquisition only. Had the acquisitions of Royal Bankgroup and Jefferson Bancorp been consummated as of January 1, 1996 and 1995, respectively, the Company's consolidated restated pro forma results of operations for the years ended December 31, 1996 and 1995 would have been as follows: 44 46
Restated Pro Forma Results of Operations: ------------------------ 1996 1995 ------------------------ Interest Income $ 68,313 $ 64,088 Interest Expense (34,887) (31,492) Provision for Loan Losses (357) (120) Noninterest Income 4,805 4,618 Noninterest Expense (29,391) (23,464) Income Tax Expense (3,722) (5,081) ------------------------ Net Income $ 4,761 $ 8,549 ======================== Net Income per Share (includes 2nd, 3rd and 4th quarters only for 1995) $ .73 $ .97 ========================
NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS: Condensed financial statements of ISB Financial Corporation (parent company) are shown below. The parent company has no significant operating activities. CONDENSED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
1996 1995 ------------------------ ASSETS Cash in Bank $ 8,496 $ 8,759 Trading Account Securities 364 389 Securities Available for Sale -0- 27,178 Investment in Subsidiaries 104,507 83,326 Other Assets 1,336 874 ------------------------ Total Assets $114,703 $120,526 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities 697 849 Stockholders' Equity 114,006 119,677 ------------------------ Total Liabilities and Stockholders' Equity $114,703 $120,526 ========================
CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
1996 1995 ------------------------ OPERATING INCOME: Dividends from Subsidiaries $ 25,490 $ 5,596 Securities Gains/Losses 181 -0- Interest Income 1,650 1,558 ------------------------ Total Operating Income 27,321 7,154 Operating Expenses 1,483 173 ------------------------ Income Before Income Tax Expense and Decrease in Equity in Undistributed Earnings of Subsidiaries 25,838 6,981 Income Tax Expense 164 472 ------------------------ Income Before Decrease in Equity in Undistributed Earnings of Subsidiaries 25,674 6,509 Decrease in Equity in Undistributed Earnings of Subsidiaries (20,396) (1,036) ------------------------ Net Income $ 5,278 $ 5,473 ========================
45 47 CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS) PERIOD FROM APRIL 6, 1995 TO DECEMBER 31, 1996 1995 ------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,278 $ 5,473 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Provision for Deferred Income Taxes (80) 12 Decrease in Equity in Net Income of Subsidiaries 20,396 1,036 Decrease (Increase) in Other Assets 402 (827) Increase in Other Liabilities 147 90 Amortization of Premium/Discount on Investments 37 43 Net Change in Securities Classified as Trading (9) (390) Gain on Sale of Investments (181) -0- Compensation Expense Recognized on RRP 211 -0- ------------------------ Net Cash Provided by Operating Activities 26,201 5,437 ------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Securities Available for Sale -0- (33,738) Proceeds From Sales and Maturities of Securities Available for Sale 26,832 7,000 Purchase of Capital Stock of Subsidiaries (42,480) (36,193) Other Investing Activities -0- (20) ------------------------ Net Cash Used In Investing Activities (15,648) (62,951) ------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends Paid to Shareholders (2,159) (1,019) Capital Contributed to Subsidiaries (173) (89) Payments Received From ESOP 1,062 824 Net Proceeds From Issuance of Common Stock -0- 67,903 Stock Conversion Costs Incurred -0- (1,346) Payments to Repurchase Common Stock (9,546) -0- ------------------------ Net Cash (Used In) Provided by Financing Activities (10,816) 66,273 ------------------------ Net (Decrease) Increase in Cash and Cash Equivalents (263) 8,759 Cash and Cash Equivalents, Beginning of Period 8,759 -0- ------------------------ Cash and Cash Equivalents, End of Period $ 8,496 $ 8,759 ========================
OTHER DISCLOSURES: The Company was charged $120,000 by Iberia for management and accounting services during 1996. 46 48 NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------------------------------------------------ Total Interest Income $ 11,460 $ 12,408 $ 12,978 $ 15,861 Total Interest Expense 5,912 6,268 6,538 8,418 ------------------------------------------------------ Net Interest Income 5,548 6,140 6,440 7,443 Provision for Loan Losses 8 9 26 113 ------------------------------------------------------ Net Interest Income After Provision for Loan Losses 5,540 6,131 6,414 7,330 Noninterest Income 788 885 845 1,300 Noninterest Expense 3,552 4,108 7,475 5,643 ------------------------------------------------------ Income Before Income Taxes 2,776 2,908 (216) 2,987 Income Tax Expense (Refund) 997 1,054 (23) 1,149 ------------------------------------------------------ Net Income $ 1,779 $ 1,854 $ (193) $ 1,838 ====================================================== NET INCOME PER COMMON SHARE $ .26 $ .27 $ (.03) $ .29 ====================================================== YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------------------------------------------------ Total Interest Income $ 9,468 $ 10,676 $ 10,870 $ 11,320 Total Interest Expense 4,833 5,173 5,458 5,818 ------------------------------------------------------ Net Interest Income 4,635 5,503 5,412 5,502 Provision for Loan Losses 72 133 22 12 ------------------------------------------------------ Net Interest Income After Provision for Loan Losses 4,563 5,370 5,390 5,490 Noninterest Income 569 733 705 661 Noninterest Expense 2,843 3,162 3,195 3,493 ------------------------------------------------------ Income Before Income Taxes 2,289 2,941 2,900 2,658 Income Tax Expense 755 1,073 1,009 944 ------------------------------------------------------ Net Income $ 1,534 $ 1,868 $ 1,891 $ 1,714 ====================================================== NET INCOME PER COMMON SHARE $ N/A $ .27 $ .28 $ .25 ======================================================
47 49 CORPORATE INFORMATION DIRECTORS ELAINE D. ABELL, Attorney in private practice, Lafayette, La. HARRY V. BARTON, JR., Certified Public Accountant, Lafayette, La. WILLIAM R. BIGLER, Retired. CECIL C. BROUSSARD, Self-employed Investor, New Iberia, La. HENRY J. DAUTERIVE, JR., Chairman, Retired. WILLIAM H. FENSTERMAKER, President and Chief Executive Officer of C.H. Fenstermaker and Associates, Inc., Lafayette, La. RAY HIMEL, Owner of Himel Motor Supply Corp., Himel Marine and several Ace Hardware Stores in southern Louisiana. KAREN L. KNIGHT, Former President and Chief Executive Officer of Jefferson Federal Savings Bank, Gretna, La. LARREY G. MOUTON, President and Chief Executive Officer of ISB Financial Corp. EMILE J. PLAISANCE, JR., Vice Chairman, Retired. STEWART SHEA, Vice President of Bayou Management Services, President of Bayou Pipe Coating, LLC, affiliates of Bayou Management Services, New Iberia, La. LOUIS J. TAMPORELLO, Retired. GUYTON H. WATKINS, Secretary, Attorney in private practice. EXECUTIVE OFFICERS LARREY G. MOUTON, President/CEO RONNIE J. FORET, Executive Vice President WAYNE L. ROBIDEAUX, Executive Vice President SCOTT T. SUTTON, Executive Vice President WILLIAM M. LAHASKY, Vice President, CFO ANNUAL MEETING Wednesday, April 16, 1997, 3:00 p.m. Iberia Savings Bank 1101 E. Admiral Doyle Drive New Iberia, La. Since April 7, 1995, ISB Financial Corporation's common stock has traded on the National Association of Security Dealers Automated Quotations (NASDAQ) National Market, under the symbol "ISBF", as reported to NASDAQ, the price information reflects high and low sales prices. The following represents high and low trading prices and dividends declared during each respective quarter since April 7, 1995, and through the year ended December 31, 1996.
1995 HIGH LOW DIVIDEND DECLARED - ---------------------------------------------------------------------- Second Quarter $15.000 $12.500 $0.075 Third Quarter $16.125 $14.625 $0.075 Fourth Quarter $17.000 $14.875 $0.075 1996 HIGH LOW DIVIDEND DECLARED - ---------------------------------------------------------------------- First Quarter $16.500 $15.125 $0.080 Second Quarter $16.375 $14.750 $0.080 Third Quarter $15.875 $13.375 $0.085 Fourth Quarter $18.500 $15.250 $0.085
SECURITIES LISTING ISB Financial Corporation's common stock is traded on the NASDAQ National Market under the symbol ISBF. Current price information can be found under the NASDAQ-OTC National Market Listing. INVESTOR INFORMATION Investors, analysts and others seeking financial information may contact: Larrey G. Mouton, President/CEO or William M. Lahasky, Vice President/CFO ISB Financial Corporation 1101 E. Admiral Doyle Drive New Iberia, La. 70560 (318)365-2361 TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 (800)368-5948 INDEPENDENT AUDITORS Castaing, Hussey & Lolan, L.L.P. 525 Weeks Street New Iberia, La. 70560 SPECIAL COUNSEL Elias, Matz, Tiernan & Herrick, L.L.P. 734 15th Street, N.W. Washington, D.C. 20005 GENERAL COUNSEL Guyton Watkins Landry & Watkins 211 E. Main Street New Iberia, La. 70560 48 EX-23.0 3 INDEPENDENT AUDITORS' CONSENT. 1 CHARLES E. CASTAING CASTAING, HUSSEY & LOLAN, LLP MEMBERS ROGER E. HUSSEY CERTIFIED PUBLIC ACCOUNTANTS AMERICAN INSTITUTE OF SAMUEL R. LOLAN 525 WEEKS STREET - P.O. BOX 14240 CERTIFIED PUBLIC ACCOUNTANTS CAROLINE C. BOUDREAUX NEW IBERIA, LA 70562-4240 SOCIETY OF PATRICK J. DAUTERIVE -------------------- LOUISIANA CERTIFIED PUBLIC ACCOUNTANTS LORI D. PERCLE PH: (318) 364-7221 DEBBIE B. TAYLOR FAX: (318) 364-7235 KATHERINE H. ARMENTOR - --------------------- ROBIN G. FREYOU DAWN K. GONSOULIN
INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 0-25756) of our report dated February 7, 1997 appearing in this Annual Report on Form 10-K of ISB Financial Corporation for the year ended December 31, 1996. New Iberia, Louisiana March 26, 1997 EX-27 4 FINANCIAL DATA SCHEDULE.
9 0000933141 ISB FINANCIAL 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 10,822 42,563 0 364 101,144 152,885 152,232 571,119 4,615 929,264 760,284 0 54,974 0 0 0 7,381 106,625 929,264 40,263 9,424 3,020 52,707 24,017 27,136 25,571 156 181 20,778 8,455 5,278 0 0 5,278 .80 .80 7.77 2,491 69 176 0 3,746 616 215 4,615 0 0 4,615
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